EU warns regulators to stop ‘letter box’ investment firms

Added 14th July 2017

A European watchdog has urged a crackdown on investment firms setting up ‘letter box’ entities across the continent in the wake of the Brexit vote.

EU warns regulators to stop ‘letter box’ investment firms

The European Securities and Markets Authority (ESMA) said it was vital investment firms did not select a location “just for reasons of regulatory or supervisory arbitrage” in guidance published on Thursday.

The warning comes as Dublin, Frankfurt and Paris battle to attract financial firms moving operations out of London in the wake of the Brexit referendum.

The UK’s decision to withdraw from the union had created a “unique situation”, the ESMA said, which required a common effort across the EU to ensure supervision of firms was consistent.

Scrutiny needed

Regulators should therefore “scrutinise applications in order to ensure that the choice of the member state for relocation is driven by objective factors and not be regulatory arbitrage”, the watchdog said.

It added: “National competent authorities (NCAs) should mitigate the risk of letter box entities and ensure that any relocation is effective and investment firms comply with the Mifid framework from day one and on an on-going basis.”

The watchdog added that the UK would be considered a ‘third country’ once the withdrawal from the EU complete and that regulators will need to reassess current outsourcing arrangements.

It raised fears outsourcing to service providers outside the EU would make oversight and supervision more difficult, particularly if there was a “high concentration of outsourced activities” in a third country.

“Such developments may increase the likelihood of materialisation of risks to investor protection, orderly markets and financial stability, something which may expose the EU’s 27 countries to high risks in case of sudden and unexpected developments in that third country jurisdiction,” ESMA said.

Visitor's Comments Add your comment

Add Your Comment

We won't publish your address

About Author

Louise Hill

Senior Reporter

Louise joined Portfolio Adviser in December 2016 as one of the editorial team’s news reporters based in London. Originally from Liverpool, she is an NCTJ-qualified journalist and began her career in 2014 working on local newspapers.

Features

Why you should care about the German elections

Why you should care about the German elections...

You may be forgiven for not staying up late this Sunday to watch the final results of Germany’s parliamentary elections come in. While chancellor Merkel is sure to win, the scale of her victory is likely...

Analysis

Profiles

Directories

Canada Life International Limited
Canada Life International...

Canada Life International Canada Life House,...

Tweets

Events

IA Best Practice Adviser Awards Europe 2017
IA Best Practice Adviser Awards Europe 2017

Thursday 28 September
The Waldorf Hilton, London

IA Future Advisory Forum Europe 2017
IA Future Advisory Forum Europe 2017

Thursday 28 September
The Waldorf Hilton, London

IA Future Advisory Forum Cape Town 2017
IA Future Advisory Forum Cape Town 2017

Thursday 5 October
The Vineyard Hotel, Cape Town

IA Best Practice Adviser Awards South Africa 2017
IA Best Practice Adviser Awards South Africa 2017

Thursday 5 October
The Vineyard Hotel, Cape Town

Sponsored Content

Investment Strategy

OTHER STORIES FROM LAST WORD...