ESMA issues Brexit opinions to EU regulators: a warning shot not only to the UK but also to the EU27

Abstract

PurposeTo summarize and analyse four opinions issued in May and July 2017 by the European Securities and Markets Authority (“ESMA”) concerning regulatory and supervisory arbitrage risks that arise as a result of increased requests from financial market participants to relocate activities and functions in the EU27 following the UK’s decision to withdraw from the EU, and the expected regulatory response to those risks.Design/methodology/approachDiscusses the possible relocation of financial firms, activities and functions following the UK’s decision to withdraw from EU; the resulting cross-sectoral regulatory and supervisory arbitrage risks that ESMA foresees; nine principles that ESMA enumerates to guide its regulatory response to those risks; some common themes that emerge from ESMA’s July Opinions; and the implications for UK firms and trading venues seeking to establish a presence in the EU 27.FindingsESMA foresees regulatory and arbitrage risks in Brexit and a potential “race to the bottom” as certain national regulators jostle for and grab UK market share.Practical implicationsUK firms and trading venues seeking to establish a presence in the EU27 from which to operate will need to give detailed consideration and focus to the resources and operational substance which will need to be located in the jurisdiction in which that presence is established.Originality/valuePractical guidance from experienced financial services, securities and fund management lawyers.