Last week ESMA published a number of opinions on supervisory convergence as it relates to investment firms, investment management and secondary markets. Alongside these, Stephen Maijoor wrote a letter to the European Commission on ESMA’s views on third country regimes within its remit.
ESMA’s opinions are unashamedly responding to Brexit and I have sympathy for UK firms that may feel singled out when, in reality, the opinions largely reiterate existing requirements. On the other hand, the fact that the opinions are relatively light on policy will be viewed positively by UK firms who are keen to avoid being hit by a Brexit backlash. Stephen Maijoor’s letter to the European Commission also strikes a more considered tone than his speech in April at the Capital Markets Union Public Hearing. This, more politically mature approach, is sensible in a market so desperate for some certainty that it will jump at any signs of policy crystallising.
Nevertheless, it is clear that ESMA is keen to push the supervisory convergence agenda – and is driven, it seems, by concerns about regulatory arbitrage. However, sceptics may feel that this is ESMA laying the groundwork to position itself as a super regulator. There is also the concern that the concept of consistency of approach is just a cover for regulators taking a tougher line. A lot of existing requirements could be interpreted more restrictively without any actual changes to law – and, significantly, the opinions mention potentially-contentious topics such as substance, white-labelling and letterbox entities. The implications of this direction of travel outside of Europe shouldn’t be ignored. Non-EU financial institutions may feel that they are becoming the collateral damage of a Brexit spat.
While firms are generally keen to see a level playing field, it is interesting too that ESMA is pushing for relocating firms to be established in the member state where they carry out the majority of their business. Although ESMA says otherwise, this policy seems to be at odds with competition and the free movement of services which might otherwise see firms locating in the most accommodating member state for their business – considering labour markets, regulatory approach, tax etc. One has to question whether some more established financial centres have a stronger voice within ESMA than others.