Luxembourg's CSSF welcomes new supervisory convergence principles
Luxembourg's regulatory body for the financial sector (CSSF) welcomes the principles laid out by the European Securities and Markets Authorits (ESMA) in the areas of investment firms, investment management and secondary markets for companies planning to relocate from the UK to EU27.
The principles are designed as practical tools to support the supervisory convergence for UK-based financial market participants seeking to relocate due to Brexit and focus on the transfer of entities, activities and functions.
In their three opinions, ESMA sets out principles that cover the Alternative Investment Fund Managers Directive (AIFMD), the Undertakings for the Collective Investment of Transferable Securities (UCITS) Directive and thhe Markets in financial instruments directives MiFID I and MiFID II.
The principles are addressed to national institutions responsible for governing financial activities in each member state.
In a recent statement, CSSF confirmed that the new principles "are in line with the CSSF’s practice" and also welcomed the European authority's efforts "to avoid regulatory arbitrage and the establishment of letterbox entities."
No derogations nor favours
ESMA calls for a "no-letter-box, no circumventions" clause and argues that firms should not seek authorisation just to benefit from the European financial services passport. Companies are also advised not to use delegation or outsourcing arrangements or branches in order to "extensively perform activities on behalf of the EU 27 firm from outside the EU".
Firms applying for an authorisation in the EU27 cannot rely on their current authorisation in the UK and relocation to one of the 27 member states must be driven by "objective factors" such as distribution of activities, operations or marketing arrangements.
National competent authorities (NCA) are advised to refuse granting authorisation if an application is made in a member state in order to "evade stricter" standards applicable in another member state.
In a recent report, Luxembourg-based advisory firm Atoz argues that this "seems to conflict with the freedom of establishment and the freedom to provide services enshrined in the Single Market".
While most of the principles invoked by ESMA are a "reinstatement of rules and guidelines already provided for by the current European legislation", Atoz points out that a number of ESMA's expectations in terms of substance, governance or delegation "exceed the requirements stipulated in the legal texts".
For example, a relocating entity that only applies "simple investment strategies" and has a limited range of business activities, should employ a minimum of three locally-based full-time employees to carry out portfolio management activities, fill risk management functions and to monitor the delegates.
Atoz also states that ESMA's opinions on how to support the supervisory convergence among national financial authorities for the relocation of entities, activities and functions from the UK to the EU, are formulated "on the assumption of a hard Brexit" where the United Kingdom becomes a "third country" in terms of financial service regulations.
In the future, ESMA intends to establish a forum -- the Supervisory Coordination Network -- to allow national competent authorities to report on and discuss issues in relation to the relocation of UK market participants.
Read the full sector-specific principles proposed by ESMA on www.cssf.lu.
Luxembourg attracts large insurers post-Brexit
While Luxembourg has succeeded in attracting many large insurance companies from London, earlier this month Finance Minister Pierre Gramegna warned that "it is not a race" and called for a "constructive and pragmatic" approach of the Grand Duchy in the process of relocating companies from the United Kingdom.
Six insurance companies have so far chosen the Grand Duchy to house part of their financial activities post-Brexit, namely AIG, Hiscox, FM Global, RSA, CNA Hardy and Liberty Specialty Market.
In early July when Liberty Specialty Market confirmed their relocation plans to the Grand Duchy, Luxembourg for Finance director Nicolas Mackel argued that "big insurers announced their decision to come to Luxembourg for their post-Brexit operations with activities that we did not really have yet".
In total, 21 companies announced the relocation of part of their activities to Luxembourg in the wake of the British vote, according to a report from KPMG. The document ranks the Grand-Duchy far ahead of Ireland (14), Germany (8) and the Netherlands (4).