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London-based financial services firms have been making plans to
set up operations in the EU to maintain access to its single
market after Brexit and there is fierce competition among major
European cities to attract them.
As a result, the EU regulator is concerned about the risks of
new "letter-box" companies springing up in the EU that delegate
key operations to parents in London.
It has said that any countries offering such flexible solutions
to attract business could undermine stability.
Any regulatory leeway at the national level "is not a means for
lowering standards or for disregarding prudential requirements,"
the European Insurance and Occupational Pensions Authority (EIOPA)
said.
"Sound supervision demands appropriate location of management
and key functions," EIOPA Chairman Gabriel Bernardino wrote in a
statement accompanying a seven-page guidance document. "Empty
shells or letter boxes are not acceptable."
EIOPA said regulators should ensure that firms setting up shop
in the European Union should exhibit "an appropriate level of
corporate substance, proportionate to the nature, scale and
complexity of the planned business."
This includes a reasonable level of local staff, it said.
Regulators must also allow sufficient time for the application
process and not take shortcuts. EIOPA warned against an
automatic recognition of a firm because it was granted by
another supervisor in another member state.
It also said that companies moving into the EU might be tempted
to try to limit the impact of relocation by outsourcing
functions and activities.
The watchdog said that such outsourcing must not "deplete the
corporate substance of the EU entities with repercussions on the
adequacy of their management and on the effectiveness of
supervision by the EU27 supervisors."
(Reporting by Tom Sims; Editing by Georgina Prodhan and Jane
Merriman)
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