A set of Brexit-focused principles, or an “Opinion”, has been released by the European Securities and Markets Authority (ESMA). The Opinion is aimed at EU national competent authorities (NCAs) to address regulatory and supervisory arbitrage risks arising because of Brexit.

Taking a “hard Brexit” as the probable scenario—which means the UK will become a “third country” after its pulls out of the EU by 30 March 2019—the Opinion concentrates on the activities of: AIFMs (alternative investment funds and managers); UCITS (Undertakings for Collective Investment in Transferable Securities) management companies; and MiFID (Markets in Financial Instruments Directive) firms looking to move from the UK to the remaining EU member states.

The Opinion sets out nine principles regarding authorisation and supervision. These are:

1. No automatic recognition of existing authorisations of UK entities post-Brexit;
2. Authorisations granted by NCAs in the remaining member states should be rigorous and efficient;
3. NCAs should be able to verify the objective reasons for relocation;
4. Special attention should be given to avoid letterbox entities in the EU27;
5. Outsourcing and delegation to third countries (i.e., the UK post-Brexit) is only possible under strict conditions;
6. NCAs should ensure that substance requirements are met;
7. NCAs should ensure sound governance of EU entities;
8. NCAs must be in a position to effectively supervise and enforce EU law; and
9. There should be coordination among NCAs to ensure effective monitoring by ESMA.