EU authorities draft terms for national supervisors to work with UK peers after Brexit

27 December 2017 3:21pm

22 December 2017. By Hugo Coelho.

National supervisors in the EU will soon receive a draft of common terms for working with their UK counterparts on overseeing companies with cross-border operations after Brexit, MLex has learned.

The EU's supervisory authorities for banking, insurance and securities are drafting memoranda of understanding that could be signed by national supervisors across the EU — including France and Germany — and in the UK.

National supervisors received guidance earlier this year from the European Supervisory Authorities, or ESAs, to prevent UK companies from setting up shell companies in the EU as a way of retaining access to the single market while keeping staff and resources in Britain.

The memoranda of understanding, or MOUs, would ensure all national supervisors cooperate to the same degree with the Bank of England, the Financial Conduct Authority and other UK authorities.

“It is important to agree on common terms for cooperating with UK authorities to avoid the supervisor in one country setting the bar for all the others,” said a senior European national supervisor, who asked not to be named.

MOUs are commonly used between supervisors that oversee financial companies with activities spread across borders, and routinely include provisions that allow supervisors to share confidential data about companies operating in both jurisdictions.

More advanced MOUs — such as those that EU regulators sign with authorities in third countries that have been granted “equivalent” regulatory status — also cover on-site inspections.

Close cooperation could help mitigate some of the Brexit effects for companies with cross-border activities, and even more so if the EU refuses to include financial services in a future trade deal with the UK.

The European Central Bank, which supervises banks in the 19 countries that use the euro, said in March that it could speed up the procedure to allow British lenders to do business in the bloc, if it gets detailed information from UK regulators.

EU insurers may be barred from taking capital benefit from any risks transferred to UK entities or reinsurers unless European authorities trust the rules and supervision standards of the BOE.

Furthermore, the ability for EU funds to delegate some risk-management functions back to Britain will depend on how much their local supervisors trust the UK’s FCA.

MOUs could also give assurances sought by UK regulators to allow EU companies to continue doing business in Britain after Brexit under rules similar to those in place today.

The BOE said this week it will allow EU banks to operate through branches, and avoid setting up costly subsidiaries, as long as it is able to maintain close relationships with EU authorities.

But officials warned they would force companies to redo their Brexit plans and set up separate legal entities backed by their own capital and liquidity resources, if cooperation plummets.

Brexit Special Report