Relocations from the UK: ESMA's Opinion on supervisory convergence

On 31 May 2017, ESMA published an Opinion with nine general principles to be followed by national authorities in the context of the authorisation and supervision of regulated entities ("Opinion"), especially in the case where part of the management functions are delegated or outsourced to a third country entity.

These principles have been adopted in the context of Brexit¹ and the relocation of entities, activities and functions in the EU following the UK's decision to withdraw from the EU. The objective is to ensure a consistent and harmonised approach by the supervisory authorities of the 27 EU Member States which will remain in the EU ("National Competent Authorities" or "NCAs").

The Opinion covers, amongst other things, the AIFMD, the UCITS Directive, MiFID I and MiFID II.

Most of the principles are already followed and applied by NCAs; however, in this Opinion, ESMA clarifies them and sets the limits of delegation/outsourcing.

Emphasis is placed on various points, such as the conditions to be fulfilled by an entity in order to be authorised by an NCA, the (objective) reason for relocation, the avoidance of a letter-box entity, the substance requirements (and key functions which should remain in the EU), the corporate governance, the ability to direct and control outsourced or delegated functions, …

In the future, ESMA intends to establish a forum – the Supervisory Coordination Network – to allow NCAs to report on and discuss issues in relation to the relocation of UK market participants and to promote consistent decisions by NCAs. Further measures to support supervisory convergence could be taken by ESMA, including issuing Q&As, providing additional opinions to NCAs, and conducting peer reviews.

ESMA also published on 13 July 2017 three sector-specific opinions:

• an Opinion for the asset management sector  (for more insight on this Opinion, see our Article "Relocations from the UK: ESMA's Opinion on asset management" );
• an Opinion for investment firms; and
• an Opinion for secondary markets.