EBA Provides Guidance To Authorities And Institutions On Brexit Relocations
The EBA published today an Opinion on Brexit to ensure the consistent application of Union legislation to businesses seeking to establish or enhance their EU27 presence in order to retain access to the EU Single Market. The Opinion aims at providing greater certainty to firms and ultimately at ensuring a level playing field. In the Opinion, the EBA addresses a number of relevant policy topics relating to authorisations, the prudential regulation and supervision of investment firms, internal models, outsourcing, internal governance, risk transfers via back-to-back and intragroup operations, and resolution and deposit guarantee scheme issues. The EBA will monitor how the Opinion will be applied in practice by authorities and will continue its policy and risk analysis work in relation to the challenges posed by Brexit.
The Opinion is focused on the period prior to the departure of the UK. The overarching principles underlying all of the guidance in the opinion are that: (i) the existing legal and regulatory framework should be applied in a consistent and harmonious way throughout the EU, and competition on regulatory or supervisory standards should be avoided; (ii) authorities should avoid imposing an unnecessary regulatory burden on firms, while at the same time regulatory standards which have always applied should be maintained; and (iii) cooperation and coordination between supervisors, as well as between supervisors and resolution authorities, is important both now and in the future.
In each of the specific areas identified by the EBA, the Opinion sets out some key principles, followed by specific detailed technical guidance addressed to firms and authorities. A report is appended to the Opinion setting out the detailed analysis underlying the guidance provided.
Examples of the areas where guidance is provided include authorisations, the prudential regulation and supervision of investment firms, and resolution. On the first topic, the EBA is of the view that existing authorisation standards should not be lowered and that the same procedures and standards that have always applied should continue to do so. In addition, the EBA believes that firms seeking authorisation should undergo a rigorous assessment against the relevant requirements. Firms should provide a clear explanation of the choices they are making in terms of the substance of the incoming entity, and "empty shell" companies should not be authorised. Finally, the regulatory burden on firms should be kept to a minimum through the use of existing information held by competent authorities, and through cooperation between authorities.
On the second topic, the EBA is of the opinion that the provision of investment services in the EU should be subject to adequate prudential supervision and oversight. For institutions established in the Union, this should entail an updated prudential framework in line with the EBA's report on investment firms while systemic investment firms established in the Banking Union should be subject to the supervision of the ECB. Investment services provided by third country investment firms should also be subject to adequate prudential rules and oversight.
On resolution, the EBA notes the potential for Brexit to impact on ongoing resolution reforms, not least in the area of building loss absorbing capacity. At present, significant issuance of liabilities eligible for the minimum requirement for own funds and eligible liabilities (MREL) takes place in the UK under English law. It is important that institutions and authorities consider the implications of the departure of the UK for the build-up of MREL, and take steps now to mitigate relevant risks.
The EBA's competence to deliver an opinion is based on Articles 29(1)(a) and 34(1) of Regulation (EU) No 1093/2010 ("EBA Regulation"). Article 29(1)(a) mandates the EBA to play an active role in building a common Union supervisory culture and consistent supervisory practices and approaches throughout the Union including by providing opinions to competent authorities, while Article 34(1) empowers the EBA to provide opinions to the European Parliament, the Council and the Commission on all issues related to its area of competence, including on issues within the EBA's competence arising in the context of the UK's withdrawal from the European Union.
- On 29 March 2017, the UK notified the European Council of its intention to withdraw from the EU pursuant to Article 50 of the Treaty on European Union. The withdrawal will take place on the date of entry into force of a withdrawal agreement or, failing that, two years after the notification, on 30 March 2019.
- The EBA has decided to issue this opinion in response to this unprecedented situation, to provide guidance on supervisory expectations and to address regulatory and supervisory arbitrage risks that arise as a result of increased requests from entities seeking to relocate to the EU27 within a relatively short period of time. This opinion is complementary to those issued by ESMA and EIOPA.
- The opinion is a non-binding statement of the EBA's expectations about how authorities and institutions should behave. The EBA will monitor how the opinion is applied in practice and continue to seek convergence through its tools and powers. The EBA may update this opinion or issue further products in future in response to changing circumstances.
- EBA Opinion on Brexit Issues (EBA-Op-2017-12) [PDF, 747KB]