While a review of these European Supervisory Authorities (ESA) was planned before Brexit, Valdis Dombrovskis, a vice-president of the European Commission in charge of financial services policy, said Britain’s vote to leave the EU had galvanised the exercise.
He said there was a need to address concerns that firms relocating from London could favour EU countries perceived to have relatively light-touch supervision.
“Already you hear there are some disagreements among member states whether or not some kind of regulatory arbitrage is taking place, so indeed it strengthens the need of the case for regulatory convergence,” Mr Dombrovskis said.
While he did not mention specific countries, the remarks were a nod to a public spat between Dublin and Luxembourg, amid comments from Eoghan Murphy, the Irish financial services minister, that rivals are engaging in “regulatory arbitrage” in a bit to attract business from London. Brexit Germany well-placed for post-Brexit migration of London business.
The Commission consultation paper on overhauling the three supervisory authorities looks at possible reforms that would give them stronger powers to forge “convergence” in supervisory standards across the bloc.
While the paper does not say so explicitly, Brexit also allows Brussels to revisit ideas previously torpedoed by Britain.
One option being considered by Brussels is to give the Paris-based European Securities and Markets Authority powers to directly supervise clearing houses, as well as more oversight over cross-border investment funds. The power over clearing houses was part of Brussels’ 2009 blueprint for the ESAs but was fiercely resisted by Britain during discussions on how to turn the plans into law.
Mr Dombrovskis also underlined the “immediate, practical issue” of the impending relocation of the European Banking Authority, one of the main cogs of the system. It is in London and will need to move after Brexit.
With many countries competing to host the EBA, the Commission consultation paper notes that the relocation “provides an additional opportunity” to consider changes to the supervisory system. The paper sets out far-reaching options to create a single EU financial watchdog, or an alternative “twin peaks” model with a single banking and prudential regulator and a separate markets and conduct authority. France favours this second option.
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