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Relocation to the EU 27 – what to do about ESMA’s Brexit warning?

Relocation to the EU 27 – what to do about ESMA’s Brexit warning?
  • United Kingdom
  • Financial services and markets regulation
  • Financial services


Concerned about the possibility of a hard or no deal Brexit on 29 March 2019, the European Securities and Markets Authority (“ESMA”) is urging financial market participants to get moving. ESMA has warned that financial market participants relocating into the EU27 only have a short period of time remaining in which those firms can make the necessary applications for authorisation to National Competent Authorities (“NCAs”). ESMA gave its warning in a public statement released on 12 July 2018 and has urged NCAs to give similar warnings

To read the ESMA statement, click here.

No temporary permissions

In the UK, HM Treasury, the PRA and the FCA are putting in place and giving effect to a temporary permissions regime for EU27 financial services firms passporting into the UK and a temporary recognition regime for EU27 financial market infrastructure providers, such as central counterparties. These will last for up to three years after the day the UK exits the EU.

ESMA has resisted all suggestions by NCAs to provide for a temporary permissions regime for UK firms passporting into the EU27, apparently in the hope that this will force firms to relocate to the EU27.

NCAs cannot guarantee that entities will be authorised to relocate unless they receive an application by June/July 2018. ESMA urges firms to contact relevant NCAs and submit applications without delay.


BaFin referred to the Public Statement released by ESMA on 12 July 2018 in the July 2018 BaFin Journal but did not comment on it.

BaFin has indicated that UK banks must apply for a general licence and act in compliance with the supervisory requirements that exist under both EU and German law if they want to operate in Germany after the UK leaves the European Economic Area as using the EU passport will no longer be an option. In its FAQs for banks and financial services institutions BaFin says that it generally does not make a difference whether an already existing branch is to be converted or a new subsidiary is to be set up. According to BaFin FAQs the advantage of converting an already existing branch is that the application process could possibly be accomplished more quickly, provided BaFin is familiar with the main features of the business model of the new subsidiary/branch from the existing branch.

Felix Hufeld, BaFin president, is quoted in the BaFin Annual Report 2017 as saying that in “a period of transition, supervisors and regulators will need to find novel solutions to ensure a flexible transition into the post-Brexit world”. Hufeld explains that the institutions affected will need reliable transitional arrangements but that those should not become permanent. Arrangements that might be tolerated initially, for instance to avoid a cliff edge effects, will need to be normalised in due course.

BaFin has dedicated teams that can be contacted for answers on a wide range of Brexit related questions.

To read the BaFin FAQs, click here.


The Central Bank of Ireland (“CBI”) has not issued a Press release in response to the Public Statement released by ESMA on the 12 July 2018. The CBI has previously urged any company seeking authorisation in Ireland in 2018, not just those considering authorisation in light of Brexit, to engage with the CBI “as soon as possible” and to be “mindful of the authorisation timelines”.

The CBI has issued a set of FAQs relating to Brexit, in which they say:

“The UK’s decision to withdraw from the EU has resulted in a number of UK-based firms engaging with the Central Bank as they seek to restructure to continue to provide service within the EU27, post Brexit. In addition there are a number of branches of UK entities in Ireland who as a result of Brexit, must also consider their future corporate structures. At this time, the Central Bank strongly encourages any firm, seeking authorisation in 2018, not just those considering authorisation in light of Brexit, to engage with us as soon as possible. Firms that have already engaged with the Central Bank, but have yet to proceed to the application process, should also be mindful of the authorisation timelines.

“With this in mind, those firms requiring authorisation should not delay in engaging with the Central Bank. A well-structured, well-prepared approach by firms is necessary. Such an approach combined with timely engagement should be part of any firm’s Brexit planning.

“The Central Bank would welcome a transition period post the UK withdrawal from the EU in March 2019 in terms of smoothing potential negative impacts but recognises that any such transition period remains subject to the political negotiations and agreement. Until there is legal certainty that a transition period will apply, the Central Bank expects firms to continue to plan for all possible contingencies, including the possibility of a hard Brexit (i.e. no deal and no transition period). Firms are responsible for ensuring that all authorisations required post March 2019 are in place in a timely manner. As such, we would encourage firms who have not yet done so to engage with the Central Bank as soon as possible, mindful of the relevant authorisation processes and timelines.”

To read the CBI FAQs, click here.


The CSSF issued press release 18/25 on 25 July drawing the attention of banks and fund managers to the need to consider the consequences of a potential hard Brexit. The CSSF warns that new, additional or extended authorisations might be needed in order for UK firms to relocate their business to Luxembourg or for existing Luxembourg based firms to attract business from the UK and that the time required for analysing authorisation requests can be substantial and depends on numerous factors.

The press release echoes the ESMA statement of 12 July 2018.

To read the CSSF press release, click here.


The Netherlands Authority for Financial Markets (“AFM”) issued a press release in which it stated that the Brexit process and a possible transition period is surrounded with a lot of uncertainties. The AFM understands the difficulties for UK-based financial institutions regarding the timeline for applying for a licence.

The decision for the (timing of the) filing of the application for a licence is one to be made by the financial institution itself and at its own risk. The AFM offers guidance in this matter and recommends financial institutions who aim to be licensed in the Netherlands prior to the Brexit date of 29 March 2019 to apply for a licence as soon as practicable but preferably no later than 1 July 2018. The AFM expects to process these applications before 29 March 2019. The statutory period in which the regulator must make a decision in respect of an application is 8, 13 or 26 weeks (depending on the nature of the application). If the regulator needs to request further information from or ask questions of the applicant, time ceases to run until the applicant responds. An average license application takes 5 to 6 months depending on the quality of the application and underlying documents. Applications can be made in English.

The AFM has issued a set of FAQs relating to Brexit, in which they say:

“The length of the application process is strongly influenced by the quality of the application and applicant’s timeliness in responding to the AFM and DNB’s queries. In general, complexity of the proposed business may lead to more queries. Therefore, the length of the individual application process may vary considerably amongst applicants. The AFM has found that the interaction between the applicant firm and regulators is considerably more productive and efficient where an applicant firm has engaged in detailed planning and has sought appropriate advice in advance.

“Please note that most companies also need to apply for a declaration of no-objection (vvgb in the Dutch language) at the Dutch central bank. More information can be found on the website from the Dutch central bank. The Dutch central bank also recommends applying for a declaration of no-objection, where applicable, as soon as possible. Preferably the application for a licence and for a declaration of no-objection should be done at the same time.”

To read the press release, click here.

To read the FAQs, click here.

What to do?

To the extent not already done, UK firms must undertake regulatory, business and legal planning to identify the most appropriate EU27 Member State to establish an EU Hub.

The types of regulatory questions that firms will need to ask in selecting a particular EU27 Member State include:

• How long will it take for the NCA to authorise the firm?

• What human resources will the NCA expect the firm to have?

• What financial resources will the NCA expect the firm to have?

• Will the firm’s business have to take a specific corporate form?

• Has the NCA issued any statements on the delegation from a firm in its Member State to a non-EU 27 sub-manager in response to or supplementing the ESMA opinions on delegation?

The legal and business questions will include questions about tax and employment.

Ultimately, decisions are likely to be driven by business concerns but the ESMA message is clear: get on with it.

To read our briefing ““Not a Dirty Word”: ESMA revisits the impact of its Opinion on delegation for UK managers if there is a “hard” Brexit”, click here.

How Eversheds Sutherland can help

Since June 2016, our lawyers and consultants have advised various institutions passporting into the UK from EU27 Member States and passporting from the UK into the EU27 on Brexit planning and Brexit related issues.

We would be happy to discuss how we can help you with your Brexit planning and execution of those plans.