Daniele Nouy confirms SSM is watching Brexit business competition – Hayes
In response to a question from Brian Hayes MEP, the Chair of the ECB’s Single Supervisory Mechanism Daniele Nouy confirmed that the SSM is watching closely the competition for attracting business as a result of Brexit.
Mr. Hayes said:
“It is reassuring to know that the SSM is closely watching the hunt for business arising out of Brexit. If it is the case that financial institutions are being offered the incentives of a light regulatory regime in certain locations, we need the Eurozone watchdog to take a tough stance against this.
“A regulatory race to the bottom is in nobody’s interest. There needs to be absolute consistency of regulatory approach and a level playing field when it comes to banks’ capital requirements and how their internal models are treated.
“Minister Murphy was absolutely right to flag this issue. Two EU supervisory authorities, ESMA and EIOPA, have also raised concerns about regulatory arbitrage as a result of Brexit. The Central Bank of Ireland has been clear that banks cannot simply move to Dublin just to set up brass plate operations so they can passport financial services into the EU. Unfortunately, we are not seeing a similar approach from some other regulators whose number one priority seems to be attracting jobs and new tax revenue.
“Ms. Nouy said that there are loopholes that can allow banks to be given lighter regulatory treatment based on their location. Some locations may allow a financial institution to be treated as broker-dealer firm, which is effectively a light version of a bank but is not supervised as a bank.
“Ms. Nouy also warned that subsidiaries or branches can be set up in the Eurozone that perform a large proportion of their ‘parent’ bank’s capital market operations. The important thing is that these subsidiaries are not empty shells and that they are staffed properly and have risk management functions and internal control functions. The concern is that some locations are allowing for this empty shell approach in the search for their piece of the Brexit pie.
“What is really needed is a proper common approach among regulators across the EU for the authorisation of new firms. This could avoid loopholes and ensure a level playing field when it comes to business competition from Brexit. There are serious systemic risks at play here.
“In Ireland we know all too well about how light regulatory regimes can come crashing down. If we see such a regulatory approach in other Eurozone countries, we have a responsibility to raise these concerns.”