EU watchdog warns City

The EU markets watchdog has published new guidelines aimed at preventing City firms setting up “letterbox” companies in Europe as part of attempts to secure market access after Brexit.

The European Securities and Markets Authority (Esma) highlighted the potential risks of such companies popping up in the EU, where key operations are delegated to parents in London, and warned national regulators to “effectively supervise” any UK firms that relocate to the continent in the wake of Brexit.

Esma chairman Steven Maijoor said: “In the course of the UK withdrawing from the EU, UK-based market participants may seek to relocate entities, activities or functions to the EU27 in order to maintain access to EU financial markets.”

In the event such relocations result in firms outsourcing part of their activities back to headquarters in the UK, this “should not result in those (EU-based) entities becoming letterbox entities nor in creating obstacles to effective and efficient supervision and enforcement,” Mr Maijoor added.

The comments follow warnings from European officials seeking to ensure UK firms do not circumvent EU rules on overseas access to financial markets after leaving the bloc.

Several firms have already announced plans to start shifting operations to the continent including JP Morgan, HSBC, AIG and Legal & General.

HSBC, one of a number of major financial companies with its HQ in London’s Square Mile, has revealed plans to shift operations to the EU post-Brexit.