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Bankers Warned Against ‘Letterbox’ Offices in EU After Brexit

  • ESMA publishes guidance on oversight, authorization of firms
  • Market regulator says ‘arbitrage risks’ loom between nations
The skyscraper headquarter offices of the European Central Bank (ECB) stand beside the River Main as commercial and residential property sits on the city skyline in Frankfurt, Germany, on Thursday, Feb. 2, 2017. Frankfurt expects as many 10,000 workers from Britain's financial services industry to relocate to Germany's banking capital because of Brexit, with the exodus likely to start within weeks, according to lobby group Frankfurt Main Finance.
Photographer: Krisztian Bocsi/Bloomberg
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The European Union’s financial-markets regulator sought to stop the bloc’s member states from loosening oversight to attract business after Brexit, warning that firms shouldn’t be allowed to set up shell offices in the EU that still conduct critical business in London.

The European Securities and Markets Authority on Wednesday published guidance to the 27 countries that will comprise the EU after the U.K. quits the bloc in an effort to root out “supervisory arbitrage risks” that could result if consistent and rigorous standards aren’t maintained. These are necessary to prevent entities from setting up “letterbox entities” in an EU country that in reality outsource or delegate significant business to London.