On 11 April 2017, Steven Maijoor, the Chair of the European Securities and Markets Authority ("ESMA") addressed the potential regulatory issues which may affect EU Member States as a result of the Brexit effect on passporting rights ceasing to work across UK and EU borders. He noted that ESMA would work to eliminate "competition on regulatory and supervisory practices between member states, and a possible race to the bottom". On 31 May ESMA announced its general principles to support supervisory convergence in the context of the United Kingdom withdrawing from the European Union (the "General Principles"). Among other things, the principles call for rigorous and efficient authorisations and state there cannot be any automatic recognition of the authorisation granted by the UK regulator into the EU27.

ESMA is thus working to develop a convergent position between Member States supervisory authorities on key issues to be taken into account when market participants intend to transfer some of their activities from UK to EU. This "Supervisory convergence" does not necessarily mean a one-size fits all approach. It is likely to mean, however, that ESMA will push for the adoption of similar approaches in case of similar risks on the basis of several opinions and potential measures to be provided.

A common approach between national competent authorities might have significant consequences in relocation plans of UK firms. Indeed, up to this point, one of the strongest arguments in favour of choosing Luxembourg and Dublin has been their "friendly" supervisory approach. Indeed, one of the more salient factors for many financial institutions in considering a new regulatory home was the willingness to look leniently at aggressive outsourcing back to the UK.

The more substantial continental regulators, for the most part, were unwilling to engage in a race to the bottom on the regulatory front, though each of them has made efforts to make themselves more attractive to Brexit refugees. Certainly, Italy was not promising light touch regulation. Instead, in its rather late bid to attract Brexit refugees, Italy has relied on the potential attractiveness of the recent reforms making the labour market more competitive, simplifying administrative and judicial procedures, as well as tax reforms making Italy more attractive to expats. Two other factors that also seemed to resonate were the proximity of Linate as a city airport as well as the already highly skilled labour force. As reported in the press, alas, in many cases this was not viewed as a compelling argument, except, say, where the entity involved was heavily invested in Italy. The game, though, is not yet over as the Italian Parliament is working on new incentives to make Milan even more attractive. Moreover, last week, Italy established the Milano European Financial Hub Committee to attract financial institutions and human capital.

In a nutshell, as new supervisory converged measures will now have to be taken into account, financial entities that have not already committed to their relocation jurisdiction may take a second look at relocation. Indeed, some financial institutions may even need to review decisions that have already been taken in light of the General Principles as the regulatory terrain in their new homes may now look somewhat different. It would therefore seem to make more sense to more strongly consider locations where there is already a significant business interest. This may also lead to firms taking a second look at cities like Milan, which many had previously discarded as a potential alternative. Force Maijoor may indeed lead to a disruption of the up to this point bog standard Brexit plans.