The European Banking Authority (EBA) has published an Opinion on Brexit issues. The opinion sets out recommendations for banks, investment firms and other financial services firms who are considering relocating to an EU 27 Member State, or expanding their business in an EU 27 Member State, post-Brexit. The EBA opinion confirms its supervisory expectations, and how it is addressing the risk of regulatory and supervisory arbitrage. It focuses on the (approximately) 18 month period preceding the scheduled Brexit date of end-March 2019, and assumes that the UK will be a third country from that date onwards (i.e. “hard Brexit”). 


» Regulatory and supervisory arbitrage should be avoided.

» EU laws and regulations should be applied in consistent manner.

» National competent authorities (NCAs) should try not to impose unnecessary regulatory burdens on firms (but in doing so, should not compromise regulatory standards).

» Cooperation between NCAs, and between NCAs and resolution authorities, is crucial.


» Current authorisation standards should not be lowered, derogations or exemptions from current standards should not be granted and applications should be rigorously assessed.

» Regarding banks, NCAs should look to the EBA's July 2017 final draft regulatory technical standards on the authorisation of credit institutions.

» Regarding investment firms, NCAs should look to ESMA's July 2017 Opinion on supervisory convergence in respect of investment firms

» The Annex (at page 54 of the opinion) also sets out a list of key questions that NCAs should have regard to when assessing authorisation applications.

» “Empty shells” should not be authorised.

» Notably, the EBA has also asked the European Commission to consider empowering the European Central Bank to supervise “Class 1 investment firms” (i.e. investment firms of systemic importance). The EBA has already recommended categorising MiFID investment firms on the basis of whether they are systemic, non-systemic, or small and non-interconnected (in its September 2017 Opinion in response to the European Commission's Call for Advice on Investment Firms).

» In respect of the third country equivalence regime for investment firms, the EBA has expressed the view that the current MiFID /MiFIR equivalence regime is “suboptimal” and has asked that it be consulted by the Commission for its advice on equivalence decisions.

» Regarding payment institutions and electronic money institutions, the EBA has recommended that NCAs put in place plans to ensure that they can cope with any influx of authorisation applications, and that they check that applications clearly explain the objective factors underpinning the firm’s preferred relocation venue. The EBA acknowledges in the opinion that the revised Payment Services Directive reduces the NCAs’ flexibility when granting authorisation, which in turn reduces the risk of supervisory divergence and regulatory arbitrage. 

» For credit intermediaries under the Mortgage Credit Directive, NCAs should check how many UK-based credit intermediaries are currently passporting into, or established in, their Member State. Again, the importance of checking applications for a clear explanation of the objective factors supporting the firm’s preferred relocation venue was emphasised.


The existing framework for approving models should be used, with the importance of cooperation between NCAs being highlighted.

While assessments carried out by the UK’s competent authorities can be relied upon at the outset, those should be reviewed when ongoing model reviews are being carried out.


» NCAs should establish the suitability of members of the management body and the amount of time that they will dedicate to their roles, and check whether there is a sound and effective governance regime in place.

» Outsourcing should not be allowed if it would result in an “empty shell”.

» Where outsourcing is allowed, that outsourcing should be monitored and managed by the firm, and the NCA should have full access to all information that it needs.

» NCAs should assess outsourcing models on the assumption that the UK will be a third country (if activities will be outsourced back to a UK part of the group). Counterparty credit risk and other material risks should be carefully monitored where firms are transferring risk on a back-to-back or intragroup basis. 


Resolution authorities in Member States need to evaluate whether their deposit guarantee schemes should be updated in light of Brexit and consider cooperation arrangements with the UK to ensure equivalence with a view to protecting EU depositors with funds in UK banks.


In carrying out resolution planning, resolution authorities in the remaining 27 EU Member States need to look at the extent to which current resolution plans are reliant on UK-based infrastructures and group members, and assess whether any organisational or contractual changes are necessary.