As we painfully inch forward toward what may be the Brexit finish line, national regulators are firing shots across the bow of UK financial institutions carrying out activities in Continental Europe. Earlier this week, the Financial Times reported that " Banque de France officials sent out emails to UK fintech companies requesting their Brexit strategy details of contingency.

The Financial Times reports that the email to UK fintech companies is part of the planning for a potential hard Brexit but payments firms see it as a salvo in Paris's effort to win business from London". While this is more of an implied threat rather than an action with immediate consequences. The implications appear clear. Indeed, one might have expected this given the claim by Gerard Mestrallet, president of the lobby group Paris Europlace, that Brexit could generate an additional 3,500 jobs in finance for Paris and 20,000 new jobs in support. This would appear to be too good of an opportunity to pass up.

Other major European Member States such as Italy and Spain, have less to gain from Brexit. While one might have expected the French regulator to take a more aggressive approach toward UK financial institutions given the rhetoric of French politicians, The Banque De France is not alone among major European authorities. Indeed, even in Italy, which has not been among those Member States clamouring for a succinct, hard Brexit, a crack in the relatively homogeneous regulatory firmament have appeared. Whereas in the past, the FCA received great deference from Italian regulators, tears in the cloak of deference are becoming more and more pronounced. For example, in the past, if the FCA characterised regulated activity as being carried out on a cross border basis, this used to be the end of the story. Now, instead, Italian regulators are looking at the activity in Italy on an overall basis and asking whether instead the UK financial institutions are effectively, if not formally, carrying out activity through a branch or branch equivalent. If the Italian regulator believes this to be the case, it is now seeking to enforce Italian requirements that the FCA would not deem applicable.

In a Member State like Italy, where regulators are not being driven solely by political motives - i.e., the realistic desire to woo financial institutions from London - it might be worthwhile to seek other reasons for the ever more aggressive positions. One of the driving issues for Italy is AML in the payments sector. They are over 20,000 agents passported into Italy by the FCA. There has been considerable angst among Italian regulators with respect to the level of supervision of these agents. In part, this has been driven by the IMF, which noted in its 2016 report:

"The passporting arrangement under the EU Payment Services Directive has given rise to a large number of remittance agents in Italy, some of which the authorities have evidence to suggest are systematically failing to implement proper AML/CFT controls. While this issue can only be addressed at the EU level, it does have a material impact on the robustness of the AML/CFT framework in Italy."

AML concerns, therefore, are already a primary concern for Italian regulators now with the FCA still fully engaged in supervising activities in Continental Europe. The lively discussions with the FCA on this issue might have occurred in any case. But with the looming spectre of Brexit and a potentially lame duck FCA, the concerns have grown substantially.

So where does this leave us? We have seen the reminder from ESMA to UK-based regulated entities about timely submission of authorisation applications. There is certainly a growing, imminent awareness of Brexit among Continental European regulators. While passports may still be possible from the UK to carry out regulated activities on the mainland, for new activities the calculus of whether this type of approach continues to make sense is changing day by day.