Brexit LIVE: Play by OUR rules! EU launches bitter City attack as Ireland orders UK around
Brexit: Expert discusses EU's 'punishment' in 2018
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Chaperoning is a practice which enables traders in the capital to continue to provide services to customers throughout the Brussels bloc by including a colleague regulated to work in the bloc on a call. That person on the call is permitted to service an overseas client should a banker or fund manager participate in any regulated business they are no longer authorised to conduct with them. But Irish and Dutch regulators have attempted to pull the rug from under the feet of the City, warning they will be keeping a very close eye on the practice.
A spokesperson for the Central Bank of Ireland said, since Brexit, the watchdog “expects that firms are adequately resourced, that decision-making takes place in the Irish entity and that where regulated services are being provided, it is the Irish regulated entity that is providing them”.
They told Financial News: “A business model based on chaperoning of UK financial services firms is likely to be inconsistent with these principles.”
The Dutch Authority for the Financial Markets (AFM) also warned the regulator was “in close contact” with firms using what it has deemed as “questionable practices” from UK firms after Brexit, with a spokesman adding: “The AFM is on top of it.”
There have been increasing fears the practice of chaperoning could be deemed questionable by EU regulators, with experts suggesting a clampdown from the bloc could be imminent.
There is confusion over whether chaperoning breaches EU rules preventing UK-based finance firms from providing services to European clients from London – unless overseas clients have decided to use that service on their own, which is known as reverse solicitation.
A senior financial regulator lawyer at a UK law firm told Financial News: “It’s nuanced. Where firms have someone EU-based sitting in on a call who is genuinely leading sales conversations, that is fine, and that tends to be what’s happening in larger organisations.
“But where you have a chaperone who is just sitting in on a call to be seen to be sitting in, then that’s questionable. You see that happening in smaller firms.”
Just days after the UK’s departure from the EU at the end of last year, the European Securities and Markets Authority revealed it was aware of some City of London financial services firms were using “questionable practices” to continue operating in the bloc.
Ireland’s central bank warned: “The provision of investment services in the EU without proper authorisation exposes service providers to the risk of administrative or criminal proceedings”.
An AFM spokesman said: “As stated by Esma, with the end of the UK transition period on 31 December 2020, some questionable practices by firms around reverse solicitation have emerged.
“The AFM is addressing these questionable practices and in close contact with these firms.”
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