The European Union's securities watchdog has published guidance to stop national supervisors from competing unfairly with each other to woo financial firms in a post-Brexit rush from Britain.
Dublin complained to Brussels that rival financial centres were offering a "back door" to the EU's single market through lax rules.
In response to such concerns, the European Securities and Markets Authority (ESMA) said today that national regulators need to prepare for greater demand for licences as financial firms in Britain seek to relocate to an EU of 27 countries after Britain's departure in 2019.
Britain is the EU's biggest financial market and firms there may need to shift operations to continue serving customers within the bloc.
"The EU27 have a shared interest in building a common approach to dealing with relocating firms that wish to continue to benefit from access to EU financial markets," ESMA chairman Steven Maijoor said in a statement.
ESMA said that regulators should not authorise "letter box" entities that have few staff or operations.
"Firms need to be subject to the same standards of authorisation and ongoing supervision across the EU27 to avoid competition on regulatory and supervisory practices between member states."
The guidance is non-binding but has the backing of ESMA's board, making it harder for a member state's regulator to ignore. Securities regulators authorise mutual funds, hedge funds, investment firms and trading operations.
The guidance sets out nine principles that tell regulators to start from scratch when asked for a licence by a British financial firm.
There should be "no automatic" recognition of authorisations granted by UK regulators, ESMA said.
This contrasts with the European Central Bank (ECB), which will accept UK authorisations for parts of a bank for a certain period to speed up licensing.
ESMA said that regulators should not authorise "letter box" entities that have few staff or operations. Outsourcing or delegation of operations to Britain should be allowed only "under strict conditions", it said, taking a similar stance to the ECB.
"Market participants wishing to engage in outsourcing or delegation remain fully responsible for the tasks or functions that are outsourced or delegated," ESMA said.
London-based Aquis Exchange, a share-trading platform looking to open an EU subsidiary after Brexit, is being wooed by several national regulators, CEO Alasdair Haynes said.
"I do think there are potential deals people are offering and there is nothing in the ESMA principles that would prevent anything going forward based on proper regulation and good governance," Haynes told Reuters.
The aim of ESMA's guidance is to stop national regulators seeking to attract new affiliates by allowing them to outsource or delegate a large volume of activity, such as an EU broker-dealer's subsidiary booking trades at a central hub in London to cut costs.
The EU's insurance watchdog is due to publish similar guidance to national watchdogs. The ECB has already published guidance on what banks can expect when applying for a banking licence in the eurozone.
ESMA said it would develop more specific guidance for asset managers, investment firms and secondary markets.