The European Securities and Markets Authority (ESMA) has released a statement today warning market participants of a potential hard Brexit. The European regulator wants to remind entities that there is no guarantee that a transition period will be agreed upon, and therefore, should be making preparations for such an outcome.
In the statement, ESMA stressed that time is running out for companies to become authorized with the appropriate National Competent Authorities (NCAs) and ESMA. Firms wishing to relocate from the United Kingdom to the European Union (EU), and still provide services within the 27 EU countries, must have a fully authorized legal entity located in the region.
Although there is a tentative agreement in place to allow financial institutions a transition period up until December 2020, it is not legally binding until the Brexit deal is finalized and ratified by both sides. Therefore, the regulator suggests entities must be prepared for the worst and secure authorization within the EU before the Brexit deadline of March 30, 2019.
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The warning follows several NCAs that have made it clear to entities that unless they receive an application before the end of July, then there is no guarantee they can give authorization before March 29, 2018.
In the statement, ESMA notes an increase in the number of authorization requests it has received. The watchdog also suggests that companies complete the application to a high standard, to ensure it can be analyzed and authorized in the quickest possible manner.
Preparing for the worst
Since the United Kingdom formally announced it was leaving the EU on March 29, 2017, many regulators in the finance industry throughout the region have been warning companies and institutions to be prepared for a “no deal” worst case scenario.
Earlier this year in June, the European Banking Authority released a similar warning to banks. The warning said that banks could not rely on a transitional agreement past March 2019.