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Paris Consolidates Power in Regulating Europe’s Financial System

The European Commission is increasing Paris-based ESMA’s regulatory power.

  • Joe McGrath

The European Union is raising Paris’s profile as a major financial hub by centralizing the region’s regulatory power in the French capital.

Policymakers are increasing the supervisory reach of the European Securities and Markets Authority, the Paris-based regulator that seeks to safeguard the E.U.’s financial system, according to a statement from the European Commission Thursday. The region’s executive arm, based in Brussels and Luxembourg, said it aims to strengthen the powers of ESMA to “promote the effectiveness of consistent supervision across the E.U.”

The European Commission made the announcement while detailing its priorities for the region’s capital markets union project. The increased power it has granted ESMA represents a major win for Paris, which is seeking to attract asset management firms, banks and traders from the U.K. when it leaves the E.U. in 2019.

“ESMA is there, the infrastructure is there and we know the French authorities are wooing financial institutions,” said Alasdair Haynes, chief executive officer of Aquis Exchange. “This is a once in a lifetime opportunity for a land grab.”

Its larger role within Europe may prompt more financial firms, which traditionally have preferred to have offices close to where regulatory policy is set, to move staff to France.

Paris is increasingly seen as a “financial center of the future,” said Haynes, who is also the founder of Aquis Exchange, a London-based firm that began operating as a pan-European equities trading venue in 2013.

Last month, European Central Bank vice president Vitor Constancio signaled that investment firms in the E.U. would be overseen by a single, cross-country regulator. The European Commission is now seeking to bolster ESMA’s power, giving it more of the responsibilities traditionally belonging to national regulators within the trading bloc. The move is also meant to protect E.U. investor rights through greater transparency, while helping funds’ assets to be allocated more efficiently across Europe.

“As we face the departure of the largest E.U. financial center, we are committed to stepping up our efforts to further strengthen and integrate the E.U. capital markets,” Valdis Dombrovskis, vice president of the European Commission, said in Thursday’s statement.

The executive body’s mid-term plan included proposals for a “more proportionate regulatory environment” for small and medium-sized companies listing on public markets and a review of the prudential treatment of investment firms.

The European Fund and Asset Management Association said the decision to accelerate market integration and prioritize a review of rules governing cross-border distribution of funds was welcomed. Consolidating financial supervision under ESMA would be integral to removing regulatory barriers to selling funds in different European countries, according to the group.

In an emailed statement, Peter De Proft, director general of EFAMA, said fund firms play a vital role in the financing and growth of the European economy, and that a capital markets union would be strengthened by increased competition and the safeguarding of investor protections.

“We will continue contributing our expertise and vision of how to build an overall asset management framework that ensures an efficient and attractive investment environment,” he said.

The European Commission’s announcement came on the same day Reuters reported that 30 to 50 asset managers were now in talks to move to Paris due to Brexit, up from the 30 firms disclosed to Institutional Investor in an April interview with the French Asset Management Association.