A senior European regulator on Thursday warned supervisors in financial centres on the continent against undercutting each other to attract business from London after Britain's decision to leave the European Union.
Steven Maijoor, chairman of the European Securities and Markets Authority (ESMA), said in a speech there were some indications of "flexible national competition" as financial centres in Europe seek London's financial business.
"That is not the right process," Maijoor said. "It undermines the stability" of the remainder of the European Union. "This has been recognised by ESMA."
The risk of such arbitrage has recently crept onto the radar screens of politicians and regulators. Ireland has complained to the European Commission it is being undercut by rival centres competing to host financial firms looking for an EU base outside London.
Maijoor was speaking at a conference on clearing and derivatives as debate rages about the future financial landscape of Europe after Brexit.
Particularly intense debate has centred around a single big prize - the possible relocation of euro-denominated clearing operations from London to Paris or Frankfurt.
Some politicians and regulators believe Deutsche Boerse's subsidiary Eurex Clearing, based in Frankfurt, and LSE subsidiary Clearnet SA, based in Paris, are especially well placed to take on additional clearing business.
Maijoor's comments applied to supervision across the board, but also referred to euro denominated clearing.
He told Reuters: "it is fine when financial centres attract business for being efficient, but it should not be on the basis of regulatory or supervisory standards", when asked about the risks of Paris and Frankfurt fighting for the clearing business.
He made those comments as Philippe Guillot, who heads the market directorate at French regulator L'Autorite des Marches Financiers, said he favoured moving clearing from London.
"Business is getting more and more interconnected and more and more electronic." he said. "London was the model of the very centralized hub. Tomorrow you will have a much more decentralized hub with people sprinkling their staff everywhere, connected by systems."
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