The EU securities and markets regulator has warned national watchdogs against companies hoping to set up thinly staffed “brass plaque” entities ahead of Brexit.

In an advisory statement aimed at national EU regulators, the European Securities and Markets Authority (ESMA) issued guidelines for avoiding “regulatory arbitrage” between the 27 countries that will be left in the EU after the UK leaves the bloc.

ESMA said local regulators in the EU should “reject any relocation request creating letterbox entities”.

This would include a company looking to set up an EU operation to gain passporting rights while “essentially performing all substantial activities or functions outside the EU27″, ESMA said.

Paris-based ESMA works with the European Insurance and Occupational Pensions Authority and the European Banking Authority to promote “supervisory convergence” across the EU.

In its document, ESMA chairman Steven Maijoor said: “The UK plays a prominent role in EU financial markets and the relocation of entities, activities and functions to the EU27 creates a unique situation requiring a common effort, at EU level.

“Firms need to be subject to the same standards of authorisation and ongoing supervision across the EU27 in order to avoid competition on regulatory and supervisory practices between member states.”

The watchdog said it expects senior executives in newly established EU units to be actual decision-makers. ESMA noted that even when the entity is part of a bigger corporation, local board members and senior managers must be employed in the country they move to.

ESMA also urged financial services firms to hurry up with Brexit relocation plans.

“The authorisation process takes time,” the watchdog noted. To ensure efficiency, ESMA recommended companies approach local regulators “as early as possible”.

ESMA’s intervention comes as carriers weigh their post-Brexit location options, and it could curtail the benefits of shopping around.

Although all EU member states are bound by the same Solvency II requirements, national jurisdictions have diverged on staffing requirements, carriers have said.

Lloyd’s has already decided to set up an EU subsidiary in Belgium, while AIG is setting up a new European headquarters in Luxembourg, as are FM Global and Hiscox.

No major carrier has yet announced plans to relocate to Dublin, where staffing requirements are perceived to be more stringent.

The ESMA document called for local regulators to dismiss applications for licences from financial services companies looking for a laissez-faire regulatory regime.

Regulators should veto applications “where the activity carried out indicates clearly that the entity has opted for the legal system of a member state for the purpose of evading the stricter standards in force in another member state”.