(Bloomberg) -- Europe’s top securities watchdog wants London-based hedge funds and asset managers to prove they have built up a presence in the European Union after Brexit.

Firms don’t necessarily need to move staff from London and can hire locally instead, Verena Ross, the chair of the European Securities and Markets Authority, said in an interview with Bloomberg News. She said national regulators should take a closer look at whether funds have devoted enough resources to running their operations inside the EU.

“ESMA would want to see further improvement in national competent authorities really vetting and ensuring that the senior management is represented,” Ross said. “Firms need to have a certain minimum footprint in terms of the right people, the decision making, and making sure you actually have your key control functions in the jurisdiction where you are doing business.” 

Some of the world’s biggest banks are already under pressure to move extra senior staff from London to cities such as Paris, Frankfurt and Amsterdam after the UK formally left the EU in 2020. The European Central Bank said in May that lenders that set up units in the euro area were still too dependent on operations outside the region, and found that about a fifth of the trading desks it reviewed “warranted targeted supervisory action.”

In December, an ESMA review found that national regulators were allowing London-based firms to extensively outsource and delegate arrangement after Brexit, and in some cases letting them relocate only limited staff and technical resources. The committee found that regulators in Ireland, Luxembourg and the Netherlands didn’t meet its expectations on fund managers, and had authorized firms with insufficient senior managers and other resources. Only the French regulator had fully met its requirements.

Funds Expand

Meanwhile, some funds have already laid the groundwork for more business to flow through the EU. Hedge fund Man Group Plc, which manages almost half of its $138 billion assets within Europe, the Middle East and Africa, is planning to hire more staff in the bloc.

“We’ve been more ambitious in our expectations around Brexit and invested a lot of resources into making sure we were aligned with the EU’s expectations about substance,” Steven Desmyter, global head of sales and marketing, said in an interview. “We are well equipped for what is presently required and for potential future developments.”

The firm employs about 1,000 people in the UK, where it’s headquartered. After the Brexit vote it got more regulatory permissions for Man Asset Management Ireland Ltd. and set up a physical office in Dublin. That entity now employs eight local people including a CEO and senior investment risk and compliance staff. The Dublin company also employs five people at a subsidiary office in Italy, two in Spain and one each in the Netherlands and Denmark. 

“The initial physical set-up is driven by Brexit but the expectation for expansion is for investment and commercial reasons,” Desmyter said.

A spokesman for Marshall Wace LLP, a London-based hedge fund managing $60.8 billion, declined to say whether the firm would increase its EU operations as it doesn’t comment on staff moves.

“Brexit has had a minimal impact on Marshall Wace, which is an international firm, with offices in Asia, US and Europe, and we have added headcount in all three regions in recent years,” the spokesman said. London remains the firm’s global center, and the only obvious Brexit impact was to move some commingled funds from Dublin into a partnership in Luxembourg with Lumyna, a local firm, the spokesman said.

ESMA will show flexibility toward smaller firms, which may find it challenging to have sufficient people located in the EU, Ross said. The goal is to give local offices enough control over what’s happening on the ground. “There is a proportionate approach which ensures that at the same time that minimum requirements are met,” she said. 

--With assistance from Nishant Kumar.

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