Each of the key E.U. financial services directives – the Markets in Financial Instruments Directive, the Alternative Investment Fund Managers Directive and the Directive on Undertakings for Collective Investment in Transferable Securities (collectively, the Directives) – contains requirements on the “substance” required to establish an asset management firm in an E.U. member state, including restrictions on a manager’s ability to outsource key functions to other entities. The U.K.’s decision to withdraw from the E.U., and the anticipated relocation of U.K.-based firms to the E.U., has led to further efforts within the E.U. to clarify positions on outsourcing. The European Securities and Markets Authority (ESMA) has published several opinions in 2017 outlining principles for competent authorities to follow when authorizing U.K. investment firms and managers (among others) to relocate within the E.U. In a guest article, John Young, PSL counsel at Ropes & Gray, considers the basic substance requirements in the Directives, along with the highlights of ESMA’s opinions and how those opinions might affect U.K. firms that have plans to relocate following Brexit. For more on ESMA, see “ESMA Strives to Prepare Markets As MiFID II, MiFIR and Brexit Approach” (Oct. 12, 2017); and “ESMA Requires Enhanced Supervisory Role and Tools for Harmonizing E.U. and Third-Country Regulations” (Jun. 22, 2017). For additional insight from Young, see “Ropes & Gray Attorneys Discuss Implications for U.S. Hedge Fund Managers of the European Market Infrastructure Regulation” (Jul. 18, 2014).