UPDATE 1-EU insurers' watchdog to issue Brexit guidance to regulators

* EIOPA follows EU’s markets watchdog in publishing guidance

* Progress being made to limit arbitrage -Irish central bank

* Dublin says several firms to announce Brexit moves shortly (Adds detail, background)

DUBLIN, May 25 (Reuters) - The European Union’s insurance watchdog will publish guidance for national regulators to ensure they do not undercut one another in their attempts to attract firms moving from London due to Brexit, its head of policy said on Thursday.

The risk of such arbitrage has crept onto the radar of politicians and regulators as financial services firms begin to outline plans to move operations to different member states following Britain’s vote last year to leave the EU.

“EIOPA (European Insurance and Occupational Pensions Authority) is closely monitoring the developments and will publish in due course its guidance for national authorities on sound principles for authorisation and supervision,” EIOPA’s head of policy Manuela Zweimuller told a conference.

“We will subsequently closely monitor their implementation.”

EIOPA’s move follows a similar promise by the European Securities and Markets Authority, the EU’s markets watchdog, to publish guidelines for national regulators on this issue before the summer.

ESMA’s chairman has said it has intensively discussed the potential risks of new “letter box” companies springing up in the EU delegating key operations to parents in London, and warned any countries’ offering such flexible solutions to attract business could undermine stability.

Ireland’s government, which has so far missed out on two high profile insurance moves after Lloyd’s of London chose Brussels and AIG picked Luxembourg, has complained to the European Commission that rival centres were “offering a back door to the EU’s single market” through lax rules.

Speaking in London on Thursday, Lloyd’s of London’s chief executive said only 10 to 20 of its staff would be based in Brussels after it was allowed to delegate activity back to London and keep a lot of its underwriters and brokers in situ.

A senior regulator at Ireland’s central bank, which demands that any Brexit moves be substantial ones, told the conference that risks of regulatory differences emerging across the EU were real, but the bank was “very pleased” with the significant amount of work being undertaken by the European authorities.

The head of International Financial Services at IDA Ireland, the state agency that attracts foreign investment, said several firms, including insurers, had confirmed they had chosen Ireland and formal announcements would be made from June onwards.

“We’re interested in attracting in small firms, especially in the payments and financial technology area, but then equally we’re talking to some of the largest broker dealers in the world. We need and want both,” Kieran Donoghue told the conference. (Additional reporting by Carolyn Cohn; Editing by Rachel Armstrong and Mark Potter)