knowledge 23 June 2023 |

Ireland as a Location for MiFID Investment Firms 2023

Ireland is home to a significant number of investment firms regulated under the legislative framework set out in the revised Markets in Financial Instruments Directive 2014/65 (“MiFID II”) and the Markets in Financial Instruments Regulation 600/2014 (“MiFIR”). As of early June 2023, Ireland has 90 authorised investment firms. There are a number of advantages to being authorised in Ireland under this framework, including:

• a strong regulatory framework with a credible and experienced regulator, the Central Bank of Ireland (the “CBI”);

• a favourable passporting regime with the ability to passport to other EEA member States either on a branch or a cross-border services basis;

• a favourable tax regime, due to a combination of a 12.5% corporate tax rate and an exceptionally extensive and comprehensive set of double tax agreements; and

• access to a sophisticated financial services ecosystem with a deep pool of talent including managers, professional advisers and service providers including not only native English speakers but a sizeable international population.

Regulatory Framework

Generally, a firm must be authorised by the CBI under the European Union (Markets in Financial Instruments) Regulations 2017 (the “MiFID Regulations”) if it wishes to provide investment services and/or activities in Ireland.

As MiFID is a maximum harmonisation regime, the prudential rules with which an investment firm that is authorised by the CBI must comply are similar to those in other EU jurisdictions. The key legislative requirements with which an Irish MiFID firm must comply are the MiFID Regulations (which transpose MiFID II into Irish law), MiFIR and directly applicable Commission Delegated Regulations. There is also an array of applicable secondary legislation and guidance/Q&A issued by the European Securities and Markets Authority (“ESMA”) and/or the CBI.

From a capital perspective, most MiFID firms are subject to the prudential framework set out under the Investment Firms Regulation 2019/2033 (the “IFR”) and the Investment Firms Directive 2019/2034 (the “IFD”).

Passporting

An investment firm that is authorised by the CBI under the MiFID Regulations can passport its authorisation into other EEA jurisdictions without the need to seek further authorisation under MiFID.

Third Country Firms and Per Se Professionals

An investment firm authorised in a third country (“Third Country Firm”) may be able to provide investment services to per se professional clients (as defined under MiFID) in Ireland if it falls within the so-called “safe harbour” exemption under the MiFID Regulations.

The Safe Harbour Exemption

Regulation 5(4)&(5) of the MiFID Regulations permit a Third Country Firm to provide MiFID services/activities to a per se professional client and/or to an eligible counterparty without establishing a branch in Ireland, once it satisfies certain requirements, namely:

• the Third Country Firm’s head or registered office must be in a non-EEA member state and it must not have a branch in Ireland;

• the Third Country Firm must be subject to authorisation and supervision in the third country in which it is established and the relevant competent authority must pay due regard to any recommendations of the Financial Action Task Force (FATF) in the context of anti-money laundering and countering the financing of terrorism; and

• co-operation arrangements must be in place between the CBI and the competent authorities of the third country that include provisions regulating the exchange of information for the purpose of preserving the integrity of the market and protecting investors.

The Equivalence Framework

Article 46 of MiFIR allows for the provision of investment services in the EEA by a Third Country Investment Firm, subject to the fulfilment of certain conditions (the “Equivalence Framework”). 

Under MiFIR, a Third Country Firm can provide investment services to or perform investment activities for eligible counterparties and per se professional clients without establishing a branch where it is registered in the Register of Third Country Firms kept by ESMA (the “Register”).

However, before a Third Country Firm can be entered into the Register, a number of conditions must be fulfilled. In particular, the European Commission must have adopted a decision pursuant to Article 47 of MiFIR as to the equivalence of the supervisory and regulatory regime of the third country where the firm is established. To date, no such equivalence decision has been adopted.

Moreover, the Equivalence Framework, as set out in the IFR and IFD, has been applicable to firms since 26 June 2021. Specifically, the IFR amends MiFIR to require a Third Country Firm to establish necessary arrangements and procedures to report detailed information to ESMA on an annual basis as a condition of registration. 

The IFR also makes a number of changes to the process for assessing equivalence. In particular, where the scale and scope of the services provided and the activities performed by Third Country Firms in the EU are likely to be of systemic importance, the IFR amends MiFIR to:

• provide for a more granular equivalence assessment as to whether firms authorised in the relevant third country comply with equivalent legally binding prudential, organisational and business conduct requirements; and

• give the European Commission powers to attach operational conditions to equivalence decisions.

Third Country Firms and Retail/Opted-Up Professional Clients

Under the MiFID Regulations, a Third Country Firm will generally need to establish a branch in Ireland and obtain prior authorisation from the CBI before providing investment services/activities to retail clients and opted-up professional clients.

However, it is possible that a Third Country Firm will be able to provide such services/activities without establishing a branch on a “reverse solicitation basis”, namely when the client initiates, at its own exclusive initiative, the provision of the relevant service or performance of the relevant activity. This is different to the usual position and careful consideration should be given before relying on this.

The Authorisation Process

An entity wishing to become authorised by the CBI as a MiFID firm must apply to the CBI for authorisation. The MiFID application process generally involves the steps set out in the table below.

 

Stages of the Authorisation Process
Step 1: Pre-engagement and scoping	The applicant seeking authorisation engages with professional advisors to scope out the business proposed in Ireland. At this stage it is important for applicants to understand resourcing expectations (discussed below) and to identify what investment and ancillary services it requires authorisation for (including any potential additional permissions under the domestic Investment Intermediaries Act 1995). The applicant, typically through its legal advisors, requests a preliminary meeting with the CBI to discuss the proposed application. A slide deck summarising inter alia the background to the applicant and its group, the rationale for locating in Ireland, the proposed business model, regulatory mapping of the proposed business against the required authorisations, details of any proposed critical or important outsourcing and indicative three year projected financials is prepared and submitted to the CBI in advance of the meeting.
Step 2: Preliminary Meeting	The preliminary meeting is held in advance of an application being made, for which a high-level presentation must be prepared. The CBI will inform the applicant of the authorisation process and time-lines and alert the applicant to any significant issues that could affect the outcome of the authorisation process and that are apparent to the CBI at this stage.
Step 3: Key Facts Document (“KFD”)	After the preliminary meeting, the CBI will provide feedback and invite the applicant to provide a “Key Facts Document” (“KFD”) for its review. The KFD builds on the information provided in the presentation at 1 above and is intended to iron out any initial gating issues in advance of the formal application. The KFD provides an overview of the applicant, the reason why the applicant is seeking to become authorised in Ireland as well as details regarding the applicant’s proposed business model, structure, clients, and high-level capital projections for the next three years. An applicant that intends to hold client assets must also provide details as to how it intends to manage these. The CBI will review the KFD and will revert with comments. There are typically one or more question and answer rounds on the KFD.
Step 4: Formal Application	Following the CBI’s acceptance of the KFD, the applicant must complete an Application Form for Authorisation and submit it to the CBI. The formal application requires the submission of inter alia: completed MiFID application  form; Programme of Activity; shareholding information (including group structure and reporting documentation); client asset management plan (if the applicant intends to hold client assets);  3 year financial and capital projections; and completed individual questionnaires (“IQs”) for all holders of “pre-approval controlled functions” (e.g. directors and senior managers). There are typically a number of Q&A rounds on the formal application before the CBI issues its decision.
Step 5: Review of Application and Determination Process	The CBI will make its determination within 6 months of its receipt of a completed application.

The benefit of the CBI’s thorough review and comment process outlined above is that an applicant will have the necessary resources, board of directors, risk management framework, outsourcing framework and operations structure in place to carry out regulated activities once it has been granted authorisation.

Key Considerations

For existing groups with substantial operations outside Ireland, an important requirement will be the CBI’s emphasis on ensuring that the applicant’s “heart and mind” will be located in Ireland. This essentially means that the CBI will need to be satisfied that the applicant will be properly run in Ireland and that the CBI will be able to supervise it effectively. Among other things, the CBI will expect to see present in Ireland:

• a senior management team with strength and depth overseen and directed by a strong board; and

• organisation structure and reporting lines which ensure there is appropriate separation and oversight of all activities.

Outsourcing

An Irish authorised investment firm may outsource/delegate some of its activities to entities in other jurisdictions, subject to compliance with the MiFID Regulations, Commission Delegated Regulation 565/2017 (“CDR 565”), and the CBI’s Cross-Industry Guidance on Outsourcing. However, the investment firm will need to be able to satisfy the CBI that there are objective reasons for the outsourcing arrangements and that they do not lead to the creation of letter-box entities or allow the circumvention of the MiFID framework and the responsibilities of the investment firm. Moreover, the MiFID Regulations and CDR 565 impose a number of obligations on investment firms when outsourcing critical or important operational functions.

Fitness and Probity

Directors and senior executives must be approved by the CBI as part of the authorisation process and the CBI will need to be satisfied that the person appointed to the relevant role is a fit and proper person, with appropriate competence and experience in financial services to enable them to fulfil their duties. In general, to be fit and proper, a person must:

• be competent and capable;

• act honestly, ethically and with integrity; and

• be financially sound.

In addition, the Central Bank (Individual Accountability Framework) Act 2023 provides for, inter alia, additional responsibilities and obligations for senior executives which means they are individually accountable for decisions made on their watch.

How Can We Help?

McCann FitzGerald LLP is Ireland’s premier law firm and advises on the full range of financial activities undertaken in Ireland. We have substantial experience in successfully guiding applicants through the MiFID application process (including advising on capital and consolidation matters) and in helping them to comply with their legal obligations, once established. If you are considering setting up a MiFID firm in Ireland, please contact us for further information as to how we can help.