Irish Region

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”). There are a number of advantages to being authorised in Ireland under this framework, including:

• the ability to passport throughout the European Economic Area (“EEA”), 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 managers, professional advisers, regulators and service providers including not only native English speakers but a sizeable international population (roughly 17%).

Regulatory Framework

Generally, a firm must be authorised by the Central Bank of Ireland (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. The MiFID Regulations transpose MiFID II into Irish law. 

An investment firm that is authorised by the CBI must comply with the requirements set out in the MiFID Regulations, and in MiFIR. 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.

Currently, most MiFID firms are subject to the prudential requirements set out in the Capital Requirements Regulation 600/2014 and the Capital Requirements Directive 2013/36 (as transposed into Irish law). However, from 26 June 2021, the majority of these firms will fall within the bespoke 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 is able to carry on the investment services or activities covered by its Irish authorisation throughout the EEA without seeking further authorisation in another EEA Member State.

Third Country Firms, Eligible Counterparties and Per Se Professionals

An investment firm authorised in a third country (“Third Country Firm”) cannot passport its services into the EEA. However, it may be able to provide investment services in Ireland without being authorised by the CBI, if it falls within the so-called “safe harbour” exemption under the MiFID Regulations.

Article 46 of MiFIR also 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”). 

The Safe Harbour Exemption

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

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 is set to change from 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, 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. 

Reliance on reverse solicitation to provide investment services to clients within the EU is not without difficulties. In particular, a Third Country Firm will not be able to provide investment services into the EU on a reverse solicitation basis, where it promotes or advertises investment services or activities together with ancillary services in the EU. Moreover, in January 2021, ESMA issued a public statement highlighting the emergence of “questionable practices” around reverse solicitation since the end of the UK transition period on 31 December 2020, and reminding firms that the provision of investment services in the EU without proper authorisation exposes firms to the risk of criminal sanctions. 

The Authorisation Process

An entity wishing to become authorised by the CBI as a MiFID firm must submit an application for authorisation to the CBI, using the form “MiFID Application Form – Investment Firms”. An entity, including a Third Country Firm, which intends to acquire an existing Irish investment firm will have to notify the CBI by completing an Acquiring Transaction Notification Form.

Key Considerations

An entity that wishes to obtain a MiFID authorisation under Irish law must fulfil a number of requirements. In particular, prospective applicants should be able to address queries regarding the rationale for the structure, location and characteristics of the proposed firm.

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.

There is no requirement for any specific individual to be resident in Ireland. However, ideally, the personnel who are to fulfil the applicant’s core functions should operate out of Ireland.

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. 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 associated secondary legislation 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.