MiFID is the EU framework for the regulation of investment firms carrying out investment services.
Ireland is a key European jurisdiction for the provision of investment services – both domestically and as a European hub for EU cross-border services.
This client update looks at the application process to set up an investment firm authorised under the MiFID regime in Ireland.
Subject to qualifying for any applicable exemptions, an investment firm will require authorisation under Regulation 11 of the MiFID Regulations  to (a) provide one or more investment services in Ireland; and (b) in respect of one or more financial instruments .
The authorisation process involves an application to the Central Bank of Ireland (the "Central Bank"). The key steps in the process are as follows:
- An initial submission to the Central Bank of a Key Facts Document ("KFD");
- A preliminary meeting with the Central Bank to discuss the applicant's business objectives and how these fit within the MiFID regime;
- Submission of a complete application form including (i) a detailed business plan; (ii) draft policies and procedures covering compliance; risk management; internal audit; conflicts of interest; business continuity; (iii) individual questionnaires for each PCF; (iv) a draft Internal Capital Adequacy Assessment Process ("ICAAP"); and (v) ownership details, a group structure chart and accounts of all entities in the group; and
- Review of the application by the Central Bank and final decision.
Once authorised in one EU member state, an investment firm can very easily "passport" its services (by way of establishing a branch or through the freedom of services) into other EU member states.
Outsourcing considerations and key roles
To establish a MiFID entity the "head office" / "principal place of business" or "the mind and management" of the applicant must be located in Ireland.
Therefore an applicant will require senior management presence in Ireland to ensure that full authority and effective control of the applicant's core functions (such as financial control, legal and compliance and risk management) rests there.
An Irish authorised MiFID firm may delegate some of its activities to entities in other jurisdictions, subject to the MiFID Regulations.
Regulation 105 of the MiFID Regulations states that the Central Bank will publish a statement of policy in relation to the outsourcing by an investment firm of portfolio management functions setting out examples of cases where the Central Bank would not object to such outsourcing and explaining why the Central Bank considers that in such cases outsourcing would not impair the ability of an investment firm to fulfil its obligations under the MiFID Regulations. However, the Central Bank has indicated to Maples and Calder that it has not published such policy. The process is therefore more subjective, based on the specific circumstances of each applicant.
In a recent statement a representative of the Central Bank stated that "the Central Bank does not have any per se difficulty with outsourcing up to an appropriate point".
The Central Bank expects that a firm must be able to demonstrate that it has necessary expertise to supervise the outsourced functions effectively.
Conditions for authorisation
These are as follows:
- Capacity to provide investment services. The applicant's constitutional documents must give it sufficient capacity to conduct investment services;
- Minimum capital. The applicant must have sufficient capital in line with the Capital Requirements Directive. Each firm must prepare an Internal Capital Adequacy Assessment Process ("ICAAP");
- Directors/managers. The Central Bank must be satisfied as to the probity and competence of the directors and senior managers of the applicant. Detailed questionnaires must be completed;
- Qualifying shareholders. Full details of the suitability of each qualifying shareholder needs to be provided, including group structure charts, details of all regulated entities in group, accounts for all entities in ownership chain and evidence showing ownership of each entity in that chain;
- Structure, skill, staffing. The Central Bank must be satisfied as to the organisational structure and management skills of the applicant and that adequate levels of staff and expertise will be employed to carry out its proposed activities; and
- Ongoing organisational requirements and conduct of business requirements. The MiFID Regulations apply high-level organisational and conduct of business standards to all investment firms.
The Central Bank has six months from the date it receives a complete application to provide its decision (which can be extended by another six months). The Central Bank will determine if an application is complete or not within ten working days of receipt. The entire process usually takes six to nine months.
MiFID 2 in context
The next iteration of the MiFID regime (MiFID 2) comes into effect on 3 January 2018. This represents a substantive revamp of the EU regulatory regime for investment firms. Among the areas of direct impact, investment firms will need to address a range of new or enhanced requirements on (i) pre- and post-trade transparency; (ii) transaction reporting; (iii) inducements; and (iv) product governance and distribution.
The Central Bank is already engaged with industry in preparation for the introduction of the new regime. New MiFID 2 forms and guidance have been published on their website and the Central Bank will accept applications for authorisation under the new regime from 3 July 2017.
At this point, any new applications should take MiFID 2 into account and ideally factor as much of the new and enhanced requirements into their business from the outset.