While the final shape that Brexit will take remains unknown, it is very likely that after Brexit UK-authorised collateral managers will no longer enjoy the benefit of the MiFID passport to provide their services to CLOs in EU Member States.

A key consideration for collateral managers has been whether they can continue to manage CLO issuers if they no longer have the necessary MiFID passport.

IRELAND’S MIFID FRAMEWORK - SAFE HARBOUR

Ireland implemented MiFID in a manner which prohibited any person from acting as, or claiming to be, an investment firm in Ireland without either a MiFID authorisation from the Central Bank of Ireland, or a passported MiFID authorisation from a regulator in another EU Member State.

To date, the Irish MiFID I framework has included a ‘safe harbour’ whereby an investment firm is not regarded as operating in Ireland where: 

» its head or registered office is in a non-EU country;

» it has not established a branch in Ireland; and

» it is not providing investment services to Irish individuals (who themselves do not provide investment services on a professional basis).

IRELAND’S MIFID II FRAMEWORK - SAFE HARBOUR TO BE RETAINED

Department of Finance Feedback Statement

The Irish Department of Finance recently confirmed that, after MiFID II has been implemented in January 2018, Ireland will broadly maintain the existing ‘safe harbour’ for non-EEA firms providing investment services into Ireland on a cross-border basis to per se professional clients and eligible counterparties.

The MiFID II ‘safe harbour’ will be slightly more limited in scope than the MiFID ‘safe harbour’ in that it will not apply in the following circumstances:

» if the non-EEA firm provides investment services to retail or elected-up professional clients in Ireland (per Article 39, MiFID II);

» if the non-EEA firm is registered by ESMA in accordance with Article 47 (Equivalence decision) of MiFIR, on the basis that the MiFIR third country regime supersedes any national third country regime when the firm is registered by ESMA following an equivalence decision by the European Commission in respect of its home country. The Department has highlighted that the ‘safe harbour’ will still exist for these firms, but under the MiFIR framework (and thereby across the EU) rather than under national law;

» in respect of non-EEA firms whose home country is on the list of noncooperative jurisdictions maintained by the Financial Action Task Force and who are not subject to authorisation and supervision in respect of the investment services they provide to wholesale clients in Ireland; and

» in respect of non-EEA firms whose home country is not a signatory to the IOSCO Multilateral Memorandum of Understanding concerning consultation and cooperation and the exchange of information.

This is good news for UK-based collateral managers who will be able to continue to provide collateral management services to Irish CLO issuers categorised as eligible counterparties or per se professional clients even if there is a ‘hard Brexit’ and they lose their MiFID passport rights. 

Irish MiFID II Regulations

The Irish Regulations that will transpose MiFID II into Irish law have just been published:

European Union (Markets in Financial Instruments) Regulations 2017 (SI 375/2017)

As drafted, they provide that the ‘safe harbour’ will be available in respect of the provision of services to eligible counterparties and all professional clients however, in light of the recent Feedback Statement published by the Department of Finance, we expect that this is an error and that the reference will be changed before 3 January 2018 to refer to eligible counterparties and per se professional clients.

For further information on MiFID II, read our recent client briefings:

MiFID II: Department of Finance publishes Feedback Statement on MiFID II Consultation

MiFID II: Safe Harbour Update

MiFID II: Central Bank consults on changes to Client Asset Regulations and Investor Money Regulations