The European Union (Markets in Financial Instruments) Regulations 2017 (S.I. 375/2017) (the “MiFID II Regulations”) were signed into law on 10 August 2017 and are now publicly available.
The MiFID Regulations transpose into Irish law the European Union’s Markets in Financial Instruments Directive (Directive 2014/65/EU) along with its accompanying regulation, the Markets in Financial Instruments Regulation (“MiFIR”) (Regulation 600/2014/EU), which are collectively known as “MiFID II”. The Regulations will take effect on 3 January 2018.
In line with Ireland’s traditional approach when implementing EU directives into Irish law, the MiFID Regulations have not introduced any “gold-plating” (i.e. any additional national regulation above and beyond what is contained in the text of MiFID II).
While Ireland has not gold-plated MiFID II, the following are certain provisions of the MiFID Regulations pursuant to which Ireland has exercised certain national discretion as permitted under MiFID II and as such may differ from other EU Member States.
Optional Exemption Pursuant to Article 3 of MiFID II
Under Article 3 of MiFID II, EU Member States (e.g., Ireland) have the option to exempt some firms from authorisation as MiFID investment firms.
The firms, which may be exempted, are those which:
- provide investment advice and / or receive and transmit orders;
- do not hold client funds or securities;
- only receive and transmit client orders for transferable securities and collective investment schemes units and/or provide related investment advice, and are only be allowed to transmit such orders to identified firms or funds; and
- do not perform MiFID business outside of their home Member State.
Member States are required to subject these Article 3 MiFID “Exempt Firms” to national regulation and Exempt Firms must be subject to 'at least analogous' requirements. These include a wide range of authorisations, conduct of business and organisational requirements, but not the whole range of regulations that will apply to MiFID investment firms. This optional exemption has been included in Regulation 4(3) of the MiFID Regulations. The MiFID II investor protection regime will not apply to Exempt Firms, and these firms will only be subject to investor protection requirements under the Central Bank of Ireland’s (the “Central Bank”) Consumer Protection Code 2012 (the “CPC”) and the Investment Intermediaries Act 1995 (the “IAA”). To address any differences between MiFID and the CPC, the Department of Finance has set out a 'gap list' in its Feedback Statement detailing what changes will be required in order to comply with the MiFID obligation that Exempt Firms are regulated in a substantially analogous way. As a result, changes to the CPC and the IAA are expected.
Safe Harbour Regime for Wholesale MiFID Firms
In the Feedback Statement issued in July this year, the Department of Finance decided to substantially maintain the national safe harbour regime in place for third country firms that provide investment services to wholesale clients in Ireland. The “safe harbour” regime has been retained under Regulation 5 of the MiFID II Regulations. As a result, US and UK managers that provide services to UCITS and/or MiFID firms domiciled in Ireland will not be subject to full licensing requirements albeit with certain limitations on its scope. One limitation is that the safe harbour will not apply if the firm provides investment services to retail or an opt-up professional in Ireland. The MiFID Regulations, however, provide that the safe harbour will be available in respect of the provision of service to eligible counterparties and all professional clients.
Ireland has exercised its discretion to go beyond the client asset rules set out in MiFID II. This is not surprising given the lengthy consultation process undertaken by the Central Bank which led to the publication of the Client Asset Regulation and the Investor Money Regulations in 2015 (the “2015 Regulations”). The 2015 Regulations are super-equivalent to MiFID II and their retention has been approved by the European Commission. Minor amendments will need to be made to the 2015 Regulations to reflect the overlap with MiFID II. In its consultation paper, CP111 (Consultation Paper on the Second Edition of the Central Bank’s Investment Firms Regulations including changes related to MiFID II), the Central Bank proposes integrating all rules dealing with client assets into an updated version of the Central Bank Investment Firms Regulations which is expected to be finalised by 3 January 2018.