With the prospect of a "hard" Brexit on the horizon, many regulated financial services providers based in the UK are continuing to look at business solutions to manage the loss of passporting rights. As part of this Brexit-planning, we are seeing a number of our clients exploring the possibility of seconding key staff from the UK to Ireland in order to assist in resourcing a newly authorised entity or bolster their existing Irish operations.
The update made by the Central Bank to its Brexit FAQ is an indicator of the increasing prevalence of these types of arrangements being considered by regulated firms as they navigate through the Brexit contingency planning process.
Central Bank's approach to secondments
In June 2019, the Central Bank updated its Brexit FAQ which provides general information to regulated financial services providers that are considering relocating some of their operations from the UK to Ireland. The Central Bank update includes the addition of a Q&A specifically dealing with how the Central Bank will consider a proposal to second staff from the UK to Ireland to carry out business that was formerly done by a UK-authorised firm.
Firstly, the Central Bank recognises that secondment arrangements represent a useful business solution for staffing of certain functions, particularly in the early and growth stages of a business. The Central Bank makes clear that any such arrangement will be assessed by the Central Bank on a case-by-case basis and its considerations will (at least) include:
- the time being dedicated to the operations of the Irish firm;
- the sufficiency of local management resources to oversee seconded employees; and
- the extent to which the interests of the secondees are aligned with the interests of the Irish firm (or in reality, with that of another economic or legal entity).
The Central Bank also expects that the secondees are close to the business of the Irish-authorised firm and do not have a conflict of interest.
Further issues to consider
Secondment arrangements can be complex from a legal perspective and there is a need to reconcile conflicting legal considerations in relation to primarily employment, regulatory and tax law.
Secondment arrangements can also be particularly nuanced when the staff in question will be exercising "controlled functions" ("CF") within the meaning of the Central Bank's Fitness & Probity regime. The significance of such a secondment for a holder of a CF may mean that the secondee will be subject to two separate fitness and probity regimes, overseen by two different regulators.
Additionally, in the context of "pre-approval controlled functions" ("PCFs") in particular, it is in the regulated entity's interest to demonstrate in the secondment paperwork that the secondee's time will be allocated between the respective entities in a manner that the Central Bank considers satisfactory.
Furthermore, following the implementation of the Senior Managers Regime in the UK and in light of the proposed Senior Executive Accountability Regime in Ireland, it is also advised that roles and responsibilities for PCFs in respect of each entity are very clearly set out.
The Brexit FAQ provides a useful insight into how the Central Bank will assess Brexit-related proposals (whether they be in respect of a new authorisation or a material change to a business plan) that include the secondment of staff from the UK to Ireland.