Ireland as a Business Location for MiFID Investment Firms Ireland is home to a significant number of investment firms authorised under the regulatory framework set out in the Markets in Financial Instruments Directive (“MiFID”)1 . There are a number of advantages to being authorised in Ireland as a MiFID firm 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 staff, managers, professional advisers, regulators and service providers including not only native English speakers but a sizeable international population (roughly 17%). mccannfitzgerald.com A guide to 2 | mccann fitzgerald GUIDE TO Regulatory Framework Currently, MiFID firms are regulated under the European Communities (Markets in Financial Instruments) Regulations 2007, which transpose MiFID into Irish law. The existing framework will be replaced by a new regulatory regime once the MiFID II Directive2 and the Markets in Financial Instruments Regulation3 (“MiFIR”) apply in January 2018. The MiFID II Directive has been transposed into Irish law through the European Communities (Markets in Financial Instruments) Regulations 2017 (the “MiFID II Regulations”). Passporting and Third Country Firms One of the main advantages of the MiFID legislation is that it enables an investment firm to carry on business covered by its authorisation throughout the EEA without seeking further authorisation in another member state. An investment firm authorised in a third country (“Third-country Firm”) cannot passport under MiFID, but may benefit from a “safe harbour” which means that it does not need to become authorised in Ireland to offer MiFID investment services. In order to avail of safe harbour, the firm’s head or registered office must be in a non-EEA member state, it must not have a branch in Ireland and it must provide investment services exclusively to corporate entities or individuals that provide investment services on a professional basis. The MiFID II Regulations and MiFIR contain more detailed requirements regarding Third-country Firms, which impact on the safe harbour exemption. These requirements vary depending on whether the Thirdcountry Firm’s intended clients are a) retail and opted-up professional clients (eg a retail client who has requested to be considered a professional client), or b) per-se professional clients and eligible counterparties. 1 Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in financial instruments amending Council Directives 85/611/EEC and 93/6/EEC and Directive 2000/12/ EC of the European Parliament and of the Council and repealing Council Directive 93/22/EEC, (OJ L 145, 30.4.2004, p. 1). 2 Directive 2014/65/EU of the European Parliament of the Council of 15 May 2014 on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU (recast) (Text with EEA relevance) (OJ L 173, 12.6.2014, p. 349). 3 Regulation (EU) No 600/2014 of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Regulation (EU) No 648/2012 (OJ L 173, 12.6.2014, p. 84). 3 | mccann fitzgerald Ireland as a Business Location for MiFID Investment Firms Retail and opted-up professional clients Under the MiFID II Regulations, a Third-country Firm will generally need to establish a branch in Ireland and obtain prior authorisation from the Central Bank of Ireland (“CBI”) before providing investment services/ activities to retail clients and opted-up professional clients. However, the Third-country Firm will be able to provide such services/activities without establishing a branch when the client initiates, at its own exclusive initiative, the provision of the relevant service or performance of the relevant activity. This does not entitle the Third-country Firm to market new categories of investment products or investment services to that client otherwise than through a branch. Professional clients and eligible counterparties Under the MiFID II Regulations, a Third-country Firm will be able to provide MiFID services/activities to a per-se professional client and/or to an eligible counterparty without establishing a branch, once it satisfies certain requirements in addition to those which currently apply. Specifically: • 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 Central Bank 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. MiFIR provides an EU wide right for a Third-country Firm to provide investment services or perform investment activities to professional clients and eligible counterparties without establishing a branch, once it is registered in the register of Thirdcountry Firms kept by ESMA. In order to be included on the register, a firm must meet a number of requirements. In particular, the European Commission must have adopted an equivalence decision in relation to the legal and supervisory arrangements in place in the third-country. Third-country Firms will be able to continue to provide services and activities in Ireland under the MiFID II Regulations until three years after the adoption of such an equivalence decision. 4 | mccann fitzgerald GUIDE TO The Authorisation Process An entity wishing to become authorised as a MiFID Firm must submit an application for authorisation to the CBI. According to the CBI, all applicants seeking authorisation as a MiFID investment firm should use the form “MiFID Application Form – Investment Firms” regardless of whether authorisation is sought before, or from, 3 January 2018. The CBI has updated its MiFID Application Form and MiFID Guidance to take account of the MiFID II Directive and associated measures. A person who immediately before 3 January 2018 is an authorised investment firm under the existing MiFID framework will be deemed to be an authorised person for the purpose of the MiFID II Regulations and will not have to apply for a new authorisation. However, such persons will still have to ensure that they comply with the new requirements imposed on investment firms under the MiFID II regulatory framework. An entity, including a Thirdcountry Firm, that intends to acquire an existing Irish investment firm will have to notify the CBI by completing an Acquiring Transaction Notification Form (available here). 5 | mccann fitzgerald Ireland as a Business Location for MiFID Investment Firms Key Considerations An entity that wishes to obtain a MiFID authorisation under Irish law must fulfil a number of requirements. 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. An Irish authorised branch may outsource/delegate some of its activities to entities in other jurisdictions, subject to compliance with the MiFID Regulations. Brexit Relocations On 13 July 2017, ESMA published an Opinion to support supervisory convergence in the area of investment firms in the context of the United Kingdom withdrawing from the European Union as well as two other sector specific Opinions dealing with investment management and secondary markets, respectively. These three Opinions followed a general ESMA Opinion, published at the end of May. Among other things, the Opinions require all national competent authorities to be satisfied that there is an objective justification for a firm’s decision to relocate to a particular EU member state and that this is not motivated by regulatory arbitrage. According to the CBI, prospective applicants should be mindful of the Opinions when seeking to engage with the CBI and, at a minimum, be able to address queries regarding the rationale for the structure, location and characteristics of the proposed firm. For its part, the CBI has published Brexit FAQs which provide general information to financial services firms considering relocating their operations from the UK to Ireland. The intention is that these will be updated regularly as the Brexit negotiations progress and as new issues emerge and are resolved. 6 | mccann fitzgerald GUIDE TO How Can McCann FitzGerald Help? McCann FitzGerald is one of Ireland’s premier law firms and advises on the full range of financial activities undertaken in Ireland. We have substantial experience in successfully guiding applicants through the MiFID application process and in helping them comply with their legal obligations, once established. If you are considering setting up a MiFID firm in Ireland, please contact us for further information as to how we can help. 7 | mccann fitzgerald Ireland as a Business Location for MiFID Investment Firms Further Information is Available from: Roy Parker Partner +353 1 607 1249 roy.parker@ mccannfitzgerald.com Judith Lawless Partner +353 1 607 1256 judith.lawless@ mccannfitzgerald.com Darragh Murphy Partner +353 1 607 1433 darragh.murphy@ mccannfitzgerald.com Josh Hogan Partner +353 1 607 1720 josh.hogan@ mccannfitzgerald.com mccannfitzgerald.com Principal Office Riverside One, Sir John Rogerson’s Quay, Dublin 2 d02 x576 | +353 1 829 0000 London Tower 42, Level 38C, 25 Old Broad Street, London ec2n 1hq | +44 20 7621 1000 New York Tower 45, 120 West 45th Street, 19th Floor New York, ny 10036 | +1 646 952 6001 Brussels 40 Square de Meeûs, 1000 Brussels | +32 2 740 0370 This document is for general guidance only and should not be regarded as a substitute for professional advice. Such advice should always be taken before acting on any of the matters discussed. © McCann FitzGerald, September 2017 INNOVATIVE LAWYERS 2016 TOP 50