European Union: Brexit - Implications For MiFID Firms

Last Updated: 28 July 2016
Article by Garry Ferguson, Gayle Bowen, Paul Farrell, Eoin O’Connor, Noeleen Ruddy, Andrew Traynor, Kerill O'Shaughnessy and Shane Martin

Most Read Contributor in Cayman Islands, September 2018

The outcome of the referendum on 23 June has raised a host of questions for MiFID investment firms currently located in the UK on what will happen following the UK's exit from the EU. It currently appears that the next 6 months and beyond will bring a period of substantial uncertainty in relation to the continuation of the financial services passporting regime currently enjoyed by UK based MiFID firms throughout the EU/EEA.

While the full implications of Brexit will depend on negotiations between the EU and UK, it is foreseeable that some UK MiFID firms may seek to migrate operations from the UK to elsewhere in the EU. There have already been press reports that some UK MiFID firms have begun the process of planning to obtain financial services authorisations and/or licences in other EU/EEA jurisdictions to continue to avail of unfettered access to EU/EEA markets. It is also possible we may see MiFID firms seek to avail of the cross-border merger mechanisms available under EU/ EEA law.

UK based managers can still provide investment services to Irish corporates

The first point worth noting is that investment firms will continue to be permitted to provide investment services to Irish corporates from their office in London following the departure of the UK from the EU. This could be quite a significant point in the context of managed capital markets transactions such as CLOs.

As implemented under Irish law MiFID does not require managers to hold an MiFID licence provided the manager has no head or registered office or branch in Ireland. As such, for European CLOs managed by UK collateral managers, it is possible that the UK collateral manager could continue to be used where the CLO is structured through an Irish SPV (although one also has to consider risk retention rules in the context of such transactions and in this respect we refer you to our Brexit advisory for securitisation and capital markets transactions).

Where passporting is a key requirement for an investment firm, they will need to consider relocation.

Relocation to Ireland

Ireland will remain a member state of the European Union and will continue to be subject to EU laws on the establishment and ongoing regulation of financial services providers including MiFID firms. As the only native English speaking and common law jurisdiction within the EU, Ireland may be an alternative location for MiFID firms and other regulated financial services providers currently located in the UK. Ireland's firm commitment to EU membership should extend to the timely implementation of MiFID II by January 2018.

We have set out below a brief overview of the Irish financial services environment, along with a short illustrative case study on the process of obtaining authorisation as a MiFID firm in Ireland.

Irish Regulatory Environment

A UK MiFID firm will find many close similarities between the Irish and UK regulatory environments. The majority of Irish financial services law is made up of Irish implementing measures for EU financial services directives (along with over-arching directly effective EU financial services regulations).

As a general comment, the Irish legislature tends to adopt a 'copy-out' approach when implementing EU directives into Irish law by way of enacting primary or secondary legislation (statutory instruments) which follow the text of the relevant directive closely. This approach applies in the case of the Irish domestic implementing legislation for MiFID which tracks many of the provisions of MiFID on a word for word basis. This approach assists in providing clarity as to scope and intent of domestic legislation and avoids unhelpful or unnecessary 'gold-plating'. We anticipate a similar approach will be taken in respect of MiFID II.

The Central Bank of Ireland (the CBI)

The CBI is the body responsible in Ireland for both the prudential and conduct of business regulation of MiFID firms in Ireland. Historically the CBI has had complete overall responsibility for the authorisation and supervision of regulated financial service providers in Ireland. Since 4 November 2014 this changed with certain supervisory responsibilities and decision making powers moving to the European Central Bank (ECB) through the establishment of the Single Supervisory Mechanism.

The substantial difference in size, scale and resources available between the CBI and the UK Financial Conduct Authority (the FCA) means that UK MiFID firms dealing with the CBI will notice some differences between the approaches of each regulator. As a general comment, the CBI produces less industry guidance than the FCA – for example, there is no Irish equivalent to the FCA Handbook. MiFID firms are expected to obtain their own legal advice when queries arise on how they should comply with their regulatory requirements and obligations.

In order to focus its resources efficiently, the CBI operates a risk-based framework for the supervision of MiFID firms, known as The Probability Risk and Impact SysteM (PRISM). Under PRISM, larger and more significant firms (those with the potential to have the greatest impact on financial stability and consumers) receive the highest level of direct supervision. Lower impact firms are supervised on a proportionate basis to their perceived risk, for example with thematic reviews, reactive or desk based supervision.

The CBI has identified the following as the principal criteria for assessing applications for authorisation as an Irish MiFID firm:

  1. acceptability and transparency of the ownership of the financial service provider;
  2. fitness and probity of individual directors and senior management;
  3. adequacy of proposed capital to be invested;
  4. adequacy of internal controls and risk management systems;
  5. level of resources and expertise of staff.

Timing of relocation

The exact date of departure of the UK will not be known until Westminster invokes Article 50 of the EU Lisbon Treaty by notifying the European Council of the UK's intention to withdraw from the EU. Once the notification is delivered the process appears to be irreversible and the final deadline for exit will be 2 years after such notification. Given the relatively short period before the final separation between the UK and the EU, and the complicating factor of MiFID II's January 2018 deadline for implementation, it would now seem to be in the interest of MiFID firms generally to consider their options. With this in mind we outline below a short case-study highlighting the steps involved in the migration of a MiFID firm to Ireland.

One point to bear in mind at the outset is that early engagement with the CBI is important – while the CBI has guidelines on the timing for approval of MiFID firms these are not binding on the CBI and, as such, to ensure continuity of regulation within the EU, earlier engagement with the CBI will obviously be of benefit and will reduce the risk of any gap in regulatory oversight.

Taxation

Ireland has a favourable corporate tax regime which is attractive to companies looking to establish operations in Ireland. The 12.5% corporation tax rate on trading income is one of the lowest in the EU and one of the lowest 'onshore' statutory corporate tax rates in the world. A higher 25% corporation tax rate applies to non-trading income (i.e. passive income).

As a member of the European Union, Ireland benefits from various protections afforded under EU law, including the benefit of the Parent/ Subsidiary Directive and the Interest and Royalties Directive which can apply to eliminate withholding taxes on payments between residents of EU member states. Ireland also has an extensive double tax treaty network and various domestic provisions which can substantially reduce or eliminate withholding taxes on non-Irish source income, as well as facilitate the repatriation of profits outside of Ireland in a tax efficient manner. Ireland also has a double tax treaty with the UK which, regardless of what agreement is reached on exit, will facilitate investment between the two jurisdictions.

Sample Case Study – Migration of an Investment Firm

By way of an illustrative example, we have set out below a brief overview of the authorisation process for an investment firm in Ireland, along with some observations and comments on this process. Although the CBI has made a public commitment to abide by the timelines set out below, there is a strong risk that these timelines will slip if there is a flood of applications for authorisation post-Brexit.

Applicable legislation S.I. No. 60 of 2007 – the European Communities (Markets in Financial Instruments) Regulations 2007 implements MiFID in Ireland and governs the authorisation of MiFID investment firms.

MiFID firms in Ireland will also be subject to ancillary or related EU financial legislation as implemented into Irish law, eg CRD IV, and the the 3rd AML Directive.
Pre-application steps

In advance of any application for authorisation being submitted, the applicant must complete a Key Facts Document ("KFD"). Within 20 working days of receipt of the KFD, the CBI will arrange a preliminary meeting with the applicant.

Level 1 / Level 2 Following the preliminary meeting, the CBI will designate the applicant either a:

Level 1 firm - comprises small firms with non-complex investment strategies, providing a limited range of services; or

Level 2 firm - comprises larger firms, including those with complex investment strategies, providing a broad range of services, or holding client assets.
Content of the application A complete application will typically include at a minimum:
  1. CBI application form;
  2. detailed business plan;
  3. copies of policies and procedures;
  4. fitness and probity information for directors/senior managers;
  5. financial projections and capital calculations.
It should be possible to leverage off existing UK documentation and/or past UK applications to prepare the application in an efficient manner

Timing of authorisation

Level 1 firm: CBI's determination on the application should issue within 60 working days from the date of submission of the complete application suite of documents.

Level 2 firm: CBI's determination on the application should issue within 120 working days from the date of submission of the complete application suite of documents.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions