INVESTMENT FIRMS QUARTERLY LEGAL AND REGULATORY UPDATE
Markets in Financial Instruments Directive ("MiFID")
(i) Thematic Review: Conflicts of Interest
The Central Bank of Ireland (the "Central Bank") recently conducted a themed inspection (the "Themed Inspection") to examine the processes for the identification and management of conflicts of interest ("COI") in investment firms and on 25 February 2016 the Central Bank issued its findings from the Themed Inspection (the "Feedback Statement") with respect to COI.
By way of background, firms are obliged to establish and maintain an effective organisational model that actively monitors COI on a day-to-day basis so as to ensure that the best interests of clients are not negatively impacted. The Feedback Statement details the Central Bank's findings and highlights a number of trends that it has identified with respect to COI. While the Feedback Statement is given in the context of investment firms, it is also relevant to AIFMs and UCITS management companies of all types.
There are a number of key areas where the Central Bank identified failings around management of COI. These are, as follows:
General trends
- Lack of board ownership in relation to identification and management of COI;
- Policies and procedures not being sufficient to address COI requirements;
- Failure to implement policies and procedures in line with requirements;
- COI logs not live documents and some COI logs being blank;
- Failure on behalf of firms to demonstrate that they had considered, at a minimum, all of the different COI scenarios listed in applicable regulations; and
- Failure to communicate with and train employees on their obligations around COI, in order to identify COI from the ground up.
Personal Account Dealing
- Failure to perform post-trade analysis on personal account dealing.
Gifts and Entertainment
- Firms not considering that accepting gifts and entertainment could compromise their duty to act in clients' best interest; and
- Firms having no control processes in place around incoming or outgoing gifts, nonmonetary benefits and entertainment.
Intragroup Relations
- Improvement of the management of COI that arise where part of group entities; and
- Improvement of the management of COI that arise where management or a director propose to take on a role in other group entities.
The Feedback Statement also sets out a schedule of good and poor practices which it observed during its Themed Inspection and has indicated that the following actions are required with respect to the findings. These action points are stated as follows:
- Review of all COI policies and procedures to ensure they meet relevant regulatory requirements;
- Consider all good and poor practices listed in Appendix 2 of the Feedback Statement against the firm's own procedures; and
- Review the current list of identified COI to ensure that it remains up to date and relevant.
The Central Bank expects the content of the Feedback Statement to be discussed, considered and minuted by the board of directors of firms before 30 June 2016 and that where there is non-compliance with regulatory requirements, it will have regard to consideration given by any firm to the Feedback Statement when exercising its regulatory and enforcement powers.
A copy of the full Feedback Statement is available at the following link:
(ii) Central Bank of Ireland – MiFID Application Form
The Central Bank is the competent authority in Ireland for the authorisation of investment firms. In order for an investment firm to establish a business in Ireland it must apply to the Central Bank for authorisation under Regulation 11 of the European Communities (Markets in Financial Instruments) Regulations 2007 (as amended), (the "MiFID Regulations").
On 9 March 2016 the Central Bank published an updated MiFID application form which contains updated references to the European Union (Capital Requirements) Regulations 2014 (S.I. no. 158 of 2014) which came into effect on 1 January 2014. The updated application form along with the other MiFID forms, can be found at the following link:
http://www.centralbank.ie/regulation/industry-sectors/investment-firms/mifid-firms/Pages/forms.aspx
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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.
