Ireland: Investment Firms Quarterly Legal And Regulatory Update: 1 July 2017 – 30 September 2017

MIFID II - IRISH DEVELOPMENTS

(i) Department of Finance issues a MiFID II Feedback Statement

On 14 July 2017, the Department of Finance in Ireland published a MiFID II Feedback Statement (the "MiFID II Feedback Statement") on its 2016 public consultation on national discretions under Directive 2014/65/EU ("MiFID II Directive") and Regulation (EU) No 600/2014 ("MiFIR") (together "MiFID II").The consultation was launched in September 2016 and dealt with aspects such as the exercising of optional exemptions, interaction with the Investor Intermediaries Act 1995 (as amended) (the "IIA") and also the treatment of third country firms post MiFID II.

Article 39 of MiFID II contains an optional national discretion available to Member States which allows Member States to opt to elect to exempt certain firms (namely, third country firms engaged in the provision of wholesale investment services (i.e. services to per se professional clients and eligible counterparties) from the requirements of MiFID II.

In MiFID II Feedback Statement, the Department of Finance indicated that it is proposed that the MiFID II Irish implementing legislation will maintain the requirement for third country firms to establish a branch where the firm intends to provide investment services to retail clients and "opt-up" professional clients. The "safe-harbour" exemption will continue to be available to investment firms providing services to per se professional clients and eligible counterparties, subject to a number of new conditions.

Article 3(1) (a) – (c) of MiFID II permits Member States to elect to exempt firms carrying out certain limited activities (each an "Exempt Firm") from the scope of MiFID II. This reflects the position under MiFID Directive 2004/39/EU ("MiFID I"). However, MiFID II contains the added proviso that such Exempt Firms must be subject to requirements which are "at least analogous" to the MiFID II requirements. In the MiFID II Feedback Statement, the Department of Finance indicated that this exemption will be contained in the MiFID II Irish implementing legislation. In order to ensure that those Exempt Firms will be subject to Irish legislation which is "at least analogous" to the obligations under MiFID II, the Department of Finance indicated that the IIA and the Central Bank's Consumer Protection Code 2012 will be required to be amended.

The MiFID II Feedback Statement sets out details on the proposed amendments to the IIA and the Central Bank's Consumer Protection Code 2012.

The Dillon Eustace publication entitled "MiFID II; DOF Feedback Statement Third Country Firm Safe Harbour" can be accessed here.

A copy of the MiFID II Feedback Statement is available here.

(ii) Transposition of MiFID II into Irish law

The MiFID II Directive, along with MiFIR, collectively known as "MiFID II" will enter into force from 3 January 2018.

In order to transpose MiFID II into Irish law, the European Union (Markets in Financial Instruments) Regulations 2017 (S.I. No. 375 of 2017) were signed into Irish law on 10 August 2017 (the "MiFID II Irish Regulations 2017"). The MiFID II Irish Regulations 2017 amends the Central Bank Act 1942 as well as the Investment Intermediaries Act 1995 (as amended). Changes to the Central Bank's Consumer Protection Code 2012 and to the client asset regulations contained in the Central Bank Investment Firm Regulations 2017 are also required as part of the transposition of MiFID II.

A copy of the MiFID II Irish Regulations 2017 are available here.

(iii) Central Bank publishes Consultation Paper on the Second Edition of the Central Bank Investment Firms Regulations including changes related to MiFID II

On 16 July 2017, the Central Bank published a Consultation Paper on the Second Edition of the Central Bank Investment Firms Regulations including changes related to MiFID II - Consultation Paper 111 ("CP 111").

CP 111 consults on a number of proposed changes to the Central Bank Investment Firms Regulations (S.I. No. 60 of 2017) as follows:

  • MiFID II necessitated changes to the Client Asset Regulations 2015 ("CAR");
  • Integration of CAR into the Central Bank Investment Firms Regulations in line with CP 97;
  • Integration of the Investor Money Regulations (S.I. No. 105 of 2015) as amended in 2016 ('IMR') into the Central Bank Investment Firms Regulations;
  • Integration of the Central Bank rules in relation to the capital requirements applied to market operators as set out in the Central Bank's feedback statement on CP 101; and
  • Some other consequential changes to the existing Central Bank Investment Firms Regulations to address matters arising since the first edition of the Central Bank Investment Firms Regulations became operational and certain changes arising out of MiFID II (including certain technical amendments in relation to the regulatory requirements applied to Fund Administrators).

In respect of the changes to CAR, the current Irish CAR regime will be maintained, with some amendments to address the fact that the MiFID 2 level 2 rules are detailed and to some extent overlap with CAR. It is expected that the proposed changes to the Central Bank Investment Firms Regulations will be in place by 3 January 2018.

The deadline for response to the Consultation Paper was 27 September 2017.

A copy of the Consultation Paper is available here.

(iv) Central Bank publishes the MiFID II amendments to the Consumer Protection Code 2012

On 12 August, 2017, the Central Bank published an Addendum to the Consumer Protection Code 2012 (the "Code"). The purpose of the Addendum is to implement the amendments to the Code arising from the transposition of the MiFID II Directive into Irish law, as envisaged in the MiFID II Feedback Statement.

The following parts of the 2012 Code are amended by the Addendum:

  • Chapter 4 – Provision of information;
  • Chapter 9 – Advertising; and
  • Chapter 12 – Definitions.

In addition, the Addendum inserts a new Chapter 14.

The Addendum is stated to be effective from 3 January 2018, the date of application of 2017 Irish MiFID II Regulations.

A copy of the Addendum is available here.

(v) Irish Funds publishes a Q&A document on MiFID II

On 6 September 2017, Irish Funds published a Q&A document on MiFID II which addresses the implications for the Irish funds industry. Questions and answers are included on:

  • General scoping matters;
  • Inducements, payments for research and disclosures of costs;
  • Product governance; and
  • Investment Managers/Advisers of AIFs/UCITS.

The Q&A also sets out action points for UCITS Management Companies ("ManCos") and AIFMs to consider.

MiFID II does not apply directly to UCITS ManCos and AIFMs which are not authorised to carry out MiFID investment services. However, UCITS ManCos and AIFMs typically contract with service providers who provide MiFID investment services in respect of Irish UCITS and AIFs as part of a delegation model framework. The Q&A has been prepared by the Irish Funds MiFID II Working Group to assist these UCITS ManCos and AIFMs with regard to matters relating to the implementation of MiFID II. As industry progresses with the implementation of MiFID II by 3 January 2018, further Q&As may be published in order to address issues arising. The Irish Funds MiFID II Working Group continues to monitor and engage on MiFID II implementation.

A copy of the Q&A is available to members of Irish Funds through the association's website portal.

(vi) Central Bank testing for MiFIR Transaction Reporting

The Central Bank's Online Reporting System ('ONR') testing for MiFIR transaction reporting is currently underway. The testing will allow certain participating firms and the Central Bank to test the MiFIR Transaction Reports submission process and ensure that potential issues are identified and rectified in advance of the go live date of 3 January 2018. The testing involves uploading XML ISO 20022 compliant files to Test ONR (i.e. a test version of ONR).

(vii) Central Bank issues industry letter on the review of MiFID suitability requirements

On 29 August 2017, the Central Bank issued a letter to the industry regarding a suitability themed review of MiFID firms compliant with ESMAs "Guidelines on certain aspects of the MiFID suitability requirements" (the "Guidelines"). The Guidelines clarify the application of the suitability requirements outlined in Regulations 76(3) and 94 of the European Communities (Markets in Financial Instruments) Regulations 2007 (S.I. No. 60 of 2007) (the "Irish MiFID I Regulations").

A copy of the letter to industry can be found here.

A copy of the Guidelines can be found here.

(viii) Central Bank confirms compliance with ESMA Guidelines on the Calibration of Circuit Breakers and Publication of Trading Halts

On 14 September 2017, the Central Bank notified industry participants that it confirms it complies with ESMA's Guidelines on the Calibration of Circuit Breakers and Publication of Trading Halts under MiFID II (the "Guidelines").

The Guidelines provide guidance on:

  • The calibration of trading halts;
  • The dissemination of information regarding the activation of a trading halt; and
  • The procedure and format to submit reports on trading halt parameters from national competent authorities ("NCAs") to ESMA.

The Guidelines will apply from 3 January 2018 and can be found here.

To read this Update in full, please click here.

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.

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