Welcome to the Dillon Eustace corporate bulletin. We have set out some of the recent legal developments which we feel may be of interest to you and/or your business.
In this edition we discuss the effect of the revised Payment Services Directive which came into force in January 2016.
We also review recent developments in the area of Anti-Money Laundering and provide an update on Data Protection issues and developments.
We assess the Irish Stock Exchange's Review of 2015. We also discuss the recent ruling of the High Court which limits the statutory powers of the Irish Competition Authority Regulator.
We review the European Commission's Recommendation on reinforcing their tax treaties against abuse by aggressive tax planners. Finally, we discuss further upcoming changes in the area of company law and the Companies Act 2014.
Companies Act 2014 – Transition Period for Conversion to a Designated Activity Company Expires on 31 August 2016
All companies which are required, or wish, to convert to a designated activity company under the Companies Act 2014 (the "Act") need to do so before 31 August 2016.
Under the Act, all private limited companies need to make a decision whether to convert to:
- a company limited by shares (LTD); or
- a designated activity company (DAC); or
- another type of company (public limited company, Societas Europaea).
The Act provides for an 18 month transition period, commencing on the commencement date (1 June 2015). The Act goes on to provide that an existing private company may re-register as a designated activity company by passing an ordinary resolution, not later than 3 months before the expiry of the transition period, resolving that the company be so registered. Therefore companies which intend to convert to a DAC must do so before 31 August 2016.
Thereafter, should the company fail to convert, it will be deemed to be a LTD and may only reregister following the re-registration procedure under Part 20 of the Act or following a court order under section 57.
Is the Company engaged in lending money or extending credit?
If a company believes the LTD option is the more appropriate form of company for it, it should first consider whether it is in the business of lending money or extending credit? As you may be aware, certain companies such as insurance undertakings and credit institutions are required to convert to a DAC under the Act. The requirement for credit institutions to convert to a DAC was aimed at banks and lending institutions.
However the definition of credit institution under the Act is very broad and, as a result, appears to catch any private limited company which lends money in the ordinary course of business ("a company or undertaking engaged in the business of accepting deposits or other repayable funds or granting credit for its own account").
This is acknowledged as an error in drafting and is expected to be rectified in an upcoming Bill. However we have no way of knowing when this will be.
In the meantime, while a company may not be a credit institution from the perspective of the Central Bank, it could be classed as a credit institution for the purposes of the current definition in the Act where it is engaged in the activity of lending.
This would mean that it would be obliged to convert to a DAC and should do so before 31 August 2016. There are different views as to whether this catches all lending of any nature (no matter how ad hoc) by a company or whether it should be interpreted less strictly as catching more systematic type lending activity (such as by a treasury company within a group). If you think this may be an issue, we can discuss further.
Payment Services Directive
(i) Revised Payment Services Directive (the "PSD2") comes into effect and the European Banking Authority (the "EBA") Discussion Paper on future Draft Regulatory Technical Standards (the "RTS") on strong customer authentication and secure communication under revised PSD2
Following its publication in the Official Journal of the EU on 23 December 2015, the PSD2 entered into force on 12 January 2016. Member States have 2 years from that date to transpose it into national law.
- Introduction of strict security requirements for the initiation and processing of electronic payments and the protection of consumers' financial data;
- Opening the EU payment market for companies offering consumer or business oriented payment services based on the access to information about the payment account – the so called "payment initiation services providers" and "account information services providers";
- Enhancing consumers' rights in numerous areas, including reducing the liability for nonauthorised payments, introducing an unconditional ("no questions asked") refund right for direct debits in euro; and
- Prohibition of surcharging (additional charges for the right to pay e.g. with a card) whether the payment instrument is used in shops or online.
The EBA is mandated to provide RTS under the PSD2 by January 2017. The RTS will specify the requirements of strong customer authentication, exemptions from the application of these requirements, requirements to protect the user's security credentials, requirements for common and secure open standards of communication and security measures between the various types of providers in the payment sector.
To assist in drafting the RTS, the EBA published a discussion paper in December 2015 with responses to have been submitted up until 8 February 2016. No update on the RTS has been provided as of yet by the EBA since this deadline passed.
Fourth Anti-Money Laundering Directive
(ii) Department of Finance and the Department of Justice and Equality publish consultation paper on Member States discretions in transposing Fourth Anti-Money Laundering ("AML") Directive
On 29 January 2016, the Department of Finance and the Department of Justice and Equality (the "Departments") issued a consultation paper on the transposition of the Fourth AML Directive into Irish law and the discretions available to Ireland (the "Consultation Paper").
Some of the areas where the Consultation Paper requested feedback included:
- Beneficial ownership registers (corporate) – The Fourth AML Directive requires Member States to ensure that corporate entities obtain and hold accurate information on their beneficial ownership which can be made available when due diligence is being undertaken on them. The information on beneficial ownership is required to be held in a central register and Member States are obliged to ensure that the information on beneficial ownership is accurate, adequate and current. Member States must also ensure that the beneficial ownership information register is readily accessible to competent authorities without restrictions, obliged entities within the due diligence framework and any person or organisation who can demonstrate a legitimate interest. The Consultation Paper asked for feedback on the level of access to the register for corporate and other entities and further asked whether access should be extended to the public at large. It also asked for views as to whether beneficial owners should be required to apply, on a case-by-case basis, to restrict access to certain information and, if so, what circumstances and information could be restricted.
- Beneficial ownership register trusts – Under the Fourth AML Directive Member States are required to hold trust-related information in a central register where the trust generates tax consequences, with the Revenue Commissioners indicating its openness to being the body to maintain such a register. The Consultation Paper suggested that evidence of the generation of a tax consequence could be the receipt by the trustees of income or capital gains, disposal of income or capital assets by the trust and/or the movement of funds by the trust. The Consultation Paper asked for feedback on the registration requirements for trusts and on the list of tax consequences, as well as any other views on how this article may be transposed.
The Consultation Paper also asked for views on other areas of the Fourth AML Directive such as the ability to exempt certain gambling services from AML/CFT laws, the discretion to allow certain obliged entities not apply customer due diligence measures, the discretions available in relation to due diligence carried out in high risk jurisdictions by wholly owned subsidiaries of entities established in the EU and the appointment of a central contact point for e-money issuers.
The Consultation Paper can be accessed at the following link:
http://www.finance.gov.ie/sites/default/files/AMLD National Discretions Consultation National Discretions Consultation Paper.pdf
The deadline for responses to the Consultation Paper was 4 March 2016. The responses are currently being considered by the Departments.
(iii) Commission establishes Action Plan for strengthening the fight against terrorist Financing
On 2 February 2016 the Commission published its action plan aiming to strengthen the fight against terrorist financing (the "Action Plan"). The Action Plan seeks to prevent the movement of terrorism-derived funding and aims to target the sources of terrorist funding. It also comments on the international dimension to terrorism and the need for the EU to be an active player on the international scene in the fight against terrorist financing to include closer cooperation with third countries in identifying terrorist entities and being at the forefront of international forums on the issue of terrorist financing.
In order to better prevent the movement of funds and identify terrorist financing, the Action Plan proposes certain amendments to the Fourth AML Directive, as follows:
- Concrete effect to the EU "list of high risk third countries" – Under the Fourth AML Directive, where a country is listed as having strategic deficiencies in the area of AML or CTF, EU obliged entities will have to apply enhanced due diligence measures, however the exact nature of these measures is not currently specified. The Action Plan recommends clarifying the obligation in respect of applying the enhanced due diligence measures.
- Virtual currency exchange platforms – Virtual currencies are not currently regulated at EU level and lack the reporting mechanism currently found in the mainstream banking system to report suspicious activity. On this basis, the Action Plan seeks to bring the anonymous currency exchanges under the control of competent authorities by extending the scope of the Fourth AML Directive to include virtual currency exchange platforms.
- Prepaid instruments –The Commission is currently considering how to address the concerns raised by the anonymity of such general purpose cards without eliminating the benefits that they offer in their normal day-to-day use. The Commission stated that it will present further changes to the Fourth AML Directive, which could focus in particular on reducing existing exemptions such as thresholds below which identification is not required, notably for cards used face-to-face, and requiring customer identification and verification at the time of online activation of the prepaid cards. The Commission is currently exploring the detailed design of such measures, taking into account their impact and the need for proportionality.
- Centralised bank and payment account registers and central data retrieval systems – The Commission proposes amending the Fourth AML Directive to ensure that each Member State must establish centralised bank and payment accounts registers or electronic data retrieval systems as, currently, Member States are not bound by EU legislation to maintain such registers or retrieval systems.
The Commission has also said in the Action Plan that it will adopt an EU blacklist to identify high risk third countries with strategic deficiencies in their AML/CTF by the second quarter of 2016 at the latest. It also said that it will publish a report on a supranational assessment of ML and TF risks and recommendations to Member States on measures suitable to address those risks by the second quarter of 2017.
The full Action Plan can be found by accessing the following link: https://ec.europa.eu/transparency/regdoc/rep/1/2016/EN/1-2016-50-EN-F1-1.PDF
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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.