1. Legislative Framework
1.1 Key Laws and Regulations
Banking business in Ireland is regulated under both domestic legislation and the legislation of the EU, which either is directly applicable in Ireland or has been transposed into Irish law by domestic provisions. New laws and regulations applicable to Irish banks are primarily driven by developments at the EU level.
The primary domestic legislation establishing the framework for the regulation of banking activities in Ireland is the Central Bank Acts 1942- 2018 (Central Bank Acts). The Central Bank Act 1942 originally established the Central Bank of Ireland (CBI) as a central bank and since then its competence has expanded. Following the introduction of the Central Bank Reform Act 2010 (2010 Act), the CBI is the primary Irish financial regulatory body
The Central Bank Act 1971 (1971 Act) establishes the requirement for persons carrying on "banking business" to hold a banking licence and sets out certain requirements applicable to banks.
The CBI is empowered under the Central Bank Acts to issue codes of practice and regulations to be observed by banks. The CBI has issued several codes or regulations in areas such as corporate governance, related party lending, mortgage arrears, consumer protection, minimum competency and SME lending.
Irish banks are also subject to extensive regulatory requirements driven by EU initiatives regulating the activities of "credit institutions" (the terms "credit institution" and "bank" are used interchangeably in this document). These include the Fourth Capital Requirements Directive (2013/36/EU) (as amended by Directive (EU) 2019/878 (CRD V)) (CRD), the Capital Requirements Regulation ((EU) 575/2013) (as amended by Regulation (EU) 2019/876 (CRR II)) (CRR) and the Bank Recovery and Resolution Directive (2014/59/EU) (as amended by Directive (EU) 2019/879 (BRRD II)) (BRRD). CRD is transposed into Irish law by the European Union (Capital Requirements) Regulations 2014 (as amended) (CRD Regulations), while the CRR, as an EU regulation, is directly applicable. BRRD is implemented in Ireland by the European Union (Bank Recovery and Resolution) Regulations 2015 (as amended) (BRRD Regulations).
Regulation (EU) 1024/2013 (SSM Regulation) establishes the Single Supervisory Mechanism (SSM), which is responsible for banking supervision in the participating Member States, such as Ireland. Under the SSM, the European Central Bank (the ECB) has exclusive competence in respect of certain aspects of the prudential regulation of Irish banks, including the granting and withdrawal of banking licences and the assessment of notifications of the acquisition and disposal of qualifying holdings in banks (except in the case of a bank resolution). The ECB also directly supervises "significant" banks (SIs), while the CBI directly supervises "less significant" banks (LSIs), subject to ECB oversight. The SSM sets out criteria for determining SIs and LSIs.
Other Regulatory Bodies
Other regulatory bodies that are also relevant to Irish banks include the following:
- the Corporate Enforcement Authority;
- the Competition and Consumer Protection Commission, which regulates competition and consumer affairs;
- the Data Protection Commission, which enforces data protection legislation in Ireland; and
- the Financial Services and Pensions Ombudsman, which handles complaints from consumers of financial services.
2.1 Licences and Application Process Banking Business
Section 7(1) of the 1971 Act prohibits the carrying on of "banking business" or accepting deposits or other repayable funds from the public without a banking licence. "Banking business" is defined as any business that consists of or includes receiving money on the person's own account from members of the public either on deposit or as repayable funds, and the granting of credits on own account (subject to certain exceptions).
While the 1971 Act does not define "repayable funds", section 2(2) of the Central Bank Act 1997 defines "deposit" for the purposes of the Central Bank Acts as "a sum of money accepted on terms under which it is repayable with or without interest whether on demand or on notice or at a fixed or determinable future date."
A person may apply for a banking licence to be granted under Section 9 of the 1971 Act. Since the introduction of the SSM, the ECB is the competent authority for the granting of the licenc
It is also possible to apply for authorisation under Section 9A of the 1971 Act for an Irish branch of a bank that is authorised in a third country (ie, a non-EEA country).
Holding oneself out as a banker
Section 7(1) of the 1971 Act also restricts persons from holding themselves out or representing themselves as a banker, or from carrying on banking business unless appropriately authorised.
The 1971 Act provides that, where a person carries out business under a name that includes the words "bank", "banker" or "banking", or any word which is a variant, derivative or translation of or is analogous to those words, or uses any advertisement, circular, business card or other document that includes such words, they hold themselves out or represent themselves as conducting or being willing to conduct banking business.
A banking licence permits the holder to engage in a broad range of business, including deposit taking, lending, issuing e-money, payment services and investment services and activities regulated by the Markets in Financial Instruments Directive (2014/65/EU) (MiFID II).
Applications for authorisation as a bank are made using the ECB's Information Management System (IMAS) portal. In practice, applicants will engage in a pre-application meeting with the CBI to discuss the scope of any application. The application process for a bank licence begins with a preliminary engagement phase known as the "Exploratory Phase". During this phase the applicant submits an initial high-level proposal for their application. The applicant will often have meetings or calls with the CBI to discuss the proposal. Following the CBI's review of the proposal, if no issues are identified then the applicant moves to the next stage.
The next stage is known as the "Draft Application" stage. This phase involves the submission by the applicant of a draft application. The majority of the assessment work will be carried out during this phase. The assessment will be carried out by the ECB for entities seeking to establish a credit institution in Ireland. The application pack requires extensive detail regarding all material areas of the applicant's proposed business.
Following the receipt of the application, the CBI will assess the application, in conjunction with the ECB. The process is iterative and typically involves multiple rounds of extensive comments and queries from the regulators.
The ECB indicates that the assessment will cover areas including:
- general presentation of the applicant and its history, including background and justification for requesting the licence;
- programme of operations, including intended activities, business model and the associated risk profile;
- structural organisation of the applicant, including IT organisation and outsourcing requirements;
- financial information, including forecast balance sheet and profit and loss account projections and adequacy of internal capital and liquidity;
- suitability of shareholders; and
- suitability of the management board and key function holders and of the supervisory board.
Following the completion of the iterative query stage, the ECB will determine whether or not to grant a licence. The ECB indicates that it usually takes from six to 12 months for a decision to be taken on an application. Where a licence is granted, it may be subject to specific conditions.
There is no fee for submitting a bank application, but banks are subject to a number of ongoing levies.
Third country (non-EEA) credit institutions can seek to establish a licensed branch in Ireland to carry out banking business. The CBI will carry out an assessment for these institutions, rather than the ECB.
CRD also includes requirements for certain financial holding companies and mixed financial holding companies to be authorised and, in certain cases, non-EEA groups may be required to establish an intermediate EU parent undertaking.
Certain systemic investment firms are required to seek a bank licence.
Under the CRD mutual recognition provisions, Irish banks can both provide services on a freedom of services basis and establish a branch on a freedom of establishment basis across the EEA, subject to completing the necessary passporting processes.
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Originally Published by Chambers And Partners
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