MiFID II Implementation – Ireland And Third Country Firms – Finance and Banking



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On 14 July 2017, the Irish Department of Finance issued a
feedback statement on its 2016 public consultation on Ireland’s
approach to the transposition of MiFID II1 (the “Feedback Paper“).

While the final publication of the Irish transposing regulations
is expected in the coming weeks, the Feedback Paper contains
important statements regarding third country firm access to the
Irish financial market and welcome clarity on the scope of the
MiFID II licensing requirements for such firms in Ireland from 3
January 2018.

The Feedback Paper states that the Irish Minister for Finance
has decided to “substantially maintain” the Current Irish
Safe Harbour (as defined below) in respect of “wholesale”
clients, subject to the amendments and detail noted below. These
amendments will not affect the historic position relied upon by the
vast majority of third country firms when structuring and servicing
Irish international finance and investment fund structures. If
implemented, the proposed updated regime will continue to provide
third country firms with the now familiar legal comfort, certainty
of access and ease of conduct of business in this sector.

We welcome the contents of the Feedback Paper given the
importance of the Current Safe Harbour to Ireland’s financial
services industry. In particular, it provides important clarity to
industry participants in advance of the publication of the Irish
regulations transposing MiFID II and in the context of current
Brexit-scenario planning by the international financial services
industry.

The Current Irish Position

Ireland’s MiFID I Regulations2 prohibit any
person from acting or claiming to be an investment firm in Ireland
without due authorisation (by the Central Bank of Ireland (the
CBI“) or under the MiFID I passport
regime). While it has always been possible to advise investment
firms whether an Irish licence is required on an examination of
their actual activities (e.g. a first principles analysis on where
services are actually carried out), this is not the ideal
foundation from which to conduct business. In particular, this is
the case for third country firms who are not able to rely on the
passport in MiFID I which allows EU investment firms to provide
services on an establishment or freedom of services basis within
the EU.

To provide clarity to third country firms on the scope of the
Irish MiFID licensing requirement, the Irish MiFID I
Regulations3 provide that an investment firm shall not
be regarded as operating in Ireland (and therefore outside the
Irish licensing requirement), where:

  1. its head or registered office is in a
    non-EU country;

  2. it has not established a branch in
    Ireland; and

  3. it is not providing investment
    services to Irish individuals (the “Current Safe
    Harbour
    “).

As such, when acting within the Current Safe Harbour third
country firms (e.g. arrangers and managers to Irish securitisation
SPVs or non-EU investment advisors to regulated funds) can provide
services without incurring significant costs in determining on a
case by case basis that they are otherwise outside the Irish
licensing requirement.

While the Current Safe Harbour does not impose any equivalency
hurdle for the third country firm, in respect of third country
managers appointed to Irish regulated investment funds the CBI does
prrove this appointment as part of the fund’s authorisation and
supervision (the “CBI Fund Manager Approval“).

The Proposed Irish Position under MiFID II

The Feedback Paper states that it is the Irish government’s
intention to amend the Current Safe Harbour to recognise the MiFID
II dual regime approch. MiFID II introduces for the first time both
a third country firm EU passport for the provision of services to
eligible counterparties and per se professional clients (the
third country passport“)4
and a Member State discretion to impose a local branch requirement
on third country firms providing services to retail and elective
professional clients (the “retail branch
requirement
“)5.

Retail and Elective Professional Clients

The Feedback Paper states that Ireland has decided to exercise
the retail branch requirement both in respect of retail and
elective professional clients.

While the Irish regulations transposing MiFID II are yet to be
published, third country firms providing investment services to
such clients in Ireland should take advice immediately on whether
they will need to establish an authorised branch in Ireland from 3
January 2018. The Feedback Paper is silent on transitional
arrangements in this regard.

The Feedback Paper also states that the Irish government
understands that the imposition of the retail branch requirement is
the approach most Member States intend to adopt.

The reverse-solicitation safe harbour6 will also be
available for the provision of services to such clients. While
reverse-solicitation will not be widely applied and will be
interpreted narrowly, it may provide useful comfort to some third
country firms.

Eligible Counterparties and Per Se Professional Clients

The Feedback Paper states that an amended form of the Current
Safe Harbour will be maintained for eligible counterparties and
per se professional clients, subject to the following:

  1. the revised safe harbour will not
    apply to the provision of services to retail or elective
    professional clients (as per the imposition of the retail branch
    requirement);

  2. where the third country passport is
    available to a third country firm (i.e. upon an EU equivalence
    grant by the European Commission to a third country pursuant to
    MiFIR), that regime shall prevail. Additionally, where ESMA
    withdraws a third country firm’s passport under MiFIR, the CBI
    will be empowered to align with ESMA’s withdrawal decision;
    and

  3. the safe harbour will not be
    available to third country firms who are not subject to
    authorisation and supervision in their third country in respect of
    the investment services being provided to wholesale clients in
    Ireland, whose home country is on the FATF list of non-cooperative
    jurisdictions and whose home country is not a signatory to
    the IOSCO Multilateral Memorandum of Understanding concerning
    consultation, cooperation and the exchange of information.

In respect of condition (c), we expect the language of the Irish
transposing regulations to track closely the corresponding retail
branch requirement authorisation conditions found in Article
39(2)(a) and (b) of MiFID II.

We expect that the CBI will continue to operate the CBI Fund
Manager Approval in respect of regulated investment funds.

Summary

For most third country firms who are relying on the Current Safe
Harbour in the context of Ireland’s international finance and
funds sectors, the policy guidance contained in the Feedback Paper
will provide welcome comfort.

The revised safe harbour proposed will retain Ireland’s
attractiveness as the location of choice for a range of established
products including regulated investment funds, securitisations,
debt securities offerings and other structured products.

The published Irish position also respects the increased
harmonisation and enhanced retail protection objectives of MiFID
II. However, in respect of the provision of investment services to
elective professional clients, the Irish adoption of the retail
branch requirement will likely increase the cost of the provision
of such services to this sector of the market. This may ultimately
act to reduce Irish client access to such services from third
country providers.

Whether an Irish client is a per se professional client or
merely an elective professional client will be an important issue
to establish for market participants. Annex II of MiFID II details
these classifications and is included in Appendix I of this
update.

Our Role

Maples and Calder provides legal advice, regulatory guidance and
practical support to EU and third country investment firms.

Where MiFID applies, we can provide full support on MiFID
authorisation projects for new investment firms setting up in
Ireland (including associated support from other practice areas
including corporate, tax and employment).

We can carry out policies and procedures reviews and upgrades to
meet MiFID organisational requirements and conduct of business
rules.

We regularly liaise with the CBI on cross-border passport
applications and EU branch establishments. We also provide support
on areas such as anti-money laundering, business continuity
planning and automated compliance monitoring.

Footnotes

1 Directive 2014/65/EU and Regulation (EU) No 600/2014
(“MiFIR“) (together, “MiFID
II
“)

2 The European Communities (Markets in Financial
Instruments) Regulations 2007 (as amended)

3 See Regulation 8 thereof

4 See MiFIR Articles 46-49

5 See MiFID II Articles 39-42

6 See MiFID II Article 42

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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