Requirements and Guidance for MiFID Investment Firms

Guidance related to MiFID Firms

The Central Bank has issued guidance on a number of topics to assist users of the Central Bank (Supervision and Enforcement) Act 2013 (Section 48(1)) (Investment Firms) Regulations 2023 (“the Central Bank Investment Firms Regulations”), listed below.

The list of topics is as follows:

• Relationship with the Central Bank
• Fund Administrators Outsourcing

• Own Funds, Risk Assessment and Capital Planning for Fund Administrators

Investment Firms Q&A

The Investment Firms Q&A sets out answers to queries likely to arise in relation to the Central Bank Investment Firms Regulations, MiFID II and MiFIR. It is published in order to assist in limiting uncertainty. It is not relevant to assessing compliance with regulatory requirements. You should check the website from time to time in relation to any matter of importance to you to see if the position has altered.

On 16 January 2019, the Central Bank has published the seventh edition of it's Investment Firms Q&A which includes new Q&As ID 1041 and 1042, in relation to tied agents under the MiFID II Regulations. These Q&As clarify that only EEA MiFID firms can appoint tied agents and that tied agents must be persons established in the EEA.

View all previous versions of the Q&A.

Corporate Governance Requirements

The Central Bank of Ireland is committed to strengthening corporate governance standards and practices across the financial services industry. The Corporate Governance Requirements for Investment Firms and Market Operators 2018 (the Requirements) provide clarity to industry and promote high standards of corporate governance within firms. They supplement and support the MiFID regime. The Requirements are intended to apply to firms authorised by the Central Bank that are designated as High, Medium High or Medium Low Impact under the Central Bank’s Probability Risk Impact System (PRISM). The Requirements will be conditions to which relevant firms are subject pursuant to Regulation 8 of the MiFID II Regulations or section 10(13) of the Investment Intermediaries Act 1995 as applicable. On that basis, the Requirements will be issued to all relevant firms so as to give such firms an opportunity to provide any submissions relevant to their individual firm prior to the Requirements taking effect with any relevant amendments from 1 July 2019. Low Impact firms are encouraged to adopt the Requirements as best practice.

Prudential Regime for MiFID Investment Firms

MiFID investment firms, with the exception of those firms for which Article 1(2) or Article 1(5) of the Investment Firms Regulation apply or those that are preparing to submit an application for authorisation under Article 8a(1) of the Capital Requirements Directive as amended by Article 62(6) of the Investment Firms Directive, are required to calculate their capital requirements in accordance with the criteria set out in the Investment Firms Directive and the Investment Firms Regulation.

MiFID investment firms are required to hold the minimum level of capital as set out in legislation at all times and are required to submit capital returns to the Central Bank on a periodic basis. MiFID investment firms are also required to assess and maintain on an ongoing basis the amounts, types and distribution of internal capital and liquid assets that they consider adequate to cover the nature and level of risks which they may pose to others and to which the firm itself is or might be exposed.

The Central Bank through it's Supervisory Review and Evaluation Process will undertake an assessment of the firm’s internal process and this review will be proportionate to the nature, scale and complexity of the activities of the firm.

Capital Requirements Directive

MiFID Investment Firms referred to in Article 1(2) or Article 1(5) of the Investment Firms Regulation are required to calculate their capital requirements in accordance with the criteria outlined in the Capital Requirements Regulation and Capital Requirements Directive IV.

Resolution

MiFID investment firms subject to the €750,000 initial capital requirement in Regulation 8(1) of the European Union (Investment Firms) Regulations 2021 are subject to the European Union (Bank Recovery and Resolution) Regulations 2015.

On 3 April 2019 the Central Bank published the first edition of it's The Central Bank's Approach to Resolution for Banks and Investment Firms (First Edition)', This document:

• Provides an overview of the resolution framework;
• Outlines the Central Bank's general perspectives on resolution planning;
• Details the Central Bank's approaches to setting the minimum requirement for own funds and eligible liabilities (MREL); and
• Illustrates how the Central Bank would exercise it's resolution and liquidation powers in a failure event.

See our resolution explainer also

European Commission and European Supervisory Authorities

Firms are advised to consult the European Commission, ESMA and EBA websites for details of Level 2 measures/technical standards and Level 3 guidance.

• European Commission
• ESMA
• EBA

Themed Inspections

The following are letters issued by the Central Bank in relation to themed inspections conducted by the Central Bank on MiFID Investment Firms.

Consumer Protection

The Central Bank has put in place national product intervention measures prohibiting the sale of binary options and restricting the sale of contracts for difference (CFDs) to retail clients. The Central Bank binary options measure takes effect on 2 July 2019 and the Central Bank CFD measure takes effect on 1 August 2019. The measures are exercised by the Central Bank pursuant to Article 42 of MiFIR.

Please view the measures below:

Other regulatory requirements which investment intermediaries must comply with in the area of consumer protection are set out below:

• Consumer Protection Code and Guidance
• Minimum Competency Code

The Central Bank has set out its expectations in relation to the application of the MiFID II Costs and Charges disclosure requirements.

The Central Bank has set out it's expectations of investment firms when unengaging in unregulated activities, particularly with regard to disclosures and communications to clients.

Retail investor protections under BRRD

S.I No.713/2020 – European Union (Bank Recovery and Resolution) (Amendment) Regulations 2020 (‘the BRRD 2 Regulations’) came into force on 28 December 2020.  Investment firms (and other sellers, including retail intermediaries) operating in Ireland must comply with Regulation 80A(3) of the European Union (Bank Recovery and Resolution) Regulations 2015 ( S.I. No. 289 of 2015 ) (inserted by Regulation 21 of the BRRD 2 Regulations)  which stipulates that a relevant instrument with a denomination of less than €100,000 shall not be sold to a retail client in the State. This includes eligible liabilities which meets all of the conditions referred to in the Capital Requirements Regulation (CRR), Additional Tier 1 instruments or Tier 2 instruments and does not include ordinary shares regardless of whether such shares are recognised in Common Equity Tier 1, Additional Tier 1 or Tier 2 capital. Firms should consult the BRRD 2 Regulations for the precise scope, but the scope does include subordinated instruments and non-preferred senior unsecured debt instruments, including instruments such as contingent convertible bonds.  Investment firms (and other sellers, including retail intermediaries) should ensure that they comply with the BRRD 2 Regulations.

Third country branches

The Central Bank notes that a number of MiFID investment firms authorised in Ireland have branches in countries outside the EU / EEA (i.e. “outgoing third country branches”), including branches that were in existence in the UK prior to Brexit. Any MiFID investment firm that proposes to set up a branch in a third country, or to materially increase the operations of any such branch, should consult in advance with the Central Bank in accordance with Regulation 4(1) of the Central Bank Investment Firms Regulations.

Any MiFID investment firm that operates or intends to operate an outgoing third country branch should consider the contents of ESMA’s MiFID II supervisory briefing on the supervision of non-EU branches of EU firms providing investment services and activities.

The Central Bank applies the contents of this supervisory briefing when considering any existing or proposed outgoing third country branches and expects that a MiFID investment firm be able to demonstrate, on an ongoing basis, that any such branch structure is consistent with the principles set out in the supervisory briefing. MiFID investment firms should provide the information set out in paragraph 18 of the supervisory briefing when initiating any consultation on this topic with the Central Bank.

The Central Bank will consider the nature, scale and complexity of the proposed business to be carried out by the outgoing third country branch, and whether the MiFID investment firm as a whole can be adequately supervised by the Central Bank in considering such proposals. The Central Bank will expect the MiFID investment firm to have assessed whether any additional risks arise from the use of a third country branch structure and will consider whether the firm proposes to put any mitigants in place to address these.

In line with the ESMA Opinion to support supervisory convergence in the area of investment firms in the context of the United Kingdom withdrawing from the European Union, the Central Bank expects that key function holders within the MiFID investment firm, other than the branch manager, would not be based in the outgoing third country branch. Firms should note the amendment to PCF-16, effective 4 April 2022, such that it now includes branch managers in non-EEA countries. This amendment introduces the pre-approval requirement of Section 23 of the Central Bank Reform Act 2010 to all branch managers of regulated financial service providers outside Ireland.