## _cr14136 ## Source details **Canonical URL:** [_cr14136](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2014/_cr14136.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2014/_cr14136.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2014/_cr14136.pdf.json) --- ### Summary, Key Findings, and Recommendations - High level of implementation of the International Organization of Securities Commissions (IOSCO) principles; Central Bank of Ireland (Central Bank) has broad supervisory, investigative and enforcement powers. - Monitoring: on-site and off-site monitoring exist; thematic reviews complement monitoring. - Market surveillance: Central Bank and Irish Stock Exchange (ISE) have developed sound systems. - Central Bank objectives include monitoring and mitigating systemic risk; routinely reviews perimeter of regulation; powers to cooperate domestically and internationally are extensive. - Accounting and auditing standards are high (IFRS and UK and Irish GAAP; auditing standards conform to ISA as issued by the IAASB). - Areas requiring strengthening: - Central Bank should make more use of on-site inspections for all types of market intermediaries. - Central Bank should pursue full use of enforcement authority, including criminal prosecutions. - Governance and independence concerns: - Presence of Secretary General of the Department of Finance on the Commission and ministerial discretionary removal power for Commissioners may threaten independence. - Disclosure regime gaps: - Entities that have issued securities to the public but whose securities are not admitted to trading on a regulated market (RM) need stronger disclosure requirements. - EU-prescribed deadlines for publishing annual and interim reports should be reduced for all issuers, including collective investment schemes. - Resolution and crisis powers gap: - Central Bank lacks power to appoint administrators to investment firms in financial difficulty or to take possession/control of firm assets; alternatives are limited to liquidation. - Human resources constraints: - Impediments to attract/retain high-calibre staff; compensation program flexibility recommended. *Source: _cr14136 - INTRODUCTION ___________________________________________________________________________________ 7* ### Assessment Context, Methodology, and Sources - Mission: IMF ROSC mission to Ireland during September–October 2013 by Tanis MacLaren and Mark McGinness. - Methodology: 2011 IOSCO Methodology for Assessing Implementation of the IOSCO Principles; Principle 38 not assessed. - Assessors examined legal/regulatory framework and implementation in practice, inspection programs, enforcement follow-up. - Information sources: detailed self-assessment by authorities; interviews with Central Bank, ISE, IAASA, FSO, ODCE; market participants; legislation, regulations, guidelines and related materials. - Exception: Principle 22 assessment on CRAs reflects ESMA assessment (IMF review December 2012). ### Institutional and Market Structure — Overview - Central Bank objectives: - The stability of the financial system; - Resolution of the financial difficulties in credit institutions in Ireland; - The efficient and effective operation of payment and settlement systems; - Provision of analysis and comment to support national economic policy development; - Proper and effective regulation of financial institutions and markets, ensuring consumer protection. - Statutory sources cited (selection): - Central Bank Act, 1942; - Investment Intermediaries Act, 1995 (IIA); - Markets in Financial Instruments and Miscellaneous Provisions Act, 2007; - Central Bank Reform Act 2010; - Central Bank (Supervision and Enforcement) Act 2013; - Secondary legislation transposing EU directives: S.I. 324 of 2005; S.I. 277 of 2007; S.I. No. 60 of 2007. - Other competent authorities with interlocking mandates: IAASA, ISE, ODCE, Takeover Panel, FSO, An Garda Síochána (GBFI), NCA, DPP. - Market infrastructure: - One stock exchange (ISE) and no derivatives exchange in Ireland. - ISE structure: operating since 1793; private company limited by guarantee; board of twelve directors; three markets — MSM (regulated market), ESM (MTF), GEM (MTF). - Definitions: "Regulated market" per MiFID 2004/39/EC; "Admitted to trading" per Transparency Regulations, Reg. 4(1). ### Market Structure, Listings, and Key Statistics (select figures preserved exactly) - Market listings and dual listings: - Virtually all the equities on the ISE are also listed or quoted on another exchange. - Only one of the equities listed on the MSM and four traded on the ESM are not also listed or quoted elsewhere. - For most Irish listed equities the majority of trading takes place on the ISE, with the ISE maintaining a market share of more than 50 percent. - Five-year trends: - Equity listings on the MSM and ESM are down 28 percent in number (from 69 to 50). - Capitalization has increased by 28 percent on the MSM. - Number of listed funds has declined 32 percent overall. - Number of trades has remained above two million per annum. - Irish government re-entered market and raised over €20 billion in new funds in last two years. - ISE summary (Market Capitalization EUR millions, 2012 2011 2010 2009 2008): - Equities - MSM: 139,210 131,647 127,032 122,441 108,670 - Equities - ESM: 29,138 37,913 2,147 1,613 964 - ETF: 181 524 112 6 20 - Irish Government Bonds: 90,176 72,455 74,892 71,831 42,552 - Turnover EUR millions (2012 2011 2010 2009 2008): - Equities - MSM: 36,867 34,947 44,909 52,732 110,948 - Equities - ESM: 469 721 631 593 1,036 - ETFs: 111 669 107 222 - Irish Government Bonds: 64,748 64,125 208,090 149,054 50,185 - Treasury Bills: 2,338 1,107 23,201 35,100 n/a - Trade Volumes (2012 2011 2010 2009 2008): - Equities - MSM: 2,339,240 2,325,810 2,067,310 2,223,050 2,461,030 - Equities - ESM: 84,258 91,076 47,728 64,084 58,932 - Total Equities: 2,423,498 2,416,886 2,115,038 2,287,134 2,519,962 - ETF: 674 978 1,778 2,822 5,032 - Irish Government Bonds: 23,388 30,632 57,267 34,077 9,050 - Total Irish Government Securities: 23,658 30,725 58,271 35,037 9,050 - Money Raised EUR millions (2012 2011 2010 2009 2008): - Equities - MSM: 196 2,071 4,767 2,447 170 - Equities - ESM: 14 15 1,113 147 73 69 - Total Equities: 337 7,184 4,914 2,520 239 - Irish Government Bonds: 9,715 019,884 34,897 10,929 - Treasury Bills: 2,000 011,652 25,785 n/a - Total Irish Government Securities: 11,715 031,536 60,682 10,929 - Numbers of Listed Entities (2012 2011 2010 2009 2008): - Number Of Companies (Domestic & Foreign) — MSM: 27 30 36 39 42; ESM: 23 25 23 25 27; Total: 50 55 59 64 69 - Investment Funds (Including Umbrella Funds): 932 1,052 1,167 1,270 1,605 - Sub-funds: 1,647 1,841 1,842 1,939 2,209 - Total: 2,579 2,893 3,009 3,209 3,814 - Total (all listings): 3,180 3,148 3,369 3,976 n/a ### Investment Funds — Retail and Wholesale Trends (preserved figures) - Growth 2010 to 2013 YTD: overall retail CIS assets up almost 30 percent (to EUR 1.4 trillion). - Bond funds: up 94 percent to EUR 426 billion. - Exceptions: Real estate funds down 38 percent to EUR 1.9 billion; money market funds down 17 percent to EUR 298 billion. - Retail Investment Funds — Assets Under Management (EUR millions) (2013 2012 2011 2010): - Money Market: 297,856 297,322 287,600 359,015 - Bonds: 425,891 492,233 389,307 219,155 - Equities: 329,498 295,032 260,368 267,817 - Hedge: 93,120 95,862 82,118 61,060 - Mixed: 119,963 122,531 96,026 80,710 - Real Estate: 1,935 3,214 3,093 3,142 - Other: 66,633 72,656 50,273 37,721 - Total: 1,334,895 1,378,850 1,168,786 1,028,620 - Wholesale (Non-Retail) funds growth (2010–2012): - Number of Funds: 2010: 513; 2011: 590; 2012: 631 - No. of Funds (incl. sub-funds): 1422 1598 1820 - Assets Under Management (billions): US$228 (€171) US$266 (€206) US$307 (€232) - AUM as percent of GDP*: 105 122 141 (*based on 2011 GDP of US$ 217.3 billion (€167.9bn)) ### Intermediaries and Market Participants - Trends: - Overall number of authorized intermediaries declining. - MiFID firms declined by 11 percent. - Retail intermediaries under the IIA declined 13 percent. - ISE Member Firms (2012 2011 2010 2009 2008): - Domestic Firms: 7 8 9 9 9 - International Firms: 38 39 40 35 28 - Total Number of Member Firms: 45 47 49 44 37 - Numbers of Market Intermediaries (2012 2011 2010): - MiFID Investment Firms (excluding branches): 124 130 140 - IIA Non-Retail Investment Business Firms: 11 13 13 - IIA Retail Intermediaries1: 2,138 2,321 2,465 - Collective Investment Schemes (including sub-funds): 5,305 5,062 4,743 ### Main Findings and Principles-based Assessment (summary counts) - Aggregate assessment counts: - Fully Implemented (FI) – 23 - Broadly Implemented (BI) – 8 - Partly Implemented (PI) – 6 - Not Implemented (NI) – 0 - Not Applicable (NA) – 1 - Selected Principle findings: - Principles 1–8 (regulator): Central Bank has clear mandate, sufficient powers, effective governance; legal protections for independence have gaps — assessment: Fully implemented / Partly implemented on independence items. - Principle 9 (self-regulation): Three APBs operate as SROs with meaningful sanctions under Central Bank oversight — conditions meet Principle standards. - Principles 10–12 (enforcement): Central Bank has broad inspection and enforcement powers; Administrative Sanctions Procedure (ASP) effective; since 2010 no convictions from referrals to criminal authorities; supervisory approach for Low Impact firms relies heavily on reactive processes. - Principles 13–15 (cooperation): Central Bank can share confidential information, signatory to IOSCO MMOU (December 2012), MOUs with ESMA and bilateral MOUs; does not require external permission to share information. - Principles 16–18 (issuers): Initial disclosure extensive; reporting deadlines slow (120 days EU requirement for annual reports); continuing disclosure limited for public issuers not admitted to an RM; IAASA examines reports within Transparency Directive remit. - Principles 19–23 (auditors/CRAs/info providers): Audit oversight via IAASA; IAASA resources insufficient; CRAs supervised by ESMA. ### Collective Investment Schemes (CIS) and Hedge Funds — Supervisory Framework & Gaps - Regimes: UCITS Directive 2009/65/EC and AIFMD 2011/61/EU transposed; Central Bank authorizes publicly offered funds. - Key features: - Operators must have risk management and internal controls; assets segregated and held by depositary/custodian. - Continuous disclosure of price required; no regulatory rules addressing pricing errors. - Timeframes to deliver audited statements are slow; recommended reduction in reporting deadlines. - Hedge funds treated functionally as CIS though “hedge fund” not statutorily defined. - Key operational gaps: - Slow timeframes for audited statements. - No regulatory requirements for pricing errors. - Valuation standard clarity: assessors note it is not clear valuation must be performed in accordance with IFRS or U.K. and Irish GAAP; recommendation that this be set out clearly. ### Market Intermediaries — Authorization, Capital, Risk Management, Client Protection - Authorization: MiFID and IIA frameworks require detailed pre-authorization review and Fitness and Probity regime (41 senior positions as PCFs). - Capital requirements (selected exact thresholds/formulae): - MiFID investment firms - trade on own account or underwrite on a firm commitment basis: EUR 730,000 - MiFID – no proprietary trading but hold client assets or manage portfolios: EUR 125,000 - MiFID firms only authorised to provide investment advice/receive and transmit orders without holding money or securities: EUR 50,000 and/or professional indemnity insurance at least EUR 1,000,000 applying to each claim and in aggregate EUR1,500,000 per year - IIA Non-Retail Intermediaries MICR: EUR 50,000 - Capital rules (MiFID firms subject to CRD): - Firms with €730,000 minimum initial capital must retain the higher of €730,000 or 8% of RWAs (Capital Requirements Regulation 18(1)). - Firms with €125,000 minimum must retain: 8% of RWAs or a quarter of preceding year’s fixed overheads (Capital Requirements Regulation 18(2)). - Reporting and supervision: - Extensive monthly, quarterly and annual reporting; many reports required within 20 working days of period end. - MiFID firms subject to CRD with €730,000 MICR provide monthly capital adequacy information; with €125,000 MICR provide quarterly information. - Client asset protection: - Client Asset Rules (CAR) in place; external auditors must assess compliance at least every six months. - Investor compensation: ICCL pays 90% up to EUR 20,000 per investor; EU minimum. ### Supervisory Powers, Failure Management, and Investor Compensation - Central Bank powers include inspection, search, require production of records, directions, withdrawal/suspension of authorizations, application to Court for winding up or enforcement orders. - Limitations: - Central Bank lacks authority to appoint an administrator/monitor to run a firm in crisis or to take possession/control of firm assets — only liquidation alternative typically available. - Recommendation: grant authority to appoint administrator/monitor to step in and run a firm in crisis; costs to be paid from the estate. - Investor Compensation: - ICCL: compensation up to EUR 20,000 (90% subject to maximum). - CARB fund: up to GBP 50,000 per client for ICAI firms; firms holding client assets more than GBP 50,000 must have insurance cover for full value. ### Secondary Markets, Trading Venues, Market Integrity and Settlement (Principles 33–37) - Principle 33 (authorization of trading systems): Grade FI — authorization criteria include systems/infrastructure and technical competence; no routine on-site visits before authorization. - Principle 34 (ongoing supervision of exchanges): Grade FI — oversight includes on-site and off-site reviews; Central Bank may suspend operations. - Principle 35 (transparency of trading): Grade FI — pre-trade and post-trade real-time transparency for most trades on ISE in accordance with MiFID; T+1 reporting by intermediaries required. - Principle 36 (detection/deterrence of manipulation): Grade PI — market manipulation and insider trading rules currently apply only to securities admitted to trading on RMs; MTF/off-exchange trading covered only by companies legislation for insider trading; proposed EU amendments expected to address gap. - Principle 37 (large exposures, default risk, market disruption): Grade PI — trades settle on systems outside Ireland; no ISE clearing member established in Ireland; Central Bank relies on foreign regulators and lacks independent due diligence and some MOUs. - Settlement/clearing specifics and concerns: - Irish securities settlement systems physically located outside Ireland (Euroclear Bank Belgium; CREST U.K.; Clearstream Luxembourg). - ISE provides CCP services via Eurex Clearing AG and Euroclear U.K. & Ireland Limited; Eurex Clearing incorporated in Germany supervised by BaFin. - Central Bank has MOU with National Bank of Belgium re Euroclear Bank (since 2002) and tri-party MOU with U.K. FSA and BoE regarding CREST (needs updating); no specific MOU with BaFin regarding Eurex Clearing recommended. - Recommendation: perform due diligence on regimes (Belgium, U.K., Germany) and obtain legal opinions on insolvency treatment of assets/positions. - Transparency and reporting (select operational details): - All transactions by market intermediaries must be reported to the Central Bank by T+1 at the latest. - Off order book trades in equities admitted to ISE Xetra® may be reported between 06.30 and 17.15 Irish time; post-trade reporting within 3 minutes for on-venue trades; deferred publication permitted under MiFID waiver criteria. - POSIT operates as dark order book with post-trade reporting within one business day. - Short selling regime: - Net short position notification thresholds: notify Central Bank when net short position reaches below 0.2% of issued share capital; public disclosure at 0.5% and each 0.1% above. - Naked short selling generally prohibited; market maker and primary dealer exemptions exist. - Monitoring and surveillance: - ISE real-time monitoring (8 a.m. to 17.15 p.m. daily); Central Bank TRMU and MIU conduct daily post-trade monitoring and investigations; STRs submitted (STRs by market professionals: 2010 = 8, 2011 = 3, 2012 = 19, 2013* = 13; STRs by other EU authorities: 2010 = 4, 2011 = 6, 2012 = 5, 2013* = 8). - Recommendations (selected): - Conduct on-site inspection immediately before or shortly after authorizing a new trading venue. - Amend Companies Law or other legislation to prohibit abusive market activities regardless of where trading takes place or whether securities are admitted to an RM. - Central Bank to perform due diligence on offshore clearing/settlement regimes; update MOU with U.K. regarding CREST and establish MOU with BaFin regarding oversight of Eurex Clearing. - Pursue proactive prosecutions against individuals; consider raising maximum District Court fines for summary criminal matters. ### Enforcement, Investigations and Use of Criminal Remedies - Enforcement toolkit: - ASP (Part IIIC Central Bank Act 1942): monetary penalties up to EUR 1 million for individuals and EUR 10 million for firms; restitution orders and recoupment of investigation costs available. - MAD/Prospectus/Transparency Regulations provide powers to impose sanctions; independent Assessors (commonly retired judges) used in assessments with monetary caps (e.g., not exceeding €2,500,000). - Central Bank may initiate criminal proceedings under various statutes; in practice criminal prosecutions rarely invoked. - Enforcement output and statistics: - From mid-2010 to September 2013: 44 ASP settled cases; fines totaling €20,995,815. - Since 2010 Central Bank reported 155, 111, and 105 matters to criminal authorities respectively; not a single conviction on indictment recorded in Circuit Court during this period for individuals referred by the Central Bank. - Examples of penalties (2010–2013): - Transaction reporting actions: 9 actions against 5 firms between 2010 and 2013 – total €353,000 penalties. - Failure to lodge notifications by PDMRs: 1 action in 2012 - €10,000 penalty. - Failure to lodge suspicious transaction report: 1 action in 2012 - €20,000 penalty. - Insider list failures: 2 actions (2010 and 2013) – total €130,000 penalties. - Observed enforcement challenges: - ASP preferred; need for balanced approach including criminal prosecutions to deter individuals. - District Court fines for summary prosecutions are low (from not exceeding €500 to not exceeding €5,000); raising maximum fines suggested. ### IAASA, Auditing and Accounting Oversight - IAASA designated competent authority for accounting enforcement under the Transparency Directive and supervising PABs under the Auditing and Accounting Act. - IAASA staffing/funding: - IAASA board: 14 directors and Chief Executive; funding 40% State and 60% jointly by PABs via mandatory levy. - At year-end 2012, 142 issuers fell within IAASA’s remit: Equity 25; Fund 30; Debt 87. - Quality assurance and auditor independence: - RABs required to perform quality assurance reviews at least every three years for PIE-auditors and at least every six years for other auditors. - ISAs (U.K. and Ireland) applied; FRC Ethical Standards and statutory audit requirements in place. - Assessment: Broadly implemented; comments that IAASA lacks sufficient resources and constrained by civil service salary rules. ### APBs (Approved Professional Bodies) and Certified Persons - APBs: ICAI, CPA, ACCA authorized under IIA; total certified persons: 902 (637 ICAI; 154 CPA; 111 ACCA). - Certified persons: - 658 provide services equivalent to a restricted intermediary under the IIA. - 238 hold higher level authorisation for tax-efficient investment schemes. - 6 certified person firms authorised to hold client assets. - No certified persons authorised to provide discretionary portfolio management or discretionary trust management. - Central Bank oversight and conditions on APBs: - APBs required to submit regulatory plans, six‑monthly reports, monitoring visit reports, maintain registers, permit Central Bank to attend committee meetings as observer, and satisfy resource/probity requirements. - Central Bank conducted inspections of APBs in 1999–2010; no significant issues identified in 2010 inspections. ### Client Asset Safeguards, Records, and Valuation - Record retention: generally at least five years (various instruments/regimes); Consumer Protection Code requires six years for certain records. - Valuation and NAV: - UCITS Reg. 108 and AIFM Reg. 20 require clear valuation rules in constitutional documents; NAV publication frequency rules in UCITS Reg. 96. - Pricing errors: no mandatory regulatory requirements for corrective treatment; Guidance Paper 6 is industry standard but voluntary; assessors recommend legal/rule requirement for pricing error treatment. - CNAV/short-term money market funds: - Notice UCITS 17 criteria for amortised cost valuation and escalation triggers (discrepancy thresholds 0.1%, 0.2%, 0.3%). - Reporting timelines (CIS): - UCITS Reg. 88: annual report within 4 months; half-yearly report within 2 months. - AIFM Reg. 23: annual report no later than 6 months following financial year end. - Assessors recommend reducing reporting timeframes (e.g., larger companies audited statements within 90 days; ESM interim statements shortened to two months). ### Failure Management, Recovery, and Resolution — Observations - Central Bank lacks power to appoint administrators/monitors or take possession of assets; main statutory options for insolvent firms are liquidation or winding up. - Emergency Firm Response Procedure and Checklist exist (first 24–48 hours actions). - Recommendation: grant Central Bank authority to appoint administrator/monitor to run firm in crisis to avoid liquidation delays and reduce investor losses; costs borne by firm estate. ### Authorities’ Response (summary) - Irish authorities welcome IMF review and acknowledge high compliance with IOSCO Principles. - Central Bank objects to characterization that State has “outsourced” clearing and settlement; notes EU Single Market mutual recognition, ESAs and ESRB oversight reduce need for bilateral agreements. - Central Bank suggests Principle 37 might be “not applicable” given Ireland’s market structure. - Authorities commit to appraise IMF recommendations and take actions appropriate, proportionate and practical. *Source: IMF staff report content in _cr14136 (Detailed Assessment and Recommended Action Plan).* ### INTRODUCTION ___________________________________________________________________________________ 7 ### _cr14136 - INTRODUCTION ___________________________________________________________________________________ 7 ### Summary, Key Findings, and Recommendations - Ireland exhibits a high level of implementation of the International Organization of Securities Commissions (IOSCO) principles. The legal framework is robust and provides the Central Bank of Ireland (Central Bank) with broad supervisory, investigative and enforcement powers. - Arrangements exist for on-site and off-site monitoring of regulated entities. Thematic reviews in selected areas have complemented such monitoring. - The Central Bank and the Irish Stock Exchange have developed sound systems for market surveillance. - The Central Bank’s key objectives include monitoring and mitigating systemic risk. It routinely reviews the perimeter of regulation. Its powers to cooperate with domestic and foreign counterparts are extensive. - Accounting and auditing standards are high. - Areas requiring strengthening: - The Central Bank should make more use of on-site inspections for all types of market intermediaries. - The Central Bank should pursue the use of all of its available enforcement authority, including criminal prosecutions. - Concerns about governance and independence: - The presence of a member of the Department of Finance on the Commission of the Central Bank and the authority of the Minister to remove a Commissioner for reasons other than misconduct or incompetence may be threats to the Central Bank's independence. - Disclosure regime gaps: - The regime that applies to entities that have issued their securities to the public where their securities are not admitted to trading on a regulated market needs to be strengthened. - General disclosure requirements for issuers with securities admitted to trading on a regulated market (RM) are detailed and the full ambit market abuse rules apply to these securities. However, few equivalent provisions exist for issuers who offer securities to the public but elect not to have their securities admitted to trading on an RM. - Both the Irish companies legislation and EU prescribed deadlines for publishing annual and interim reports should be reduced for all issuers, including collective investment schemes. - Resolution and crisis powers: - The Central Bank lacks the power to appoint administrators to investment firms in the event of financial difficulties within the firm. - The Central Bank does not have authority to appoint an administrator or monitor to step in and run a firm that is in crisis, nor does it have authority to take possession/control of assets held by a firm that is in financial difficulty. - The absence of these powers effectively means that the only alternative course of action available is to liquidate a company, thereby crystallising potentially significant losses for investors and delaying the investors' access to their assets. - Human resources constraints: - There are impediments to the Central Bank’s ability to attract and retain high-calibre staff. - The Central Bank needs to be able to structure its compensation programs to accommodate the difficulty in recruiting and retaining appropriate skill sets for particular positions. ### INTRODUCTION, Assessment Context and Methodology - This Detailed Assessment Report was prepared in the context of an IMF stand-alone Reports on the Observance of Standards and Codes (ROSCs) mission to Ireland during September–October 2013 by Tanis MacLaren and Mark McGinness, external technical experts employed for this purpose by the IMF. - Assessment methodology: - The assessment was carried out using the 2011 IOSCO Methodology for Assessing Implementation of the IOSCO Principles (the Assessment Methodology). - Principle 38 was not assessed due to the existence of separate standards for securities settlement systems and central counterparties. - The IOSCO Assessment Methodology requires assessors to examine both the legal and regulatory framework and how it has been implemented in practice. - Assessors reviewed inspection programs for different types of supervised entities, including cycle, scope and quality of inspections, and how authorities follow up on findings, including enforcement actions. - Information sources: - The assessment relies on a detailed self assessment submitted by the authorities. - Extensive interviews with staff of the Central Bank. - Review of legislation, regulations, guidelines and related materials. - Interviews with staff of other competent authorities: Irish Stock Exchange (ISE), Irish Accounting and Auditing Supervisory Authority (IAASA), Financial Services Ombudsman (FSO), Office of the Director of Corporate Enforcement (ODCE). - Interviews with market participants and other stakeholders. - Acknowledgement: - The assessors thank the staff of the Central Bank and other competent authorities, regulated entities, market participants and stakeholders for cooperation and insights. - Exception note: - The assessment under Principle 22 regarding credit rating agencies (CRAs) reflects an assessment of the European Securities and Markets Authority (ESMA) in a review conducted by the IMF in December 2012. ### Institutional and Market Structure — Overview - Central Bank of Ireland: primary regulator of the Irish financial system. Its objectives include: - The stability of the financial system; - Resolution of the financial difficulties in credit institutions in Ireland; - The efficient and effective operation of payment and settlement systems; - Provision of analysis and comment to support national economic policy development; and - Proper and effective regulation of financial institutions and markets, while ensuring that consumers of financial services are protected. - Scope of Central Bank powers: - Regulatory authority over equity securities, debt securities and derivatives, whether traded over-the-counter (OTC) or on organized markets. - Authority over discretionary portfolio management and management of collective investment schemes (CIS). - Operational independence, but accountable to the Minister for Finance (Minister), subject to restrictions on disclosure of confidential information. - Statutory sources of authority for the Central Bank include: - Central Bank Act, 1942; - Investment Intermediaries Act, 1995 (IIA); - Investment Funds, Companies and Miscellaneous Provisions Act, 2005 (S.I. 323 of 2005); - Markets in Financial Instruments and Miscellaneous Provisions Act, 2007; - Central Bank Reform Act 2010; - Central Bank (Supervision and Enforcement) Act 2013; - Secondary legislation transposing EU directives: S.I. 324 of 2005 – Prospectus (Directive 2003/71/EC) Regulations 2005 (Prospectus Regulations); S.I. 277 of 2007 – Transparency (Directive 2004/109/EC) Regulations 2007 (Transparency Regulations); S.I. No. 60 of 2007 – European Communities (Markets in Financial Instruments) Regulations 2007 (MiFID Regulations). - Other statutory competent authorities with interlocking mandates: - IAASA: designated as the competent authority for accounting enforcement under the Transparency Directive; supervisory authority pursuant to the Auditing and Accounting Act and S.I. 220 of 2010 – The European Communities (Statutory Audits) (Directive 2006/43/EC) Regulations 2010 (Statutory Audit Regulations). - ISE: competent authority for listing in Ireland pursuant to S.I. No. 286 of 2007 – European Communities (Admission to Listing and Miscellaneous Provisions) Regulations 2007 (Listing Regulations); ISE obtains powers from the Listing Regulations and the Consolidated Admissions and Reporting Directive (2001/34/EC). - The Listing Regulations are designed to ensure no overlap between listing requirements (ISE competence) and the Transparency Regulations (Central Bank competence). - Other relevant authorities and responsibilities: - ODCE: company law enforcement, investigation and prosecution under the Company Law Enforcement Act 2001. - Takeover Panel: established under the Irish Takeover Panel Act 1997 for monitoring and supervising takeovers and other relevant transactions. - FSO: administers consumer complaints under the Central Bank Act 1942 (as amended). - An Garda Síochána, including the Garda Bureau of Fraud Investigation: investigates serious and complex commercial fraud. - National Consumer Agency (NCA): enforces consumer law and promotes consumer rights under the Consumer Protection Act 2007; primary source of consumer information on financial products, but no oversight responsibility regarding securities markets. - Director of Public Prosecution (DPP): enforces criminal law, directs/supervises public prosecutions on indictment, advises Garda Síochána on prosecutions. - Market infrastructure: - One stock exchange and no derivatives exchange in the jurisdiction. - Irish Stock Exchange Ltd. (ISE): - Operating since 1793. - An Irish private company limited by guarantee, with six member/owner firms. - Board of twelve directors (eleven non-executive directors and one executive director). - Six non-executive directors are elected directors from owner firms; five non-executive directors represent wider market interests; Chief Executive sits on the Board. - Appointment of all directors is subject to prior approval of the Central Bank of Ireland. - Three markets: Main Securities Market (MSM), Enterprise Securities Market (ESM), Global Exchange Market (GEM). - MSM: the principal market for Irish and overseas companies; admits equities, debt securities, and investment funds; is a regulated market (RM). - ESM: an equity market for small to medium sized growth companies; is a multi-lateral trading facility (MTF). - GEM: a specialist debt market for professional investors; is a multi-lateral trading facility (MTF). - Definitions and regulatory context: - "Regulated market" as defined by Markets in Financial Instruments Directive 2004/39/EC (MiFID). - "Admitted to trading" defined as admitted to trading on a regulated market situated or operating within an EU or EEA member state and whose home state is Ireland (Transparency (Directive 2004/109/EC) Regulations 2007, Reg. 4(1)). ### Institutional Observations and Implementation Emphases - Implementation focus: - The assessment evaluates both legal/regulatory frameworks and practical supervisory and enforcement practices. - Particular attention paid to inspection programs, follow-up on findings, and the use of enforcement powers. - Cooperation: - The Central Bank has extensive powers to cooperate with domestic and foreign counterparts. - Supervisory tools: - On-site and off-site monitoring programs exist, supplemented by thematic reviews. - Market surveillance systems developed by the Central Bank and the ISE. *Source: _cr14136 - INTRODUCTION ___________________________________________________________________________________ 7* ### 18. Virtually all the equities on the ISE are also listed or quoted on another exchange. ### 18. Virtually all the equities on the ISE are also listed or quoted on another exchange. ### Market structure and listings - Virtually all the equities on the ISE are also listed or quoted on another exchange. - Only one of the equities listed on the MSM and four traded on the ESM are not also listed or quoted elsewhere. - Most of the companies on two exchanges are on both the London Stock Exchange and ISE. - For most Irish listed equities the majority of trading takes place on the ISE, with the ISE maintaining a market share of more than 50 percent. - Footnote: The dual quoted companies with shares admitted to the ESM are on AIM in London. ### Market trends and high-level observations - Over the past five years the number of listed companies and instruments has declined on all three markets, while market capitalization has increased. - Equity listings on the MSM and ESM are down 28 percent in number (from 69 to 50). - Capitalization has increased by 28 percent on the MSM. - The number of listed funds has declined 32 percent overall reflecting activities such as mergers, privatizations and consolidations of investment funds. - Number of trades has remained above two million per annum, but turnover (other than in Irish Government Bonds) has declined substantially reflecting a fall in share prices during the period. - Fewer companies have been using the markets to raise funds; in the last two years, the Irish government has re-entered the market and raised over €20 billion in new funds. ### ISE summary of key statistics (select figures preserved exactly) - Market Capitalization EUR millions (2012 2011 2010 2009 2008) - Equities - Main Securities Market (MSM): 139,210 131,647 127,032 122,441 108,670 - Equities - Enterprise Securities Market (ESM): 29,138 37,913 2,147 1,613 964 - ETF: 181 524 112 6 20 - Irish Government Bonds: 90,176 72,455 74,892 71,831 42,552 - Turnover EUR millions (2012 2011 2010 2009 2008) - Equities - MSM: 36,867 34,947 44,909 52,732 110,948 - Equities - ESM: 469 721 631 593 1,036 - ETFs: 111 669 107 222 - Irish Government Bonds: 64,748 64,125 208,090 149,054 50,185 - Treasury Bills: 2,338 1,107 23,201 35,100 n/a - Trade Volumes (2012 2011 2010 2009 2008) - Equities - MSM: 2,339,240 2,325,810 2,067,310 2,223,050 2,461,030 - Equities - ESM: 84,258 91,076 47,728 64,084 58,932 - Total Equities: 2,423,498 2,416,886 2,115,038 2,287,134 2,519,962 - ETF: 674 978 1,778 2,822 5,032 - Irish Government Bonds: 23,388 30,632 57,267 34,077 9,050 - Treasury Bills: 270 931 1,004 960 n/a - Total Irish Government Securities: 23,658 30,725 58,271 35,037 9,050 - Money Raised EUR millions (2012 2011 2010 2009 2008) - Equities - MSM: 196 2,071 4,767 2,447 170 - Equities - ESM: 14 15 1,113 147 73 69 (note: source shows layout spanning lines) - Total Equities: 337 7,184 4,914 2,520 239 - Number of Companies Raising Funds: 10 11 13 13 10 - Irish Government Bonds: 9,715 019,884 34,897 10,929 (note: table spacing in source) - Treasury Bills: 2,000 011,652 25,785 n/a - Total Irish Government Securities: 11,715 031,536 60,682 10,929 - Numbers of Listed Entities (2012 2011 2010 2009 2008) - Number Of Companies (Domestic & Foreign) - MSM: 27 30 36 39 42 - ESM: 23 25 23 25 27 - Total: 50 55 59 64 69 - Number of ETFs: 1 1 14 14 14 - Investment Funds (Including Umbrella Funds): 932 1,052 1,167 1,270 1,605 - Sub-funds: 1,647 1,841 1,842 1,939 2,209 - Total: 2,579 2,893 3,009 3,209 3,814 - Debt Programs: 552 520 579 546 n/a - Non Programs: 2,628 2,628 2,790 3,430 n/a - Total: 3,180 3,148 3,369 3,976 n/a ### Trading practices and platforms - Trading on the Irish market consists predominantly of equity and sovereign debt transactions. - Trading in equity securities takes place on ISE Xetra®. - Debt securities and investment funds admitted to listing and trading on the ISE typically do not trade on the exchange; they trade on an OTC basis — similar to London and Luxembourg. - Trading in Irish government bonds takes place on non-ISE trading systems (e.g., EuroMTS (including MTS Ireland), Brokertec and BGC Partners) with the executed trades being reported to the ISE at the end of the trading day. ### Investment funds — retail and wholesale trends - Growth in assets under management in retail CIS over 2010 to 2013 YTD: overall assets are up almost 30 percent (to EUR 1.4 trillion). - Bond funds almost doubling: up 94 percent to EUR 426 billion. - Exceptions: Real estate funds down 38 percent to EUR 1.9 billion; money market funds down 17 percent to EUR 298 billion. - Retail Investment Funds — Assets Under Management (EUR millions) (2013 2012 2011 2010) - Money Market: 297,856 297,322 287,600 359,015 - Bonds: 425,891 492,233 389,307 219,155 - Equities: 329,498 295,032 260,368 267,817 - Hedge: 93,120 95,862 82,118 61,060 - Mixed: 119,963 122,531 96,026 80,710 - Real Estate: 1,935 3,214 3,093 3,142 - Other: 66,633 72,656 50,273 37,721 - Total: 1,334,895 1,378,850 1,168,786 1,028,620 - Source: Central Bank. - Wholesale (Non-Retail) funds growth (2010–2012) - Number of Funds: 2010: 513; 2011: 590; 2012: 631 - No. of Funds (incl. sub-funds): 1422 1598 1820 - Assets Under Management (billions): US$228 (€171) US$266 (€206) US$307 (€232) - AUM as percent of GDP*: 105 122 141 - *based on 2011 GDP of US$ 217.3 billion (€167.9bn) - Source: Central Bank. ### Intermediaries and market participants - Overall number of authorized intermediaries in the jurisdiction is declining. - Number of ISE member firms (MiFID firms and credit institutions) has increased overall, but the number of domestic firms has declined. - MiFID firms have declined by 11 percent. - Retail intermediaries authorized under the IIA for securities markets related activities declined 13 percent. - Table 1. ISE Member Firms (2012 2011 2010 2009 2008) - Domestic Firms: 7 8 9 9 9 - International Firms: 38 39 40 35 28 - Total Number of Member Firms: 45 47 49 44 37 - Table 2. Numbers of Market Intermediaries (2012 2011 2010) - MiFID Investment Firms (excluding branches): 124 130 140 - IIA Non-Retail Investment Business Firms: 11 13 13 - IIA Retail Intermediaries1: 2,138 2,321 2,465 - Collective Investment Schemes (including sub-funds): 5,305 5,062 4,743 - Note 1: Retail Intermediaries include authorised advisors and multi-agency intermediaries. The number of Retail Intermediaries in the 2012 Annual Report includes Investment Intermediaries (authorised advisors, multi-agency intermediaries, mortgage intermediaries) and Insurance/Reinsurance Intermediaries, but excludes firms such as credit institutions, credit unions, etc. Of the 3,238 firms referenced in Table 8 on page 53 of the 2012 Annual Report, 2,138 were authorised advisors or multi-agency intermediaries. ### Self-regulatory organizations (SROs) - Ireland makes limited use of SROs that exercise some direct oversight responsibilities with rules subject to meaningful sanctions. - There are three such SROs in the jurisdiction; all are professional accounting associations that have rules binding members approved to provide limited investment business services. - The SROs are subject to oversight of the Central Bank and are required to observe high standards of conduct. ### Legal, accounting, and insolvency framework - Foreign issuers can access the markets under similar conditions to domestic issuers. - Authorization process does not distinguish between domestic and foreign corporations that want to provide investment services, including CIS management, or to operate an RM or an MTF. - Trades in equities are subject to a 1% stamp duty; Budget 2014 (delivered October 15, 2013) announced transfers of shares on the ESM will be exempt from stamp duty. - Companies legislation includes provisions on management, shareholder rights, duties of directors and officers, preparation and audit of accounts, and shareholder meetings. Provisions govern liquidation, winding up or restructuring of insolvent companies; these provisions are dated and insolvency procedures are protracted. - New Personal Insolvency Act governing bankruptcy of individuals went into effect in March 2013. - Rules governing takeovers published by the Irish Takeover Panel under the Irish Takeover Panel Act 1997 and European Communities (Takeover Bids (Directive 2004/25/EC)) Regulations 2006; these rules have the force of law and are administered by the Panel. - Judiciary is independent with specialized commercial courts, but court process is slow owing to high volumes. - Accounting and auditing standards operative are high quality: IFRS and UK and Irish GAAP apply to most issuers; auditing standards conform to ISA as issued by the IAASB. ### Main findings and regulatory assessment (Principles-based summary) - Principles 1–8 (relating to the regulator) - The Central Bank has a clear mandate defined by law. - The ISE and IAASA are assigned discrete responsibility for aspects of the securities markets; five other competent authorities also play a role. - The Central Bank has formal and informal cooperation arrangements with these agencies; day-to-day operational issues are under Commission control and delegated to senior management. - Some gaps exist in legal provisions supporting the Central Bank’s independence. - Procedural protections are afforded to persons affected by Central Bank decisions, including the right to be heard. - The Central Bank has sufficient powers to regulate capital market participants in Ireland. - Funding has been adequate but will face challenges as the economy improves. - The Central Bank has effective policies and governance; it maintains an active Consumer Protection Unit and makes rules, codes and guidance materials available, though some laws and applicable regulations are less accessible in practice. - Regulatory actions are fair, reasonable, transparent and comprehensible; staff observe high standards under a Code of Ethics with conflict of interest and confidentiality provisions. - Extensive requirements exist regarding conflicts of interest for Central Bank staff, issuers, intermediaries, the ISE, SROs and CIS. - Principle 9 (self-regulation) - Three professional accounting associations act as SROs with binding rules and meaningful sanctions; all are subject to Central Bank oversight and required to observe high standards. - Conditions imposed on the ISE and oversight arrangements at the Central Bank meet standards under this Principle. - Principles 10–12 (enforcement of securities regulation) - The Central Bank has broad inspection, investigation and surveillance powers and comprehensive powers to investigate and take action against breaches. - Changes to the Central Bank Act in 2013 increased fines, allow for restitution and investigation costs and permit the Central Bank to apply to the Court for enforcement orders restraining contraventions. - The Central Bank’s risk-based system, PRISM, informs supervisory and investigative programs, supplemented by thematic reviews and reports. - Supervisory approach for Low Impact firms relies heavily on reactive processes; no minimum frequency of onsite reviews and engagement is prescribed for Low Impact firms. - An Administrative Sanction Procedure has successfully obtained significant monetary sanctions through settlement; results have been published. - Since 2010 no matters referred by the Central Bank to criminal authorities have resulted in a conviction — either summarily or on indictment. - Principles 13–15 (cooperation in regulation) - The Central Bank can share confidential information with foreign regulatory authorities and has a record of active cooperation. - Signatory to the IOSCO MMOU, has an MOU with ESMA and a number of bilateral MOUs with international counterparts and domestic bodies (ISE, Financial Services Ombudsman, ODCE, IAASA). - The Central Bank does not require permission of outside authorities to share or obtain information, nor an independent interest to assist. - Principles 16–18 (issuers) - Initial disclosure requirements for public offers are extensive. - Reporting deadlines for annual audited and semi-annual financial statements prescribed by the EU and Companies Act are slow compared to major markets outside the EU. - Additional continuing disclosure requirements apply only to issuers admitted to trading on an RM or traded on the ESM and GEM. - IAASA examines whether annual and half-yearly reports of Irish issuers admitted to trading on an RM conform to the relevant reporting framework. - The Central Bank and ISE monitor and review non-financial disclosure of issuers admitted to trading on an RM and/or quoted on ESM; ISE has programs to review disclosure by companies listed or quoted on its three markets. - No one is responsible for review of continuing disclosure of issuers who offered securities to the public but whose securities are not admitted to trading on an RM or traded/quoted on an MTF; Central Bank advised there are few such issuers. - Investors are treated equitably regarding voting and participation in takeover bids; full information must be provided for any takeover bid and price paid must be equitable. - Extensive disclosure requirements exist for substantial shareholders, officers, directors and other parties; information required to be provided to shareholders of companies not admitted to trading on an RM is limited. - All companies are required to prepare accounts using high quality and internationally accepted accounting standards. - Principles 19–23 (auditors, CRAs and information providers) - A system subjects auditors to appropriate oversight: IAASA oversees supervision applied to auditors by Recognized Accountancy Bodies (RABs). - Resources at IAASA are not sufficient for assigned tasks. - Extensive auditor independence requirements enforced by RABs subject to IAASA oversight. - Financial statements in prospectuses, listing documents and annual reports must be audited in accordance with ISAs (UK and Ireland) as issued by the Financial Reporting Council in the UK, which are based on the ISA issued by the IAASB. - All CRAs providing services in Ireland were subject to a thorough registration process through colleges of European regulators; ESMA has conducted on-site inspections of large CRAs. - Entities providing analytical or evaluative services are caught by MiFID or the IIA and must be authorized by the Central Bank. *Source: Irish Stock Exchange; Central Bank; International Monetary Fund.* ### 36. Principles 24–28, Principles for collective investment schemes and hedge funds: ### 36. Principles 24–28, Principles for collective investment schemes and hedge funds: ### Collective investment schemes (CIS) and hedge funds — supervisory framework and conduct - The Central Bank authorizes and supervises CIS regimes under the Undertakings for Collective Investment in Transferable Securities Directive 2009/65/EC (UCITS Directive) and the Alternative Investment Fund Managers Directive 2011/61/EU (AIFMD). - Funds offered to the public and their operators and distributors are subject to authorization and reporting requirements. - Both regimes require the operator and fund Management Company to have appropriate organizational and operational structures in place, including risk management systems and internal controls. - On-site inspections and off-site reviews are performed. - A discrete supervisory team is devoted to Low Impact funds. - All publicly offered funds must be approved by the Central Bank, which reviews the detailed prospectus containing comprehensive information about the CIS. - Assets are segregated from those of the operator and distributor and held by a depositary or custodian. - The timeframes to deliver audited statements are slow. - Securities and other assets are required to be valued fairly and independently. - Continuous disclosure of the price is prescribed. - There are no requirements in place addressing pricing errors. - “Hedge fund” is not a defined term in Ireland but it is treated by the Central Bank as a CIS regardless of its legal structure under national law. - The AIFM framework governs registration, internal organization and operational conduct for hedge funds and their operators. ### Key findings and operational gaps (CIS / hedge funds) - Slow timeframes to deliver audited statements. - No regulatory requirements addressing pricing errors. - Hedge funds are regulated functionally as CIS even though there is no statutory definition of “hedge fund” under national law. --- ### 37. Principles 29–32, Principles for market intermediaries: ### Authorization, capital, risk management, and client protection - A framework is in place for authorization and to apply on-going requirements for market intermediaries. - Applicants are subject to detailed off-site reviews before being authorized. - There are initial and ongoing capital requirements for all types of intermediaries to ensure that they have adequate resources to meet their business commitments and address the risks of their businesses. - Market intermediaries are required to have extensive systems of risk management and internal controls in place. - If a firm has an internal audit function, this function must review these systems annually; otherwise there is no compulsory review of the internal controls by any ‘objective’ party. - There are regulations for proper protection of clients, including requirements for segregation of clients’ assets and business conduct rules, such as ‘know your client’ and suitability. - The rules regarding conflicts of interest and protection of client assets are extensive. ### Supervisory powers, failure management, and investor compensation - The Central Bank has plans in place for dealing with a firm’s failure. - The Central Bank does not have the authority to appoint an administrator to run a firm that is in crisis, nor can it take possession of the assets held by the intermediary. - In relation to insolvent firms the appropriate option of liquidation is available to the Central Bank under both the MiFID Regulations and the IIA. - There are investor compensation funds available in the event of losses, but the maximum that can be claimed is only €20,000, the EU minimum pursuant to the EU Investor Compensation Scheme Directive. *Source: IMF staff report content (Principles 24–28 and 29–32).* ### 38. Principles 33–37, Principles for the secondary markets: Exchanges, as RMs, and ### _cr14136 - 38. Principles 33–37, Principles for the secondary markets: Exchanges, as RMs, and ### Summary findings on trading venues, market integrity, and settlement (Principles 33–37) - Principle 33 (authorization and oversight of trading systems): Grade FI. - Securities exchanges, as RMs, and MTFs are subject to authorization by the Central Bank. - Specified applicant criteria include systems and other infrastructure capacity, technical competence, etc. - No routine on-site visits are performed before authorization is granted. - Principle 34 (ongoing supervision of exchanges and trading systems): Grade FI. - Comprehensive oversight system includes on-site examinations and off-site reviews of rules and other matters. - The Central Bank may suspend operations of a stock exchange or MTF. - Market surveillance is carried on by the ISE and the Central Bank. - Principle 35 (transparency of trading): Grade FI. - There is both pre-trade and post-trade real-time transparency of prices on the ISE for most trades, in accordance with MiFID. - Certain specified trades may take place outside the automatic trading system subject to clearly defined conditions, a specific waiver from pre-trade transparency, and prompt post-trade reporting. - All transactions in any securities undertaken by market intermediaries must be reported to the Central Bank by T+1 at the latest. - Principle 36 (detection and deterrence of manipulation and unfair trading): Grade PI. - Rules on market manipulation and insider trading currently apply only to securities admitted to trading on RMs. - Trading in securities quoted/traded only on MTFs or off-exchange is subject only to insider trading prohibitions in the companies legislation. - Proposed EU amendments to the Market Abuse Directive are expected to address this gap. - Principle 37 (management of large exposures, default risk, and market disruption): Grade PI. - Trades in Irish securities are settled on systems physically located outside Ireland; no ISE clearing member is established in Ireland. - Monitoring of exposures large enough to create substantial market or clearing firm risk is performed by supervised entities outside the Central Bank’s jurisdiction. - The Central Bank relies on foreign regulators without conducting independent due diligence on relevant issues. - Large exposure limits and reporting requirements are in place; default rules at clearing and settlement systems are public. - The Central Bank lacks specific information-sharing MOUs with all relevant regulators, though those regulators are parties to general ESMA and IOSCO MMOUs. - Provisions addressing short selling are in place. - Principle 38 (Securities settlement systems and CCPs): Grade NA — Not assessed. - Aggregate assessment counts: - Fully Implemented (FI) – 23 - Broadly Implemented (BI) – 8 - Partly Implemented (PI) – 6 - Not Implemented (NI) – 0 - Not Applicable (NA) – 1 ### Systemic and cross-border issues highlighted - Settlement and clearing: - Trades in Irish securities are settled on systems physically located outside Ireland; the Central Bank relies on those foreign supervisors and has not conducted independent due diligence. - No ISE clearing member is established in Ireland. - Recommendation to carry out due diligence on regimes where principal clearing and settlement occur, with particular reference to Belgium, the U.K., and Germany, including obtaining legal opinions on insolvency treatment of assets and positions. - Recommendation to update MOU with U.K. authorities regarding oversight of CREST and to put in place an MOU with BaFin regarding oversight of Eurex Clearing. - Enforcement and criminal remedies: - Since 2010 no matters referred by the Central Bank to the criminal authorities have resulted in a conviction either summarily or on indictment. - Information sharing and MOUs: - The Central Bank is a signatory to the IOSCO MMOU (December 2012) and has an MOU with ESMA and bilateral MOUs with some domestic bodies; however, it lacks MOUs with all relevant foreign regulators in relation to clearing and settlement. ### Key policy recommendations (selected, from Recommended Action Plan) - Principle 33 - Conduct an on-site inspection either immediately before or very shortly after authorizing a new trading venue. - Principle 36 - Amend Companies Law or introduce other legislation to prohibit abusive market activities regardless of where trading takes place or whether securities are admitted to an RM. - Principle 37 - Central Bank should perform reasonable due diligence on regulatory regimes where principal clearing and settlement occur and obtain legal opinions on treatment of assets/positions on insolvency in relevant jurisdictions. - Update or negotiate MOUs: update MOU with U.K. authorities regarding CREST; put in place an MOU with BaFin regarding oversight of Eurex Clearing. - Cross-cutting and related recommendations (contextual): - For market transparency and reporting: maintain T+1 reporting by intermediaries and ensure waivers to pre-trade transparency are strictly conditioned with prompt post-trade reporting. - For enforcement: pursue a more proactive approach to prosecutions against individuals; consider raising maximum fines that the District Court can impose in summary criminal matters. - For authorization processes: perform routine or near-term on-site visits as part of venue authorization assessments. ### Operational and investor-protection details referenced - Reporting and disclosure timing: - All transactions by market intermediaries must be reported to the Central Bank by T+1 at the latest. - Recommended that larger companies issue audited financial statements in a maximum of ninety days; interim statements reporting period for ESM companies should be shortened from three to two months at the longest. - Investor compensation: - Investor compensation funds provide compensation up to €20,000 (the EU minimum). - Regulatory cooperation and instruments: - Central Bank signed IOSCO MMOU in December 2012 and can share confidential information with foreign regulatory authorities without requiring permission of any outside authority. - The Central Bank participates in supervisory colleges and holds bilateral MOUs with the ISE, the Financial Services Ombudsman, the ODCE, and the IAASA. ### Authorities’ response (summary) - Irish authorities welcome the IMF review and acknowledge high level of compliance with IOSCO Principles. - Central Bank objects to the characterization that the State has “outsourced” clearing and settlement; states that clearing and settlement are provided within the EU Single Market and that mutual recognition and oversight arrangements at EU level (ESAs and ESRB) make numerous bilateral agreements unnecessary. - Central Bank suggests Principle 37 might be more appropriately rated “not applicable” given Ireland’s market structure. - Authorities commit to appraise IMF recommendations and consider actions that are appropriate, proportionate and practical. *Source: IMF assessment text for Ireland (Detailed Assessment and Recommended Action Plan, Principles 33–37).* ### 1. Irish Auditing and Accounting Supervisory Authority (IAASA) is designated as the ### _cr14136 - 1. Irish Auditing and Accounting Supervisory Authority (IAASA) is designated as the ### Designation and statutory functions of IAASA - IAASA is designated as the competent authority for accounting enforcement under the Transparency Directive. - Under the Companies (Auditing and Accounting) Act 2003 (No. 44 of 2003) (Auditing and Accounting Act), IAASA is charged with: - supervising how the prescribed accountancy bodies regulate and monitor their members, - promoting adherence to high professional standards in the auditing and accountancy profession, and - acting as a specialist source of advice to the Minister for Finance on auditing and accounting matters. ### Competent authority for listing and listing regulations - The Irish Stock Exchange Ltd. (ISE) is the competent authority for listing in Ireland pursuant to the European Communities (Admission to Listing and Miscellaneous Provisions) Regulations 2007 (S.I. No. 286 of 2007) (Listing Regulations). - The ISE obtains its powers and authority from the Listing Regulations and the Consolidated Admissions and Reporting Directive (2001/34/EC). - Listing Regulation 3(3)(ii) is designed to ensure no overlap between listing requirements (ISE competence) and the Transparency (Directive 2004/109/EC) Regulations 2007 (S.I. 277 of 2007) (Transparency Regulations) (Central Bank competence). - Listing Regulation 11 provides that nothing in the Listing Regulations shall affect any obligation on issuers imposed by or under any other enactment. ### Other authorities relevant to securities markets — responsibilities and remit - Office of the Director of Corporate Enforcement (ODCE) - Principal functions set out in the Company Law Enforcement Act 2001 include: - encouraging compliance with the Companies Acts; - investigating instances of suspected offences under the Companies Acts; - enforcing the Companies Acts, including by prosecution by way of summary proceedings; - referring cases, at the Director’s discretion, to the Director of Public Prosecutions (DPP) where the Director of Corporate Enforcement has reasonable grounds for believing that an indictable offence under the Companies Acts has been committed; and - exercising, insofar as the Director feels it necessary or appropriate, a supervisory role over the activity of liquidators and receivers in the discharge of their functions under the Companies Acts. - The Takeover Panel - Established pursuant to the Irish Takeover Panel Act 1997 as the statutory body responsible for monitoring and supervising takeovers and other relevant transactions in relevant companies in Ireland. - Designated as the competent authority to undertake certain regulatory functions pursuant to the Directive on Takeover Bids (2004/25/EC). - Responsible for making rules to ensure takeovers and other relevant transactions comply with the General Principles set out in the Schedule to the Takeover Panel Act 1997. - Financial Services Ombudsman (FSO) - Established pursuant to the Central Bank and Financial Services Authority of Ireland Act 2004 to independently administer complaints from consumers about individual dealings with financial services providers where issues have not been resolved by the providers. - Mediation is offered; if mediation is rejected, the FSO will investigate and adjudicate. - Decisions are legally binding, appealable to the High Court. - An Garda Síochána — Garda Bureau of Fraud Investigation (GBFI) - Investigates serious and complex cases of commercial fraud, cheque and payment card fraud, counterfeit currency, money laundering, computer crime and breaches of the Companies Acts and the Competition Act. - Cases accepted based on complexity and gravity; GBFI does not investigate every referred case. - Investigation focus criteria: - (i) monetary loss; - (ii) investigations involving a significant international dimension; - (iii) investigations involving widespread public concern; - (iv) investigations requiring specialized knowledge; and - (v) investigations involving complex issues of law or procedure. - National Consumer Agency (NCA) - Competent authority established by the Irish Government to enforce consumer law and promote consumer rights pursuant to the Consumer Protection Act 2007. - Role refined in practice; the Central Bank has continued to assume responsibility for many functions. - The Central Bank Reform Act 2010 transferred to the NCA the consumer information on financial products and services and education function previously under the Central Bank. - By virtue of Section 5(A)(4) of the Central Bank Act 1942, the functions of the NCA specified in Section 5A(5) as they relate to financial services provided by regulated financial services providers are also functions of the Central Bank. - NCA is the primary source of consumer information on financial products and services. - February 2011 cooperation agreement with the Central Bank: NCA agreed to forebear its functions in relation to financial services legislation, except consumer information on financial products and services; NCA reserves the right to enforce if the Central Bank will not take any action. - NCA funds its work on financial services by collecting an annual levy from regulated entities. - Director of Public Prosecution (DPP) - Established as an independent office pursuant to the Prosecution of Offences Act 1974. - Enforces the criminal law in the courts on behalf of the people of Ireland; directs and supervises public prosecutions on indictment in the courts; gives general direction and advice to the Garda Síochána in relation to summary cases and specific direction where requested. ### Cooperation arrangements and mandatory reporting - The Central Bank has Memoranda of Understanding (MoUs) with: - IAASA, - the FSO and Pensions Ombudsman, - the ODCE, and - the ISE. - Legislative gateways govern referrals and exchanges with the Garda and the DPP. - Section 33AK(3) of the Central Bank Act, 1942 compels the Central Bank to report any suspicion of a criminal offence or contravention, including, of companies/competition law by a supervised entity to, among others: - An Garda Síochána, - the Revenue Commissioners, - the ODCE, - the Competition Authority, or - the NCA. - Regular meetings and discussions occur between senior representatives of all domestic authorities to address operational supervisory matters. - A six-monthly Regulatory Forum of these national bodies is additionally held. ### Capacity to interpret laws and regulations - The Central Bank interprets the laws and regulations in the course of its functions; such exercise of functions is (as appropriate) subject to appeal to the Irish Financial Services Appeals Tribunal (IFSAT) or the High Court. ### Assessment, independence and accountability of the Central Bank - Assessment status recorded as: Fully implemented - Independence - The Central Bank generally operates without interference from the government or commercial interests. - Section 5(4) of the Central Bank Act 1942 empowers the Commission with managing and controlling the affairs and activities of the Central Bank. - Exception: Treaty of Rome and the ESCB Statute give the Governor sole responsibility for holding and managing the foreign reserves and promoting the operation of payment and settlement systems. - Financial independence: - A levy is imposed on regulated persons which funds approximately 50 per cent of the cost of the annual budget for financial regulation. - The remaining 50 per cent is self-funded by the Central Bank. - The Central Bank has never sought financial support from the government. - If levies are insufficient, the Central Bank may apply such amounts as the Commission considers necessary; approval of the Minister for Finance is required before such amounts can be applied, and the Minister must consult with the Governor. - The Commission composition - Governor; - Head of Central Banking; - Head of Financial Regulation; - Secretary General of the Department of Finance; and - at least six, but no more than eight, other members appointed by the Minister. - Appointment and tenure: - The Governor is appointed by the President on the advice of the Government for a period of seven years but not exceeding fourteen. - The Head of Financial Regulation (also known, along with the Head of Central Banking, as a Deputy Governor) is appointed by the Commission with the consent of the Minister for five years but no more than ten. - The Governor, the two Deputy Governors and the Secretary General of the Department of Finance are ex officio members of the Commission. - Remuneration and removal: - Historically, the remuneration of the Governor and Deputy Governors has been greater than €200,000. The effect of the government’s recent policy setting a pay-cap on senior public servant appointments has reduced that figure. - The Central Bank Act 1942 stipulates circumstances for removal of the Governor and Deputy Governors. - For appointed members of the Commission, s. 25 (3) of the Central Bank Act 1942 gives the Minister the power to remove an appointed member for proven misconduct or incompetence, and allows the Minister to remove an appointed Commissioner “if in the Minister’s opinion it is necessary or desirable to do so to enable the Commission to function effectively.” - The discretionary removal power has never been used; its continued presence on the statute and the Department of Finance’s reluctance to amend indicates a prevailing threat to the Central Bank’s independence. - Accountability - The Central Bank publishes an Annual Report, a Strategic Report and an Annual Performance Statement, and is subject to an Annual Audit by the Comptroller and Auditor General. - The Central Bank also has an independent external auditor approved by the EU Council under Article 27 of the ESCB Statute. - The Central Bank is required to give reasons for its decisions; affected persons are entitled to make representations. - Administrative law requires, in certain circumstances, that affected persons are given the opportunity to make representations prior to a decision that may materially affect their interests. - For Administrative Sanction inquiries under Part IIIC of the Central Bank Act 1942, notice must be provided to a regulated entity giving it an opportunity to make representations. - A person affected by any statutory decision may seek judicial review of that decision in the High Court. - Appealable decisions (for example, a refusal to approve the appointment of a person to a pre-approved controlled function) may be appealed to the Irish Financial Services Appeals Tribunal. - Parliament may call Central Bank staff to appear and answer questions, with staff remaining subject to obligations of confidentiality. *Source: _cr14136 - 1. Irish Auditing and Accounting Supervisory Authority (IAASA) is designated as the* ### Section 33AJ of the Central Bank Act 1942 provides that the Central Bank, its officers and ### _cr14136 - Section 33AJ of the Central Bank Act 1942 provides that the Central Bank, its officers and ### Legal immunity, confidentiality, and sharing of information - Section 33AJ of the Central Bank Act 1942: the Central Bank, its officers and employees are “not liable for damages for anything done or omitted in the performance or purported performance or exercise of any of its functions or powers, unless it is proved that the act or omission was in bad faith.” - Regulation 122 of the EC (Undertakings for Collective Investment in Transferable Securities) Regulations 2011: an authorization by the Central Bank does not constitute a warranty as to solvency or performance and neither the Central Bank nor the State is liable for losses incurred due to the insolvency, default or performance of the regulated entity. - Section 33AK(5)(z)(i) of the Central Bank Act 1942: specific gateway to share information with the Minister under the Supervisory Directives in relation to the Minister’s responsibility for policy on the supervision of supervised entities. - Section 33AK(6): any person or entity to whom confidential information is provided by the Central Bank under subsection 5 shall comply with the provisions on professional secrecy in the Supervisory Directives in holding and dealing with that information. - Comment/recommendation from assessors: - Consider repealing the legislative provision that allows the Minister to remove an appointed Commission member “if, in the Minister’s opinion, it is necessary or desirable to do so to enable the Commission to function effectively.” - Amend the law to set out that a Commission member may only be removed for specified, objective causes (examples given: bankruptcy, persistent failure to attend meetings, acting in conflict of interest). - Amend the Central Bank Act 1942 to remove the inclusion of a Ministry official (the Secretary General of the Department of Finance) as an ex-officio member of the Commission. - Consider including provisions permitting the Central Bank to indemnify officers and employees for their legal costs if sued and to make moneys available to pay costs during the course of the suit. ### Assessment of institutional independence (summary) - Assessment: Partly implemented. - Key observations: - The Central Bank operates free of influence from the government and the industry on a day-to-day basis in practice. - Legal and structural issues of concern remain with respect to statutory protections for independence of Commission members and staff. - Central Bank reimburses staff for legal expenses as a matter of practice, but there is no statutory provision to pay legal costs. ### Principle 3 — Powers, resources, and capacity - Description: post-crisis changes in powers via Central Bank Reform Act 2010 and Central Bank (Supervision and Enforcement) Act 2013; introduction of international peer review requirement and harmonized fitness and probity regime. - Funding and resources: - Since 2007, approximately 50 per cent of the total costs of financial regulation activities have been met by levies and fees on the financial services industry; the balance is applied by the Central Bank in accordance with Section 32I of the Central Bank Act 1942. - Industry Funding Levy: - 2012: €74,558k - 2011: €79,454k - 2010: €41,584k - Central Bank Funding: - 2012: €44,096k - 2011: €42,204k - 2010: €32,709k - Source: Annual Reports of the Central Bank. - Staffing and compensation constraints: - The Central Bank’s remuneration model constrained by the Financial Emergency Measures in the Public Interest Act 2009. - The Bank added 158 new hires in 2012 to achieve desired headcount. - Financial Emergency Measures in the Public Interest Act 2013 made no distinction between Central Bank employees and the Irish Civil Service and reduced pay and pension levels from 1 July 2013. - Assessment: Partly implemented. - Comment/recommendation: government should give the Central Bank flexibility from civil service compensation rules to retain experienced regulators and meet technical skill requirements. - Markets Directorate staff complement (2012–13): - Front line supervisors: 53 (2012) 53 (2013) - Projects: 5 (2012) 4 (2013) - Funds Authorization: 32 (2012) 31 (2013) - Market Surveillance: 16 (2012) 14 (2013) - Corporate Finance: 18 (2012) 19 (2013) - Client Assets: 7 (2012) 8 (2013) - Divisional Operations (admin, reporting, policy, management), other: 32 (2012) 33 (2013) - Total: 163 (2012) 162 (2013) - Source: Central Bank. - Staff training: - Training Advisory Board established in 2012, chaired by a Deputy Governor, with a five part mandate. - Learning and Development Strategy - Talent Management Policy produced in 2012. - Technical training provided in 2012 included: Investigative Interviewing Skills, Business Strategy and Business Model Analysis, Evaluating the Compliance function, Risk Governance Panel training, and Econometrics. - Staff have access to the Academic and Professional Training Scheme. - Investor protection: - Consumer Protection Directorate responsible for protection of consumers of financial products and services. - Central Bank Reform Act 2010 assigned information and consumer education responsibilities to the NCA, empowered to promote public awareness and advise consumers and to promote the interests of consumers by providing information on financial services, including information on the costs risks and benefits of those services. - In practice, the NCA performs little enforcement and typically confers with the Investor Protection Unit of the Central Bank before issuing notices; most of its role is information provision and referral. - Conflicts of interest: - All staff subject to Staff Code of Ethics and Behavior and Employee Trading Rules (see Principle 5). - Exercise of powers and governance arrangements: - Commission-adopted framework (February 2011) vests essentially all financial regulatory powers in the Deputy Governor (Financial Regulation). - Governor’s Plan of Assignment of Responsibility approved March 2012. - Policy Committee established for coordination and review of supervisory policy positions across sectors; Supervisory Risk Committee established to consider escalated risk reports. - Risk Division: 19 staff; three main areas—supervision support team, cross-sectoral team, PRISM team. - Internal Audit Division reports directly to the Governor. - Regulatory Decisions Unit provides administrative and legal support for Administrative Sanctions Procedure (ASP) inquiries, Fitness and Probity decisions, Securities Markets Assessments, refusals/revocations of authorizations. - Resource allocation concern: - Resources required for the breadth and number of institutions and PRISM demands may result in under-resourcing for medium-low and low impact institutions. - See recommendation in Principle 32 regarding granting the Central Bank power to appoint an administrator to run a firm in crisis. ### Principle 4 — Clear and consistent regulatory processes - Description: processes and procedures in place to ensure regulatory actions are fair, transparent, comprehensible, and consistently applied. - Consultation: - Follows European Supervisory Authorities’ approach; open public consultation generally lasts for 12 weeks. - Where policy/legislation is formulated through ESMA, it is subject to impact assessment and cost benefit analysis prior to implementation. - Public availability of rules: - Many rules, regulations, codes of conduct and guidance materials publicly available on the Central Bank’s website. - Laws and some instruments have not been consolidated despite multiple amendments across many acts (list of Central Bank Acts across years provided in text). - Consolidated versions of most legislation are only available through commercially produced sources; Law Reform Commission has informally consolidated the Central Bank Act 1942 and the Central Bank Reform Act 2010 for public use free of charge. - Other relevant laws (e.g., Investment Intermediaries Act, 1995 and Companies Acts) have been amended multiple times without consolidated public versions free of charge. - Comment/recommendation: consolidation of laws needs to be accelerated to provide usable and accessible format to public and industry. - Procedural fairness: - Central Bank subject to Irish administrative law; many Central Bank decisions appealable to the Irish Financial Services Appeals Tribunal (IFSAT); actions subject to judicial review. - Licensing criteria and consistency: - Authorization and revocation criteria set out in legislation and supplemented by application forms and guidance on the Central Bank’s website. - MiFID Regulations (S.I. No. 60 of 2007) Regulations 13, 21, and 22 prescribe criteria for authorization, grounds for withdrawal and bases for revocation. - Where the Central Bank intends to refuse or revoke authorization, it provides notice and opportunity to make submissions; decisions under MiFID Regulations can be appealed to IFSAT. - Centralized policy and enforcement units established to ensure consistent application of legislation and policy across Supervisory Directorates. - Supervisory committees (Supervisory Risk Committee, Policy Committee) and Risk Division charged with oversight of PRISM promote consistency. - Human Resources Directorate coordinates training programs with Supervisory, Risk, and Enforcement Directorates to support unified interpretative ethos. - Transparency and confidentiality in enforcement: - Outcomes of enforcement actions consistently published; settlement agreements published on the Central Bank’s website. - Private Cautions rarely given; Supervisory Warnings relating to minor matters regularly administered to regulated entities but not made public (recorded for ongoing review). - Prohibition notices may be issued under Part 3, Chapter 4 of the Central Bank Reform Act 2010 and may be published with the consent of the Governor. - Enforcement guidelines available on the Central Bank’s website: - Guidelines to the Administrative Sanctions Procedure; - Outline of the Administrative Sanctions Procedure; - Voluntary Reporting Guidance Note. - Publishing information on regulated entities or individuals requires the Central Bank to consider confidentiality under s. 33AK of the Central Bank Act 1942 and other legal considerations. - Assessment: Broadly implemented. - Comment/recommendation: accelerate consolidation of legislation into accessible consolidated versions for public use. ### Principle 5 — Professional standards, confidentiality, and disciplinary framework - Ethics and employee rules: - All staff subject to Staff Code of Ethics and Behavior and Employee Trading Rules. - Code of Ethics forms part of employee’s terms and conditions. - Section 2.5 of the Code of Ethics directs employees “not to put themselves in situations which might give rise to an actual or apparent conflict between the discharge of their official duties and their personal, financial or other interests.” - Employee Trading Rules require disclosure of financial holdings in entities regulated by the Bank or in regulated entities publicly traded on the Main Securities Market (MSM) of the Irish Stock Exchange or on any Multilateral Trading Facility operated by the ISE. - Under Rule 6(d), an employee must obtain written authorization from the Central Bank’s Compliance Officer to undertake personal account trading. - Confidentiality obligation: employees obliged under the Code of Ethics to keep information obtained through employment confidential; Section 33AK (1)(a)(ii) applies to all current and former officers and employees and precludes disclosure of confidential information concerning “any matter arising in connection with the performance of the functions of the Central Bank or the exercise of its powers ....” - Disciplinary investigation and sanctions: - Disciplinary procedure established that sets formal steps to deal with allegations of wrongdoing. - Breaches of Employee Trading Rules & Code of Ethics are subject to disciplinary investigation; breaches may result in dismissal. - Criminal offences may arise depending on circumstances; example: Section 21 of the Investment Funds, Companies and Miscellaneous Provisions Act, 2005 provides that a person convicted of an offence contrary to Irish market abuse law may be subject to a maximum penalty of “a fine not exceeding €10,000,000 or imprisonment for a term not exceeding 10 years or both.” *Source: _cr14136 - Section 33AJ of the Central Bank Act 1942 provides that the Central Bank, its officers and* ### Section 2.4 of the Code of Ethics states that staff should treat all information obtained ### _cr14136 - Section 2.4 of the Code of Ethics states that staff should treat all information obtained ### Confidentiality, Code of Ethics, and sanctions - Section 2.4 of the Code of Ethics: staff should treat all information obtained through their employment as confidential, unless there is un-ambiguous evidence to the contrary. - Processing of personal data by the Central Bank is subject to the Data Protection Act; staff are directed to a Guide to Data Protection. - Criminal sanctions for disclosure in breach of s. 33AK: - Fine not exceeding €30,000 or imprisonment for a term not exceeding 5 years or both. - On summary conviction: fine not exceeding €3,000 or imprisonment for a term not exceeding 12 months or both. - Assessment: Fully implemented. - Comment: Employee Code of Ethics is comprehensive and clear; recommendation that it should be published for transparency so the public is reassured staff are aware of their ethical responsibilities. *Source: IMF staff report excerpt.* ### Principle 6 — Monitoring, mitigation and management of systemic risk (mandate and institutional roles) - Legal mandate: s. 6A (1-2) of the Central Bank Act 1942 (as amended) sets “stability of the financial system overall” as an objective. - European and international representation: - Deputy Governor (Financial Regulation) represents the Central Bank at European Supervisory Authority meetings covering EIOPA, EBA and ESMA financial stability agendas. - Governor sits on the European Systemic Risk Board (ESRB); Central Bank responsible for macro-prudential oversight within the EU to help prevent or mitigate systemic risks arising from financial system developments. - Assessment: Fully implemented. ### Principle 6 — Expertise and internal fora - Internal expertise mechanisms: - Financial Stability Committee and Risk Governance Panels apply and share risk measurement and analysis expertise. - Risk Governance Panels are advisory; decision-making authority remains with Heads of Supervisory Divisions and the Director. - Cross Sector team in the Risk Division identifies emerging threats and common risks across sectors, produces research papers on emerging risks/trends (examples: Overview of the Exchange Traded Funds industry; European Commission Legislative Package). - Regular fora: - Semi-annual meetings with each supervisory division to discuss environmental risk landscape. - Monthly information exchange meetings with certain supervisory divisions. ### Principle 6 — Regulatory process and PRISM framework - PRISM features: - Developed following study of risk-based systems in Canada, Australia and the U.K. - Assigns each firm to one of four impact categories: High Impact, Medium-High Impact, Medium-Low Impact and Low Impact. - Assignment based on quantitative assessment of systemic impact using metrics: size, turnover, client base, financial interconnectedness and assets under management (dependent on firm type). - Facilitates regular reviews of evolving micro-prudential risks and supports senior management assessment of macro-prudential risks within and across sectors. - Management Information: - Detailed quantitative data reporting function available on PRISM used in monthly Supervisory Risk Committee and senior management meetings. - Assessment: Fully implemented. ### Principle 6 — Addressing concerns and strategic initiatives (2012–2015) - Strategic planning objective (2012 -2013): “ensure that supervisory resources are allocated to areas of greatest risk.” - Completed or ongoing initiatives: - Undertake preliminary financial institution Risk Identification and Mitigation Plans (RMPs) in accordance with PRISM requirements (ongoing). - Complete implementation of PRISM for release to all supervision divisions (in place by November 2012). - Complete development of an engagement model for financial institutions based on risk profile; policy of more intensive supervision, involving close engagement and increased onsite inspections. - Apply appropriate intensity of supervision according to risk profile of financial service provider. - Realign organizational resource targets based on impact and risk analysis to ensure supervisory resources allocated to areas of greatest risk. - Develop risk model management information set by forming a Supervision Support Team. - Two supervisory reviews undertaken in the 3rd Quarter of 2012 and best practice seminars conducted in a number of supervisory areas. - Assessment: Fully implemented. ### Securities markets, ESMA input, and supervisory priorities - ESMA: published first report on trends, risks and vulnerabilities in EU securities markets in Q4 2012; assesses 2012 performance to develop a comprehensive picture of systemic and macro-prudential risks. - Annual Performance Statement Financial Regulation 2012 -2013 identified vulnerabilities from PRISM. Priorities for 2012-2013 included quality assurance reviews during 2013 of supervisory practices for High, Medium High and Low Impact firms and implementation of Low Impact supervision in Markets supervision. - Priorities for 2013-2015 included: - Implement strategy for Low Impact investment firms, funds and fund service providers by taking action on all trigger events in accordance with triage approach; - Complete thematic reviews as scheduled; - Refer appropriate matters to Enforcement. ### Communication between domestic authorities - Central Bank views itself as the predominant competent national authority for financial markets supervision and believes it has limited need for regular communication with other domestic regulators on systemic risk. - Memoranda of Understanding (MOUs) exist with key agencies: ISE, IAASA, the FSO and the ODCE. - Assessment: Fully implemented. ### Principle 7 — Review of perimeter of regulation and escalation/committee structure - Central Bank contributes to regulation development via local and European participation. - Supervisory teams are first line of defense; followed by Cross-Sector team and Risk Governance Panels; then an escalation process to standing senior management committees. - Standing committees and mandates: - Supervisory Risk Committee (SRC): meets weekly to consider risk reports escalated by Heads of Division. - Financial Stability Committee (FSC): meets fortnightly to advise the Governor; monitors risk-relevant developments in economic and financial markets; develops micro-prudential and systemic risk indicators; analyses domestic crisis management and resolution arrangements. - Policy Committee: meets monthly to discuss and agree major policy initiatives and responses; monitor EU and international developments; coordinate Central Bank positions and agree position papers for external stakeholders. - Assessment: Fully implemented. ### Principle 7 — Review of changing circumstances: Client Asset Requirements Review (August 2011 → March 2012) - Client Asset Requirements Review commissioned in August 2011 to safeguard client assets; driven by PRISM establishment, client asset cases, pending EU Directive changes, and industry feedback. - March 2012 report key recommendations: - Establishment of a Client Asset Specialist Team (CAST). - A Pre-approval Control Function (PCF) at director/senior management level. - Replace external audit reports with an annual Client Asset Examination (CAE) using the firm’s Client Assets Management Plan (CAMP) combined with spot checks. - Power to apply to the High Court for appointment of an administrator or person with equivalent powers where serious financial problems/endangered client interests exist (the Department of Finance rejected this proposal). ### Principle 7 — Regular review, intelligence and unauthorized providers - Unauthorized Providers Unit (UPU) activities: - Regularly identifies and investigates suspected unauthorized activity by unauthorized/unregulated individuals/entities. - Intelligence sources: consumers directly; internal Central Bank reports; reports and requests for assistance from foreign regulators. - Informal cooperation with European peers (example: Italy and France on an own account trading issue) and intelligence via ESMA through MOUs and expert group participation. ### Principle 7 — Seeking legislative and supervisory change - Central Bank has pursued unilateral approaches where regulatory weaknesses identified. Example legislative change: - Central Bank (Supervision and Enforcement) Act 2013: - gives the Central Bank power to make regulations in line with principles established in that Act;; - creates a regulatory regime for debt management firms. - Central Bank updates and publishes guidance notes and handbooks for regulated entities to eliminate interpretation or procedural gaps. ### Principle 8 — Conflicts of interest and misalignment of incentives: supervisory processes and legal framework - Supervisory processes identify and evaluate potential/actual conflicts of interest for regulated entities and potential misalignments for unregulated participants (issuers). - Reliance on statutory obligations for entities to self-assess, monitor, avoid and/or disclose conflicts. - Supervisory assessment methods: review of policies, routine and thematic inspections, responses to complaints or whistleblower information. - Mitigation measures depend on nature of conflict: identify, monitor, avoid, disclose. - Issuers (typically unregulated) must identify/monitor/avoid/disclose conflicts under Companies Acts; additional Prospectus Regulations and Market Abuse Directive (MAD) / Transparency Regulations apply when offering securities or seeking admission to trading on an RM. ### Principle 8 — Companies legislation and specific regimes - Companies Acts (e.g., Companies Act, 1990, Parts III and IV) impose obligations on companies and directors to identify, monitor, avoid and/or disclose conflicts and related party transactions. - MiFID Regulations: - Reg. 33 requires investment firms to maintain effective organisational/administrative arrangements to prevent conflicts adversely affecting clients. - Reg. 74 requires identification and disclosure of conflicts where arrangements are insufficient. - Reg. 63 requires market operators of an RM to identify and manage conflicts between the RM and sound functioning of the RM. - Consumer Protection Code 2012 (IIA firms): requires written conflicts of interest policy appropriate to nature/scale/complexity of regulated activities (paragraph 3.28); direct/indirect conflicts require consumer written acknowledgement before proceeding (paragraph 3.29). - UCITS Regulations (S.I. 352 of 2011): - Reg. 24: fund management companies obliged to define in writing an effective conflicts of interest policy for "relevant persons". - Schedule 5, para. 65 & 66: situations that may lead to conflicts and requirement to maintain written policy appropriate to size, organisation, nature, scale and complexity. - Prohibitions to reduce conflicts: Reg. 37 & 53 prohibit same company acting as both management company and trustee or both investment company and trustee. - Reg. 73: where detrimental conflicts arise, management company must act in best interests of the UCITS and unitholders and report decisions to investors. ### Principle 8 — Public issuers, prospectus, transparency and MAD obligations - Prospectus Regulations (S.I. 324 of 2005) and EU Regulation 809/2004: - Require disclosure in prospectus or securities note of any actual or potential conflicts of interest between duties owed by administrative/management/supervisory bodies and their private interests; if none, a statement to that effect must be made (EU Regulation 809/2004, Annex I and III). - Transparency Regulations: - Require periodic and ongoing public disclosure of material information for issuers with securities trading on an RM; persons responsible for periodic reports are civilly liable for material mistakes, misstatements or omissions. - Periodic reporting must disclose related party transactions (Reg. 5-9). - MAD Regulations: - Reg. 12 requires managers of issuers (and associated persons) to notify the Central Bank regarding managers’ own-account transactions relating to issuer shares or linked instruments; Central Bank must ensure prompt public access to such information (Reg. 12(7)). - Reg. 21 and Reg. 22 require disclosure of relationships/circumstances impairing objectivity of investment recommendations and clear, prominent disclosure of interests/conflicts by persons whose main business is producing recommendations. - Disclosure channels: prospectus/periodic disclosures must be accessible via a Regulatory Information Service (RIS) or freely available in hardcopy; managers’ transactions are notified to the Central Bank and announced via an RIS without delay. ### Principle 8 — Oversight, enforcement and remedies - Oversight agencies and roles: - IAASA: examines whether annual and half-yearly financial reports of issuers within Transparency Directive remit and with Ireland as home member State are drawn up in accordance with relevant reporting framework; includes public interest entities (PIEs). - Office of the Director of Corporate Enforcement (ODCE): enforces compliance with company law. - Central Bank: supervises and enforces relevant requirements (see Principles 10 and 12 for additional discussion). - Remedies available: - For regulated entities: issuing conditions/directions; imposing administrative sanctions; Risk Mitigation Programs (RMPs) under PRISM; RMPs may require firms to stop problematic activities and implement remediation (e.g., revise deficient documents or ensure complete disclosure of conflicts), or administrative sanctions under Part IIIC of the Central Bank Act 1942 (as amended). - For issuers under Prospectus and Transparency Regulations: remedies include issuing a direction, suspending trading and imposing administrative sanctions. - IAASA may issue statutory notice and/or direction under Regulations 44 and 45 of the Transparency Regulations to revise financial statements if not in compliance. - Assessment: Fully implemented. *Source: IMF staff report excerpt.* ### Part VII of the ### _cr14136 - Part VII of the ### APB framework and definitions - “Approved professional bodies” (APB) are responsible for regulation and supervision of their members as “certified persons” providing investment business services where those services are provided in a manner that is incidental to other professional services provided. - A “certified person” means either: - (a) an individual who is a member of or is regulated by an APB, or - (b) a firm or entity managed and controlled by one or more such individuals and who / which, in either case, has been granted and holds a valid certificate under the rules of that professional body deeming that person to be a fit and proper person to carry on investment business services or provide investment advice or both. ### APBs in Ireland (current composition) - There are three APBs: the Institute of Chartered Accountants in Ireland (ICAI), the Institute of Certified Public Accountants in Ireland (CPA) and the Association of Chartered Certified Accountants (ACCA). - The ICAI established the Chartered Accountants Regulatory Board (CARB) to regulate its members in accordance with the Institute's By‑laws. - The CPA has passed By‑Law 14 concerning Investment Business Regulations; decision-making powers conferred on the Registration Committee with a right of appeal to the Registration Appeal Committee. - The ACCA has made the Irish Investment Business Regulations 2013, administered in the first instance by the Admissions and Licensing Committee, and on appeal by the Appeal Committee. - Each set of Investment Business Regulations (or similarly titled document) is subject to prior approval by the Central Bank. ### Certified persons — scope and authorisations (exact counts preserved) - Total certified persons: 902 - 637 regulated by ICAI - 154 regulated by CPA - 111 regulated by ACCA - Service levels: - 658 certified persons provide services equivalent to a restricted intermediary under the IIA (can provide investment advice, receive and transmit orders to a product provider from which they hold an appointment, and act as a deposit broker; many in practice only provide referrals to authorized intermediaries). - 238 certified persons hold a higher level of authorisation, mainly to provide additional services in relation to tax efficient investment schemes (e.g., business expansion schemes and film financing schemes under Section 481 of the Taxes Consolidation Act). - 6 certified person firms are authorised to hold client assets in addition to the services outlined above. - No certified persons are authorised to provide discretionary portfolio management or discretionary trust management. ### Powers and sanctions available to APBs - Each APB can: - Grant, refuse to grant, revoke, or suspend a certificate to carry on investment business services or provide investment advice; - Impose fines; - Otherwise sanction or discipline a member concerning investment activity. ### Central Bank approval, conditions and oversight (statutory and operational) - Under s. 56 of the IIA, prerequisite for authorisation requires the applicant professional body to satisfy the Central Bank on: - Constitutional documents and rules enabling operation in accordance with the IIA and conditions the Bank may impose; - Probity and competence of managers primarily concerned with regulation and supervision of certified persons; - Publication provisions regarding inquiries or proceedings regarding disciplinary matters concerned with provision of investment business services, or equivalent regulation by other enactment; - Sufficient powers under rules or otherwise for regulation of carrying on of investment business services or investment advice by certified persons; - Adequate arrangements and resources for effective monitoring and enforcement of rules and conditions, and provision for withdrawal or suspension of certificates. - The Central Bank’s view that fair and consistent SRO regulation requires: - Clear rules concerning criteria and process for approval of applicants for authorisation; - Clear conduct of business rules and conduct standards; - A transparent decision‑making framework; - An effective right of appeal for members of the SRO. - The Central Bank reviews and approves Investment Business Regulations for each APB at point of approval and in advance of any proposed amendment or addition, considering the Consumer Protection Code 2012. - The designation of a body as an APB triggers the provisions in the IIA related to APBs; approval is via statutory approval process rather than a direct statutory delegation in the enactment. ### Terms and conditions imposed by the Central Bank on APBs Each APB is required to: - Provide the Central Bank with a copy of its regulatory plan including a report on the outcome for the previous period; - Participate in meetings as the Central Bank considers necessary to review operations; - Satisfy the Central Bank on a continuing basis that it has sufficient financial, management and human resources to carry out APB functions; - Maintain a register of certified persons authorised by it; - Notify the Central Bank when: - a certified person is authorised by it to carry on investment business or provide investment advice and provide specified details; - a certified person surrenders its certificate or when the same is suspended or withdrawn; - of any change in composition or terms of reference of any committee involved in regulatory functions under the IIA; - it becomes aware that a member of the APB or a member firm has been carrying on investment business whilst unauthorised to do so or has committed an offence in the course of carrying on investment business; - immediately where events or circumstances make it impracticable for the APB to discharge any of its functions as such; - Submit a six‑monthly report; - Submit on request copies of all monitoring visit reports relating to investment business activities of certified persons together with copies of all correspondence between it and the certified person in respect of monitoring visits; - Advise of any activities that might impact on the probity of such certified persons; - Permit the Central Bank to attend as an observer at all committee meetings of the APB relating to its functions under the IIA. ### Reporting on enforcement and conduct - Each APB notifies the Central Bank about enforcement action taken against member firms and individuals by means of a six‑monthly report outlining: - When the APB has exercised its intervention powers in relation to a certified person; - Any disciplinary action taken against a certified person or employee of a certified person which is relevant and material to the carrying on of investment business; - Any unresolved complaints regarding a certified person which are relevant and material to the carrying on of investment business and which were received from clients of certified persons authorised by the APB. ### Governance, committees and independence safeguards - APB regulations and constitutional documents provide for selection of board of directors and composition of committees relevant to investment business regulation. Committees generally include independent members who are not accountants and disciplinary hearings are held in public. - ICAI governance example: - Council: 19 elected members with provision for co‑opting a further five members, including two non‑Chartered Accountant members; By‑Laws require geographical spread between Republic of Ireland, Northern Ireland and Great Britain and balance between members in practice and members in business. - CARB Board: 12 members, 7 required to be persons who are not members of an Accountancy Body; Board is self appointing; members required to be knowledgeable about matters relevant to regulation and capable of acting independently and detachedly. - Chapter 2 of ICAI Investment Business Regulations deals with authorisation, enforcement and disciplinary arrangements; Committee for relevant matters must consist of at least eight people (at least one‑quarter not accountants) with a quorum of three; for refusal/withdrawal/suspension/publishing orders one member must be an accountant and one must not be an accountant. ### Supervision programs and monitoring practices - APB supervision programs combine on‑site and off‑site reviews and are risk‑based. - CARB example: - Members file detailed annual returns (number of clients, financial information, number of complaints, etc.). - Initial review automated; computer screening flags concerns; exception reports investigated by an analyst. - Professional indemnity insurance and continuing professional development compliance checked. - For firms authorised to hold client assets, reports of their independent accountant (required under the Client Money Regulations 2007) are reviewed. - On‑site reviews based on risk assessment; firms that hold client assets reviewed at least every three years; all five firms holding client assets were reviewed by CARB in the referenced year. ### Central Bank oversight activities and inspections - Central Bank oversight program: regular reporting, desk‑based reviews, periodic inspection visits and auditing of relevant committee meetings to ensure ongoing satisfaction of prerequisites to approval and applicable conditions and requirements. - Central Bank has collaborative relationships with APBs, with formal and informal contact, formal half‑yearly reporting and retention of statutory authority to intervene. - APB inspection history (periodic inspections by Central Bank): - ACCA inspected in 1999, 2004 and 2010. - ICAI inspected in 2004 and 2010. - CPA inspected in 2002, 2004 and 2010. - 2010 inspections objectives: - To examine and review procedures used by each APB in regulating investment business activities of Irish members; - To assess compliance with provisions of the IIA and the conditions imposed by the Central Bank when approving as an APB. - Central Bank staff conducted a two‑day inspection of each APB during November and December 2010. No significant issues were identified; a small number of items required follow‑up and were addressed. - The Central Bank may attend as observer at APB committee meetings and has exercised this right on three occasions. ### Central Bank powers, intervention and equivalence - Central Bank retains full statutory authority to inquire into matters affecting investors or the market; its authority is not affected by delegated authorisation and supervision model. - Central Bank powers applicable to certified persons include specific IIA powers and ‘core’ powers under the Central Bank Acts (e.g., under the Central Bank Act 1942 it may conduct examinations, hold inquiries, issue a suspension). - The Central Bank’s statutory powers to inquire into or address misconduct apply regardless of adequacy of APB powers; it can intervene on its own judgment with regard to proper and orderly regulation and supervision, without requiring any shortcoming on the part of the APB. - Section 56(7) requires Central Bank prior approval for any proposed amendment or addition to an APB’s constitutional documents or rules relating to regulation of investment business services or investment advice. If the Central Bank refuses consent it must serve written notice stating reasons; an APB may appeal a refusal to the Minister for Finance (s. 60) though this option has not been exercised. ### Procedural fairness, confidentiality and conflicts of interest - APB Disciplinary Rules include express confidentiality requirements. - APBs are subject to data protection legislation restricting use and disclosure of information to valid purposes. - The Central Bank’s review of APB rules and Investment Business Regulations seeks to ensure the rules create a fair framework and that rules applicable to certified persons are equivalent to those that apply to directly regulated firms. - Staff stated that statutory pre‑requisites to approval would not be considered met if APB rules and processes presented a risk of procedural unfairness. - Each APB has issued rules concerning conflicts of interest between certified person and client. - CARB’s Investment Business Regulations include 10 core principles (text ends at this point in the provided content). *IMF staff report: Part VII (extracted content).* ### 6. Conflicts of Interest - A firm should either avoid any conflict of interest arising ### 6. Conflicts of Interest - A firm should either avoid any conflict of interest arising ### Central Bank expectations for Accountancy Professional Bodies (APBs) - The Central Bank expects each APB to be cognisant of the risk of conflicts of interest and to take appropriate steps to disclose, manage or avoid the same. - This expectation applies across all aspects of an APB’s work, not only investment business. - APBs are professional accounting organizations subject to oversight by IAASA and may be subject to reviews by other governmental bodies (including bodies enforcing anti-money laundering legislation). ### Treatment of the Irish Stock Exchange (ISE) - The Central Bank’s view: the ISE is not an SRO as set out in this Principle. - ISE is the competent authority in the State for listing under the European Communities (Admission to Listing and Miscellaneous Provisions) Regulations 2007 (S.I. 286 of 2007), a status inconsistent with being an SRO in that area. - The ISE is authorised by the Central Bank to operate a regulated market and two multilateral trading facilities and operates as a regulated entity authorised by the competent authority rather than as a direct delegate of statutory responsibility or an SRO. - The ISE is considered to be: - a regulator in relation to listing, and - a regulated entity in relation to the operation of regulated markets and MTFs, rather than an SRO in either case. - Assessors note they are not entirely convinced the Central Bank’s view is correct but observe overlap between this Principle and Principles 33 and 34; conditions and oversight at the Central Bank generally meet the requirements under this Principle. ### Operational and information-sharing concerns - Multiple oversight bodies (Central Bank, IAASA, police, other governmental bodies) create separate oversight that may be effective but is not particularly efficient for overseers or overseen entities. - Extensive confidentiality requirements binding many parties limit cooperative work and information sharing among regulatory participants and APBs. - Potential consequences: - Less efficient use of scarce investigatory resources when matters cross lines of responsibility. - Risk that issues of concern get missed because information is fragmented across several agencies. - Recommendation/consideration: - Explore adjustments to confidentiality requirements to facilitate more open discussions and greater sharing of information among relevant authorities, including the APBs. ### Principle 10 — Inspection, investigation and surveillance powers (summary of powers and obligations) - Legal instruments giving the Central Bank inspection and surveillance powers include: - Part 3, Chapter 3 of the Central Bank (Supervision and Enforcement) Act 2013; - Regulation 29 of the MAD Regulations; - Regulation 86 of the Prospectus Regulations; - Regulation 54 of the Transparency Regulations. - These powers allow inspection of a regulated entity’s business operations, including books and records, without prior notice and on-site. - Market surveillance obligations and powers: - MiFID Regulation 46: Central Bank to keep under regular review compliance of market operators and regulated markets and monitor compliance with conditions for initial authorization. - MiFID Regulation 146: Central Bank may impose conditions or requirements on an investment firm or market operator, including provision of information. - MiFID Regulations 67 and 113: market operators of regulated markets/MTFs must establish and maintain effective procedures to monitor transactions to identify disorderly trading or conduct that may involve market abuse and report such transactions to the Central Bank. - MiFID Regulation 112: obligation for investment firms to report transactions in relation to instruments admitted to trading on a regulated market — key for the Transaction Reporting and Monitoring Unit. - MiFID Regulation 145(1)(c)(i) and 145(2)(f): Central Bank can impose post-authorization conditions to add/amend/revoke rules or impose requirements in the interests of proper and orderly regulation. - MiFID Regulations 147 and 148: Central Bank may issue directions where necessary for proper and orderly regulation and for investor protection. - Authorized officer powers in Part 5 of the Central Bank Reform Act 2010 can be used to compel information. - MAD Regulations: - MAD Regulation 3: Central Bank is the single-administrative competent authority for the Directive. - MAD Regulation 7(1): Central Bank shall require market operators to structure operations to prevent and detect market manipulation and report regularly. - MAD Regulation 7(2): power to impose requirements on transparency of transactions, disclosure of price regularization agreements, order-pairing systems, atypical order detection schemes, financial instrument reference price-fixing schemes, and clarity on transaction suspension rules. - MAD Regulation 31(1) and 31(3): power to issue directions to ensure market integrity, enhance investor confidence, or prevent contraventions of Irish market abuse law; sets out directions that can be imposed. - MAD Regulation 29: powers of authorized officers to compel information and investigate suspected market abuse. - Other statutory powers: - Section 34 of the Investment Funds, Companies and Miscellaneous Provisions Act 2005: Central Bank may make rules imposing requirements on persons subject to Irish market abuse law; Market Abuse Rules issued pursuant to this power. - Rule 4.1 of the Market Abuse Rules, Rule 4.1 of the Transparency Rules and Rule 3.1 of the Prospectus Rules: persons to whom those rules apply must provide information or explanation reasonably required by the Central Bank. - Record-keeping and retention: - Applicable instruments: MiFID Regulations (Regulations 40, 100 and 112); IIA Section 19; UCITS Regulations Regulation 125; Commission Delegated Regulation (EU) No 231/2013 (AIFMD) Article 66; Criminal Justice (Money Laundering and Terrorist Financing) Act 2010 Section 55. - In general, records must be retained for a period of at least five years. - Identity and information-gathering powers: - Section 27 of the Central Bank (Supervision and Enforcement) Act 2013 empowers the Central Bank to gather records for proper and effective regulation. - Section 77 of the Criminal Justice Act 2010 grants similar powers. - Outsourcing: - Third parties can be appointed as authorized officers under section 24 of the Central Bank (Supervision and Enforcement) Act 2013 s. 57(1), MAD Regulation 28(1), Transparency Regulation 53(1) and Prospectus Regulation 85(1). - Example: the Central Bank outsourced client asset inspections to a predominant audit firm in 2010; the Central Bank supervised the work and the audit firm was subject to stringent confidentiality requirements. - Assessment: Fully implemented ### Principle 11 — Enforcement powers (scope and mechanisms) - Section 21 of the Central Bank (Supervision and Enforcement) Act 2013 broadened powers to gather information to include: - any person who has applied for authorization and the application is pending; - a person whom the Central Bank reasonably believes was or put themselves out to be a regulated financial service provider; - a person who was providing a financial service without an authorization; - a related undertaking of any of the persons referred to above; - any other person whom the Central Bank reasonably believes may possess information about a person referred to above. - Investigative powers under Securities Markets Regulations: - MAD Regulations: Part 4; - Prospectus Regulations: Part 14; - Transparency Regulations: Part 9. - Authorized officer powers (Section 27, Central Bank (Supervision and Enforcement) Act 2013): - Power to search and inspect premises of a regulated financial services provider or other premises where there are reasonable grounds to believe records relating to that business are held; warrant required for dwellings absent occupier consent. - Power to require any person who apparently has control of, or access to, records to produce the records. - Section 31: power to refer a person who fails or refuses to comply with a requirement to the High Court. - Enforcement steps and court remedies under MiFID/IIA/UCITS: - MiFID Regulation 21: Central Bank may withdraw an authorization in certain circumstances. - MiFID Regulations 22 and 54: Central Bank may apply summarily to the Court for revocation of authorization of an investment firm or regulated market. - MiFID Regulation 149: apply to the High Court to secure compliance with a Direction. - MiFID Regulation 150: apply for appointment of a liquidator in relation to an investment firm or market operator. - MiFID Regulation 166: apply to the Court for appointment of a Court appointed investigator. - IIA Section 16: Central Bank may revoke authorization of an investment firm in specified circumstances. - IIA Section 22: Central Bank may apply for winding up of an investment business or former investment business firm. - IIA Section 35: apply for a Court Order to remove an officer or dismiss an employee. - IIA Section 66: apply to the court for appointment of an inspector. - IIA Section 74 and 79: summary applications where contraventions or failures to comply are believed to have occurred; Court may prohibit continuance of contraventions. - UCITS Regulation 127 and Regulation 131: summary applications to Court for failures to comply by a UCITS, management company or trustee. - MAD Regulation 31(3) and Prospectus Regulation 88: allow Central Bank to impose an extensive range of directions on a regulated firm. - Civil liability and private rights: - Sections 33 and 41 of the Investment Funds, Companies and Miscellaneous Provisions Act 2005 make persons responsible for breaches of the MAD Regulations and Prospectus Regulations civilly liable. - A breach of statutory duty more generally would give any individual his own right of action. - Central Bank (Supervision and Enforcement) Act 2013 enhancements (sections 52–58): - Enforcement orders — authority to apply to Court for an enforcement order restraining conduct that would contravene financial services law. - Restitution orders and recoupment of investigation costs from those found guilty of a contravention. - Doubling of the maximum administrative sanction to €1m for an individual and €10m for a firm. - Enforcement action and criminal proceedings: - The Central Bank has the power to initiate criminal proceedings for offences under MAD Regulation 49; Section 32 of the Investment Funds, Companies and Miscellaneous Provisions Act 2005; Transparency Regulation 76; section 21 of the Investment Funds, Companies and Miscellaneous Provisions Act 2006; Prospectus Regulation 107; section 47 of the Investment Funds, Companies and Miscellaneous Provisions Act 2005. - The power to initiate criminal proceedings is rarely invoked. *International Monetary Fund — Ireland, sections on Conflicts of Interest, Principles 10 and 11* ### Section 33AK(3) of the Central Bank Act 1942 compels the Central Bank to report any ### _cr14136 - Section 33AK(3) of the Central Bank Act 1942 compels the Central Bank to report any ### Legal reporting obligations and information sharing - Section 33AK(3) of the Central Bank Act 1942 compels the Central Bank to report any suspicion of the commission of an offence and to supply any information to anybody charged with the detection or investigation of a criminal offence or contravention, including: - An Garda Síochána - the Revenue Commissioners - the ODCE - the Competition Authority - the NCA - For non-public information, the Central Bank is required to protect confidentiality of information obtained in the course of its duties, but permits disclosure in accordance with s. 33AK of the Central Bank Act 1942. No external approval is required to share that information, other than where the information is confidential and has been obtained from another authority. ### Suspension powers - Temporary suspension of trading of investment instruments is provided for under the following regulations: - Transparency Regulation 40(5) (for up to 10 days) - Prospectus Regulation 83 (for up to 1 year) - MiFID Regulations 41(1)(g), 65 and 147/148 - MAD Regulation 31(3)(a) - In 2011 and 2012 the securities of two issuers were suspended under the Prospectus Regulations. ### Sanctions framework and enforcement powers - The Central Bank has the power to impose sanctions under: - the MAD Regulations - the Prospectus Regulations - the Transparency Regulations - Administrative Sanctions Procedure (ASP) (Part IIIC of the Central Bank Act 1942): - Sanctions available in respect of a person or entity concerned in the management of a regulated financial service provider: - A caution or reprimand - A monetary penalty up to EUR 1 million for individuals and EUR 10 million for firms - Disqualification, suspension or revocation - A direction to cease a contravention - The Central Bank’s costs of the investigation - From mid-2010 to September 2013, 44 cases with regulated financial services providers and persons concerned in their management have settled, and fines totaling €20,995,815 have been imposed. - Assessors under MAD, Prospectus and Transparency Regulations (commonly retired judges): - Possible actions following an adverse assessment include: - private caution or reprimand - public caution or reprimand - a monetary penalty (but not exceeding €2,500,000 in any case) - direction disqualifying the assessee from being concerned in management or having a qualifying holding - direction ordering the assessee to cease a prescribed contravention - a direction to pay to the Central Bank all or a specified part of the costs incurred by the Central Bank in investigating the matter and in holding the assessment (including costs incurred by authorized officers) - These decisions may be appealed to the High Court. ### Inspection, investigation and surveillance (Principle 12) — assessment and implementation - Assessment: Fully implemented (earlier summary entry) and separately Assessment: Partly implemented (see comments on PRISM and enforcement balance). - The Central Bank’s Supervisory Divisions carry out inspections on a routine periodic basis and have powers to initiate investigations under: - Central Bank Reform Act 2010 - the MAD Regulations - the Prospectus Regulations - the Transparency Regulations - PRISM (implemented in the Markets Directorate in Q2 2012): - Requires supervisors to form judgements about risks each regulated entity presents relative to the Central Bank’s risk tolerance and to develop appropriate risk mitigation programs. - Links impact and supervisory intensity and supports structured resource allocation and planning. - Built-in ongoing monitoring uses financial ratios that, if triggered, prompt supervisory attention/intervention. - Risk rating in PRISM is updated after a supervisory activity is completed and serves as an ongoing measure of risk. - Strategy 2013-2015: Central Bank announced “[a]t least 25% of administrative sanctions cases will relate to Low or Medium Low firms.” - Concern: overwhelming majority of firms (well more than 90%) are designated Low Impact; Low Impact firms rely heavily on reactive processes and automated offsite supervision with limited qualitative data and limited onsite activity; no minimum frequency of onsite reviews for Low Impact firms prescribed by PRISM. - Thematic reviews (informed by PRISM) undertaken include: - Corporate Governance Inspections – Cross-Divisional (Q1 2012) - Reviewing Financial Reporting Structures & process for submission of Financial Returns to the Central Bank – Investment Firms (Q2 2012) - CRD Remuneration Policy Review – Investment Firms Cross Impact Category and Outsourcing Arrangements - Cross-Sectoral (both Q4 2012) - Operational Risk Reviews – Stockbroking firms (throughout 2013) - Client Asset Specialist Team (CAST): - Carries out routine and reactive inspections of entities authorized to hold client assets, including general inspections of firms holding significant levels of client assets. - CAST committed to general inspections of all six brokers and stock exchange intermediaries by the end of May 2014. - CAST completed: - Arrangements for physically holding client financial instruments (Q2 2012) - Payments & Receipts in firms holding Client Assets (Q4 2012) - Some 39 firms are authorized to hold client assets. CAST commenced inspections since July 2012 and planned to inspect every firm holding client assets every two years, including firms classified by PRISM as Low Impact. - Consumer Protection Directorate: conducts planned and reactive inspections and themed reviews focusing on business conduct (examples over past three years: Best execution; Suitability of Financial Instruments sold to older clients; Client Categorization; Complaints Handling). - Transaction Reporting and Monitoring Unit (TRMU) and Markets Integrity Unit (MIU) inspections included: - Insider Lists / Management of inside information (2011) - Suspicious Transaction Reports (throughout 2012/2013) ### Markets Directorate inspections (2008–1st Q 2013) - Annual counts by category (as presented in source): - 2008 total inspections: 19 - 2009 total inspections: 22 - 2010 total inspections: 33 - 2011 total inspections: 40 - 2012 total inspections: 48 - 1st Q 2013 total inspections: 9 - Category breakdown (selected figures as presented): - General: 2008 = 9; 2009 = 7; 2010 = 8; 2011 = 10; 1st Q 2013 = 2 - Themed: 2008 = 5; 2009 = 4; 2010 = 13; 2011 = 10; 2012 = 17 - Focused: 2009 = 5; 2010 = 12; 2011 = 10; 2012 = 8 - CAR: 2008 = 5; 2009 = 6; 2011 = 10; 2012 = 11; 1st Q 2013 = 2 - Triage: 1st Q 2013 = 1 - Trigger: 2012 = 2; 1st Q 2013 = 2 - FRA Review: 2012 = 9; 1st Q 2013 = 3 ### Supervision of fund managers and hedge funds - Fund managers: - UCITS Regulation 123 provides powers for themed inspections and analysis of annual and interim accounts (reviewed on a sample basis). - AIFM Regulations 48-51 are comprehensive but still to be tested. - Classification and inspection frequency: 8 firms deemed Medium-High and assessed between every two and four years; 37 firms classified Medium-Low; 202 firms classified Low. - A dedicated team addresses Low Impact Funds. - Hedge funds: - Comprehensive powers to access and inspect hedge fund managers and advisors under Part 5 of the Central Bank Reform Act 2010. - Enhanced by Part 3 of the Central Bank (Supervision and Enforcement) Act 2013, specifically the ability to require a skilled person’s review at the firm’s cost. ### Investigations, referrals and criminal enforcement outcomes - Investigations by Markets and Enforcement Directorates under the MAD Regulations covered: - Issuers’ maintenance of insider lists - Firms’ non-submission of Suspicious Transaction Reports - Publicly-listed companies failing to lodge required notifications of transactions by persons discharging managerial responsibility - Suspected insider dealing by company officers and market participants - Suspected market manipulation by a company - Insider trading: one insider trading case (not yet public) concerning trading by a company officer of a publicly listed company is being prosecuted under Part 5 of the MAD Regulations (which provides for compensation for losses suffered and profits made as a result of market abuse). - Other alleged breaches: a major trial of alleged contraventions of the Companies Laws in 2008, on referral from the Central Bank, the Garda and the Director of Corporate Enforcement to the Director of Public Prosecutions, is scheduled for trial in the Circuit Court in January 2014. - Referrals to police: - The Central Bank states that since 2010 it has reported 155, 111, and 105 matters to the criminal authorities. - Despite these referrals, not a single conviction on indictment has been recorded in the Circuit Court during this time against any individuals referred by the Central Bank. - Enforcement Directorate preference and output: - Preference for Administrative Sanction (ASP) approach; from mid-2010 to September 2013: 44 settled cases; fines totaling €20,995,815. - ASP does not apply to suspected contraventions under the Markets Regulations, where independent Assessors determine outcomes under a similar process. ### Examples of enforcement actions and penalties (2010–2013) - Transaction reporting and compliance with MiFID Regulation 33(1)(a): - 9 actions taken against 5 firms between 2010 and 2013 – Total of €353,000 penalties imposed and all firms publicly reprimanded - Publicly listed companies failing to lodge notifications re share purchases by persons discharging managerial responsibility: - 1 action taken in 2012 - €10,000 monetary penalty imposed and company was publicly reprimanded - Stockbroking firm failing to lodge a suspect transaction report in contravention of MAD Regulation 13: - 1 action taken in 2012 - €20,000 monetary penalty imposed and firm was publicly reprimanded - Publicly listed companies failing to properly maintain insider lists in contravention of MAD Regulation 11 and Rule 6.1: - 2 actions taken, 2010 and 2013 – Total of €130,000 in monetary penalties imposed and both companies were publicly reprimanded ### Enforcement Directorate activity (2011–31 August 2013) - All Pre-Referrals: 2011 = 72; 2012 = 98; To 31 August 2013 = 35 - Securities Markets Pre-Referrals: 2011 = 41; 2012 = 35; To 31 August 2013 = 14 - Securities Markets Cases Accepted: 2011 = 20; 2012 = 25; To 31 August 2013 = 3 - Securities Markets Supervisory Warnings: 2011 = 5; 2012 = 7; To 31 August 2013 = 2 - Securities Markets Settlements: 2011 = 5; 2012 = 3; To 31 August 2013 = 1 - Securities Markets Revocation of Authorization: 2011 = 1; 2012 = -; To 31 August 2013 = - - Securities Markets No Action: 2011 = 4; 2012 = 3; To 31 August 2013 = - - Securities Markets On-going: 2011 = 2; 2012 = 3; To 31 August 2013 = 9 ### Performance metrics, priorities and observed challenges - Supervisory warnings: Since 2011, Enforcement 1 Division has issued 38 supervisory warnings (14 to securities markets firms); warnings are private but part of the firm’s compliance record. - Balanced Score Card and Enforcement Priorities (2013): - Enforcement Priorities include: Retail Intermediaries; Client Asset Requirements; Prudential Requirements; Systems and Controls; Timeliness and Accuracy of Information submitted to the Central Bank. - Enforcement Directorate key performance indicator: advancing a specified number of administrative sanction cases to settlement, administrative hearing or court. The minimum figure of 15 was exceeded in 2012, and the figure for 2013 is also expected to be exceeded. - Observed challenges and remarks: - PRISM roll-out and other legislative changes are recent, with limited practical experience to assess effectiveness. - Recent legislation and regimes with limited time in operation include: - PRISM roll-out in Q2 2012 for securities markets firms - Fitness and Probity Regime implementation beginning 1 December 2011 and new requirements applied as recently as 1 March 2012 - Criminal Justice Act 2011 became law in August 2011 but has taken time to take effect - Central Bank (Supervision and Enforcement) Act 2013 became law on 1 August 2013 - AIFMD regime became law on 1 July 2013 - Criminal enforcement: ASP strategy has been successful (44 settled cases; almost €21 million in fines) but prosecutions and criminal convictions are considered essential for a balanced score card. Central Bank contends no case since 2010 presented to Enforcement where likely summary prosecution outcome would optimally be imprisonment. - District Court fines for summary prosecutions are low (from a sum not exceeding €500 to a sum not exceeding €5,000); raising maximum fines for summary criminal matters is suggested as a potential measure to strengthen deterrence. - Concern that Low Impact firms (majority) may accumulate systemic vulnerabilities if supervision remains predominantly reactive; more proactive supervisory engagement with Low Impact firms is recommended by implication in the source commentary. *Italic: Source — IMF staff report excerpt on Ireland (section provided).* ### Section 33AK(3)(a) also provides for disclosure to domestic bodies and authorities, ### _cr14136 - Section 33AK(3)(a) also provides for disclosure to domestic bodies and authorities, ### Disclosure to domestic bodies and authorities - Section 33AK(3)(a) provides for disclosure to domestic bodies and authorities, including: An Garda Síochána, the Revenue Commissioners, the ODCE, the Competition Authority, the NCA, and any other body charged with the detection or investigation of a criminal offence. - The Central Bank considers the phrase “information relevant to that body” in Section 33AK(3)(a) to be broad and permissive and to appropriately cover and allow sharing of: - Matters of investigation and enforcement - Determinations in connection with authorization, licensing or approvals - Surveillance - Market conditions and events - Client identification including persons who beneficially own or control non-natural persons organized in the regulator’s jurisdiction - Regulated entities - Listed companies and companies that seek a listing of their securities - Practice and cooperation: - There is sufficient evidence that non-public information of these types has been shared with other regulators. - The Central Bank has shared documents and information obtained in the course of its investigations with the Garda Síochána, ODCE, NCA and FSO. - Regular meetings are held between the Central Bank and domestic authorities that share responsibility for securities regulation; other meetings occur when specific matters arise or functional issues require information to be shared. ### Sharing with foreign authorities - Legal basis and scope: - Section 33AK(5) allows the Central Bank to disclose confidential information to an authority in another jurisdiction where it exercises similar functions and has similar obligations concerning confidentiality. - The Central Bank’s ability to provide assistance to a foreign supervisory authority while subject to the Supervisory Directives is not dependent upon the alleged conduct constituting a breach of Irish laws. - The Central Bank has authority to share with foreign regulators and authorities information on: - Matters of investigation and enforcement - Determinations in connection with authorization, licensing or approvals - Surveillance - Market conditions and events - Client identification including persons who beneficially own or control non-natural persons organized in the regulator’s jurisdiction - Regulated entities - Listed companies and companies that seek a listing of their securities - Historical and institutional arrangements: - Since 2008, the Central Bank has made 108 releases of information to foreign counterparts on market abuse. - The Central Bank has nine bilateral MOUs in place that facilitate voluntary information sharing with regulatory counterparts. - The Central Bank is a signatory to the IOSCO Multilateral Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of Information (IOSCO MMOU). - The Central Bank initially applied in November 2004; a screening process identified an impediment in the Central Bank Act 1942 related to a mandatory requirement to release confidential information to a range of domestic authorities. - After the necessary amendment to s. 33AK in December 2012, the Central Bank was admitted as a signatory. - The IOSCO MMOU and the Central Bank’s bilateral MOUs provide for sharing of information on an unsolicited basis and require recipients to keep information confidential. - The Central Bank shares technical expertise with foreign regulators, most regularly through its membership of ESMA. - Examples and capacities: - The Central Bank can obtain banking information for foreign regulators where it relates to alleged breaches of securities laws or to ensure compliance with those laws from relevant banks. - Regulated entities must maintain, for up to six years, records that permit tracing of funds and securities in and out of brokerage and bank accounts related to securities transactions. - The Central Bank can share information and records identifying beneficial owners of accounts with domestic and foreign authorities. - Example arrangement: sharing of surveillance information with the U.K. Financial Conduct Authority (FCA) regarding trade order book queries. - Operational practice: - The Central Bank can provide information to domestic and foreign authorities on an unsolicited basis. - Section 33AK(3)(a) requires the Central Bank to report to specified bodies (or other bodies charged with certain functions) any information relevant to that body that leads the Central Bank to suspect the commission of a criminal offence or the contravention of specified legislation. - The Central Bank’s information-sharing powers are framed broadly rather than by narrowly defined categories. ### Confidentiality and safeguards - Confidentiality obligations and criminal sanctions: - All information gathered and then shared with another competent authority, either domestically or internationally, is subject to rules and statutory provisions of confidentiality. - Domestic authorities are bound by secrecy provisions of their respective governing laws. - For foreign regulators, the confidentiality clause in the IOSCO MMOU and in the Central Bank's bilateral MOUs requires those regulators to keep confidential all information provided to them in confidence and not to disclose the assistance or the information to third parties without the Central Bank’s prior consent. - The Central Bank’s transmitting letter states that information is provided on a strictly confidential basis and is not to be disclosed to third parties without the Bank’s prior written consent. - For information received by the Central Bank from foreign regulators, all officers of the Central Bank are obliged by the Central Bank’s Code of Ethics to protect confidentiality. - Section 33AK makes it a criminal offence for an officer or employee of the Central Bank to disclose confidential information, other than by one of the legislative gateways. - Compelled disclosure and notification: - If there is any action to compel the Central Bank to release information related to a foreign request, it will notify the foreign regulator prior to making the disclosure and, where applicable, will apply any available legal exceptions and privileges to resist disclosure. ### Assessments, practice, and performance data - Assessments: - Assessment: Fully implemented (noted in relation to information-sharing powers and confidentiality provisions). - Casework and responsiveness: - The Central Bank has responded to numerous requests for information from both domestic and foreign authorities. - In the first nine months of 2013, after becoming a signatory to the IOSCO MMOU, the Central Bank responded to two requests, one involving obtaining information on behalf of the Hong Kong Securities and Futures Commission. - Response times have varied from a few days to several months depending on the nature and complexity of the information requested. - Requests data (Central Bank source): - Requests Between the Central Bank and other Regulators — Incoming Requests (2010, 2011, 2012, 2013 YTD): - Total: 73, 86, 99, 100 - Routine: 48, 37, 62, 78 - Non-Routine: 24, 35, 11, 11 - Domestic: (blank), 1, 7, 19, 7 - ESMA: 0, 7, 7, 4 - Requests Between the Central Bank and other Regulators — Outgoing Requests (2010, 2011, 2012, 2013 YTD): - Total: 101, 88, 169, 338 - Routine (Individually): 101, 88, 13, 26 - Routine (Automated): N/A, N/A, 155, 312 - Non-Routine: 0, 0, 1, 0 - Capabilities: - The Central Bank can obtain contemporaneous records sufficient to reconstruct all securities and derivatives transactions, including records of all funds and assets transferred into and out of bank and brokerage accounts. - The Central Bank’s ability to provide assistance to a foreign supervisory authority is not dependent upon the conduct in question constituting a breach of Irish securities laws. *Source: _cr14136 - Section 33AK(3)(a) also provides for disclosure to domestic bodies and authorities,* ### Part 3 of the Central Bank (Supervision and Enforcement) Act 2013 gives wide powers to ### _cr14136 - Part 3 of the Central Bank (Supervision and Enforcement) Act 2013 gives wide powers to ### Central Bank powers and cooperation with overseas regulators - Section 27 of the Central Bank (Supervision and Enforcement) Act 2013: an authorized officer may require all regulated financial service providers and any person whom the Central Bank reasonably believes may possess relevant information to answer questions and to make a declaration of the truth of the answers to those questions. - Section 54 of the Central Bank Reform Act 2010: the Central Bank may, at the request of an overseas regulator, require information on a matter or authorize one or more authorized officers to exercise any of his powers for the purpose of investigating the matter. - Under the Supervisory Directives, the Central Bank may only share information with a competent authority outside of the State where that authority had equivalent obligations with respect to professional secrecy (including those on information usage). - The Central Bank has consistently assisted fellow regulators in the area of market abuse and market offences, typically in response to requests. - The authorized officer powers (Part 3) and cooperation provision (Part 4 of the Central Bank Reform Act 2010) enable assistance to overseas regulators, including assistance in obtaining court orders / urgent injunctions generally only where the Central Bank has its own interest in the application. - The Central Bank may assist foreign regulators regarding information about financial conglomerates subject to its supervision and assistance in relation to: - The structure of financial conglomerates; - The capital requirements in conglomerate groups; - Investments in companies within the same group; - Intra-group exposure and group-wide exposures; - Relationships with shareholders; - Management responsibility and the control of regulated entities. ### Cross-border information sharing constraints and requirements - The Central Bank may only share information with a competent authority outside of the State provided such sharing is allowed under the Supervisory Directives. - The Supervisory Directives generally require that the proposed recipient be subject to equivalent obligations with respect to professional secrecy as those outlined in the relevant Supervisory Directive. ### Requests statistics (Central Bank cooperation activity) - 2011: - The Central Bank received 85 requests from foreign authorities; - Received 8 requests from other domestic agencies; - Made 54 requests to foreign authorities. - 2012: - The Central Bank received 82 requests from foreign authorities; - Received 20 requests from other domestic agencies; - Made 15 requests to foreign authorities. - 2013 (to date): - The Central Bank received 95 requests from foreign authorities; - Received 8 requests from other domestic agencies; - Made 27 requests to foreign authorities. - Comment: Only a few requests have been made to the Central Bank under the IOSCO MMOU since Ireland signed it in December 2012, and the Central Bank’s ability to comply with the stringent requirements of this process should be monitored. ### Prospectus, disclosure and issuer requirements (Principle 16: Full Disclosure) - Legal and regulatory sources: - Companies Acts; - Prospectus Regulations (transposing Directive 2003/71/EC); - ISE's Listing Rules and Admission to Trading Rules; - Investment Funds, Companies and Miscellaneous Provisions Act 2005; - EU Regulation 809/2004 (as amended); - Central Bank Prospectus Handbook (s. 51 of the Investment Funds, Companies and Miscellaneous Provisions Act, 2005). - Prospectus requirement: - Under the Prospectus Regulations, any offer of securities to the public in Ireland must be made with a prospectus. - “Securities” include debt, equities, closed-end investment funds and other financial instruments such as derivatives. - Exemptions from publishing a prospectus (Prospectus Regulations): - Offer expressly limited in the amount of total consideration for the offer to less than €5,000,000 (Reg. 1(h)); - Addressed solely to qualified investors; - Addressed to fewer than 150 natural or legal persons, other than qualified investors; - Addressed to investors who acquire securities for a total consideration of at least €100,000 per investor, for each separate offer; - Whose denomination per unit amounts to at least €100,000; - With a total consideration in the European Union of less than €100,000 calculated over a period of 12 months (Reg. 9). - Central Bank responsibilities: - The Central Bank is the competent authority for approving prospectuses under the Prospectus Regulations (Reg. 78(1)). - A copy of the prospectus must be filed with the Central Bank and the Companies Registration Office (CRO) (Reg. 38 (1)). - The Central Bank will not approve a prospectus unless satisfied that the disclosure complies with applicable Irish prospectus law (Reg. 37). - The Central Bank uses the four-eyes principle in reviewing prospectuses; accuracy is checked on a best efforts basis. - Prospectus content and publication: - A prospectus must contain all necessary information to enable investors to make an informed assessment of the assets, liabilities, financial position, profits and losses, risks faced and prospects of the issuer and any guarantor. - Recent financial information, key investments, future commitments, business activities and revenue trends are required. - For retail offers, a summary in non-technical language conveying essential characteristics and risks is required (Reg. 21). - Prospectus must be published electronically and made available “as soon as practicable and in any case, at a reasonable time in advance of, and at the latest at the beginning of, the offer to the public or the admission to trading of the securities involved,” or for an initial public offer of a class of shares not already admitted to trading, at least 6 working days before the end of the offer (Reg. 44). - EU Regulation 809/2004 Annexes set required content by security type. - Supplements and investor withdrawal rights: - A supplement must be issued if a significant new factor arises or a material mistake or inaccuracy is discovered between approval and the later of final closing of the offer to the public or the time when trading on an RM begins (Reg. 51). - If the supplement alters the investor’s assessment, the investor has the right, exercisable within two working days after the publication of the supplement, to withdraw from a commitment to purchase the securities (Reg. 52). ### Annual, interim and continuing reporting requirements - Annual reporting: - EU Regulation 809/2004 requires audited historical financial information: - “audited historical financial information covering the latest 3 financial years” for equity issuances (Annex I, item 20.1); - “audited historical financial information covering the latest 2 financial years” for retail debt issuances (Annex IV, item 13.1). - ISE Listing Rules: - Debt and derivatives require two years' information (Rule 13.2.4; Rule 15.3.8); - Equity listings require three years information (Rule 3.3.3 (1)). - Transparency Regulations require annual reports to be made available within four months of the issuer's year-end; annual report must include audited financial statements, a management report and responsibility statements (Transparency Reg. 4 and 5). - For other corporate issuers, Companies Act 1963 requires disclosure of accounts at the Annual General Meeting within 15 months of previous annual meeting, and attachment of accounts to annual return filed with CRO within nine months of year end. Financial statements must be audited with auditor’s report attached (with some exceptions for small firms). - Interim reporting: - The Transparency Regulations require half yearly financial statements within 60 days (Reg. 6) for issuers with equity, closed-end investment funds or retail debt securities admitted to trading on an RM. - Equity issuers must publish interim management reports including specified content (Reg. 8 and 9). - ISE's ESM rules require interim financial statements to be sent semi-annually to shareholders within three months of the period end (ESM Rules for Companies, Rule 18). - No interim reporting requirements are imposed on other public issuers (outside RM/ESM/GEM contexts). - Timeliness and supplemental unaudited information: - If a prospectus is dated more than nine months after the end of the last audited financial year, interim financial information covering at least the first six months of the current financial year must be included (not required to be audited) (EU Regulation 809/2004). - The Prospectus Regulations require prospectuses to be published as soon as practical and in advance of a public offer or admission to trading on an RM (Reg. 44). ### Market disclosure, material changes, advertising and enforcement - Material changes: - MAD Regulations: information about an issuer with securities admitted to trading on an RM must be made public without delay if such information would be likely to have a significant effect on prices (Reg. 33). In practice, “without delay” is understood to mean “immediately.” - MAD Regulations apply only to financial instruments admitted to trading on an RM in an EU member state; they do not apply to issuers with financial instruments traded only through an MTF or off an organized market. - ISE rules for ESM issuers and companies with debt listed on the GEM require disclosure of material changes without delay. - Companies law does not contain an equivalent prompt disclosure obligation for companies generally. - Advertising: - Prospectus Regulations require advertising relating to offers to the public to be clearly recognizable, not inaccurate or misleading, to declare where the prospectus can be obtained, and to be consistent with the prospectus (Reg. 74). Selective material to certain investors is not permitted. - Market intermediaries must comply with advertising monitoring under Consumer Protection Code 2012; MiFID Regulations; European Communities Consumer Credit Agreement Regulations 2010; Consumer Credit Act, 1995. The Central Bank’s Consumer Protection Directorate monitors advertisements proactively and reactively and may require amendments or withdrawal. - Enforcement and sanctions: - The Central Bank has imposed sanctions under the Prospectus Regulations on two issuers of debt securities; trading in the issuers’ listed securities was suspended pursuant to Reg. 83(b) and 88. One direction was issued in September 2008 regarding trading in Lehman Brothers debt instruments. - Liability: - Under the Investment Funds, Companies and Miscellaneous Provisions Act, 2005, specified persons are liable for damages to persons who acquire securities on the faith of a prospectus for loss sustained by reason of any untrue statement or omission (s. 48). - Transparency Regulations impose liability to pay compensation to any person who acquired the issuer’s securities and suffered a loss as a result of any untrue or misleading statement in a publication or omission (Reg. 12). - Failure to make timely material change disclosure may attract civil or criminal penalties under the MAD Regulations. - The Prospectus Regulations allow suspension of trading or an offer to the public if Prospectus Directive provisions have not been complied with (Reg. 82). ### Sufficiency, accuracy, accountability and review - Prospectus review: - The Prospectus Handbook includes detailed checklists and draft prospectuses must be accompanied by completed forms indicating where required information is set out. - The Central Bank reviews for sufficiency, timeliness and clarity; accuracy checked on best efforts basis; reviews consistency between issuer’s annual reports and the prospectus. - Responsibility: - Prospectus Regulations require issuer, offeror, any person seeking admission to trading, promoter, and persons who have authorized the contents of the prospectus to take responsibility for contents of debt prospectuses; for equity prospectuses, issuers' directors are also required to take responsibility (Reg. 31). - Review of continuing disclosure: - IAASA examines whether annual and half-yearly reports of issuers within the remit of the Transparency Directive and whose home member State is Ireland have been drawn up in accordance with the relevant reporting framework. - The Central Bank reviews Interim Management Statements prepared by equity issuers for compliance with the Transparency Regulations. - The ISE monitors disclosures by issuers on its three markets for compliance with continuing obligations in the ISE rule books. ### Derogations and special permissions - The Prospectus Regulations permit omission of information that would be seriously detrimental to the issuer provided omission would not be likely to mislead the public with regard to facts essential for an informed assessment, or if information is contrary to public interest, of minor importance, or pertains to a Member State as guarantor (Reg. 25 & 26). Specific permission must be granted by the Central Bank. ### Assessments, shortcomings and recommended improvements - Assessment: Fully implemented (for Central Bank cooperation powers) — comment: the Central Bank’s ability to comply with IOSCO MMOU requirements should be monitored. - Assessment: Partly implemented (for Principles for Issuers / continuous disclosure). - Identified shortcomings and recommendations: - The reporting deadline for annual audited financial statements under the Transparency Regulations as prescribed by EU law (120 days) for issuers admitted to trading on an RM is slow relative to major markets outside the EU. The six to nine month timeframe under companies law for issuing audited financial statements for other public companies is extremely long. - Beyond annual financial statements, continuing disclosure requirements are limited for public issuers not listed on an RM or on ESM/GEM; there are no requirements for interim financial statements and no material change reporting for these other issuers. - A change of auditor must only be notified within a month; it is not specifically identified as a material change requiring immediate disclosure. If information is price sensitive, it must be released without delay. - No one is responsible for review of continuing disclosure of issuers who offered securities to the public but whose securities are not admitted to trading on an RM or traded/quoted on the ESM or GEM. - Recommendations made: - All companies that have issued shares to the public should be subject to continuing disclosure requirements, regardless of listed status. - Larger companies should be expected to issue their audited financial statements in a maximum of 90 days; smaller issuers may be given somewhat longer. - The reporting period for interim statements of ESM companies should be shortened from three to two months at the longest. - A change in auditor should always be considered a material change giving rise to an immediate obligation for all public companies to inform IAASA, ODCE, ISE and the Central Bank. - Note: Some ISE issuers routinely disclose preliminary financial statements earlier than the applicable four or six month deadline; assessors noted potential issues of inaccurate disclosure and investor confusion though ISE reports that such publication is in accordance with Listing Rules. ### Shareholder rights, meetings and takeovers (Principle 17: Rights & equitable treatment) - Voting and corporate governance: - Under Companies Acts 1963-2012 and common law, appointment and retirement of directors typically set out in articles; all holders of same class of shares must be given same voting rights. - Changes in share terms: alteration in absence of articles provision requires approval by at least 75% of shareholders of that class (special resolution). - Fundamental changes to articles/memorandum require a special resolution. - Notice and meeting procedures: - Sections 133 and 133A of the Companies Act 1963: 21 calendar day meeting notification period; 14-day notification may be approved by company members for meetings other than annual general meetings or those with a special resolution. - Transparency Regulations require issuers of shares and debt securities to inform holders of time and place of meeting, agenda and rights (Reg. 27 and 28). For issuers admitted to trading on an RM, posting of full materials on company website during the 21 day notice period is mandated (s. 133A). - Proxy and participation: - Companies Act 1963: members entitled to attend and vote may appoint a proxy; proxy has same rights as member (s. 136). - For companies traded on an RM, a proxy form must: - be sent with the notice convening the meeting to each person entitled to vote; - allow shareholder to vote for or against all resolutions intended to be proposed, other than procedural resolutions; - state that shareholder is entitled to appoint a proxy of his own choice and provide space for insertion of name; - state that if returned without indication as to how proxy is to vote, the proxy may exercise discretion as to whether, and if so how, to vote. - Ownership registration and dividends: - Companies Act 1963 requires a register of members (s. 116) and an index (s. 117); register and index must be available to members without charge. - Final declared dividend entitles shareholder to payment; unpaid dividends can be sued for as ordinary creditor debt. - Accountability and insolvency: - Where an offence under the MAD Regulations by a body corporate is proved to have consent/approval of or attributable to willful neglect of a director, manager or officer, that person is guilty of an offence and liable to sanction. - Directors owe fiduciary duties; may be personally liable for breaches. - In liquidation, residual value after debts and liquidator expenses is returned to shareholders in proportion to shareholdings unless articles provide otherwise. - Takeover regime: - Takeover Rules administered by the Irish Takeover Panel under Irish Takeover Panel Act 1997 and Takeover Regulations (S.I. No. 255 of 2006). - Apply to “relevant companies” — public companies incorporated in Ireland whose shares are, or have in previous five years been, traded on specified recognized stock exchanges. - Definition of control: holding, directly or indirectly, of securities that confer, in aggregate, not less than 30 per cent. (or such other percentage as may be prescribed by the Takeover Panel) of the voting rights in that company. - Mandatory bid rules: - Takeover Rule 9: acquiring voting securities which, with concert parties, amount to 30% or more of the voting rights of a relevant company triggers a general offer to all shareholders. - Obligation also imposed where a person or persons acting in concert who holds 30% or more increases that holding by 0.05% or more in any 12 month period. - Rule 37: mandatory bid required where control is acquired or increased following the redemption or purchase by a company of its own securities. *Source: Central Bank; Prospectus Regulations; EU Regulation 809/2004; Companies Acts; ISE Listing Rules; Transparency Regulations; MAD Regulations; Central Bank Reform Act 2010; Central Bank (Supervision and Enforcement) Act 2013.* ### 1. All holders of the securities of an offered of the same class must be afforded ### _cr14136 - 1. All holders of the securities of an offered of the same class must be afforded ### Principles of equal treatment and market integrity - All holders of the securities of an offered of the same class must be afforded equivalent treatment; moreover, if a person acquires control of a company, the other holders of securities must be protected. - The holders of the securities of an offeree must have sufficient time and information to enable them to reach a properly informed decision on the offer; where it advises the holders of securities, the board of the offeree must give its views on the effects of implementation of the offer on employment, conditions of employment and the locations of the offeree’s places of business. - The board of an offeree must act in the interests of the company as a whole and must not deny the holders of securities the opportunity to decide on the merits of the offer. - False markets must not be created in the securities of the offeree, of the offeror or of any other company concerned by the offer in such a way that the rise or fall of the prices of the securities becomes artificial and the normal functioning of the markets is distorted. - An offeror must announce an offer only after ensuring that he or she can fulfill in full any cash consideration, if such is offered, and after taking all reasonable measures to secure the implementation of any other type of consideration. - An offeree must not be hindered in the conduct of its affairs for longer than is reasonable by an offer for its securities. - A substantial acquisition of securities (whether such acquisition is to be effected by one transaction or a series of transactions) shall take place only at an acceptable speed and shall be subject to adequate and timely disclosure. ### Obligation to announce an offer (timing triggers) - The obligation to make an announcement of an offer arises: - immediately after a firm intention to make an offer has been notified to the target Board of Directors, regardless of the attitude of that Board of Directors; - immediately after an obligation to make a mandatory offer arises; - where, following an approach, the target is the subject of rumor and speculation or there is untoward movement in its share price; - when, before an approach is made to the target, it is the subject of rumor and speculation or there is untoward movement in its share price and there are reasonable grounds for believing that the bidder’s actions or intentions are behind such movement; - when negotiations or discussions are about to be extended beyond a restricted number of people (Rule 2.2). ### Announcement of a firm intention to make an offer (Rule 2.5) — required contents - A bidder may only announce a firm intention to make an offer when it and its financial adviser are satisfied that the bidder is able, and will continue at all relevant times to be able, to implement the offer; that is, has secured financing for the bid (Rule 2.5(a)). - The firm bid announcement must include: - the basic terms of the offer (e.g. amount and form of consideration); - the identity of the bidder; - details of any target shares in which the bidder (or anyone acting in concert) has an interest; - details of any irrevocable undertakings obtained by the bidder; - the conditions to the offer; - details of any break fee agreed to by the target; - where cash comprises some or all of the offer consideration, confirmation by the bidder's financial adviser that resources are available to the bidder sufficient to satisfy full acceptance of the offer (Rule 2.5(b)). ### Offer conditions and offer document - Offer conditions (and pre-conditions) must be objective and cannot be drafted to permit the bidder to exercise subjective judgments. - A detailed offer document must be issued to shareholders of the target within 28 days of the announcement. - This document is generally in the form of a lengthy circular which includes letters from the buyer and the target, the full terms of the offer and financial information relating to the target and, in the case of a securities exchange offer only, the buyer. - The offer document will be accompanied by an acceptance form that target shareholders must complete and return if they wish to accept the offer (Rule 30.2). - Under the Takeover Rules, any bid must be conditional on the bidder acquiring shares carrying more than 50% of the voting rights of the target (Rule 9.2(b)(i)). - The bidder has up to 60 days from the posting of its offer document to satisfy this condition, unless the timetable is extended by the Panel, for example, in the event of delays in obtaining any necessary regulatory consents. - It is usual in Ireland for the acceptance condition to be set at 80% for an ESM/AIM quoted company and 90% for a company listed on the MSM, as the bidder will need to obtain these levels of acceptances in order to trigger the compulsory acquisition procedures. ### Mandatory offer thresholds and price rules - Mandatory Offer. A bidder is obliged to make a cash offer for additional securities to reach legal control of the company (i.e. 50%+1 voting shares) in a target if any of the following apply: - it (or any persons deemed to be acting in concert with it) acquires a holding of 30% or more of the voting rights of the target; - its holding (or its holding combined with any persons deemed to be acting in concert with it) of less than 30% of the voting rights increases to 30% or more; or - its holding (or its holding combined with any persons deemed to be acting in concert with it) of 30% or more, but less than 50%, of the voting rights in increases by more than 0.05% of the aggregate percentage voting rights in that company in any 12-month period (Rule 9.1). - Price. Any mandatory bid must be for cash, or include a full cash alternative. - An offer price for general bids cannot be less than the price paid by the bidder (or persons acting in concert with the bidder) for shares in the target in either the: - three-month period before the commencement of the offer period; or - 12-month period before the commencement of the offer period, if the Panel believes that this period is more appropriate in the circumstances and directs accordingly. - If during an offer period a bidder, or any person acting in concert with it, acquires shares or other securities in the target at a price greater than the offer price, the bidder will have to increase its offer (Rule 9.4). - A cash offer or cash alternative must be made where the bidder, or any person acting in concert with it, has purchased offer-type securities in the target for cash, during the 12 months before the commencement of the offer period, which confer in the aggregate either: - 10% or more in nominal value of the issued securities of that particular class; or - less than 10% in nominal value of the class being purchased in circumstances where the Panel feels such a course of action is just and proper (Rule 9.1). - The cash offer or alternative must be made at a price that is not less than the highest price paid in the relevant period. ### Special arrangements, equality and timing - Takeover Rule 16 (special arrangements with favorable terms): except with the consent of the Panel, neither a bidder nor any person acting in concert with it may, either during an offer period or when an offer is reasonably in contemplation, make any arrangement with any shareholder or intending shareholder of the target which involves a dealing in, or acceptance of an offer for, or otherwise relates to, shares in the target, if there would be attached to such arrangement a term favorable to such shareholder or intending shareholder or any other person which is not being extended under the offer to all shareholders of the target. - If any requirement of Takeover Rule 16 is not observed, the Panel may direct the bidder or any person acting in concert with it to provide similar value to other acceptors of the offer. - There is a general requirement in both of the Listing Rules and the Transparency Regulations that all shareholders must be treated equally. - Timing. The Takeover Rules set out a timetable for the conduct of takeover offers bids: - The timetable is triggered by the Rule 2.5 announcement that contains the material terms of the offer. - The bidder then has 28 days within which to post its formal offer document. - The earliest first closing date permitted is 21 days after the posting of the formal offer document (or 7 weeks after the first announcement). - An offer will lapse if the buyer has not obtained the minimum level of acceptances that it requires as a condition of the offer by 5 pm on day 60. ### Target directors' duties and responsibilities - A member of the Board of Directors must ensure that he/she observes his/her fiduciary duty to the company and that he/she acts honestly and bona fide in the best interests of the company. - The Takeover Rules and its general principles provide that Board of Directors of a target in advising shareholders must act only in their capacity as members of the Board of Directors and not have regard to their personal interests (Rule 3.1). - The Takeover Rules prohibit the Board of Directors from engaging in frustrating actions, such as issuing new securities or disposing of material assets (Rule 21.1). - The board of the target company is required to obtain independent advice on the offer and is required to send a circular to shareholders setting out the substance of that advice and the board’s view on the offer (Rule 3.1). - The respective Boards of Directors of the bidder and target are responsible for any documents issued to shareholders in connection with an offer, which must state that the bidder or target Board of Directors (as the case may be) accept responsibility for the information (which includes opinions) contained in the document and that, to the best of their knowledge and belief (having taken all reasonable care to ensure this is the case), the information is accurate and does not omit anything important (Rule 19.2). ### Squeeze-outs (compulsory acquisition of minority shareholdings) - The applicable rules for compulsory purchase of minority shareholders’ shares depend on whether or not the target is a company to which the EU Takeover Directive applies. - EU Takeover Directive companies: - The bidder can compulsorily acquire minority shareholdings under Regulation 23 of the Takeover Regulations. To do this, it must have acquired at least 90% (in value and voting rights) of those shares subject to the takeover bid. - The bidder has three months from the last closing date of the offer in which to give notice to the remaining shareholders that it intends to exercise its rights under Regulation 23. - Once a notice has been served, each shareholder has 21 days to apply to court. If a court application is made, the compulsory acquisition will be delayed until the outcome of that application, including any appeal. There is no time limit within which the court application must be dealt with. *Source: _cr14136 - 1. All holders of the securities of an offered of the same class must be afforded* ### section 204 of the Companies Act 1963. To do this, it must have acquired 80% of the ### _cr14136 - section 204 of the Companies Act 1963. To do this, it must have acquired 80% of the ### Takeover and compulsory acquisition rules (section 204 and related Takeover Panel framework) - To effect compulsory acquisition under section 204 of the Companies Act 1963 the bidder "must have acquired 80% of the shares subject to the bid within four months of the publication of the offer." - If the bidder already holds "20% or more of the shares in the target," it "must acquire 80% in value of the remaining target shares and also receive acceptances from at least 75% in number of the holders of the target shares subject of the offer." - After meeting these thresholds, "the bidder then has a further two months in which to give notice to the remaining shareholders that it intends to exercise its rights under section 204." - A dissenting shareholder has "one calendar month to apply to court" after a notice is served; a court application delays compulsory acquisition "until the outcome of that application, including any appeal." "There is no time limit within which the court application must be dealt with." ### Other rules affecting public takeovers in Ireland - ISE Listing Rules: - Apply if the target is listed on the ISE and cover content of information to shareholders and, depending on size, "the need for shareholder approval." - Apply if new shares issued by the bidder are to be admitted to listing on the ISE (Listing Rules, 7.5.1, 10.4.3 and Appendix 1). - If new shares are issued by the bidder, the Prospectus Regulations apply. - Substantial Acquisition Rules (SARs), 2007 (administered by the Panel): - If a person acquires "more than 10% of the voting shares (or rights over voting shares) of a relevant company in seven days or less" and that results in ownership "between 15% and 30% of the voting rights," the person is subject to the SARs (Rule 3). - Further acquisitions are prohibited during that seven day period unless they fall into specified exceptions (Rules 4 and 5) (e.g., purchase from a single seller, a formal tender offer, or part of a formal take-over bid). - SARs require disclosure of acquisitions of voting securities by "noon the day after reaching 15% and any transaction thereafter that results in an increase in the person's holdings" (Rule 6(a)). - Tender offer requirements: - A tender offer "must not take the person across the 30% ownership threshold" (Rule 7.1). - Tender offers must be published by paid advertisement in two Irish national daily newspapers; advertisement subject to prior approval of the ISE or the Panel. - The offeror must give the Panel, the ISE and the relevant company a notice "at least 7 days before the day on which the tender offer closes" containing specified information including: - "the name of the buyer; and its broker/agent" - "the name of the company concerned;" - "the maximum number of securities and the corresponding proportion of voting capital offered for;" - "the fixed or maximum price;" - "the buyer’s present holding of securities of the company concerned (including securities not conferring voting rights), specifying the number and type of securities;" - "the closing day and time for the tender offer; and" - "the arrangements for tendering securities and for delivery and settlement (on a basis approved in advance by the ISE or the Panel as appropriate (Rule 7.3))." - Buyers must "treat all holders of securities who tender on equal terms" and Rules provide for fair allocation if oversubscribed (Rule 7.2). - Crossing 30% threshold: - "Any acquisition that results in the person (and anyone acting in concert with that person) holding voting securities or rights over voting securities in aggregate carrying 30% or more of the voting rights of the company triggers the provisions of the Takeover Rules and likely will trigger the a mandatory offer requirement under Rule 9." ### Disclosure of shareholdings and continuing disclosure regimes - Transparency Rules (for Irish incorporated entities listed on the MSM, not the ESM): - Notification required each time a person's percentage of voting rights "reaches, exceeds or falls below any of 3%, 4%, 5%, and every 1% threshold thereafter." - When these thresholds are reached, "the target and the Central Bank must be notified within 2 trading days" and "the company itself must notify the markets by the end of the next trading day following receipt of the notification." - For issuers incorporated outside Ireland: - Equivalent reporting thresholds are "5%, 10%, 15%, 20%, 25%, 30%, 50% and 75%" (Transparency Rule 7.1). - Companies Acts obligations: - A person must notify a company of an acquisition of "5% or more of an interest in the company's share capital within 5 business days of the acquisition." - The company must be notified "within 5 business days" of movements by an existing substantial (i.e., 5% plus) shareholder to "6% and every whole percentage point thereafter." - Overlap rule: - "Where an obligation to give notice of an acquisition exists under both the Transparency Rules and the Companies Acts, a person only needs to comply with the obligations under the Transparency Rules." - SARs timing: - Under SARs, when the "15% threshold is reached and in the case of all subsequent increases to or beyond any whole percentage thereafter, notice must be made by noon on the following business day to the Takeover Panel, the ISE, and the target." - Offer-period disclosure: - During an offer period, the Takeover Rules require disclosure of all dealings in relevant securities "by 12 noon on the following business day" by bidder, target and their associates, irrespective of size. Other persons interested in "1% or more of any class of relevant securities" must also disclose dealings by "12 noon on the following business day." - Directors and senior management (Companies Act 1990, s. 53 and s. 56): - Directors or secretary must notify the company of certain events resulting in change of the person's holding of interests; notice "must state the number or amount and class of shares or debentures involved (s. 53(2))." Disclosure must be made "in 5 days (s. 56)." - Companies required to keep "a register of directors’ interests" and include such information in the annual directors' report (s. 63 and s. 158 of Companies Act 1963). - PDMR reporting: - Under Market Abuse Rules 7.2 and 7.3, "persons discharging managerial responsibilities" (PDMRs) and their close associates must notify the Central Bank when they carry out transactions in that issuer's financial instruments; applies only to issuers admitted to trade on an RM. ### Enforcement and sanctions for disclosure breaches - Central Bank powers (under Prospectus, Transparency, MAD Regulations): - Sanctions under Part 10 of the Transparency Regulations may include: - (a) "a private or public caution or reprimand," - (b) "a monetary penalty not exceeding €2.5 million," - (c) "disqualification from being involved in management of a regulated entity," - (d) "a direction to desist from committing breach," and/or - (e) "a direction to pay costs." - ODCE powers: - ODCE can "initiate criminal prosecutions on indictment." Example: director failing to give company notice within statutory time frames may be prosecuted on indictment (Companies Act, 1990, s. 53). - Takeover Panel enforcement: - May "advise, admonish or censure" and "publish the fact that it has done so." - May bring proceedings for offences under Section 11(5) and section 17(3) of the Takeover Panel Act. - May bring conduct to the notice of professional or regulatory bodies where serious breaches found. - Panel may administer sanctions under section 10 of the Takeover Panel Act. - Recent Panel actions (last 14 months as reported): - "one public censure, one private admonishment and one private censure." - Public censure: breach of Rule 40 for failure to notify Panel of two acquisitions constituting a reverse takeover transaction. - Private admonishment: failure to include supporting independent valuer opinion in announcement/circular (breach of Rule 29.1). - Private censure: bidder failed to consult the Panel as required by Rule 2.2(e). ### Assessment and commentary on disclosure regimes - Assessment: "Broadly implemented" - Key comments: - Most requirements under the Principle are met, but limitations in laws regarding continuing disclosure create gaps (e.g., limited information requirements related to shareholder meetings for issuers not admitted to trading on an RM). - Recommendation: "There should be detailed guidance provided on the information that must be included in any materials sent to shareholders in connection with a shareholder meeting and those requirements should apply to all public issuers." - Concern: "The 21 day notice period for shareholder meeting may pose some practical challenges for foreign shareholders unless the issuer has implemented electronic voting facilities." - Disclosure thresholds and triggers vary across regimes and are potentially confusing; "Consideration should be given to rationalizing and simplifying the requirements. The regime should apply equally to all public issuers." ### Accounting standards, financial reporting and IAASA oversight (Principle 18 and related) - Prospectus and Listing requirements for audited financial statements: - EU Regulation 809/2004 requires "audited historical financial information covering the latest 3 financial years" for equity issuances (Annex I, item 20.1) and "audited historical financial information covering the latest 2 financial years" for retail debt issuances (Annex IV, item 13.1). - ISE Listing Rules require audited statements: debt and derivatives "two years' information," equity listings "three years information." - Transparency Regulations and annual reports: - Annual report must be made available "within four months of the issuer's year-end" and include audited financial statements, management report and responsibility statements (Transparency Reg. 4 and 5). - Transparency Regulations do not require issuers of wholesale debt securities admitted to trading on an RM to publish annual reports or interim financial statements. - Companies Act 1963 requirements: - Companies must disclose details of accounts at the AGM and attach accounts to the annual return filed with CRO "within nine months of the year end." Financial statements must be audited with exceptions for small firms; entities regulated by Central Bank cannot use small firms exemption. - Interim reporting: - Half-yearly financial statements required "within 60 days" of period end for issuers with equity, closed-end investment funds or retail debt securities admitted to trading on an RM (Reg. 6). - ESM companies require interim financial statements "semi-annually to shareholders within three months of the period end" (ESM Rules for Companies, Rule 18). - No interim reporting requirements for other public issuers. - Accounting frameworks and choices: - European Communities (IFRS and Miscellaneous Amendments) Regulations 2005 require consolidated accounts to be prepared "in accordance with IFRS as endorsed by the EU." - For issuers not required to prepare consolidated accounts: - May use "IFRS Accounts using IFRS as endorsed by the European Union if the issuer so elects" or - "Companies Act Accounts prepared in accordance with the formats and accounting rules of Irish company law and U.K. and Irish Generally Accepted Accounting Principles (GAAP)." - Some issuers permitted to use other countries' GAAP under specific Acts (e.g., US GAAP for some parent companies). - IAASA oversight and examination remit: - "IAASA is designated as the competent authority with responsibility for examining the annual and half yearly reports published in accordance the provision of Transparency Regulations." - At year-end 2012, "142 issuers" fell within IAASA’s remit: "25 equity issuers, 30 fund issuers and 87 debt issuers." Total at 31 December 2011 was "146 issuers." - IAASA reporting totals (year-end 2012): - Issuer category: Equity 25; Fund 30; Debt 87; Total 142. - Half-yearly financial reports issued per yr.: Equity 25; Fund 30; Debt 67; Total 122. - Annual financial reports issued per yr.: Equity 25; Fund 30; Debt 87; Total 142. - Total Number of periodic financial reports issued per annum: Equity 50; Fund 60; Debt 154; Total 264. - IAASA examination types and 2012 Examination Program highlights: - Examination categories: Full Scope, Focused, Follow-up, Thematic, Topical Surveys. - 2012 examinations of annual financial reports: totals by category (e.g., Examination of annual financial reports: 16 Equity, 4 Fund, 9 Debt = 29 total; prior year total 27). - Thematic examinations included half-yearly reports (IAS 34), Alternative Performance Measures, fair value and risk disclosures for debt and fund issuers, IAS 19 and IAS 36 focused reviews. ### Auditors oversight, independence and audit standards (Principles 19–21) - Oversight framework: - Statutory framework includes Companies Acts, Statutory Audit Regulations (S.I. 220 of 2010) and the Auditing and Accounting Act establishing IAASA. - Two-level oversight: Prescribed Accountancy Bodies (PABs) supervise members; IAASA oversees PABs and Recognized Accountancy Bodies (RABs). - IAASA governance and funding: - IAASA board: "14 directors (appointed by the Minister for Jobs, Enterprise and Innovation) and the Chief Executive Officer." No more than "four (excluding the Chief Executive Officer) out of the total of 15 can be members of a PAB." - IAASA funded "40% by the State and 60% jointly by the PABs, by way of a mandatory annual levy." - Quality assurance requirements: - RABs must organize quality assurance independent of reviewed auditors; reviews at least: - "at least every three years for auditors that carry out audits of PIEs;" - "at least every six years for other auditors;" - RABs publish annual results of quality assurance reviews. - IAASA powers relating to PABs: - IAASA may impose sanctions on PABs, "direct a PAB to conduct an investigation or a fresh investigation," "impose a fine not exceeding €125,000" and impose sanctions on a member of a PAB (s. 23 and 24). - Assessment: "Broadly implemented" for oversight; comments note IAASA "does not have the resources to fulfill its current scope of responsibilities" and is constrained by civil service salary rules. - Auditor independence (Statutory Audit Regulations, Regulations 70–78; FRC Ethical Standards): - Independence principles include prohibitions on certain relationships, threats-and-safeguards approach, partner rotation for PIEs (rotation of key audit partner(s) after "seven years" with "two year" cooling-off). - FRC Ethical Standards impose a stricter partner rotation: rotate every "five years" with a "five-year cooling off period." - Additional PIE requirements: auditors must report to audit committee, confirm independence annually, publish Transparency Reports within "3 months of the audit firm's year-end," and disclose fees and public-interest entity audit clients. - Change in auditors notification: - Under Section 161A and 161B of Companies Act 1963 as amended, "both the auditor and the company are required to notify IAASA within 1 month and the CRO within 14 days if there is a change in auditor, whether by resignation or removal from office." - Audit standards: - Annual financial statements must be audited in accordance with "International Standards of Auditing (U.K. and Ireland) as issued by the FRC (ISA (U.K. and Ireland))." - ISAs (U.K. and Ireland) are based on IAASB ISAs; FRC adds U.K. and Irish augmentations ("ISAs Plus"). ### Credit Rating Agencies (CRAs) oversight (Principle 22) - ESMA is the direct supervisor of CRAs in Europe pursuant to the CRA Regulation. - Registration and supervisory powers: - ESMA can obtain information to determine registration compliance, has ongoing supervisory powers including inspections, and can withdraw registration. - CRA Regulation key requirements include: - Use "rigorous, systematic, continuous and subject to validation based on historical experience, including back-testing" methodologies. - Maintain internal records "for six years or the duration of the rated instrument." - Have "sufficient resources" covering "financial resources to perform credit rating activities" and "staffing of credit rating agency and its expertise." - Address conflicts of interest via organizational (Annex I Section A) and operational (Annex I Section B) requirements; prohibitions on ownership interests or providing consultancy/advisory services to rated entities. - Specific rules for analysts: prohibitions on participating in fee negotiations, trading securities, analyst rotations, and "business contingent" remuneration. - Disclosure requirements include listing clients providing "more than five percent of annual revenues" and largest 20 clients by revenue. - Timely disclosure of ratings and decisions to discontinue ratings; disclose reasons for discontinuation. - Historical defaults reporting: disclose historical performance to central repository and periodic disclosure "every six months." - Confidentiality obligations to protect non-public information. - ESMA enforcement powers and fines: - ESMA can "temporarily prohibit the CRA from issuing ratings with effect in the EU," "suspend the use for regulatory purposes of ratings with effect in the EU," require corrective actions, "issue notices," and "impose fines." - EC established fines ranges; for least significant breaches "EUR 10,000 to 50,000," for most significant "EUR 300,000 to 750,000." - ESMA practice and resourcing (as of December 2012): - CRA Unit had "16 staff (15 officers and the head of unit)" expected to grow to "26 people by the end of 2013." - Projects: registration, perimeter guidance, on-going supervision including on-site inspections (three global CRAs inspected), development of a central repository and SOCRAT IT tool, and a CRA Risk Assessment Framework. - As of December 2012 "there were 18 registered CRAs and one certified CRA" with "five applications pending." - Assessment for ESMA: "Broadly Implemented." Comments highlight the need to finalize risk-based supervision, include small CRAs in thematic inspections, and review enforcement pecuniary sanctions which "could be too low to have any deterrent effect." ### Oversight of other analytical/evaluative service providers (Principle 23) - Central Bank review during MiFID Regulations introduction (2007) concluded that analytical/evaluative services were captured by MiFID or IIA authorizations; no additional entities identified since. - Sell-side securities analysts working for MiFID investment firms and IIA firms are subject to conflict-of-interest provisions under MiFID Regulations or Consumer Protection Code 2012, requiring conflicts policies and procedures; MiFID Regulation 155 contains specific provisions for investment research services. - MAD Regulation 21 requires disclosure in recommendations of relationships/circumstances likely to impair objectivity. - Consumer Protection Code 2012 requires regulated entities to have written conflicts of interest policy and to disclose conflicts to consumers where they cannot be avoided. ### Collective Investment Schemes: eligibility, governance, investor protection (Principles 24–26) - Regulatory scope: - All authorized investment funds in Ireland fall within AIFM Regulations or UCITS Regulations. - Central Bank is the competent authority for authorization/supervision of UCITS. - UCITS management company requirements: - UCITS Regs require head office in State, "Initial capital of at least €125,000," and for investment companies initial capital "of at least €300,000" (UCITS Regulation 42(4)(a)). - Central Bank assesses suitability of qualifying shareholders, organizational structure, management skills and fitness and probity. - AIFM framework: - AIFMD implemented by European Union (Alternative Investment Fund Managers) Regulations 2013 (S.I. 257 of 2013) and supplemented by Commission Delegated Regulation (EU) No 231/2013 and the Central Bank AIF Rulebook. - AIFs categories: "Retail Investor AIF (“RIAIF”)" and "Qualifying Investor AIF (“QIAIF”)." - AIFM types: "Authorised AIFM" and "Registered AIFM" with thresholds for registration (e.g., "€100 million in AIF under management or €500 million in the case of unleveraged closed ended AIF"). - Supervision under PRISM; some firms classified Medium-High Impact, Medium-Low Impact and Low with sampling frequencies. - Assets under management (retail funds) (EUR millions, 2010–2013): - Money Market: 2013 297,856; 2012 297,322; 2011 287,600; 2010 359,015; Growth 2010 to 2013 -17% - Bonds: 2013 425,891; 2012 492,233; 2011 389,307; 2010 219,155; Growth 2010 to 2013 94% - Equities: 2013 329,498; 2012 295,032; 2011 260,368; 2010 267,817; Growth 2010 to 2013 23% - Hedge: 2013 93,120; 2012 95,862; 2011 82,118; 2010 61,060; Growth 2010 to 2013 53% - Mixed: 2013 119,963122,53196,02680,710 49% [source text presents values run together; preserved exactly as supplied] - Real Estate: 2013 1,935; 2012 3,214; 2011 3,093; 2010 3,142; Growth 2010 to 2013 -38% - Other: 2013 66,633; 2012 72,656; 2011 50,273; 2010 37,721; Growth 2010 to 2013 77% - Total: 2013 1,334,895; 2012 1,378,850; 2011 1,168,786; 2010 1,028,620; Growth 2010 to 2013 30% - Source: Central Bank. - Non-retail (wholesale) funds (2010–2012): - Number of Funds: 2012 631; 2011 590; 2010 513; Growth 23% - No. of Funds (incl. sub-funds): 2012 1820; 2011 1598; 2010 1422; Growth 28% - Assets Under Management (billions): 2012 $307 (€232); 2011 $266 (€206); 2010 $228 (€171); Growth 35% - AUM as % of GDP*: 2012 141; 2011 122; 2010 105; Growth 33% (*based on 2011 GDP of US$ 217.3 billion (€167.9 bn)) - Source: Central Bank. - Fund numbers authorized (as at 30 August 2013): - Qualifying Investor Funds: 2011 320; 2012 367; 2013* 235 - UCITS (Retail): 2011 440; 2012 360; 2013* 248 - Funds – Other **: 2011 17; 2012 16; 2013* 8 - Total: 2011 777; 2012 743; 2013* 491 (* as at 30 August 2013; ** Professional and Retail Investor non-UCITS funds) - Fund authorization by type (2011–2013*): - Qualifying Investor Funds: 320 / 367 / 235 - UCITS (Retail): 440 / 360 / 248 - NU – PIF **: 3 / 3 / 4 - NU (AIF) – Retail ***: 14 / 13 / 4 - Total: 777 / 743 / 491 (* as at 30 August 2013; ** Professional Investor non-UCITS (AIF) funds; *** Retail Investor non-UCITS (AIF) funds) - Key regulatory and investor protection features: - Eligibility and governance standards are prescriptive: honesty and integrity obligations (UCITS Reg. 24; AIFM Reg. 13(1)), sufficient human and technical resources, financial capacity (initial capital at least "€125,000" plus additional amounts), risk management and internal controls (UCITS Sch. 5; AIFM Reg. 16, 19). - Disclosure requirements: prospectus and Key Investor Information Document (KIID) (UCITS Reg. 98) and annual/half-yearly reports (UCITS Reg. 88; AIFM Reg. 23). - Depositary/custodian safeguards: assets must be entrusted to a depositary and "segregated" (UCITS Regulations 33(1), 37(2) and (3), 46(1) and (3); AIFM Regulation 22(8)(a)(ii)). - Independence rules: depositary/custodian cannot be the management company; restrictions on common directors and requirement for Central Bank approval of depositary director appointments. - Winding up and revocation procedures: UCITS Reg. 107 and 131; revocation statistics 2011–2013 (e.g., Total revocations: 2011 475; 2012 485; 2013* 333). - Record retention: subscription and redemption orders kept "for at least five years" (UCITS Reg. 125; AIFM Reg. 19). - Delegation rules: permitted but management company must not be an "empty box" and must retain responsibility (UCITS Reg. 23; AIFM Reg. 21). - Assessment for CIS regimes: "Fully implemented" *Source: _cr14136 - section 204 of the Companies Act 1963. To do this, it must have acquired 80% of the* ### Section 1 of Guidance Note 1/00 provides that a CIS is required to ensure that the ### _cr14136 - Section 1 of Guidance Note 1/00 provides that a CIS is required to ensure that a ### Valuation rules and prospectus content - Section 1 of Guidance Note 1/00 requires a CIS to ensure that the valuation rules are clear and unambiguous. This applies to UCITS funds. - Chapter 1, Section 1 (vii) and Chapter 2, Section 1 (iii) of the AIF Rulebook require the RIAIF and QIAIF to specify, in their constitutional documents, the rules for the valuation of their assets and these rules shall clearly and unambiguously define an expected method of valuation. - Both the UCITS and AIF regimes require the offering documents to include: - Date of issuance - Legal constitution - Investors rights - Operator and principals - Methodology of asset valuation - Procedures for purchase, redemption and pricing of units/shares - Audited financial information - Custodial arrangements - Investment policy - Risks to objectives - External appointments - Fees and charges ### Standard format and investor information - AIF Reg. 24(1) and UCITS Reg. 89(1) detail the information required for investors in offering documents. - The EU’s Key Investor Information Document (KIID) has been adopted, providing a sufficiently prescriptive standard format. KIID is regarded as, in essence, mandatory as it is necessary for passporting. - UCITS Reg. 89(1) requires the prospectus include information necessary for investors to make an informed judgment of the investment proposed and the risks attached. - Schedule 11 of the UCITS Regulations details required prospectus content; Notice UCITS 6 (para. 12-14) sets out additional Central Bank information requirements for specific UCITS. - UCITS Reg. 89(3) states the annual report of a UCITS shall include: - a balance sheet or a statement of assets and liabilities, - a detailed income and expenditure account for the financial year, - a report on the activities of the financial year, - and the other information provided for in UCITS Reg. Sch 12. - AIFM Reg. 24(1) details information an AIFM must make available to investors or potential investors. - Ch. 1 and 2 of the AIF Rulebook prescribe additional information for RIAIF or QIAIF prospectuses. - AIFM Regulation 23 requires an AIFM, for each AIF it manages and markets in the European Union, to make available in an annual report the information listed in AIFM Regulation 23(2), including: - a statement of assets and liabilities and of the income and expenditure account; - a report on the activities of the financial year; - disclosure of remuneration; - disclosure of the percentage of the AIF’s assets subject to special arrangements arising from their illiquid nature; - changes to the maximum level of leverage calculated in accordance with the gross and commitment methods; - any right of re-use of collateral or any guarantee under the leveraging arrangements. ### Regulatory intervention and prospectus amendments - The Central Bank can intervene or hold back a prospectus; it can comment on a draft and under UCITS Reg. 123(5) may impose requirements or conditions to which the UCITS must comply. - The AIF Rulebook (Ch. 1, Pt 1 Section 2.i 2 and 4 (re RIAIF), and Ch. 2, Pt 1, Section 2.1 3 (re QIAIF)) requires the Central Bank be notified in advance of amendments to documentation. The Central Bank may object. - In 2012 the Central Bank’s Post Authorization Team received 9000 notifications for amendment. From the number received by September, a similar volume was expected in 2013. ### Advertising standards - The Central Bank’s advertising standards for CIS are set out in Notice UCITS 6 and are based on the Advertising Standards Association of Ireland’s Code for Advertising, Promotional and Direct Marketing. - Notice UCITS 6 (para. 6-9) applies generally to Irish authorized UCITS; paragraph 10 sets out general principles and contains 19 detailed rules about advertising materials, including that: - the design and presentation of an advertisement should allow it to be easily and clearly understood; - footnotes should be of sufficient size and prominence to be easily legible and linked; - it should always be designed and presented so that any person who looks at it can see immediately that it is an advertisement; - any statements made or risk warnings given in an advertisement must not be obscured or disguised by content, design or format; - it should not mislead investors by inaccuracy, ambiguity, exaggeration, omission or otherwise; - whether account has been taken of the incidence of any taxes or duties and, if so, how; - whether the forecast or projected rate of return will be subject to any deductions other than upon premature realization or otherwise; - where it leads to the employment of money in anything the value of which is not guaranteed, it should clearly indicate that the value of the investment can go down as well as up and that the return upon the investment will therefore necessarily be variable; - it must not describe an investment as guaranteed or partially guaranteed unless there is a legally enforceable agreement with a third party who undertakes to meet that guarantee; - any reference to past performance must also contain the warning: "Past performance may not be a reliable guide to future performance"; - Phrases such as tax-free, tax-paid should not be used. - UCITS Regulation 123(1) makes it an offence to breach a condition imposed by the Central Bank. ### Updated prospectus and KIID requirements - UCITS Reg. 92 provides that the essential elements of the prospectus must be kept up to date. - Notice UCITS 6 requires the prospectus be kept up to date and that material changes must be notified to unit holders in the subsequent periodic report. - UCITS Regulation 102 requires a UCITS to send its KIID and any amendments to the Central Bank and requires the essential elements of the KIID to be kept up to date. - Ch. 1, S.3 (para. 1) and Chapter 2, S.3 (para. 1) of the AIF Rulebook provide the RIAIF and the QIAIF must publish a dated prospectus whose essential elements must be kept up-to-date. ### Periodic reporting and reporting timelines - UCITS Reg. 88 requires publication of: - an annual report for each financial year (to be published within 4 months), - a half-yearly report covering the first 6 months of the financial year (to be published within 2 months). - UCITS Notice UCITS 5(3) requires a monthly return be submitted to the Statistics Department of the Central Bank. - Notice UCITS 7 sets out information to be included in the monthly returns: - Total gross asset value of the UCITS at end-month. - Total net asset value of the UCITS at end-month. - Number of units in circulation at end-month. - Net asset value per unit at end-month. - Net proceeds from the issues of units during month. - Payments made for the repurchase of units during month. - Net amount from issues and repurchases during the month. - The monthly return must be submitted to the Central Bank within 10 working days of the end-month to which it refers. - Notice UCITS 5 requires a CIS to send a quarterly Survey of Collective Investment Undertakings (OFI1 Form) return to the Statistics Department of the Central Bank within ten working days of the end-quarter to which it refers. The OFI1 Form requires information covering: - Income - from bonds, money market instruments, interest dividends, net income on derivatives; - Fees - for management and administration, custodians and trustees, investment advice; other professional fees. - AIFM Regulation 23 requires an AIFM to make available to the relevant competent authority an annual report for each AIF no later than 6 months following the end of the financial year, and to provide to the competent authority of its home Member State an annual report of each EU AIF for each financial year, and for the end of each quarter, a detailed list of all AIF managed by the AIFM. - Ch. 1, S.2 (vii) and Ch. 2, S. 2 (vii) of the AIF Rulebook require the RIAIF and the QIAIF to submit a monthly NAV return and a quarterly Survey of Collective Investment Undertakings return to the Central Bank within ten working days of the end-quarter to which it refers. The RIAIF/QIAIF must also submit a Fund’s Annual Survey of Liabilities return to the Central Bank for the first quarter of each year. ### Timely distribution of reports and deadlines - UCITS Reg. 88 allows: - four months for publication of the annual report; - two months for publication of the half-yearly report. - AIFM Reg. 23 allows a six month delay for an annual report. - A RIAIF (like a QIAIF) is allowed two months from the end of the period to submit its half-yearly report. *Source: _cr14136.* ### Section 148 of the Companies Act 1963 requires CISs to prepare accounts in accordance ### _cr14136 - Section 148 of the Companies Act 1963 requires CISs to prepare accounts in accordance ### Accounting standards and audit requirements - Section 148 of the Companies Act 1963 requires CISs to prepare accounts in accordance with either IFRS or U.K. and Irish GAAP. - The accounting standards of the United States, Japan, and Canada are permitted under Part XIII of the Companies Act 1990. - AIFM Reg. 93: accounting information in the annual report must be audited according to Companies legislation (the Statutory Audit Regulations and the Companies Acts 1963 to 2012), meaning audited in accordance with the ISAs (U.K. and Ireland) as issued by the FRC. - The ISAs (U.K. and Ireland) are based on International Standards on Auditing (ISAs) as issued by the IAASB. - Independent auditor checks CIS asset valuations annually; auditor’s report to unit holders, including any qualifications, must be reproduced in full in the annual report. - AIFM Regulation 20(14): where valuation function is not performed by an independent external valuer, the Central Bank can require verification of valuation procedures or valuations (or both) by an external valuer or, where appropriate, by an auditor. ### Supervisory framework and processes - UCITS Regulation 123: Central Bank has ultimate supervisory and investigatory powers over CIS and CIS Operators. - Central Bank supervisory process is informed by PRISM and mainly carried out by: - Analysis of returns submitted to the Central Bank - Impact and Probability Risk-rating of FSP’s - Themed inspections and Full Risk Assessment - Regular correspondence and engagement with FSPs under the Central Bank’s supervision - Ch. 3 of the AIF Rulebook and UCITS Notice 3: all Irish authorized CIS must have a Depositary authorized and supervised by the Central Bank. - Notice UCITS 4 (para. 7) and Article 46 para. 2 of Directive 2011/61/EU: depositary must notify the Central Bank promptly of any material breach of the Regulations/investment fund legislation. - Central Bank powers under UCITS Regs: Reg. 123 (supervisory/investigatory powers), Reg. 127 (apply to court to prohibit continuance of failure), Reg. 128 (power to replace management company or depositary), Reg. 129 (power to revoke authorisation). These provisions are applied to AIF unit trusts, investment companies and common contractual funds. ### Reporting timeliness and transparency (findings & comment) - AIFM Regulation 23: an AIFM shall make available to the relevant competent authority an annual report for each financial year no later than six months following the end of the financial year. - UCITS Reg. 88: allows reporting up to four months after the year’s end; half-yearly report may be submitted up to two months after the period being covered. - Assessment summary: Broadly implemented. - Comment/recommendation: - The reporting requirements, although regular and adopted throughout the EU, are considered too slow to be effective. - The periods within which CIS are required to publish reports as prescribed by the EU should be reduced to enhance transparency for investors and the ability to take prompt investigative or remedial action. (See shortened periods recommended in Principle 16.) ### Valuation of CIS assets and Net Asset Value (NAV) - Valuation policy must appear in and is governed by the constitutional document. - UCITS Reg. 108: value of assets traded on stock exchange/reg. market is based on last known stock exchange or market quotation unless not representative. - AIFM Reg. 20: “AIF rules or instruments of incorporation” shall set out rules applicable to valuation and calculation of net asset value per unit/share and must be disclosed to investors. - UCITS Regulations 34 and 47 and Chapter 6 of the AIF Rulebook: depositary must ensure value is calculated in accordance with legislation and constitutional documents and enquire into conduct of management company/AIFM. - Central Bank reviews valuation provisions during authorisation. - UCITS Reg. 96: each UCITS must make prices public each time it sells, issues, repurchases or redeems units/shares and at least twice a month. - AIFM Reg. 20(4): valuation procedures require assets valued, NAV calculated, at least once a year; for open-ended AIFs valuation frequency must be appropriate to redemption frequency. - RIAIF prospectus must specify method and frequency of NAV calculation. ### Fair valuation, special valuation guidance and pricing errors - UCITS Reg. 108 and AIF Rulebook provisions: when market quotations are not available or not representative, value based on probable realisation value estimated with care and in good faith. - Guidance Note 1/00: covers unlisted securities and securities where market price unrepresentative; allows valuation by manager/directors/general partner or competent person, subject to depositary approval; allows matrix pricing for fixed income where reliable market quotations not available. - Central Bank asserts it does not impose prescriptive procedures for rectifying pricing errors due to market diversity; monitors action taken to ensure appropriate compensation for investors. - Guidance Paper 6: Incorrect Pricing Of Funds Correction and Compensation, dated 2 February 2009, published by the Irish Funds Industry Association and considered the industry standard in Ireland; acceptance is voluntary. - Assessment comment: - It is not clear that valuation of CIS assets must be performed in accordance with IFRS or U.K. and Irish GAAP or another high quality accepted accounting standard as required by KQ 2.b and 6. This should be set out clearly. - There are no regulatory requirements or published rules specifically prescribing how pricing errors are to be treated for CIS. A law or rule concerning pricing errors should be introduced so the Central Bank can enforce such a requirement. ### Suspension, side pockets and ensuring compliance on valuation/pricing - UCITS Reg. 104(2): provides for possibility of suspension of redemptions and associated suspension/deferral of valuation and pricing; procedures must be provided in fund rules and stated in prospectus. - AIF Rulebook permits “side pockets” where provided for in constitutional document for assets that become hard to value or illiquid after acquisition; new share class established for side-pocketed assets. - Central Bank supervisory activities include detailed inspections of fund service providers; inspection focus informed by PRISM on Medium High or Medium Low firms; inspections examine NAV-Packs and trustee NAV checking process. - Themed Inspection in second half of 2013: review of governance on pricing procedures and arrangements on pricing of certain hard-to-value assets. ### Redemption rights, liquidity management and disclosure - UCITS Reg. 89 and Sch. 11: prospectus must disclose procedures/conditions for repurchase or redemption and circumstances when repurchase/redemption may be suspended. - AIFM Regulation 24: AIFM must make available in advance a description of AIF’s liquidity risk management, including redemption rights in normal and exceptional circumstances and existing redemption arrangements; disclosure required in prospectus. - UCITS Regulation 110 and AIF Rulebook: assets of CIS may only be purchased and sold at prices conforming with constitutional documents’ methods. - UCITS Reg. 104(2): UCITS must communicate suspension decision without delay to the Central Bank and competent authorities of Member States where marketed; applied to AIF unit trusts, investment companies and common contractual funds. ### CNAV money market funds (valuation and specific short-term money market fund requirements) - Ireland is one of the biggest markets for CNAV money market funds in the EU. - CESR Guidelines (CESR/10-049): CNAV funds referred to as “short-term money market funds”; assets generally valued on amortised cost basis. - Amortised cost valuation must not result in material discrepancy between market value and amortised cost either at instrument level or UCITS level; fund must periodically calculate both market value and amortised cost valuation and act if discrepancy becomes material. - Constant NAV is not guaranteed; material discrepancy may force fund to stop issuing/redeeming at stable NAV of $1/€1 per unit (‘breaking the buck’). - Notice UCITS 17 criteria (selected provisions): - Short-Term Money Market Funds permitted to follow amortised cost valuation if UCITS or delegate have demonstrable expertise; condition satisfied where: - the Short-Term Money Market Fund has obtained a triple-A rating from an internationally recognised rating agency; or - the management company or investment manager is engaged in the management, or has been engaged in the management, of a triple-A rated money market fund; or - in exceptional circumstances, the management company or investment manager may provide sufficient information to the Central Bank to demonstrate appropriate expertise (considered case-by-case). - UCITS must ensure persons responsible for operation, including delegates, have necessary expertise. - UCITS must carry out a weekly review of discrepancies between market value and amortised cost value; escalation procedures required: - discrepancies in excess of 0.1% between market value and amortised cost value of the portfolio must be brought to management company or investment manager; - discrepancies in excess of 0.2% must be brought to senior management/directors and the trustee; - if discrepancies in excess of 0.3% occur a daily review must take place; UCITS must notify the Central Bank with indication of action to reduce dilution. - Trust deed/deed of constitution/articles must provide for these escalation procedures or provide for review in accordance with Central Bank requirements; weekly reviews and any escalation must be clearly documented. - UCITS must engage in monthly portfolio analysis incorporating stress testing; results must be available to the Central Bank on request. - Identical provisions contained in the Central Bank’s AIF Rulebook (Chapter 1, Part II – Retail AIF and Chapter 2, Part II – Qualifying investor AIF). - Assessment summary: Broadly implemented. - Comment: Further clarity needed that valuation of CIS assets is to be performed in accordance with IFRS or U.K. and Irish GAAP or other high quality accepted accounting standard applied consistently, fairly and reliably as required by KQ 2.b and 6. ### Hedge funds and AIF/manager oversight (Principle 28) - “Hedge fund” not defined in jurisdiction; Central Bank regards Hedge Funds (for the purpose of the Assessment) to mean any CIS that applies relatively unconstrained investment strategies to achieve positive absolute returns and whose managers are remunerated in relation to performance. - Hedge fund market data (selected snapshots): - Q3 13: Net asset value EUR 90,088,190,723; Number of hedge funds 875 - April 13: Net asset value EUR 84,373,271,186; Number of hedge funds 878 - End-12: Net asset value EUR 75,888,550,331; Number of hedge funds 865 - End-11: Net asset value EUR 60,386,434,220; Number of hedge funds 714 - End-10: Net asset value EUR 46,893,253,569; Number of hedge funds 613 - AIFM Regulations/AIFMD scope includes managers of AIFs (all collective investment undertakings other than UCITS), including hedge funds. - AIFM authorization requirements (Regulations 8–12) include information on persons effectively conducting the business, shareholders, program of activity, remuneration policies, delegation arrangements, investment strategies, policy on use of leverage, risk profiles, and depositary arrangements. - AIFM Reg. 4(3) exempts AIFMs below thresholds from authorisation: €100 million in AIF under management or €500 million in the case of unleveraged closed ended AIF; such AIFMs are Registered AIFMs with registration and reporting obligations. - Internal organization and conduct: - AIFM Regulations 13–22 set general requirements on remuneration, conflicts, risk and liquidity management, valuation, delegation and single depositary requirement. - Risk management systems must be reviewed at least yearly (Regulation 16(5)). - AIFM Reg. 20(1) provides for proper and independent valuation; Reg. 20(8) requires valuation task functionally independent from portfolio management when valuation carried out by AIFM. - AIFM Regulation 22 requires a single depositary appointed for each AIF; depositary must be located in Ireland for Irish AIFs; depositary oversight duties include valuation and dealing processes; AIFM and depositaries must act honestly, fairly, professionally, independently and in interests of the AIF and investors; AIFM Reg. 22(11) prohibits delegation of depositary cash monitoring and oversight tasks. - Records must be retained for six years after the life of the AIF (a year longer than AIFMD requires). - AIF Rulebook requires half-yearly financial and annual audited accounts of the AIFM to the Central Bank; AIFM Regulation 23 requires annual report made available no later than 6 months following end of financial year; annual report must be provided to investors on request. - Conflicts of interest: AIFM Regulation 13(1) and Reg. 15 require taking reasonable steps to avoid and identify conflicts; AIFMD Level 2 Articles 31–36 set further requirements including disclosure. - Systemic risk reporting: AIFM Regulation 25(1) requires regular reporting on principal markets/instruments and principal exposures; Reg. 25(6) permits Central Bank to request additional information for systemic risk monitoring or at ESMA request. - Assessment summary: Fully implemented. - Regulatory powers: - Central Bank has comprehensive powers to access and inspect hedge fund managers and advisors under Part 5 of Central Bank Reform Act 2010; enhanced powers under Central Bank (Supervision and Enforcement) Act 2013 (skilled person reviews at firm’s cost) effective 1 August 2013. - Enforcement via administrative sanction under Part 111C of the Central Bank Act 1942. - Cooperation and coordination: - AIFM Regulation 54 requires Central Bank to cooperate with competent authorities of other Member States, ESMA and ESRB. - Central Bank has MOUs through ESMA with non-Member States for cooperation in relation to AIFMs. - Reporting on exposure to counterparties: AIFM Regulation 25 requires AIFMs managing AIFs employing substantial leverage to report identity of five largest sources of borrowed cash or securities and amount of leveraged funding from each. ### Market intermediaries: authorization, fitness and probity, and capital (Principles 29 & 30) - Authorization requirements: - Market intermediaries must be authorised under MiFID Regulations or under the IIA prior to performing “operating a securities business”. - Central Bank is competent authority for MiFID and IIA authorisations; Markets Directorate authorises/supervises MiFID and non-retail IIA intermediaries; Consumer Protection Directorate handles retail IIA intermediaries. - Under MiFID Reg. 7, a firm must be authorised as an “investment firm” if regularly providing investment services or dealing on own account. - Investment services include reception/transmission of orders, execution of orders on behalf of clients, dealing on own account, portfolio management, investment advice, underwriting/placing, operation of multilateral trading facilities. - Financial instruments include transferable securities, money market instruments, units in UCITS and other CIS, derivatives (options, futures, swaps, forward rate agreements), contracts for differences, and other derivative instruments. - Tied agents (individuals acting for MiFID firms) are not individually authorised; firm fully responsible for tied agents (MiFID Regulation 109). - Retail investment intermediaries under IIA: authorized to offer advice on retail investment instruments, receive/transmit orders in relation to retail investment instruments, or act as deposit agent/deposit broker. Retail intermediaries are “investment business firms” and may not hold client assets. - Categories of retail intermediaries include Authorized Adviser (AA), Multi-agency Intermediary (MAI) (including RAIPIs), and product producers; permitted activities vary by category. - Minimum entry standards and application requirements: - Standardised application forms and guidance available for MiFID firms and IIA firms. - MiFID application requires detailed business plan and information on structure, services, capital, three years financial projections, probity and competence of directors/managers, shareholders including qualifying shareholders, organisational structure, outsourcing, compliance, internal audit, client assets, conflicts of interest, business continuity, complaints procedures, record-keeping and supervision arrangements (MiFID Reg. 13). - IIA application forms require legal status, general business, governance and staff, financial information, compliance matters, and regulatory background. - Central Bank introduced Fitness and Probity regime effective December 2011 under Central Bank Reform Act 2010 and Regulations 2011 (S.I. 437 of 2011); identifies 41 senior positions as PCFs requiring Central Bank approval prior to appointment; PCF individuals must submit Individual Questionnaire. - Central Bank must be satisfied that anyone owning a qualifying holding is 'suitable'. - Application review and consistency: - Nature, scale and complexity of proposed business considered; similarly situated firms meet similar criteria. - “Retail Intermediaries – Pre Authorisation Checklist” used for consistency. - Preliminary meeting arranged, desk-based review by Markets Directorate, “four-eyes” review, supervisory teams provide input for complex models, approval recommendation process. - Central Bank does not routinely request policy/procedure manuals as part of application but requires them to be complete and available on request; on-site inspections pre- or post-commencement are not common. - Powers of regulator (refuse, withdraw, direct, impose conditions): - Central Bank may refuse to grant authorisation under MiFID Reg. 11 and Reg. 15; decision appealable under MiFID Reg. 191 to Irish Financial Services Appeals Tribunal. - Central Bank may refuse authorisation under IIA s. 10(1); decision appealable to Irish Financial Services Appeals Tribunal. - Central Bank may withdraw authorisation under MiFID Reg. 21 for specified grounds (failure to operate, renunciation, obtaining authorisation by false statements, no longer meeting conditions, serious/systematic infringements, no services for prior 6 months). - Summary application to High Court to withdraw if expedient in interests of proper/ orderly regulation, protection of investors, or specified circumstances (MiFID Reg. 22). - Central Bank may issue directions to suspend activities under MiFID Reg. 148 and IIA s. 21 in prescribed circumstances; duration of a direction cannot exceed 12 months. - Conditions or requirements may be imposed at authorisation or thereafter (MiFID Reg. 11(2), 145(1); IIA s. 10(2), ss. 10(6)–(13)). - Central Bank has powers to investigate, suspend, remove or prohibit individuals from performing controlled functions (Central Bank Reform Act 2010, Part 3); may issue suspension or prohibition notices (s. 25, s. 43). - Public registers and disclosure: - MiFID Register on Central Bank website provides details of MiFID investment firms (addresses, authorisation date, services provided, client assets permissions, financial instruments, passporting jurisdictions and tied agents as applicable). - Three public registers for IIA intermediaries: Register of Investment Business Firms (AA/MAI details); List of Investment Business Firms deemed authorised as MAIs (RAIPI); Register of Investment Product Intermediaries (legal & trading name, address, product producers, status). - Identity of senior management and names of other authorised individuals are not included in public registers as not legally required. - Assessment: Fully implemented. - Comment: Central Bank should make public on its website the permitted activities for an investment product intermediary under the IIA and the identity of senior management and names of other authorised individuals who act in the name of a MiFID investment firm or an IIA firm. - Initial and ongoing capital requirements (Principle 30): - Initial capital required before authorisation; amount specified by Central Bank based on services/activities. Minimums/ formulae vary. - MiFID initial capital table (selected entries): - MiFID investment firms - trade on own account or underwrite on a firm commitment basis: EUR 730,000 - MiFID – no proprietary trading or firm underwriting but hold client assets and offer receipt and transmission of orders; execution of investors’ orders or management of portfolios: EUR 125,000 - MiFID Firms not subject to CRD - Firms only authorised to provide investment advice and/or receive and transmit orders from investors without holding money or securities: EUR 50,000 and/or professional indemnity insurance representing at least EUR 1,000,000 applying to each claim and in aggregate EUR1,500,000 per year for all claims - Local firms dealing in derivatives on own account only on markets where clearing members guarantee performance: EUR 50,000 - Note: Initial capital for MiFID firms must be fully paid up share capital (including share premium) and reserves. - IIA intermediary capital (selected entries): - Non-retail Intermediaries Minimum Initial Capital Requirement (MICR) of EUR 50,000 - Multi Agency Intermediaries (MAI) and restricted activity investment product intermediaries: Must be 'solvent' at all times - Authorised Advisors (AAs) and MAI Non-restricted activity investment product intermediaries minimum shareholders’ funds or a capital account of: - not product producers EUR 10,000 - are product producers EUR 50,000 - 'Solvent' means positive shareholders’ funds or capital account and able to meet financial commitments as they come due. - Central Bank can require firms to hold capital in addition to these minimums both initially and on-going; in virtually all cases (apart from IIA retail intermediaries) minimum required is higher. - On-going capital: MiFID investment firms subject to CRD obliged to maintain on-going minimum capital requirements in accordance with Capital Requirements Regulation. *Italic: Extracted content unit from the IMF assessment document provided in the source PDF.* ### 18. The nature of such MiFID investment firms’ own funds shall be determined in ### _cr14136 - 18. The nature of such MiFID investment firms’ own funds shall be determined in ### Capital requirements and regulatory framework - The nature of MiFID investment firms’ own funds is determined in accordance with Part 4 of the Capital Requirements Regulations. - The Central Bank can impose conditions, requirements or both, in respect of the level of capital to be maintained by these firms, in accordance with MiFID Regulation 16(1). - For MiFID investment firms that are subject to the CRD, Pillar 1 capital requirements address: credit risk; market risk, dilution risk, position risk; operational risk; counter-party risk; foreign exchange risk; settlement risk and commodities risk as set out in Capital Adequacy (Credit Institutions) Regulation 19. - Institutions may calculate capital requirements for credit risk, position risk, foreign-exchange risk and/or commodities risk using their own internal risk-management models if they obtain permission of the competent authorities. To date the Central Bank has not approved the use of internal models for calculating capital requirements. - For trading book exposures that exceed relevant large exposure limits, additional capital may also be required in accordance with Capital Requirements Regulation 29, with permission of the Central Bank. ### Minimum initial capital and required own funds (exact thresholds and formulas) - MiFID investment firms with a €730,000 minimum initial capital requirement must retain capital equivalent to the higher of €730,000 or 8% of their risk weighted assets (RWAs), taking into account credit, market and operational risk, in accordance with Capital Requirements Regulation 18(1), which applies the provisions of Capital Adequacy (Credit Institutions) Regulation 19. - MiFID investment firms with a €125,000 minimum initial capital requirement are required to retain capital in accordance with Capital Requirements Regulation 18(2), specifically if higher than €125,000: - 8% of their RWAs, taking into account credit and market risk; or - A quarter of the firm’s preceding year’s fixed overheads. - The Central Bank has discretion to allow investment firms with a €730,000 minimum initial capital requirement that also fulfil the criteria set out in Capital Requirements Regulation 18(3), to retain own funds in accordance with Capital Requirements Regulation 18(3), specifically the sum of: - 8% of their RWAs, taking into account credit and market risk; and - A quarter of the firm’s preceding year’s fixed overheads. - MiFID investment firms that are not performing investment activities subject to the full rigours of the CRD (those subject to initial capital requirements of EUR 50,000 and above) are captured by the initial capital requirement of the CRD only and are not subject to the rest of the requirements. - Investment business firms authorised under the IIA are not subject to the capital requirements set out by the CRD; the only ongoing capital requirement is that the amount of initial capital specified by the Central Bank must be maintained at all times. ### Internal assessment (Pillar 2 / ICAAP) and supervisory review - All MiFID investment firms subject to the CRD are required to conduct an internal assessment of capital needs (their ‘Basel Pillar 2’ requirements) in accordance with Capital Requirements Regulation 32. - The assessment is called the firm’s Internal Capital Adequacy Assessment Process (ICAAP). Firms must implement policies and processes for the measurement and management of all material sources and effects of risk, including operational risk. Technical criteria regarding the treatment of various risks is set out in Annex V of Directive 2006/48/EC. - The assessment must be reviewed regularly and at least annually. The Central Bank reviews the firm’s ICAAP as part of the supervisory review process under Pillar 2 and also reviews all risks when a full risk assessment of the firm is done under PRISM. - MiFID investment firms subject to the CRD are required by Pillar 2 to monitor and address liquidity risks (Capital Requirements Regulation 32). Firms must have strategies, policies, processes and systems, proportionate to complexity, risk profile and scope of operation, for identification, measurement, management and monitoring of liquidity risk over appropriate time horizons to ensure maintenance of adequate levels of liquidity buffers (Directive 2006/48/EC, Annex V, Part 10). ### Liquidity monitoring and supervisory engagement - Under the Central Bank’s supervisory engagement model (PRISM), all MiFID investment firms’ liquidity risk is assessed on an on-going basis. - All MiFID investment firms are required to submit a monthly report that provides data in respect of the firm’s liquid assets. For supervisory purposes there is a liquidity ratio that is monitored and inquiries are made if the liquidity cover of the firm declines. The level of any further supervisory engagement is determined by the firm’s impact category under PRISM. - There is no specific requirement for all firms to maintain a given level of liquidity or a general requirement to keep 'sufficient' liquidity beyond what applies only to MiFID firms subject to the CRD. ### Record keeping, reporting and audit requirements - Records: MiFID Regulations impose high-level obligations on MiFID firms to have sound administrative, accounting and internal control mechanisms (Reg. 33(1)(f)(i)). MiFID investment firms must maintain adequate and orderly records of their business and internal organisation. The Central Bank has published more detailed books and records requirements for these firms on its website. - Capital Requirements Regulation 33 (1) requires MiFID investment firms subject to the CRD to provide the Central Bank with all information necessary for the assessment of compliance with the CRD. Capital Requirements Regulation 33 (2) requires firms’ internal control mechanisms and administrative and accounting procedures be capable of proving verification of compliance at all times. - IIA Non-Retail investment business firms must “keep at an office or offices within the State such books and records (including books of accounts) or other documents as may be specified from time to time by a supervisory authority.” The Prudential Handbook sets out minimum content for records for these firms. IIA firms must satisfy the Central Bank, on a continuing basis, that they have adequate control systems and accounting procedures to facilitate effective management and compliance. - The Handbook of Prudential Requirements for Authorised Advisors and Restricted Intermediaries requires IIA Retail Intermediaries to maintain, at a minimum, a record of all income and expenditure, a record of all assets and liabilities and off balance sheet items, including any commitments or contingent liabilities and any working papers necessary to show the preparation of any return submitted to the Central Bank. All IIA firms are required to meet the record keeping requirements set out in Chapter 11 of the Consumer Protection Code. ### Reporting frequency and formats (exact reporting timings) - Reporting: extensive monthly, quarterly and annual reporting requirements apply; frequency and extensiveness increase with firm size and complexity. Filing is done on-line in standard formats; most reports (other than annual ones) are required to be filed within 20 days of the reporting period end. - MiFID investment firms subject to the CRD with a €730,000 minimum initial capital requirement must provide information to the Central Bank on their capital adequacy position on a monthly basis in accordance with Capital Requirements Regulation 33 (3). These firms also submit quarterly large exposures reports. - MiFID investment firms subject to the CRD with a €125,000 minimum initial capital requirement must provide information to the Central Bank on their capital adequacy position on a quarterly basis in accordance with Capital Requirements Regulation 33 (3). - Both types of firms are required to report information on capital adequacy on a consolidated basis to the Central Bank once every six months in accordance with Capital Requirements Regulation 33(4). In all cases, the reports must be filed within 20 working days of the end of the relevant period. - MiFID investment firms not subject to the CRD are required by the Central Bank to complete a bi-annual capital adequacy statement; these requirements are non-statutory and therefore not enforceable under the ASP regime, but in practice such firms comply within the specified timeframes with few exceptions. ### Specific exclusions and definitions (fixed overheads and Regulation 18(3) criteria) - The Central Bank's guidance defines fixed overheads as all expenses incurred by firms in the preceding financial year as set out in that firm’s financial statements with the following exceptions: - Exceptional and extraordinary non-recurring expenses as noted in the financial statements; - Shared commissions paid, other than to officers and staff of the firm; - Fully discretionary profit shares and bonuses; - Losses arising on the translation of foreign currency balances; - Depreciation; - Amortization of intangible assets; and - Losses on disposal of fixed assets where these are not incurred in the regular course of business. - Criteria for Capital Requirements Regulation 18(3) include firms that: - (a) deal on own account only for the purpose of fulfilling or executing a client order or for the purpose of gaining entrance to a clearing and settlement system or a recognized exchange when acting in an agency capacity or executing a client order, and - (b) investment firms that: - (i) do not hold client money or securities, - (ii) undertake only dealing on own account, - (iii) have no external customers, - (iv) the execution and settlement of transactions of which take place under the responsibility of a clearing institution and are guaranteed by that clearing institution. *Italicized: IMF staff summary of regulatory provisions on MiFID investment firm capital, liquidity, reporting and record-keeping as presented in the source content.* ### Section 6.4 of the Prudential Handbook for Investment Firms requires IIA Non-Retail ### Section 6.4 of the Prudential Handbook for Investment Firms requires IIA Non-Retail ### Reporting timelines and returns - IIA Non-Retail Intermediaries must submit to the Central Bank details of their capital adequacy position within 20 business days of the reporting period end. - All IIA Retail Intermediaries must submit an annual on-line reporting return (ONR) to the Central Bank that contains information on the firm, its financial positions, its number of customers and other information. - IIA Retail Intermediaries use the Central Bank’s ONR to submit Annual Returns six months after each IIA Retail Intermediary’s financial year-end. - The Central Bank pursues non-compliant IIA Retail Intermediaries to improve compliance levels. ### Audited accounts and auditor reporting - All MiFID investment firms and IIA non-retail firms are required to submit audited accounts on an annual basis. - Audited accounts should be provided 6 months after the firm’s accounting year-end. - Audited accounts must be sufficiently detailed to demonstrate the firm’s ability to meet capital requirements on an on-going basis. - Audited accounts must be prepared using IFRS or U.K. and Irish GAAP. - IIA Retail firms are required to prepare audited accounts but must only submit these reports when requested. - MiFID Regulation 144 (1) requires external auditors to report at least annually to the Central Bank on adequacy of arrangements regarding safeguarding client financial instruments and client funds and preventing use of clients’ instruments or funds for the firm’s own account; in practice, semi-annual reports are prepared and submitted to the Central Bank. - The Central Bank Act 1997 places duties on auditors to report to the Central Bank both routinely and in specified circumstances: - make an annual written report to the Central Bank within one month after the date of the auditor’s report on the MiFID investment firm’s financial statements (as in, 7 months after the year end) stating that there is no matter, not already reported in writing to the Central Bank by the auditor, that has come to the attention of the auditor during the ordinary course of the audit that gives rise to a duty to report to the Central Bank. Where matters have already been reported, these are also included in the report (s. 27B); - provide the Central Bank with a copy of any report the auditor makes to the MiFID investment firm, or those concerned with its management, on any matter that has come to the auditor’s notice during the course of the financial statement audit (or while carrying out any work for the entity of a kind specified by the Central Bank) (s. 27C); - make a written report to the Central Bank stating whether or not circumstances have arisen that require the auditor to report a matter to the Central Bank under the IIA. ### Supervisory analysis, metrics, and triggers - Supervisory analysis frequency depends on the impact rating under PRISM: - MiFID investment firms with a Medium-Low or Medium-High impact rating have their COREP reports subject to Central Bank analysis on a monthly basis for firms with a EUR 730,000 MICR and quarterly basis for firms with a EUR 125,000 MICR. - All MiFID investment firms and IIA Non-Retail Intermediaries are required to submit a Monthly Metrics Report (MMR). - The MMR is uploaded by MiFID and IIA Non-Retail Intermediaries to ONR and contains data relating to client assets held (where applicable), AUM, IIA Non-Retail Intermediaries’ financial positions, liquidity, services and other material items. - For IIA Non-Retail Intermediaries assigned a PRISM impact rating of Medium-Low Impact and above, the MMR would be reviewed by the relevant Central Bank supervisor on a monthly basis. - The MMR allows supervisors to monitor profit and loss/balance sheet movements and the impact they may have on a firm’s capital adequacy, though it does not specifically highlight capital position and requirements. - For MiFID investment firms and IIA Non-Retail Intermediaries designated as Low Impact under PRISM, a trigger is built into the report to identify potential issues with such firms’ capital/financial position. - Internal reports provide alerts on 2 Key Risk Indicators for Low Impact IIA Retail Intermediaries – negative financial positions and Professional Indemnity Insurance details. Procedures are in place to engage with IIA Retail Intermediaries where these 2 KRIs are reported. ### Central Bank powers and remedial actions on capital shortfalls - The Central Bank may impose conditions, requirements or both, in respect of the level of capital to be maintained by all intermediaries under the MiFID Regulations (Reg. 16(1)) and the IIA (s. 10(7)). - If a MiFID investment firm or IIA Non-Retail Intermediary is undercapitalized, the Central Bank may: - give a direction in writing to the firm to suspend specific activities or to cease carrying on business in a particular manner; - suspend the firm's authorization to do business; - revoke the firm's authorization. - For MiFID investment firms subject to the CRD that are not meeting requirements, the Central Bank can impose: - more frequent reporting requirements; - a direction to suspend certain activities; - a requirement to hold additional own funds (Capital Adequacy (Credit Institutions) Regulation 70(2)(a)); - restrictions on business activities (Capital Adequacy (Credit Institutions) Regulation 70(2)(d)); - conditions, requirements or both, in respect of the level of capital to be maintained (MiFID Reg. 16(1)). - Where an IIA Retail Intermediary breaches a regulatory requirement due to its financial position (such as a solvency requirement), the intermediary will be directed to prepare and implement a credible capital plan to resolve its financial position in a timely manner; failure may lead to revocation of authorisation. - There is evidence these powers have been exercised in practice; the Central Bank has conducted a thematic review of the solvency of IIA retail firms focusing on firms that self-identified solvency issues. ### Consolidated supervision and group risks - Capital Adequacy (Credit Institutions) Regulation 15 applies capital requirements, ICAAP requirements, qualifying holdings provisions and large exposures requirements on a consolidated basis to credit institutions. - The Central Bank applies consolidated supervision to MiFID investment firms and receives consolidated returns from these firms. - For firms that are part of a group and are subject to the CRD, group risks are required to be addressed during the ICAAP process. - For firms assigned an impact rating of medium/low or higher, group risks are examined under PRISM’s Full Risk Assessment process. ### Organizational structure, internal controls, and functions (MiFID and IIA) - MiFID firms must satisfy the Central Bank as to the adequacy of organisational structure and management skills; the firm must have appropriate levels of staff and expertise and individuals directing the business must be of sufficiently good repute and sufficiently experienced. - The MiFID Application Form requires submission of details for any individual carrying out a Pre-Approved Control Function (PCF) or Control Function (CF); an Individual Questionnaire is required for each PCF. - The Central Bank’s MiFID Guidance Note states the firm direction must be undertaken by at least two pre-approved personnel of sufficiently good repute and experience. - MiFID Regulations require firms to establish appropriate policies and procedures, implement and carry out appropriate and proportionate systems, resources and procedures to ensure continuity of business, prevent conflicts of interest and protect clients; organisational structure must clearly document reporting lines and allocate functions and responsibilities (MiFID Reg. 34). - The Central Bank requires firms to demonstrate sufficient resources and policies/procedures in staffing; outsourcing; compliance; risk management; internal audit; administration and accounting; conflicts of interest; business continuity; security, integrity and confidentiality of information; and complaints procedures. - Outsourcing (MiFID Reg. 33): - outsourcing must not impair internal controls or the Central Bank's ability to monitor compliance; - a written agreement is required with the service provider; - the firm must conduct due diligence on the service provider and retain resources to supervise outsourced activities; - management responsibility may not be delegated to the outsourced entity (MiFID Reg. 105). - Internal controls (MiFID Reg. 33–37): - firms must establish, implement and maintain adequate internal control mechanisms; - an independent Compliance function is required for all firms; larger/complex firms also require independent Risk Management and Internal Audit functions; - senior management must periodically review the effectiveness of policies, arrangements and procedures (Reg. 37) and receive written reports on adequacy of policies and monitoring at least annually; - there is no requirement that internal control reviews be conducted by an external independent party. - Client Asset Requirements (CAR) for firms that hold client assets: - external auditors must examine books and records relating to client assets; - review systems and procedures for safe-keeping and accounting for client assets; - examine compliance with the CAR; and - report in a format acceptable to the Central Bank on a semi-annual basis stating whether, in their opinion, the requirements have been complied with. ### IIA-specific organizational and compliance requirements - The Handbook of Prudential Requirements for Authorised Advisors and Restricted Intermediaries (IIA) requires Retail Intermediaries to maintain, on a continuing basis, adequate control systems and accounting procedures to facilitate effective management and to satisfy supervisory and reporting requirements and comply with the IIA, including when activities are outsourced. - IIA Retail firms must appoint a member of management with primary responsibility for maintaining appropriate standards of conduct, adherence to procedures and compliance with the Handbook and the IIA. - The IIA Retail Brokers/Intermediaries Application form requires information on procedures and back-up facilities for maintaining client files; IT/software systems; corporate governance and management control; Compliance officer, Finance Officer, Internal Auditor (if appropriate) and Money Laundering Reporting Officer; how the compliance function will work; procedures and controls regarding suitability, complaints, staff resources and fitness. - The Prudential Handbook requires IIA Non-Retail Intermediaries to satisfy the Central Bank on a continuing basis that they have adequate control systems and accounting procedures and adequate management resources to conduct activities effectively. - IIA Non-Retail firms must identify a Compliance officer at management level responsible for compliance with legal and regulatory requirements and for co-operation and liaison with regulatory authorities. - The IIA Non-Retail Authorisation Application Form sets out organisational structure requirements covering staff and business profile, outsourcing, compliance function, risk management, internal audit, internal reporting and communication, business activity record keeping, management of client assets and administration/accounting; firms must demonstrate standards are met before authorization and maintain compliance continuously. - Other than for IIA firms subject to CAR, there are no express requirements for a periodic review of internal controls and risk management processes at IIA firms. ### Compliance function, fitness and probity, and conflicts of interest - MiFID Regulations require a permanent and effective compliance function that operates independently and monitors adequacy and effectiveness of measures to minimize risks and to advise and assist employees to comply with MiFID obligations. - The Central Bank assesses a firm’s compliance function as part of initial application; the Compliance Officer is assessed under the Central Bank’s Fitness and Probity regime. - Members of the compliance function may not have revenue generating responsibility. - Deficiencies identified in the compliance function require remedial improvement as specified by the Central Bank; the Central Bank has conducted a thematic review of compliance functions in the past two years. - For IIA intermediaries, the proposed structure of the compliance function is assessed at authorization; the Head of Compliance requires pre-approval by the Central Bank and is assessed under the Fitness and Probity regime. The Central Bank may request appointment of a new Head of Compliance where deficiencies are identified. - Conflicts of interest (MiFID Reg. 33, 74, 75): - firms must maintain and operate effective administrative arrangements to take all reasonable steps designed to prevent conflicts of interest adversely affecting clients; - firms must identify conflicts as they arise within the firm or among third parties and have a documented conflicts of interest policy specifying procedures and measures to manage such conflicts. *Source: Section 6.4 of the Prudential Handbook for Investment Firms (as provided).* ### Chapter 2, General Principle 2.7 of the Consumer Protection Code states that “[a] ### _cr14136 - Chapter 2, General Principle 2.7 of the Consumer Protection Code states that “[a] ### Conflicts of Interest - General Principle 2.7: “[a] regulated entity must ensure that in all its dealings with customers and within the context of its authorization it seeks to avoid conflicts of interest.” - Chapter 3 Consumer Protection Code 2012 requirements for IIA firms: - A regulated entity must have a written conflicts of interest policy appropriate to the nature, scale and complexity of the regulated activities; the policy must identify circumstances that constitute or may give rise to a conflict of interest and specify measures to manage such conflicts. - Any conflict that arises must be communicated by the firm to the consumer and the firm must ensure that the conflict does not result in damage to the interests of the consumer. - The firm's remuneration policy must not have the potential to impair the regulated entity’s obligations to act in the best interests of consumers. - Chinese walls, as defined in the Consumer Protection Code 2012, must be in place to ensure sensitive information is not open to abuse or give rise to a conflict; written procedures must exist regarding maintenance and consequences of breaches of Chinese walls. - If conflicts cannot be managed to ensure no consumer detriment will result, disclosure to the client is required of the general nature and sources of the conflicts of interest before undertaking business on the client’s behalf (MiFID Regulation 74(2)). - The Consumer Protection Code 2012 requires disclosure to customers where conflicts of interest cannot be avoided. ### Direct Electronic Access Controls (ESMA Guidelines) - ESMA Guidelines require investment firms to have policies and procedures to ensure automated trading activities comply with MiFID and manage risks from those activities. - Under these Guidelines, investment firms should be able automatically to block or cancel orders: - that do not meet set price or size parameters (differentiated as necessary for different financial instruments), either or both on an order-by-order basis or over a specified period of time; - from a trader if they are aware of a financial instrument that a trader does not have permission to trade; - where they risk compromising the firm’s own risk management thresholds. - Controls are to be applied to exposures: - from individual clients or financial instruments or from groups of clients or financial instruments; or - of individual traders, trading desks or the investment firm as a whole. - Firms should have procedures to deal with orders automatically blocked by pre-trade controls but which the investment firm wishes to submit. - The Central Bank notified ESMA that it will comply with the ESMA Guidelines and firms have been given notice that compliance is expected. ### Protection of Clients — Client Asset Protection - MiFID requirements for client asset protection include safekeeping arrangements, limitation on use of client assets and custody requirements with third parties. - MiFID Regulations set requirements in record keeping, accounting, reconciliation, segregation/ring-fencing, and risk management to safeguard clients’ rights to assets (MiFID Reg. 160-162). - The Central Bank published the CAR (Client Asset Rules) detailing rights, duties and responsibilities of investment firms relating to client money and client financial instruments. - The CAR applies to all MiFID firms and IIA Non-retail intermediaries specifically authorized by the Central Bank to hold client assets. - An authorized firm must have its external auditors assess, at least every six months, its compliance with the requirements. ### Complaints - Firms must have formal processes to address errors and client complaints promptly and effectively (MiFID Reg. 38, Consumer Protection Code 2012, 10.7-10.12). - If a firm’s internal resolution fails to address a personal customer’s complaint or a limited company with turnover of less than €3 million within statutory time frames, the client may use the Financial Services Ombudsman (FSO). - The FSO is an independent statutory office dealing with unresolved consumer complaints against financial services providers. - The FSO’s findings are legally binding, appealable to the High Court, and it can order direct rectification or compensation of up to EUR 250,000. - The FSO service is free to the complainant. ### Client Identification (AML/CFT) - The Criminal Justice (Money Laundering and Terrorist Financing) Act 2010 transposes the Third Money Laundering Directive (2005/60/EC) and Implementing Directive (2006/70/EC). - Designated persons (including all market intermediaries) must identify and verify a client’s identity on the basis of documentation or information reasonably believed to confirm identity. - Firms must identify any beneficial owner connected with the customer or service and take reasonable measures to verify that person’s identity. - For legal entities, firms must understand the ownership and control structure. ### Know the Client and Suitability - MiFID suitability and appropriateness depend on the service provided: - Portfolio management and investment advice require meeting suitability requirements (MiFID Regulation 76 and 94). - Execution only, receiving and transmitting orders, etc., fall under appropriateness provisions (MiFID Regulations 76 and 94). - Suitability tests require firms to collect information on clients' knowledge and experience, financial situation and investment objectives to determine whether a recommended transaction is suitable. - Appropriateness rules require information about client’s knowledge and experience relevant to the product/service; there is no specific requirement to assess financial situation or investment objectives under appropriateness. - If a firm considers a service or instrument not appropriate, or information is insufficient, the firm must warn the client or potential client (MiFID Regulation 76). - ESMA guidance: “Guidelines on certain aspects of these MiFID Suitability Requirements – 6th July 2012” and supervisory briefings dated 19 December 2012; the Central Bank notified ESMA it will comply with the ESMA Guidelines and firms have been told compliance is expected. - Consumer Protection Code 2012 Chapter 5 requirements for IIA firms: - Knowing the Consumer: gather and record sufficient information prior to offering, recommending, arranging or providing a product or service. - Assessing Suitability: at minimum, consider and document whether products and services meet consumers’ needs and whether consumers can meet financial commitments going forward. - Statement of Suitability: prior to arranging a product or service, prepare a written statement outlining suitability for the consumer. ### Books and Records - MiFID Regulations require investment firms to keep records of all relevant data relating to each transaction in financial instruments executed by the firm for at least 5 years (MiFID Reg. 33(1)(g), 40 and 112). - Records must be retained in a durable medium and in a form so that: - the Central Bank can access records readily and reconstitute each key stage of processing each transaction; - any corrections or amendments, and prior contents, are easily ascertained; - records may not be manipulated or altered (MiFID Reg. 40(4)). - The Central Bank has published a list of minimum records required under these Regulations on its website. - Consumer Protection Code 2012 Chapter 11 requirements for IIA intermediaries: - Regulated entities must record all client instructions, discretionary decisions and conditions of client instruction relating to investment activities; maintain lists of customers who are consumers as defined by the Code; and maintain detailed records relating to consumer profiles. - Information relating to individual transactions must be retained for 6 years. - Records must be maintained for six years from the date on which regulated entities cease to provide products or services to any consumer. - Records must be complete and accessible. ### Information to Clients - MiFID requires an investment firm, before the earlier of when a retail client is bound by any agreement or provision of services, to provide: - the terms of the agreement; and - additional information including: name/address/authorization status of the firm; reporting frequency; portfolio management account operations and scope; the nature and risks of financial instruments generally and those subject to public offering or with guarantees by a third party; the holding of assets belonging to retail clients; accounts subject to/held in another jurisdiction; accounts subject to a security interest by the firm; and costs and charges (MiFID Reg. 82-92). - Sufficient information must be provided so clients can reasonably understand the nature and risk of services and instruments (MiFID Reg. 76). - Consumer Protection Code 2012 Chapter 4 for IIA firms: - Regulated entities must draw up terms of business and provide each customer with a copy prior to service provision as a stand-alone document. - Requirements specified for information on product risks, warnings, charges and remuneration. - Prior to offering/recommending/arranging/providing a product, regulated entities must provide information about main features and restrictions of the product. ### Statements of Account and Reporting - Reporting obligations to clients vary by client category and service (MiFID Reg. 96 and 101). - If the firm holds client assets, a statement of account must be provided at least annually (MiFID Reg. 96(20), CAR 4.8). - Clients receiving portfolio management services must receive a report semi-annually (MiFID Reg. 96(9)), unless more frequent reporting is requested. - Contract notes for trades executed for retail clients are to be sent immediately following execution. - Consumer Protection Code 2012 Chapter 6 for IIA firms: - For investment products, the firm must provide (at least annually) a statement in respect of the previous 12 month period to the consumer. - Commissions and other expenses charged must be detailed in all cases. ### Due Care and Best Interests - MiFID requires an investment firm to act honestly, fairly and professionally in accordance with the best interests of its clients. - Firms must ensure information addressed to clients or potential clients is fair, clear and not misleading (MiFID Reg. 76(2)). - Firms must provide appropriate, clear and understandable information concerning the firm and its services, risks of instruments, execution venues, costs and associated charges so clients can make informed decisions (MiFID Reg. 76). - MiFID specifies circumstances in which firms are deemed to be acting in the best interests of clients regarding receipt of fees, commissions and non-monetary benefits and identifies situations where firms would not be acting in the best interests of clients. - MiFID imposes obligations on investment firms to provide best execution to their clients (Reg. 97, 98 and 106). *Source: _cr14136 - Chapter 2, Consumer Protection Code 2012 (excerpts) — as provided in the supplied content.* ### Chapter 2 of the Consumer Protection Code 2012 requires that an IIA firm act with due ### _cr14136 - Chapter 2 of the Consumer Protection Code 2012 requires that an IIA firm act with due ### Duty of care; internal controls and periodic evaluation - Chapter 2 of the Consumer Protection Code 2012 requires that an IIA firm act with due care and diligence in the best interests of its customers in respect of all dealings with clients and in doing so help preserve the integrity of the market. - Assessment: Broadly implemented. - Findings: - Most Assessment Methodology Key Questions are met by the Irish regime. - The obligation under KQ 3 that a market intermediary “be subject to an objective, periodic evaluation of its internal controls and risk management processes” may only be fulfilled for the largest intermediaries that are required to have risk management and internal control functions that are independent. - For other firms, no such objective analysis is required; it would be a question of fact whether any given internal department could truly be considered objective. - Recommendation: - The Central Bank should introduce a general requirement that applies to all firms for an annual review of risk management and controls to be performed to objective standards and by a function or entity that is independent of the business of the firm. ### Procedures for failure of a market intermediary (Principle 32) - Description of Central Bank procedures: - The Central Bank has developed an Emergency Firm Response Procedure and Checklist for Business Survival Crisis to be used as part of an immediate response mechanism. - The Checklist outlines actions to be taken in the first 24 – 48 hours of a firm exhibiting evidence that its survival is at risk. - Central Bank senior management, including Directors, and relevant Heads and Deputy Heads, will be notified following confirmation of the pertinent facts. - The Central Bank evaluates circumstances and considers notification to external bodies where appropriate. - Powers and limitations: - The Central Bank does not have authority to appoint an administrator or monitor to step in and run a firm in crisis, nor to take possession/control of assets held by a firm in financial difficulty. - The Central Bank may apply to the High Court to have an investment firm wound up; a liquidator will be appointed thereafter. - The liquidation process may entail significant delays and may put client assets at risk; the Central Bank has limited ability to participate actively in wind down management. - Measures to minimize client risk: - For low impact firm failure (e.g., an IIA retail intermediary), the Central Bank would work to ensure an orderly wind down and that the rights of customers are appropriately protected according to the law and the retail consumer protection framework. - The Central Bank has the power to issue directions to suspend investment activities and make summary information available to relevant stakeholders. - Notice requirements: - MiFID/IIA Non-Retail Intermediaries must notify the Central Bank as soon as they become aware of any situations or events that impact or potentially impact the firm to a significant extent (s. 1.2(iv) of Supplementary Supervisory Requirements and s. 1.2(iv) of Prudential Handbook for Investment Firms). - IIA Retail Intermediaries must notify the Central Bank as soon as they become aware of any breach of the IIA or of any breach of the Central Bank’s requirements (s. 1.3 of the Handbook of Prudential Requirements for Authorized Advisors and Restricted Intermediaries). - Monitoring: - The Central Bank monitors financial condition via ongoing analysis of financial returns uploaded to the Central Bank’s Online Reporting System; the system generates alerts if it detects adverse trends. - See also discussion under Principles 12 and 30. - MiFID framework powers (selected): - Impose a condition or requirement on an investment firm or the market operator in the interests of proper and orderly regulation and supervision and investor protection. - Instruct the firm to take corrective actions by imposing a condition or issuing a particular direction as necessary to address potential default or minimize damage or loss to clients. - Apply to the High Court in a summary manner for an order confirming a direction if the firm is not complying with a direction. - Give a direction to an investment firm in order to minimize damage or loss to investors, including requiring suspension of investment services for a period of up to 12 months. - Impose conditions on authorization including permanent restrictions on activities or requiring certain arrangements to be put in place; in immediate threats to client assets, consider direction to cease trading and possibly to freeze accounts if necessary (MiFID Reg. 145-149). - IIA-specific powers: - Give directions to an IIA intermediary to act or cease to act in a certain way to minimize damage and loss to investors (s. 21). - Impose a condition or requirement on the firm for proper and orderly regulation and supervision (s. 14). - The Central Bank can issue a direction to move client accounts, likely only once client positions are verified as correct. - Evidence of use: - There is evidence that the Central Bank’s authority to take action against troubled firms has been exercised in practice. - Assessment: Broadly implemented. - Comment/Recommendation: - The Central Bank should be given authority to appoint an administrator or monitor to step in and run a firm in crisis, without having to apply to the High Court for liquidation, to avoid delays and reduce risk to client assets. - The costs of the administrator/monitor would be paid out of the estate of the firm. ### Investor compensation and ICCL - Framework: - The EU Investor Compensation Directive established minimum requirements for investor compensation schemes. - The Investor Compensation Company Limited (ICCL) is an independent body established under the Investor Compensation Act, 1998 and is Ireland’s statutory ‘fund of last resort’ for retail customers of authorized investment firms. - The ICCL does not cover institutions or professional clients. - ICCL principal objectives: - Operate a financially sound scheme to provide statutory levels of compensation to eligible investors of failed investment firms. - Set up and maintain funds to pay compensation and its costs under the Investor Compensation Act. - Set up and maintain a structure to pay compensation to investors of failed investment firms. - Make sure it pays compensation without unnecessary delay. - Governance and administration: - The Chairperson and Deputy Chairperson of the ICCL are appointed by the Governor of the Central Bank. - In accordance with Section 20 of the Investor Compensation Act, staff from the Central Bank perform the administrative functions of the ICCL. - Funding: - Funding is by contributions from firms authorized to conduct investment and/or insurance services; contribution rates vary depending on the nature of services and in certain situations on the number of clients. - Claim conditions: - ICCL can pay claims only once the Central Bank has determined that an investment firm is unable to meet its obligations arising from client claims and is not likely to be able to do so in the near future. - Compensation cannot be claimed for: - Losses arising from bad investment advice, poor investment management or misrepresentation. - Losses caused by a fall in the value of an investment because of market or other economic forces. - Dealings with a firm that is not a member of the Investor Compensation Scheme. - Eligibility and limits: - ICCL does not cover institutions and professional clients. - Compensation can only be paid where an authorized firm: - Cannot meet its obligations to meet its investors’ claims; or - Has been the subject of a Court ruling that prevents it from returning money or investment instruments to investors. - The ICCL can pay only 90% of the amount lost, subject to a maximum of EUR 20,000, to each investor. - Only transactions carried out after 1 August 1998 are covered by the scheme; in certain limited circumstances, transactions before that date may also be eligible. - Other compensation arrangements: - CARB has a fund that pays up to GBP 50,000 (or the EUR equivalent) per client of ICAI firms authorized to carry on investment business; this fund is available to compensate clients for losses caused by firm failure or bad investment advice. - If an authorized firm holds client assets worth more than GBP 50,000, it must have insurance cover for the full value of assets held. ### External notices and cross-border cooperation - If firm failure or near failure poses possible disruption to the financial system, the Emergency Firm Response Procedure includes notifying relevant regulators as per circumstances. - MiFID places an obligation on competent authorities of different Member States to cooperate for purposes of carrying out duties under MiFID (Directive 2004/39/EC, art. 56 and MiFID Reg. 132). This has been transposed into Irish law, obliging the Central Bank to cooperate with other Member States when necessary. ### Establishment, authorization and oversight of trading systems and trading venues (Principle 33) - Responsibility: - The Central Bank is responsible for regulation and supervision of RMs and market operators authorised in Ireland. - An RM is an authorised regulated market pursuant to MiFID and the MiFID Regulations. - Irish trading venues: - The ISE is authorised under the MiFID Regulations to operate an RM and two multilateral trading facilities (MTFs). - Regulated market: Main Securities Market (MSM). - MTFs: - Enterprise Securities Market (ESM) — an equity market for small to medium sized growth companies. - Global Exchange Market (GEM) — a specialist debt market aimed at investors particularly knowledgeable in investment matters. - POSIT is a third MTF in Ireland, an electronic crossing system operated by Investment Technology Group Limited (ITGL), an authorized investment firm under MiFID. - Only eligible counterparties and professional clients as defined in MiFID may participate in POSIT. - POSIT operates as a dark order book with total pre-trade anonymity; each participant settles orders it crosses in POSIT as principal. - Some, but not all, instruments crossed through POSIT are admitted to trading on an RM in the EEA. - Authorization framework: - Parts 6 (Regulated Markets) and 4 (Authorisation of Investment Firms) of the MiFID Regulations provide the basis for authorization of RMs and MTFs (trading venues). - Definitions of RM and MTF under MiFID only capture trading venues bringing together trading interests in accordance with non-discretionary rules; trading systems with trade matching discretion (e.g., broker crossing networks) are not caught. - A firm cannot provide investment services (including operation of an MTF) unless authorized by the Central Bank (MiFID Reg. 20). - Central Bank may grant/refuse authorization and requires evidence of compliance with MiFID Regulations (Reg. 11). - MiFID Reg. 47 gives equivalent powers and duties for market operator applicants as Reg. 11 does for investment firm applicants, though MiFID Reg. 47 does not contain an express prohibition equivalent to Reg. 20 for RMs. - Central Bank must seek necessary information to evaluate applicants (MiFID Reg. 13 & 48) and may not authorize unless satisfied as to legal status, probity and competence of directors/management, suitability of shareholders, organizational structure and staff expertise (MiFID Reg. 13 & 48). - Organizational arrangements required for authorization are set out in MiFID Reg. 33 and 63. - Requirements for RMs and MTFs: - Have transparent and non-discretionary rules and procedures providing for fair and orderly trading and objective criteria for efficient execution (MiFID Reg. 63 & 41). - Have transparent and non-discriminatory rules based on objective criteria governing access/membership (MiFID Reg. 66 & 41). - Establish effective arrangements/procedures for regular monitoring of members’ compliance and monitor transactions to identify disorderly trading or conduct that might involve market abuse (MiFID Reg. 67 & 113). - Report market abuse to the Central Bank and provide mandatory assistance in investigations and prosecution of market abuse (MiFID Reg. 67 & 113). - Application process and evidence: - Central Bank has standard application forms and guidance notes for authorization as (i) investment firm operating an MTF; (ii) operator of an MTF; or (iii) operator of an RM. - Applicants must submit detailed business plan, proposed rule book, and detailed description of organizational arrangements; must provide evidence of compliance on a requirement-by-requirement basis. - Specific operational information required includes conflict of interest handling, finalization/clearing/settlement procedures, central counterparty/dark pool/price formation operations, compliance/internal audit/market integrity supervision arrangements, record keeping and business continuity planning, and outsourcing arrangements. - Applicant must also provide dispute resolution and appeal procedures, technical systems standards and procedures related to operational failure, arrangements for holding client funds and securities, and information on how trades are to be cleared and settled. - Applicant must conduct an ICAAP assessment and provide results as part of evidence of appropriate risk management systems and controls. - A detailed, granular assessment of proposed operating and trading rules/procedures is undertaken before authorization; only if deemed satisfactory will authorization be granted. - On-site inspection before authorization or shortly thereafter is not routine but Central Bank has authority to conduct such an examination if prudent. - ESMA Guidelines and compliance: - ESMA Guidelines (2012): Systems and Controls in an automated trading environment expand organizational requirements for trading venues. - Central Bank monitors compliance by: (i) reviewing trading venue rules to ensure compliance with the Guidelines; and (ii) requiring a self-assessment of compliance to be completed by trading venues and submitted to the Central Bank. - The Central Bank performed a desk-top review of self-assessments and sought clarification where unclear; it further intends to undertake an on-site inspection of trading venues for compliance early in 2014. - Other matters: - Corporate governance of firm/exchange is examined as part of authorization; ISE governance is based on the U.K. Corporate Governance Code with a balance of members and non-members on its board. - Confidentiality requirements limit disclosure of information except in specified circumstances (court order) or to specified parties such as the Central Bank (Rules of the ISE, Rule 1.9). Misuse of confidential information may constitute insider trading and/or market abuse. - An MOU exists between the ISE and the Central Bank. - Outsourcing: - MiFID Regulations set responsibilities for outsourcing by an investment firm, including provision that the investment firm, its auditors and the Central Bank must have effective access to data related to the outsourced function and to the business premises of the service provider (Reg. 105). - Investment firm application form requires confirmation as to each mandated element regarding outsourcing. - No corresponding regulation for market operators of regulated markets, but application forms include an outsourcing section requiring confirmation that the service provider will cooperate with the Central Bank, provide effective access to data and premises, protect confidential information and make available information necessary for assessment of compliance. - Risk and capital: - None of the current Irish trading venues assume principal, settlement, guarantee or performance risk. - Investment firms operating MTFs are expected to meet capital requirements for investment firms discussed under Principle 30. - The ISE has a bespoke capital requirement dictating both level of capital required and value of eligible assets that may be available to meet that requirement; capital required reflects aggregate of ISE’s obligations plus significant extra buffers. - Eligible assets include cash, marketable securities and other fairly liquid assets. - Structural note: - The ISE is undergoing a change in legal corporate structure from a company limited by guarantee to a public limited company; this reorganization requires the ISE to be reauthorized by the Central Bank under the MiFID requirements. - Securities and listing: - The ISE is the competent authority for listing in Ireland; the Central Bank has no role regarding admission to listing on trading venues. - As part of RM/MTF authorisation, the applicant must set out the securities to be traded on the venue and provide rules governing admission to trading for Central Bank consideration; amendments to admission rules must be submitted to the Central Bank. - The Central Bank has the right to veto introduction of admission to trading rules that it considers not compliant with transparent rules (MiFID Reg. 64). - For the MSM and GEM the ISE serves as the competent authority for listing under the European Communities (Admission to Listing and Miscellaneous Provisions) Regulations. *Italic: IMF staff summary of content unit _cr14136 - Chapter 2 of the Consumer Protection Code 2012 requires that an IIA firm act with due* ### 2007. There are separate listing rules for equities on the MSM, securities listed on GEM, ### _cr14136 - 2007. There are separate listing rules for equities on the MSM, securities listed on GEM, ### ISE market model, order execution and matching - ISE Xetra® market model sets out the sequence of order matching established by the ISE and its MTFs; disclosed to the Central Bank at authorisation and available to market participants through the ISE’s website. - Fundamental principles: - All orders (with the exception of midpoint) are executed according to price/time priority. - If, at a given price, both visible and invisible (hidden) orders exist, visible orders are executed with priority. - Midpoint orders are executed according to volume/time priority taking into account the Minimum Acceptable Quantity. - The Central Bank does not review the actual trade matching or execution algorithms of automated trading systems but examines processes followed and outputs produced to ensure algorithms function as intended. ### Co-location, market access and system controls - ISE Xetra® is the electronic trading system of the ISE; product of a technology partnership between the ISE and the Deutsche Börse Group which operates the Xetra® platform. - Co-location: - Provided directly by Deutsche Börse Group via its proximity hosting service in Frankfurt. - ISE member firms must apply to Deutsche Börse Group via the ISE to use co-location services. - Deutsche Börse Group is authorised and supervised by Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin) in Germany and is outside the regulatory remit of the Central Bank. - POSIT does not offer co-location services. - Exchange system controls at the ISE: - ISE Xetra® enables a member firm to set a maximum value per order for each trader; this fixed maximum value is identical for all instruments the trader is allowed to trade and there is no separate overall member-level limit. - POSIT can limit its exposure to individual participants in terms of quantity and/or value of orders, but participants cannot self-impose trading limits on POSIT. - ESMA Guidelines and MiFID requirements: - ESMA Guidelines: Systems and Controls in an Automated Trading environment require pre-trade controls; Guideline 4 and Guideline 4.2(c) require MiFID investment firms to have policies and procedures to manage risks and to be able to block or cancel orders that risk compromising firm risk thresholds. - National competent authorities must make every effort to comply with Guidelines and Recommendations under Article 16(3) of the ESMA Regulation (EU) No 1095/2010. ### Trading information, transparency and record-keeping - Public availability: - Rules of trading venues, market models and market parameters are published on trading venue websites. - Retention of records: - Trading venues maintain all records for a period of 6 years to enable reconstruction of trading activities. - Investment firms are required to keep at least 5 years of all relevant data relating to each transaction in financial instruments executed by the firm (MiFID Reg. 112). - Trading venues must adhere to ESMA Guidelines specifying information and records to be kept. - Pre-trade transparency: - Order book information on the ISE conforms with MiFID requirements (prices and depth publicly disclosed); member placing the order is not disclosed to the public (anonymity preserved). The name of the member is visible to the Central Bank on Xetra® Observer. - Xetra® operates with a central counterparty (CCP) facilitating confidentiality and anonymity between counterparties. - POSIT operates as a dark order book with total pre-trade anonymity. - Requirements currently only extend to shares admitted to trading on an RM; trading venues have voluntarily extended similar disclosure regimes to other instruments not admitted to trading on an RM as applicable. - Post-trade transparency: - Order book trades are automatically reported through ISE Xetra® to the ISE and disseminated to the market. - MiFID Regulations set pre- and post-trade disclosure requirements; specified post-trade information must be provided as soon as possible on a reasonable commercial basis and accessible to other market participants. ### Monitoring of trading activity and market abuse oversight - ISE monitoring: - Real-time monitoring by ISE Market Services Department between 8 a.m. and 17.15 p.m. each day. - Unusual order book and off-order book transactions/prices are escalated to the ISE’s Regulation Department for follow-up. - Post-trade review focuses on: significant price movements; large number of order modifications/deletions by a member firm in the opening/closing auction; deviations of the official closing price from the prevailing spread; prices deviating significantly from the reference/last price or triggering a volatility interruption. - ISE investigates possible breaches of the Rules of the ISE. - Two regimes for monitoring market abuse: - MSM: covered by the MAD Regulations; Central Bank is competent authority and ISE must refer investigations to the Central Bank. - ESM and GEM (MTFs): do not fall under MAD; covered by Insider Dealing Provisions of Part V of the Companies Act 1990; ISE reports possible insider dealing on its MTFs to the ODCE; Central Bank has no role for those MTFs. - POSIT falls under MAD to the extent securities admitted to trading on an RM elsewhere in the EEA are traded on its platform. - ISE monitors conduct of member firms; routine, regular examinations moved to Central Bank under MiFID. ISE conducts thematic inspections; example: end-of-day reporting review of Irish government bonds where about 40% of member firms were reviewed. - ISE plans to introduce a program of regular on-site visits to member firms to assess conduct issues. - Central Bank monitoring: - Daily post-trade market monitoring through in-house system. - Trading reviews for all price sensitive announcements by the Central Bank’s TRMU; suspicious transactions escalated to MIU and possibly Enforcement for prosecution under MAD. - Central Bank runs Xetra® alerts for post-trade reviews including trade modifications, trade reversals, deviation from last price determination, volatility, interruption in continuous trading, manipulation of indicative price, deviation of order limit and marking the close. - Central Bank can analyze member firm/trader order and trade patterns, trading activity in Irish equities, high frequency trading trends, direct market access activity and order to execution ratios. - Monitoring of trading venues by the Central Bank: - Ongoing supervision includes oversight of corporate governance, risk management and internal control systems and ensuring conditions of authorisation remain satisfied. - Supervisory process includes: - analysis of reports and financial returns submitted to the Central Bank; - review of proposals (changes in authorisation, senior management, ownership, new activities); - review of ongoing business activities; - market monitoring activities; - inspections; - regular review meetings; - regular correspondence and engagement. - Central Bank powers and remedial measures under MiFID and national law: - Remedial measures include imposing conditions (MiFID Regulation 145); giving directions (MiFID Regulation 148); withdrawing authorisation (Reg. 53); applying to Court to revoke authorisation (MiFID Reg. 54). - Central Bank Act 1942 powers include imposing fines of up to EUR 10 million and ordering removal of a director or officer under Section 33AQ(5). - These powers have not yet been exercised by the Central Bank. ### Access to information and transaction reporting - Central Bank access: - Full access to ISE Xetra® order book including added, amended, deleted and executed orders, as well as hidden and iceberg orders, and visibility of which market participant carried out the entry. - Full access to transaction reporting by all competent authorities in Irish securities admitted to trading on an RM through ESMA’s Transaction Reporting Exchange Mechanism (TREM). - Transaction reporting obligations: - Any MiFID-authorised firm executing a transaction in financial instruments must report details of the transaction to the Central Bank when the instruments are: - admitted to trading on an RM; - admitted to trading on an MTF; - values derived from or dependent upon debt or equity instruments admitted to trading on an RM or an MTF; - values derived from or dependent upon indices of financial instruments admitted to trading on an RM or an MTF. - Obligation applies to transactions executed on or off the market and to instruments admitted to trading on the MSM, ESM, GEM or any other EEA RM or MTF. - MiFID investment firms are required to file transaction reports electronically using the Central Bank’s online reporting system by the close of the day following the day on which the transaction was executed (MiFID Reg. 112). ### Rule review, assessments and supervisory comments - Rule review: - As part of authorisation, an RM or MTF provides proposed rules to the Central Bank for review prior to authorisation; subsequent amendments must be provided in advance of implementation. - Trading venues submit proposed rules or amendments to the Central Bank; the Central Bank reviews compliance with MiFID Regulations and will not permit introduction until review is complete. - Central Bank has right to veto or impose conditions under MiFID Regulation 145; the Central Bank has not exercised such veto. - Assessments: - Assessment noted as “Fully implemented” for transparency and rule-review related provisions in the text. - Supervisory comments and recommendations: - The Central Bank’s review before authorisation does not routinely include an on-site visit to confirm systems work as described; it would be prudent to conduct such an inspection immediately before authorization or shortly thereafter. - Clearance and settlement processes for Irish trading venues take place outside the jurisdiction; the Central Bank should have clear understanding of arrangements, insolvency procedures for member firms or operators, and arrangements for prompt access to necessary information from operators and/or their regulators. *Content based solely on _cr14136 - 2007. There are separate listing rules for equities on the MSM, securities listed on GEM,* ### 16.30 Irish time. Off order book trades in equities admitted to ISE Xetra® may be reported ### _cr14136 - 16.30 Irish time. Off order book trades in equities admitted to ISE Xetra® may be reported ### Post-trade and pre-trade transparency: rules, timing, and waivers - Off order book trades in equities admitted to ISE Xetra® may be reported using the over-the-counter (OTC) functionality of ISE Xetra® or equivalent third party software. - These trades can be reported between 06.30 and 17.15 Irish time. - Trades must be reported as close to real time as possible (within 3 minutes) and after hours trades can be reported before continuous trading the following day. - Deferred publication of a large off order book trade is permitted when the transaction is between a member firm dealing on its own account and a client of that firm (principal basis) and the size of the trade is equal to or exceeds the relevant minimum qualifying size as defined by MiFID. - MiFID Regulations require trading venues to make public on reasonable commercial terms and on a continuous basis: - (a) the price, volume and time of transactions executed on that market in respect of shares admitted to trading; and - (b) the details of those transactions (MiFID Reg. 69 and 121). - Commission Regulation 1287/2006 (Article 27) specifies public information elements including trade date and time, instrument type and identification, price, quantity, etc. - Post-trade information is to be made available as close to real time as possible and in any case within 3 minutes of the relevant transaction (Commission Regulation 1287/2006). - Deferred publication criteria for transactions outside business hours and/or outside a trading venue are set out (Art. 29); Article 32 requires non-discriminatory public availability at a reasonable cost. - The ISE makes extensive post-trade information on prices and volumes available to the general public via its website on a short (15 minute) delay. - Derogations from real time pre-trade disclosure are permitted if a waiver has been granted by the Central Bank (MiFID Reg. 68 and 120). Waivers cover specific order types such as ‘Large in Scale’ orders, orders held in an order management system, or specific market models. Commission Regulation 1287/2006 sets criteria for pre-trade waivers (Art. 18-20). - Central Bank may authorize deferred publication of completed transactions that are large in scale compared with normal market size (Reg. 69 and 121). Permitted delay varies by trade size and average daily turnover. ### Waiver application and approval process - Waiver request process: - The trading venue submits a detailed description of the functionalities of the waiver requested; - The Central Bank considers whether the proposed waiver is compliant with MiFID and the MiFID Regulations; - The Central Bank submits the proposed waiver and the Central Bank’s opinion as to whether it is MiFID compliant pursuant to an agreed ESMA protocol; - ESMA issues an opinion to the Central Bank on whether the proposed waiver is MiFID compliant; and - The Central Bank notifies the venue whether it approves or refuses the proposed waiver. ### Dark trading, hidden orders, and Central Bank visibility - POSIT operates its entire order book under a pre-trade transparency waiver (a “dark” order book). All trades executed on POSIT are reported to the Central Bank within one business day (MiFID Regulation 112). The trading venue operates full post-trade transparency for trades on its platform; no price formation takes place on this venue. - ISE operates a transparent order book but offers “hidden orders” (no pre-trade transparency for specific order types). - All orders entered onto the ISE’s platform are available for Central Bank review on a real time basis through its connection to ISE Xetra. - The Central Bank has visibility of all orders entered onto the Irish order book on a T+1 basis, including additions, amendments, deletions, and trade conditions such as hidden and iceberg orders. Participant details are also available. - Rule 2.7 of the ISE’s Market Parameter Rules: if both visible and invisible orders exist at the same price, the visible orders are always executed with priority. - Applicable trading rules, order matching and priority rules, of each trading venue are published on the respective trading venue's website. ### Market abuse framework, definitions, and scope - MAD transposed into Irish law by Part IV of the Investment Funds, Companies and Miscellaneous Provisions Act 2005. MAD Regulations came into effect in 2005. - Central Bank produced Market Abuse Rules providing additional detail and guidance. - Regulation 2 of the MAD Regulations defines “market abuse” as: - insider dealing, or - market manipulation. - “market manipulation” is defined to include: - transactions or orders to trade which give, or are likely to give, false or misleading signals as to the supply of, demand for or price of financial instruments, or which secure, by a person, or persons acting in collaboration, the price of one or several financial instruments at an abnormal or artificial level; - transactions or orders to trade which employ fictitious devices or any other form of deception or contrivance; or - dissemination of information which gives, or is likely to give, false or misleading signals to financial instruments, including dissemination of rumors and false or misleading news, where the person who made the dissemination knew, or ought to have known, that the information was false or misleading. - MAD Regulations prohibit insider dealing and market manipulation (Reg. 5 and 6). - MiFID Regulations prohibit the “misuse” of client information by MiFID investment firms (MiFID Reg. 107). - MAD Regulations apply to financial instruments admitted to trading on an RM; they do not apply to instruments only traded through an MTF or off an organized market. For MTFs or off-market trading, Part V of the Companies Act 1990 prohibits insider dealing (s. 108) but predates specific market manipulation prohibition and does not capture front running. ### Detection, reporting, and surveillance arrangements - Both the Central Bank and the ISE conduct direct surveillance on the ISE order book and off order book transactions using automated alerts and order book/trading analysis. - Central Bank’s TRMU monitors for insider trading and refers suspicious transactions to the Central Bank’s Markets Integrity Unit (MIU) per established criteria and processes. - MAD Regulations require persons professionally arranging transactions to notify the Central Bank of any transaction suspected of constituting market abuse (Reg. 13). Suspicious Transaction Reports (STRs) should be submitted; telephone pre-flagging allowed. - STRs submitted by category: - STRs submitted by market professionals: 2010 = 8, 2011 = 3, 2012 = 19, 2013* = 13 - STRs submitted by other EU competent authorities: 2010 = 4, 2011 = 6, 2012 = 5, 2013* = 8 - * as at 30 September 2013 - Staffing: three members of TRMU involved in identifying suspicious transactions; five MIU staff investigate suspicious transactions and STRs. - Central Bank direct surveillance on a post trade basis for insider trading and market manipulation across trading venues; direct view into ISE Xetra® electronic trading system monitoring main equities and ETFs (MSM) and ESM securities books. - Built-in alerts and custom alerts monitor: - significant price movements; - large number of order modifications/deletions by a member firm in the opening/closing auction; - deviations of the official closing price (high or low of the day) from the prevailing spread; - a price that deviated significantly from the reference price or last price determination and/or triggered a volatility interruption. - In-house surveillance/monitoring and case management system (rule-based) queries TREM data for unusual patterns prior to price sensitive announcements, and monitors: - release of regulatory announcements; - price movements at the time of regulatory announcements; and - trading prior to a price sensitive regulatory announcement. - Media and published content are monitored for possible dissemination of misleading or false information. - If concerns arise on one of the MTFs, the Central Bank flags the issue with the relevant market operator. ### Reporting, data handling, and international exchange - Reporting requirements include: - reports by investment firms to the Central Bank of executed transactions in financial instruments regardless of venue (MiFID Reg. 112); - trade reporting obligations under trading venue rules; - STRs; and - reports by "persons discharging managerial responsibilities" (PDMRs) (Market Abuse Rules 7.2 and 7.3). - Investment firms must submit transaction reports electronically as soon as possible and no later than the close of the day following the trade date. Entry via online system or XML upload in specified format. - On receipt, Central Bank stores data in a data warehouse (MiFID Cube) for market monitoring. - Under MiFID, Central Bank exchanges certain transaction reports with other EEA Competent Authorities through ESMA’s TREM. For the Central Bank’s Irish Market Monitoring Portfolio, the United Kingdom is the biggest TREM exchange partner. - Central Bank case management system also collects price data for Irish securities from Bloomberg and the ISE and stores regulatory announcements and media content for monitoring. ### Investigations, sanctions, and enforcement outcomes - Central Bank has power to appoint authorised officers for enforcing MAD Regulations, including investigations. - Sanctions under MAD Regulations (Reg. 41-52) include: - a private caution or reprimand; - a public caution or reprimand; - subject to MAD Regulation 46(2), a direction to pay to the Central Bank a monetary penalty of up to EUR 2,500,000; - a direction disqualifying the person from management or holding a qualifying holding in a regulated financial service provider for such time as specified; - if the person continues to commit a prescribed contravention, a direction to cease and desist; or - a direction to pay to the Bank all or a specified part of the costs incurred by the Bank in investigating the matter and in holding the assessment. - Central Bank’s Administrative Sanctions Procedure (ASP) and Fitness and Probity Regime (Part 3 of the Central Bank Reform Act 2010) provide additional disciplinary powers. - Historical enforcement: Central Bank has not imposed administrative, civil or criminal sanctions for major offences such as insider trading and market manipulation, but has entered into settlement agreements with six entities since 2005 imposing fines ranging from EUR 5,000 to EUR 90,000 for violations including failures to disclose an interest in a security, maintain an insider list, timely disclosure by PDMRs, and identify the producer of a recommendation. - Market abuse under MAD and insider trading under the Companies Act 1990 are criminal offences. ### Cross-border cooperation and foreign linkages - Central Bank required to exchange certain transaction reports with other EEA authorities through TREM and can seek information via MOUs and MMOU arrangements (ESMA MMOU, IOSCO MMOU). - Significant percentage of Irish instruments in the Market Monitoring Portfolio are dual listed in the United Kingdom; cooperation with the FCA is important for order book-level surveillance. - Central Bank’s TRMU has powers to request information from other competent authorities under CESR/MAD provisions. - No commodity futures market in Ireland. ### Large exposures, clearing, settlement, and outsourcing considerations - Trading on Irish market predominantly equity and sovereign debt. Equities trade on ISE Xetra. Irish government bonds trade on non-ISE systems with executed trades reported to ISE end-of-day. Debt securities and derivatives listed on ISE typically do not trade on exchange. - Trades in Irish securities are settled on systems physically located outside Ireland. None of the ISE clearing members is established in Ireland. - Irish sovereign debt settled in Euroclear Bank in Belgium (oversight by National Bank of Belgium). - Equities and other securities settled in Euroclear U.K. and Ireland ‘CREST’ in the United Kingdom (supervision by the Bank of England). - Wholesale debt securities traded on GEM settled in Clearstream Banking Luxembourg, Euroclear Bank in Belgium or Depository Trust Clearing Corporation in the US. - Central Bank has an MOU with the National Bank of Belgium regarding Euroclear Bank (since 2002) and a tri-party MOU with the U.K. FSA and the BoE regarding CREST (not updated to reflect BoE assumption of regulatory role). - ISE provides a CCP service for ISE Xetra order book trades via strategic partnerships with Eurex Clearing AG and Euroclear U.K. & Ireland Limited. Use of CCP service is mandatory for all eligible ISE Xetra order book trades. Eligible trades are fed automatically to CREST from ISE Xetra. - Eurex Clearing AG is incorporated in Germany and supervised by BaFin; BoE has recognized Eurex Clearing as a Recognized Overseas Clearing House. No specific MOU between Central Bank and BaFin regarding Eurex Clearing supervision; both are signatories to ESMA and IOSCO MOUs. Central Bank will be a member of the Eurex Clearing Supervisory College being established by BaFin under Article 18 of EMIR. - ISE and Euroclear U.K. & Ireland provide CREST settlement statistics showing overall settled versus failed trades but do not show specific large exposures. - Large exposure rules for MiFID investment firms subject to CRD: - An exposure is considered a large exposure where its value is equal to or exceeds 10% of the firm’s own funds. - A firm may not incur an exposure to a client or group of connected clients exceeding 25% of the firm’s own funds (after permitted credit risk mitigation). - If the client is a credit institution or MiFID investment firm (an ‘institution’), the large exposure limit is the higher of 25% of the firm’s own funds or €150 million. - Sum of exposures to all connected clients that are not institutions may not exceed 25% of the firm’s own funds. - When the €150 million limit applies, the exposure still may not exceed a reasonable limit in terms of the firm’s own funds, and in any case may not exceed 100% of the firm’s own funds. - The Central Bank may reduce the €150 million limit to €250,000 for investment firms on a case-by-case basis. - Firms must report every large exposure to the Central Bank on a quarterly basis via the COREP Large Exposures Return for Irish Investment Firms. - Firms must comply with limits at all times; breaches must be immediately notified to the Central Bank, which may allow a specified period to cure the breach. - Certain exposures exempted from the large exposure limits (but not reporting) as set out in Capital Adequacy (Credit Institutions) Regulation 59 (e.g., central government/central bank claims with 0 per cent risk-weighting). - All MiFID investment firms subject to CRD must assess concentration risk under Pillar 2 ICAAP and may mitigate or set aside internal capital; Central Bank assesses this in SREP. - All MiFID firms and IIA Non-Retail investment business firms report annually on asset concentrations via the Asset Concentration Report to the Central Bank. - Ability to take action: - Eurex Clearing can increase margins and has a buy-in process for failed deliveries. - ISE can impose sanctions on member firms including restrictions on scope, volume or class of business; suspension of right to conduct business (Rule 2.6.2). - Central Bank has powers to compel information, require exposure reductions or increased margin. - Limitations noted: clients may not hold all positions through a single intermediary or country, intermediaries may not have full information on clients’ complete positions, limiting Central Bank’s ability to obtain sufficient information. - Central Bank has not conducted independent due diligence on failure scenarios of a firm or clearing system; relies on oversight by foreign regulators without specific examination of bankruptcy/insolvency regimes in foreign jurisdictions. - Proposed Central Securities Depositary Regulation (CSDR) requires competent authority of a CSD to consult and cooperate with other authorities and to immediately inform involved authorities in emergency situations affecting liquidity and stability. ### Settlement rules and default procedures - Standard settlement: - All ISE order book securities standard settlement of T+3 except trading in entitlements to rights on order book securities (other than GEM securities) with standard settlement of T+1. - Off order book trades in order book securities may extend settlement by agreement up to a maximum of T+25; no specific ISE permission required. These trades to be settled by Delivery versus Payment. - ISE Rules contain procedures for settlement failures. Failure of a client to deliver funds or securities does not release the firm from obligation to settle through the CCP (Rule 8.1.8). - ISE may levy a per diem penalty charge on offending firms for settlement failures; levels determined and notified by ISE. - If a clearing member becomes defaulting, clearing member must comply with CCP default procedures; CCP may request ISE to suspend or terminate that defaulting clearing member’s ability to conduct business in CCP eligible securities on the ISE. ### Short selling framework and notifications - Short Selling Regulations restrict ability to enter uncovered short sales and impose disclosure obligations on holders of net short positions in shares and sovereign debt and, if certain restrictions are lifted, on holders of uncovered positions in sovereign credit default swaps. - Short sales of shares or sovereign debt may only be entered into where the transacting entity has: - borrowed the share or sovereign debt; - entered into an agreement to borrow the share or sovereign debt or has another absolutely enforceable claim under contract or property law to be transferred ownership of a corresponding number of securities of the same class so that settlement can be effected when due; or - has an arrangement with a third party confirming the share or sovereign debt has been located or otherwise has a reasonable expectation that settlement can be effected when due. - Naked short selling is generally prohibited. - Net short position notification thresholds: - For shares admitted to trading on an RM: notify Central Bank when net short position reaches below 0.2% of issued share capital of the issuer. Each subsequent increase of 0.1% (above the 0.2% threshold) must also be notified. Notice must be given when net short position drops below 0.2%. - Public disclosure: net short positions in shares must be publicly disclosed when net short position reaches 0.5% of issued share capital and each 0.1% above that, or when the position falls below 0.5%. - Net short positions relating to Irish sovereign debt must be notified when any position reaches or falls below specified thresholds (initial monetary amount plus incremental levels based on percentage of total duration-adjusted outstanding sovereign debt at end of each quarter). Thresholds calculated by ESMA and published on its website. - Net short positions calculated as at midnight at end of trading day; notification/disclosure by 15:30 on following trading day. Obligation to notify falls on beneficial owner, not intermediary. Public disclosures published on Central Bank’s website. - Central Bank provides ESMA with quarterly summaries of net short positions reported; ESMA may request additional information ad hoc. - Short Selling Regulations: - prohibit entering into uncovered short sales of credit default swaps in sovereign issuers, but a competent authority may temporarily suspend this restriction if sovereign debt market dysfunction and suspension might have negative CDS market impact; - impose requirements on CCPs relating to buy-in procedures and fines for failed settlement of share transactions; - provide competent authorities powers to intervene in markets (require further transparency or impose temporary short selling restrictions) in response to adverse events; and - provide for coordinated EU-level action where appropriate; ESMA also has powers to act. - Exemptions for market making activities and primary market operations: - Market makers are not required to report net short positions for shares and sovereign debt, not subject to restrictions on uncovered short sales in shares and sovereign debt, and not prohibited from entering uncovered sovereign CDS positions to extent short transactions are in performance of market making activities. - Authorized primary dealers are not required to notify net short positions in sovereign debt, not subject to restriction on uncovered short sales in sovereign debt and not prohibited from entering uncovered sovereign CDS transactions provided acting as principal on short sales in instruments for which it is a primary dealer. - Entities must notify Central Bank that they rely on the exemption. Central Bank can prohibit or withdraw exemption if conditions are not met. - ESMA issued guidance on these exemptions (ESMA/2013/74). ### Assessment findings and recommendations (selected) - Assessment of transparency and order book visibility: Fully implemented (assessment note present in source). - Market abuse regime: Assessment – Partly implemented. - Comment: Rules should prohibit full scope of abusive activities irrespective of whether security is admitted to trading on an RM; trading on MTFs or off organized markets should be subject to equivalent rules. - MAR (proposed Market Abuse Regulations) expected to extend market abuse scope to instruments admitted to trading on an MTF or organized trading facility and related OTC instruments; MAR not expected to be completely in force in the near term. - Large exposures, default risk and market disruption: Assessment – Partly implemented. - Key observations: - Central Bank relies on offshore settlement/clearing and on cooperation with foreign regulators; no comprehensive independent due diligence on how failures in foreign systems would impact local firms or client assets. - Recommendations include: obtain reasonable assurances that offshore systems are supervised prudently and client assets are protected; investigate regimes in key jurisdictions (U.K., Belgium, Germany) and obtain legal opinions on treatment of assets/positions on insolvency; update MOU with U.K. authorities regarding CREST and establish MOU with BaFin regarding oversight of Eurex Clearing. - Principles relating to clearing and settlement (Principle 38) not assessed under IOSCO Methodology in this source. *Source: IMF staff report content unit _cr14136 - 16.30 Irish time. Off order book trades in equities admitted to ISE Xetra® may be reported* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2014/_cr14136.pdf_