## _cr16314 ## Source details **Canonical URL:** [_cr16314](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2016/_cr16314.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2016/_cr16314.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2016/_cr16314.pdf.json) --- ### INTRODUCTION — Purpose, scope and background - Prepared in connection with the 2016 Financial Sector Assessment Program (FSAP) for Ireland to update developments in the financial sector since the 2013 Detailed Assessment Report (DAR). - Basis: materials provided by the Irish authorities, Central Bank description of regulatory/supervisory changes, discussions with Central Bank staff and sector representatives, and limited review of related regulations and documents. - 2013 DAR and Report on Observance of Standards and Codes published in May 2014. - 2013 overall finding: Ireland exhibited a high level of implementation of the IOSCO principles; legal framework robust; Central Bank had broad supervisory, investigative and enforcement powers. ### MAIN DEVELOPMENTS SINCE 2013 — Legislative and regulatory highlights - European changes: - CRD IV (Directive 2013/36/EU and Regulation (EU) No 575/2013) — strengthened capital, governance, remuneration rules for investment firms. - Transparency Directive amendments (Directive 2013/50/EU). - MiFID II / MiFIR (Directive 2014/65/EU; Regulation (EU) No 600/2014) — widened scope, enhanced reporting, conduct and investor protection; originally to apply from 3 January, 2017; on 10 February, 2016 the European Commission proposed a one-year extension implying application from January 2018 once EU legal instruments finalized. - CSDR (Regulation (EU) No 909/2014; entered into force on 17 September, 2014) — T+2 settlement, penalties for failed trades, dematerialisation, prudential supervision of CSDs, passporting. - EMIR (Regulation (EU) No 648/2012 and related instruments) — trade reporting to repositories (effective Q1 2014), mandatory CCP clearing for certain OTC derivative classes (to commence Q2 2016), CCP authorization and prudential rules (effective Q4 2013). - MAD II / MAR (Directive 2014/57/EU; Regulation (EU) No 596/2014) — criminalization provisions, broader market abuse remit, prohibition of benchmark manipulation (including LIBOR and EURIBOR). - UCITS V (Directive 2014/91/EU) — depositary functions, remuneration policies, sanctions; transposed into domestic law by S.I. 143 (21 March, 2016); level 2 rules adopted December 2015 (applicable from June 2016). - EuVECA / EuSEF Regimes (Regulation (EU) No 345/2013; Regulation (EU) No 346/2013) — Central Bank designated competent authority May 2015. - Domestic changes: - ICAV Act 2015 (signed into law on 4 March, 2015) — alternative legal structure for Irish authorized funds; Central Bank registration; ICAV applications accepted from March 2015. - CA Regulations (Client Asset Regulations 2015 for Investment Firms, S.I. No 104 of 2015) — effective 1 October, 2015; strict segregation, Head of Client Asset Oversight (pre-approved control function), Client Asset Management Plan; no discretionary buffer amounts permitted. - IM Regulations (Investor Money Regulations 2015 for Fund Service Providers, S.I. No 105 of 2015) — effective from July 2016; six core IM Principles: Segregation, Designation, Reconciliation, Daily Calculation, Risk Management, IM Examination. - Central Bank UCITS Regulations and AIF Rulebook consolidation (S.I. No. 420 of 2015; effective November 2015). - Investment Intermediaries Handbook (effective 1 October, 2014) — new prudential requirements for retail intermediaries; Professional Indemnity Insurance required; goodwill excluded from balance sheet assets for regulatory reporting. ### SUPERVISORY CAPACITY, PRACTICE AND ENFORCEMENT - Central Bank actions since 2013: - Increased staff resources in securities supervision; overall Financial Regulation headcount increased from 612 in 2013 to 736 by end 2015 and projected to increase further by end 2016. - Markets Supervision Directorate staffing: 2013: 162; 2014: 150; 2015: 168; 2016 (Planned): 182. - Establishment of specialist teams: Conduct Risk Team (2014); Supervisory Analytics Team (2015); Supervisory Practices and Regulatory Team (September 2014); IT Risk Supervisory Team (early 2016). - Expanded use of thematic reviews; increased supervision of Low Impact regulated entities; enforcement powers used more widely. - Enforcement metrics (2011–2015): - All Central Bank pre-referrals: 2011: 72; 2012: 98; 2013: 48; 2014: 59; 2015: 48. - Markets Supervision Pre-Referrals: 2011: 41; 2012: 35; 2013: 28; 2014: 24; 2015: 26. - Cases Accepted: 2011: 20; 2012: 25; 2013: 25; 2014: 17; 2015: 16. - Supervisory Warnings: 2011: 5; 2012: 7; 2013: 13; 2014: 5; 2015: 3. - Settlements: 2011: 5; 2012: 3; 2013: 8; 2014: 4; 2015: 5. - Aggregate Fine (Euro): 2011: 190,000; 2012: 161,900; 2013: 247,590; 2014: 360,900; 2015: 583,040. - Revocation of Authorization: 2011: 1; 2012: 0; 2013: 0; 2014: 2; 2015: 7. - Voluntary Revocations: 2011: 0; 2012: 0; 2013: 2; 2014: 4; 2015: 1. - Refusals: 2011: 1; 2012: 1; 2013: 0; 2014: 0; 2015: 2. ### MARKET STRUCTURE, INFRASTRUCTURE AND AUTHORIZED FIRMS (end‑December 2015) - Central Bank is competent authority for Investment Firms, Non-Retail Investment Business Firms, Fund Service Providers, Investment Intermediaries and Collective Investment Schemes authorized in Ireland. - Authorized firms (December 2015): - MiFID Authorized Investment Firms (including branches of overseas firms): 132 - Non-Retail Investment Business Firms: 12 - Fund Service Providers: 227 - Investment Intermediaries: 1,705 - Collective Investment Schemes (including sub funds): 6,201 - Market operators and venues: - Irish Stock Exchange (ISE) operates the Main Securities Market (MSM) — principal market. - Four MTFs operating in Ireland: Enterprise Securities Market; Global Exchange Market; Atlantic Securities Market; POSIT. - Fund types: - UCITS and AIFs; AIFs must appoint an AIFM authorized and supervised under the AIFM Directive. ### SYSTEMIC RISK ANALYSIS, PERIMETER MONITORING AND DATA STRATEGY - Central Bank initiatives: - Ongoing systemic analysis of non-bank, non-insurance financial intermediaries; monitoring of shadow banking and new financial technologies. - Implementation of a data strategy and development of applications/analytical tools to support macro- and micro-prudential supervision. - Internal Task Force on Shadow Banking established; Central Bank participated in FSB Global Shadow Banking Report 2015 and chairing of ESRB Shadow Banking Policy Committee. - Regulatory Economics Unit outputs: mapping SPVs/FVCs; using EMIR data for network analysis of CDS counterparties; introducing reporting requirement for non-FVC SPVs; research on virtual currencies and payments technologies; combining AIFMD and EMIR data to understand risks. ### PRINCIPLE‑LEVEL UPDATES (selected IOSCO principles with status and actions) - Principle 2 — Operational independence and accountability - 2013 Assessment: Partly Implemented. - Update: Central Bank ‘witness support’ policy introduced late 2013 pays reasonably incurred legal costs of staff involved in legal actions. - Remaining recommended legislative changes (e.g., limit removal of Commission members, remove Ministry official from Board) require primary legislation change. - Principle 3 — Powers, resources and capacity - 2013 Assessment: Partly Implemented. - Headcount in Financial Regulation: 612 (2013) → 736 (end 2015); Markets Supervision Directorate: 162 (2013) → 168 (end 2015); projected Markets Supervision Directorate staff: 182 (end 2016). - Principle 4 — Clear and consistent regulatory processes - 2013 Assessment: Broadly Implemented. - Companies Act 2014 consolidated Companies Act 1963–2013; process underway to consolidate Central Bank Acts (likely 2016). - Supervisory Practices and Regulation Team established September 2014. - Principle 5 — Staff professional standards and confidentiality - 2013 Assessment: Fully Implemented. - Employee Code of Ethics and Behaviour published on Central Bank website on 11 February, 2016. - Principle 6 — Monitor, mitigate and manage systemic risk - 2013 Assessment: Fully Implemented. - CRD IV reporting/buffer requirements; EMIR trade repository access; MiFID II position limits and intervention powers. - Principle 7 — Regular review of the perimeter of regulation - 2013 Assessment: Fully Implemented. - Data strategy and Task Force on Shadow Banking implemented; Supervisory Analytics team developing liquidity risk supervisory tool for investment funds. - Principle 11 — Comprehensive enforcement powers - 2013 Assessment: Fully Implemented. - UCITS V harmonizes administrative penalties; EMIR gives enforcement powers and independent assessor regime; MiFID II introduces significant sanctions (e.g., fines up to 10 percent of annual turnover or at least €5m). - Transparency Directive pecuniary sanctions amended to €10m or 5 percent of annual turnover for legal entities and €2m for legal persons. - Principle 12 — Effective use of inspection, investigation, surveillance and compliance programs - IMF Assessment: Partly Implemented. - Increased themed inspections, enforcement referrals for Low Impact firms; Markets Supervisory Warnings and Settlements as percentage of Market Cases referred to Enforcement Division increased from 37.5 percent to 50 percent (2013–2015). - Creation of Conduct Risk, Supervisory Analytics, IT Risk and Supervisory Practices teams. - Principle 16 — Full, accurate and timely disclosure by issuers - 2013 Assessment: Partly Implemented. - Under Section 404 Companies Act 2014, IAASA must be informed if auditor has changed within 30 days upon cessation of office; Transparency Directive amendments abolished interim management statements requirement and extended half-yearly reporting timeframe from 2 months to 3 months; Central Bank retains ability to require more frequent publication for certain issuers. - Principle 27 — Asset valuation, pricing and redemption of CIS units - IMF Assessment: Broadly Implemented. - Central Bank guidance and AIFMD Level 2 include detailed valuation requirements; thematic review on NAV pricing errors concluded 2015; regulatory/guidance amendments under consideration. - Principle 32 — Procedures for failure of a market intermediary - IMF Assessment: Broadly Implemented. - S.I. No. 407 of 2015 introduced rules to facilitate speedier distribution of client assets after firm failure. - BRRD introduced recovery and resolution powers for 13 of the 96 MiFID authorized investment firms supervised by the Central Bank; coverage detail as of December 2015: - BRR Firms / Total Firms / BRR/Total (percent) - AUM (€000's): 7,738,392 / 377,964,219 / 2 - CA (€000's): 23,566,627 / 29,352,698 / 80 - Clients: 112,839 / 132,358 / 85 - As of December 2015, only 7 of the 32 firms that hold client assets fall within scope of BRRD. - Principle 36 — Detecting and deterring market manipulation and unfair trading practices - 2013 Assessment: Partly Implemented. - MAD II/MAR will extend market abuse remit beyond Regulated Markets to MTFs, OTFs, related OTC derivatives; include attempted market manipulation and attempted insider dealing; provide an indicative list of HFT strategies considered market manipulation. ### ORGANIZATIONAL STRUCTURE — Markets Supervision Directorate and Consumer Protection Directorate - Markets Supervision Directorate responsibilities include: - (i) Supervision and Authorization of Investment Firms and Fund Service Providers; - (ii) Safeguarding of Client Assets; - (iii) Transaction Reporting and Market Surveillance; - (iv) Supervision of NFC compliance with EMIR; - (v) Market Abuse; - (vi) Prospectus Approval; - (vii) Transparency Regulation; - (viii) Short Selling Regulation; - (ix) Supervision and Authorization of Collective Investment Schemes (UCITS and AIFs). - Directorate divisions: - Investment Firms and Funds Services Division (IFFS). - Securities and Markets Supervision Division (SMSD). - Staffing turnover: over 75 percent of supervisors in the Markets Supervision Directorate commenced in their current role since 2014. - Consumer Protection Directorate scope includes conduct supervision for Payment Institutions, Electronic money Institutions, Debt Management Firms, Moneylenders, Insurance, Stockbrokers and Investment Firms, Retail Intermediaries, Credit Institutions and Other Lenders, Credit Servicing Firms. - Consumer Protection Directorate staffing totals: 2013: 82.1; 2014: 82.1; 2015: 88.9; 2016 (Projected): 95.9. ### INTRODUCTION OF IM AND CA REGULATIONS — IM/Client Asset examinations and operational requirements - IM Examination / Client Asset Examination: - Required annually by statutory auditor or another external auditor for entities subject to IM or CA Regulations. - Must report on: (a) adequacy of processes/systems throughout examination period; (b) compliance at period end; (c) whether entity acted inconsistent with documented IM/Client Asset Management Plan; (d) whether changes to plans since last report are sufficiently detailed. - CA Regulations (effective 1 October, 2015): - Require Facilities Letters for client asset accounts with third parties; strict segregation of duties for reconciliations. - Head of Client Asset Oversight (pre-approved control function) and Client Asset Management Plan required. - Increased disclosure including Client Asset Key Information Document to retail clients. - External annual auditor review required. - IM Regulations (effective 1 July, 2016) — core IM Principles: Segregation; Designation; Reconciliation; Daily Calculation; Risk Management; IM Examination. - Where entities are subject to IM or CA Regulations, an external auditor must assess annually and provide the report to the Central Bank. ### CROSS‑BORDER COOPERATION, MARKET INFRASTRUCTURE OVERSIGHT AND CSD/CCP ARRANGEMENTS - Cross-border MOUs and cooperation: - MOU with Bank of England reviewed annually; more detailed review planned when regulatory technical standards for CSD Regulation (Regulation 909/2014) finalized. - Written agreement with BaFin on supervisory College of EUREX Clearing AG allows Central Bank to receive certain information; covered by Commission Delegated Regulation (EU) No 879/2013, Article 5. - Central Bank view on clearing/settlement due diligence: - Central Bank considers ESFS appropriate framework and is satisfied regimes in Belgium/UK/Germany are analogous to Ireland. - Responsibility for informing clients about insolvency regimes may lie with regulated entities. ### KEY RECOMMENDATIONS AND UNRESOLVED ISSUES (as reflected in update) - Legislative changes still required to address several 2013 recommendations, including: - Amend law to restrict removal of Commission members to specified objective causes. - Remove inclusion of a Ministry official on Central Bank Board (Central Bank Act 1942 amendment). - Provide Central Bank with express power to appoint administrators or monitors for investment firms outside BRRD scope. - Amend Companies Law or introduce legislation to prohibit abusive market activities regardless of trading venue or listing status. - Grant IAASA additional resources and contracting flexibility to recruit/retain expertise. - Amend law to raise maximum fines that the District Court can impose in summary criminal matters (would require primary legislation). - Supervisory and operational priorities taken forward: - Increase on-site inspections and thematic reviews, including for Low Impact firms. - Expand use of enforcement powers and pursue prosecutions where appropriate. - Continue consolidation and clarification of Central Bank legislation and supervisory guidance. - Implement data strategy and analytics tools to monitor systemic risk, shadow banking, and non-bank financial interconnections. *Source: INTRODUCTION; selected sections and updates from the IMF staff update on Ireland (document _cr16314).* ### INTRODUCTION _____________________________________________________________________________________ 5 ### INTRODUCTION ### Purpose and scope of the note - Prepared in connection with the 2016 Financial Sector Assessment Program (FSAP) for Ireland to provide an update on developments in the financial sector since the 2013 Detailed Assessment Report (DAR). - Basis: materials provided by the Irish authorities, a detailed description of regulatory and supervisory changes prepared by the Central Bank, discussions with Central Bank staff and sector representatives, and a limited review of related regulations and documents. - This note provides a factual update and does not re-rate the degree of implementation of any principle; specific recommendations are limited. ### Background: 2013 assessment and publication - The IMF conducted a detailed assessment on Ireland’s implementation of the IOSCO Objectives and Principles of Securities Regulation in 2013, prepared on the basis of materials provided by the Irish authorities and an expert visit during September 2013. - The Detailed Assessment Report (DAR) and the Report on Observance of Standards and Codes were both published in May 2014. - Footnote references in the source: 1 (preparer: Daniel Hardy, Monetary and Capital Markets Department, IMF) and 2 (links to the DAR and ROSC). ### Summary of the 2013 assessment (Box 1 key findings and recommendations) - Overall finding: Ireland exhibited a high level of implementation of the IOSCO principles; the legal framework was deemed robust and provided the Central Bank with broad supervisory, investigative and enforcement powers. - Strengths identified: - Arrangements for on-site and off-site monitoring of regulated entities. - Use of thematic reviews in selected areas. - Sound systems for market surveillance developed by the Central Bank and the Irish Stock Exchange. - Central Bank objectives included monitoring and mitigating systemic risk and routinely reviewing the perimeter of regulation. - Extensive powers to cooperate with domestic and foreign counterparts. - High accounting and auditing standards. - Areas recommended for strengthening: - Increase use of on-site inspections for “low impact” market intermediaries and pursue the use of all available enforcement authority, including criminal prosecutions. - Address potential threats to supervisory independence posed by aspects of the Central Bank’s governance (presence of a Department of Finance member on the Commission and ministerial removal powers). - Strengthen the regime for entities that have issued securities to the public but which are not admitted to trading on a regulated market, including disclosure and market abuse protections. - Grant Central Bank powers to appoint administrators or monitors for investment firms in financial difficulty and to take possession/control of assets held by such firms. - Improve independent due diligence and formal memorandums of understanding (MOUs) with foreign supervisors of settlement systems located outside Ireland. - Address impediments to attracting and retaining high-caliber staff and enable compensation structures to recruit and retain specialized skill sets. ### Main developments since 2013 - European legislative changes noted: - CRD IV came into force, strengthening capital requirements, governance, and remuneration rules for investment firms. - Amendment of the Transparency Directive (affecting publication of information on sanctioning). - Forthcoming application of MiFID II and associated regulation, widening scope and enhancing rules on reporting, conduct of business, and investor protection. - Domestic legislative changes noted: - Irish Collective Asset Management Vehicles regulation providing an alternative, more “tailored” legal framework for Irish authorized funds. - Client Assets and Investor Monies regulations intended to facilitate enforcement and reinforce processes and controls to safeguard client assets and investor monies, especially in insolvency and wind-down scenarios for fund service providers. ### Supervisory capacity, practice, and enforcement developments - The Central Bank has increased staff resources dedicated to securities supervision and adopted a more pro-active approach. - Establishment of several specialized teams (e.g., to develop supervisory techniques and to address information technology-related risks). - Expanded use of thematic reviews across a wide range of issues; increased supervision of lower-impact regulated entities. - Enforcement powers have been used more widely. ### Systemic risk analysis and perimeter monitoring - The Central Bank has been innovative in developing ongoing systemic analysis, collecting and analyzing information on a wide range of non-bank, non-insurance financial intermediaries. - A program of monitoring the regulatory perimeter has been implemented, focusing on shadow banking and the use of new financial technologies. - The Central Bank has actively engaged stakeholders and cooperated bilaterally and multilaterally. - The FSAP work on financial stability issues in the funds management industry was enabled by Central Bank initiatives in this area. *Source: INTRODUCTION, INTERNATIONAL MONETARY FUND* ### 8. Certain issues raised in the 2013 assessment have not been addressed, in large part ### 8. Certain issues raised in the 2013 assessment have not been addressed, in large part ### Outstanding structural and legislative constraints - Certain recommendations from the 2013 assessment remain unaddressed because action would require amendments to primary legislation or changes to European structures. - Persisting concerns include: - The role of the Department of Finance impinging on operational independence. - Limited powers to appoint an administrator to step in to a failing financial intermediary, other than in cases covered by the EU Bank Recovery and Resolution (BRRD). - Supervision of securities settlement systems relying heavily on European counterparts. - Recent changes related to publication of financial statements and disclosure to shareholders do not uniformly favor more frequent or detailed information provision. ### Summary of 2013 recommendations and subsequent actions (selected principles) - Principle 2 — Operational independence and accountability - 2013 Assessment: Partly Implemented - Recommendation: Amend law so a Commission member may only be removed for specified, objective causes. - Action would require change in primary legislation. - Recommendation: Amend Central Bank Act 1942 to remove inclusion of a Ministry official on the Central Bank Board. - Action would require change in primary legislation. - Recommendation: Permit Central Bank to indemnify staff, officers and Commissioners for legal costs and make funds available during suits. - Since 2013 the Central Bank also has a ‘witness support’ policy where it does pay the reasonably incurred legal costs of staff who are involved in legal actions (as a witness or otherwise) arising from their role in the Central Bank. - Principle 3 — Powers, resources and capacity - 2013 Assessment: Partly Implemented - Recommendation: Give the Central Bank additional resources and flexibility to depart from civil service compensation rules. - Since 2013 headcount in the Central Bank has increased, and is projected to increase further. - Principle 4 — Clear and consistent regulatory processes - 2013 Assessment: Broadly Implemented - Recommendation: Accelerate official consolidation of laws; in the interim post ‘unofficial’ consolidated versions. - There is a process underway with the Department of Finance to consolidate the Central Bank Acts with the aim of having one piece of legislation. This is likely to be implemented in 2016. - The Companies Act 2014 consolidated the Companies Act 1963 to 2013. - Principle 5 — Staff professional standards and confidentiality - 2013 Assessment: Fully Implemented - Recommendation: Publish the Employee Code of Ethics. - The Employee Code of Ethics and Behaviour was published on the Central Bank website on 11 February, 2016. - Principle 9 — Oversight of SROs - 2013 Assessment: Fully Implemented - Recommendation: Explore adjustments to confidentiality requirements to facilitate more open discussions and greater sharing of information among relevant authorities. - Action would require change in primary legislation. - Principle 12 — Inspection, investigation, surveillance and enforcement - 2013 Assessment: Partly Implemented - Recommendation: Adopt a more proactive approach to supervision of firms designated by PRISM as Low Impact. - The Markets Supervision Directorate has increased the intensity of supervision of Low Impact regulated entities since 2013. Enforcement data demonstrate a positive trend in the period 2013–2015 for Low Impact firms. - Recommendation: Pursue more prosecutions against individuals. - The Central Bank has taken a number of actions against individuals in 2015, who held positions of responsibility in financial service providers. - Recommendation: Consider amending the law to raise maximum fines that the District Court can impose in summary criminal matters. - Action would require change in primary legislation. - Principle 16 — Disclosure of financial results, risk and other investor‑material information - 2013 Assessment: Partly Implemented - Recommendations and outcomes: - Subject all companies that have issued shares to continuing disclosure requirements regardless of listing status. — No action. - Larger companies to issue audited financial statements in a maximum of ninety days; smaller issuers given longer; shorten reporting period for interim statements of ESM companies from three to two months. — No action. The amendments to the Transparency Directive extended the period for publishing the unaudited half-yearly financial report from 2 months to 3 months. - Treat a change in auditor as a material change requiring immediate notification to IAASA and the Central Bank. — Under the Companies Act 2014, IAASA must be informed if the auditor has changed. - Subject continuing disclosure documents by public companies to at least periodic review by a competent authority. — No action. - Principle 17 — Fair and equitable treatment of holders of securities - 2013 Assessment: Broadly Implemented - Recommendations: - Issue detailed guidance on information to be included in materials sent to shareholders for meetings. — No action. - Rationalize and simplify requirements applying to substantial shareholders, officers, directors and others, uniformly across public issuers. — No action. - Principle 18 — Accounting standards quality - 2013 Assessment: Fully Implemented - Recommendation: Give IAASA additional resources and greater freedom to contract with staff to recruit and retain expertise. — No action. - Principle 19 — Auditor oversight - 2013 Assessment: Broadly Implemented - Recommendation: As per Principle 18 regarding IAASA resources and contracting freedoms. — No action. - Principle 26 — Disclosure for collective investment schemes (CIS) - 2013 Assessment: Broadly Implemented - Recommendation: Reduce periods within which CIS must publish annual and semi-annual financial statements to enhance transparency. — No action. - Principle 27 — Asset valuation and pricing/redemption of CIS units - 2013 Assessment: Broadly Implemented - Actions: - Central Bank guidance and AIFMD Level 2 include detailed valuation requirements; Central Bank issued rules and guidance relating to NAV production in line with EU legislation. - All regulated investment funds must prepare audited annual financial statements in accordance with the Companies Acts 1963 and following international financial reporting standards or an approved alternative body of accounting standards. - Central Bank concluded a thematic review on NAV pricing errors in 2015; required amendments to regulations and/or guidance are under consideration. - Principle 29 — Minimum entry standards for market intermediaries - 2013 Assessment: Fully Implemented - Action: Central Bank register updates and related registers provide permitted activities and authorized individuals information; permitted activities for investment intermediaries contained on “Registers of Investment Business Firms authorised or deemed authorised under the IIA.” - Principle 31 — Internal compliance function for market intermediaries - 2013 Assessment: Broadly Implemented - Action: For entities subject to IM Regulations or CA Regulations, an IM Examination or Client Asset Examination must be carried out by statutory auditor or another external auditor and provided to the Central Bank annually. Risk Management principle requires appointment of a PCF responsible for IM / Client Assets and development/maintenance of an IM Management Plan / Client Asset Management Plan. - Principle 32 — Procedures for failure of a market intermediary - 2013 Assessment: Broadly Implemented - Recommendation: Grant Central Bank authority to appoint an administrator or monitor to run a firm in crisis. - S.I. No. 407 of 2015 - Investor Compensation Act 1998 (Return of Investor Funds or Other Client Property) Regulations 2015 introduced rules to facilitate speedier distribution of client assets after a firm failure. - The European Union (Bank Recovery and Resolution) Regulation 2015 (“BRRD”) introduces recovery and resolution powers for 13 of the 96 MiFID authorized investment firms supervised by the Central Bank. - Principle 33 — Authorization and oversight of trading systems/exchanges - 2013 Assessment: Fully Implemented - Action: New application process from 8 January, 2014 classifies applicants as Level 1 or Level 2; MTFs and Regulated Markets classified as Level 2 and involve a number of site visits. Newly authorized entities are subject to more intense scrutiny and ongoing supervisory engagements/visits/inspections. - Principle 36 — Detecting and deterring market manipulation and unfair trading practices - IMF Assessment: Partly Implemented - Recommendation: Amend Companies Law or introduce other legislation to prohibit abusive market activities regardless of trading venue or listing status. - The Market Abuse Regulation (“MAR”), due to come into effect July 2016, will extend market abuse remit beyond Regulated Markets to MTFs, OTFs and related OTC derivatives, including market manipulation on non-regulated markets and insider dealing on MTFs. - Principle 37 — Management of large exposures, default risk and market disruption - 2013 Assessment: Partly Implemented - Recommendations: - Central Bank should carry out due diligence on regimes where principal clearing and settlement of trades by Irish intermediaries or in Irish securities take place, including effects of bankruptcy/insolvency regimes on positions (client or intermediary) held in that jurisdiction and obtain legal opinions particularly for Belgium, the UK and Germany. — No action. - Update MOU with UK authorities regarding oversight of CREST and establish one with BaFin regarding oversight of Eurex Clearing to ensure an effective gateway for clearing-related information. - The MOU with the Bank of England is reviewed annually. A detailed review is expected to be undertaken when the ‘regulatory technical standards’ relating to the EU Commission’s CSD Regulation (Regulation 909/2014) have been finalized. ### Overview of the securities markets sector (end-December 2015 firms authorized) - The Central Bank is responsible for regulation and supervision of Investment Firms, Non-Retail Investment Business Firms, Fund Service Providers, Investment Intermediaries and Collective Investment Schemes authorized in Ireland. - Table 2. Ireland: Authorized Securities Market Firms (December 2015) - MiFID Authorized Investment Firms (including branches of overseas firms): 132 - Non-Retail Investment Business Firms: 12 - Fund Service Providers: 227 - Investment Intermediaries: 1,705 - Collective Investment Schemes (including sub funds): 6,201 ### Market infrastructure and fund types - Market operators and trading venues: - The Irish Stock Exchange (ISE) is the only market operator of a regulated market, the Main Securities Market (MSM), the principal market for Irish and overseas companies. - Four Multilateral Trading Facilities (MTFs) operating in Ireland: Enterprise Securities Market; Global Exchange Market; Atlantic Securities Market; and POSIT. - Collective investment undertakings: - UCITS: Central Bank is competent authority for authorization and supervision; UCITS may be unit trusts, common contractual funds, Irish Collective Asset-Management Vehicles (ICAVs), variable or fixed capital companies. - AIFs (Alternative Investment Funds): Non-UCITS funds; must appoint an Alternative Investment Fund Manager (AIFM) authorized and supervised in accordance with the AIFM Directive. *International Monetary Fund* ### 14. The Central Bank is the competent authority in Ireland for the authorization of ### 14. The Central Bank is the competent authority in Ireland for the authorization of ### MAIN CHANGES IN SECURITIES REGULATION AND SUPERVISION SINCE 2013 — Legislative and Regulatory Changes (Overview) - The Central Bank is the competent authority in Ireland for the authorization of Investment Intermediaries, which are investment business firms as defined under the Investment Intermediaries Act 1995 (the IIA). - European directives must be transposed into national legislation and regulations. European regulations have the force of law without transposition. ### European directives and regulations — Key instruments and provisions - BRRD (European Union (Bank Recovery and Resolution) Regulations 2015 (S.I. No. 289 of 2015)) - Introduces recovery and resolution powers for 13 of the 96 MiFID authorized investment firms supervised by the Central Bank. - A MiFID investment firm falls into the scope of the BRRD if it has an initial capital requirement of €730k, (i.e. the firm‘s authorization includes the investment service of dealing on own account and/or underwriting on a firm commitment basis). - Criminal Justice Act 2013 (CJA 2013) - The Criminal Justice Act, 2013, which amends the Criminal Justice (Money Laundering and Terrorist Financing) Act 2010, was signed into law on the 12 June, 2013. - The 2013 Amendments incorporated into the CJA 2010 provisions that ensure that Irish legislation is broadly in line with the FATF Recommendations. - CRD IV; CRR (Directive 2013/36/EU and Regulation (EU) No 575/2013) - Key relevant changes include: - an increase in the quality capital and quantity held by investment firms by setting higher minimum capital ratios; - the introduction of liquidity and leverage requirements; - revised rules for counterparty risk; and - revised rules on corporate governance, including remuneration. - CSDR (Regulation (EU) No 909/2014; entered into force on 17 September, 2014) - The Regulation requires: - Settlement in two days of the trade (T+2); - Penalties for failed trades; - Dematerialisation of securities; - Prudential supervision of CSDs; - Passporting of CSD; - Freedom of choice; and - Access by CSDs to other market infrastructures. - EMIR; EMIR Level 2 for central counterparties colleges; EMIR Regulations (Regulation (EU) No 648/2012; Commission Delegated Regulation (EU) No 876/2013; European Union (European Markets Infrastructure) Regulations 2014 (S.I. No. 443 of 2014)) - Main requirements recently in force or anticipated imminently: - Requiring that details of all derivative contracts be reported to trade repositories and be accessible to relevant supervisory authorities [effective Q1 2014]; - Imposing an obligation for certain classes of over-the-counter (OTC) derivative contracts to be cleared through authorized central counterparties (CCP), to commence in Q2 2016; - Establishing common organizational, conduct of business and prudential requirements for CCPs (and requiring the authorization of existing and prospective CCPs), effective in Q4 2013; and - Providing for risk mitigation techniques for non-cleared OTC derivative contracts, effective Q1 2013. - The Central Bank was appointed as national competent authority for EMIR (including with regard to NFCs and Pension Scheme Arrangements not previously regulated by the Central Bank) by way of the EMIR Regulations signed by the Minister for Finance in October 2014. - EuSEF; EuVECA (Regulation (EU) No 346/2013; Regulation (EU) No 345/2013; Irish implementing regulations S.I. No. 166 of 2015 and S.I. No. 167 of 2015) - Create regimes whereby managers of venture capital and social entrepreneurship funds can brand their AIFs with the respective designation, and avail of a European passport where that manager registers with its competent authority. - Contain rules in relation to eligible managers, qualifying funds and qualifying investments. - The Central Bank was designated competent authority in Ireland for EuVECA and EuSEF in May 2015. - MAD II; MAR (Directive 2014/57/EU; Regulation (EU) No 596/2014) - MAD II defines the offences: insider dealing, recommending or inducing another person to engage in insider dealing, unlawful disclosure and market manipulation, which should be regarded by Member States as criminal offences at least when they are serious and committed intentionally. - Directive creates a more harmonized sanctions regime across member states relating to the levels of fines that can be imposed for market abuse offences and requires criminalization of inciting, aiding and abetting insider dealing, unlawful disclosure of inside information and market manipulation, as well as attempts. - MAR provides an indicative list of High Frequency Trading strategies that shall be considered as market manipulation. - Scope extended to market abuse across both commodity and related derivative markets. - The manipulation of benchmarks, including LIBOR and EURIBOR will be prohibited. - MiFID II; MiFIR (Directive 2014/65/EU; Regulation (EU) No 600/2014; Will apply to in-scope firms from 3 January, 2017) - MiFID II/ MiFIR broadens the scope of MiFID by: - bringing new activities into scope, removing or narrowing exemptions (e.g., dealing on own account); - covering new financial instruments (e.g., commodity derivatives) and a wider range of products (e.g., structured deposits); - introducing a new category of trading venue, the Organized Trading Facility (OTF); - new transparency and reporting requirements; - enhanced conduct of business and investor protection rules; - new organizational requirements; - rules governing third country firms operating in the EU via a branch; - new product intervention powers for competent authorities (and ESMA); - new supervisory and enforcement powers for competent authorities. - On 10 February, 2016, the European Commission proposed a one-year extension to the entry into application of MiFID II. The necessary EU legal instruments to delay MiFID II are expected to be finalized shortly, which implies that MiFID II will not come into effect until January 2018. - Transparency Directive II (Directive 2013/50/EU) - Main amendments include: - requiring disclosure of major holdings of all financial instruments that could be used to acquire economic interest in listed companies and which have a similar effect as holding equity; - abolishing the requirement to publish quarterly financial information; - requiring Member States to adopt common minimum standards on: - types and addressees of sanctions; - the level of fines; - the criteria to be taken into account by competent authorities when applying sanctions; and - the publication of sanctions. - One amendment to the Prospectus Directive has been transposed into national legislation (SI 567 of 2015 relating to changing the definition of Home Member State). - UCITS V Directive; UCITS Regulation 2016 (Directive 2014/91/EU) - UCITS V amends UCITS Directive as regards depositary functions, remuneration policies, and sanctions. - UCITS V came into force in September 2014. - With effect from 21 March, 2016, the UCITS V Directive was transposed into domestic legislation by way of the European Union (Undertakings for Collective Investment in Transferable Securities) (Amendment) Regulations 2016 – S.I. 143. - European Commission adopted in December 2015 (applicable from June 2016) level 2 Delegated Regulation on obligations of depositaries under the UCITS V Directive. ### National regulations and guidance — Key reforms and supervisory instruments - CA Regulation (Central Bank (Supervision and Enforcement) Act 2013 (Section 48(1)) Client Asset Regulations 2015 for Investment Firms (S.I. No 104 of 2015)) - The CA Regulations came into effect on 1 October, 2015, and replaced the existing Client Asset Requirements. - Require that “Facilities Letters” are obtained in relation to client asset accounts opened with third parties and require strict segregation of duties in relation to the completion of client asset reconciliations. - Introduce two new requirements: - Head of Client Asset Oversight: a pre-approved control function; a senior individual must take responsibility and ownership for the investment firm’s compliance with the client asset obligations. - Client Asset Management Plan: drafted by the Head of Client Asset Oversight and approved by the Board, detailing the business model and the resulting risk of holding client assets including processes and controls to mitigate those risks. - Central Bank UCITS Regulations; Central Bank AIF Rulebook (Central Bank (Supervision and Enforcement) Act 2013 (Section 48(1)) (Undertakings for Collective Investment in Transferable Securities) Regulations 2015 (S.I. No 420 of 2015); effective in November 2015) - Consolidate requirements imposed on UCITS, UCITS management companies and depositaries of UCITS into one location. - Central Bank UCITS Regulations contain rules the Central Bank is imposing and do not repeat legislative requirements. - Effective 1 November, 2015, the Central Bank restructured its guidance applicable to UCITS to reflect the publication of the Central Bank UCITS Regulations. - Process underway to convert the Central Bank AIF Rulebook to Central Bank AIF Regulations. - Main changes include: - The number of managerial functions reduced from sixteen to six: investment management; fund risk management; operational risk management; distribution; regulatory compliance; and capital and financial management; - The requirement that the same person must not perform managerial functions in relation to investment management and fund risk management or operational risk management; - The requirement that a director should be appointed with responsibility for organizational effectiveness; - The requirement that a UCITS Management Company and depositary prepare two sets of half-yearly accounts, one covering the first half of the year and the one covering the second half, in addition to the audited annual accounts. These must be submitted within two months of the relevant period end. The existing requirement for firms to submit annual audited accounts within four months of year end was retained. - ICAV (ICAV Act 2015; signed into law on 4 March, 2015) - Provides an alternative legal structure for Irish authorized funds, both UCITS and AIFs. - ICAV Act provides for a corporate fund structure within a stand-alone piece of legislation not impacted by amendments to European and domestic company legislation. - Under the ICAV Act, the Central Bank is responsible for registration of ICAVs. - The Central Bank began accepting ICAV applications in March 2015. - ICAVs which are AIFs are authorized by the Central Bank under the ICAV Act 2015. ICAVs which are UCITS are authorized by the Central Bank under the UCITS Regulations. - Existing funds established as investment companies have the option of converting to ICAV status, while funds domiciled outside of Ireland can migrate into Ireland as ICAVs by continuation. - IM Regulations (Central Bank (Supervision and Enforcement) Act 2013 (Section 48(1)) Investor Money Regulations 2015 for Fund Service Providers (S.I. No 105 of 2015); with effect from July 2016) - IM Regulations headings and requirements: - a) Segregation. A fund service provider or its nominee should physically hold or arrange for holding of IM separate from non-investor money. It should maintain accounting segregation between the fund service provider’s money and IM. - b) Designation. A fund service provider should ensure that IM is clearly identified and separated in its internal records and in the records of third parties. - c) Reconciliation. A fund service provider should keep accurate books and records to enable it, at any time and without delay, to provide an accurate record of the IM for each investor and the total held in the collection account. A fund service provider should conduct, on a daily basis, a reconciliation between its internal records and those external records of any third party with whom IM is held. - d) Daily Calculation. Each working day a fund service provider should ensure that the aggregate balance of all collection accounts (IM resource) as at the close of business on the previous working day is equal to the amount it should be holding on behalf of investors (IM requirement). - e) Risk Management. A fund service provider should ensure it applies systems and controls that are appropriate to identify risks in relation to IM and should put in place mitigants to counteract these risks. - f) Investor Money Examination. A fund service provider must engage an external auditor to report at least annually on the fund service provider’s safeguarding of IM. - Investment Intermediaries Handbook (effective from 1 October, 2014) - Replaces the Handbook of Prudential Requirements for Authorized Advisors and Restricted Intermediaries introduced in July 2006. - The Central Bank has imposed a requirement on all retail investment intermediaries to comply with Investment Intermediaries Handbook as a condition of their authorization pursuant to Section 14 of the IIA. - Main changes include: - Multi-agency intermediaries and authorized advisors are now defined as investment intermediaries; - An investment intermediary must at all times be in a position to meet its financial obligations in full as they fall due; - Goodwill and other intangible assets are to be excluded from the calculation of a firm’s balance sheet assets for regulatory reporting purposes; - The requirement to hold Professional Indemnity Insurance has been imposed directly on investment intermediaries; - An investment intermediary must notify the Central Bank in advance where it proposes to outsource any important operational function. - Irish Funds Corporate Governance Code for Fund Service Providers (IF Code; published in 2014) - Best practice guidance for directors of fund service providers. - Purpose: provide the board of directors of Administrators, Custodians and Depositaries authorized and regulated by the Central Bank with a framework for good corporate governance and oversight. - A firm’s level of compliance with the IF Code should be disclosed in its Director’s report. ### Organizational and Supervisory Changes - Markets Supervision Directorate *Italic: Source: _cr16314 - 14. The Central Bank is the competent authority in Ireland for the authorization of* ### 15. The Markets Supervision Directorate’s regulatory responsibilities cover: ### _cr16314 - 15. The Markets Supervision Directorate’s regulatory responsibilities cover: ### Regulatory responsibilities - (i) Supervision and Authorization of Investment Firms and Fund Service Providers; - (ii) Safeguarding of Client Assets; - (iii) Transaction Reporting and Market Surveillance; - (iv) Supervision of Non-Financial Counterparties’ (NFC) compliance with EMIR; - (v) Market Abuse; - (vi) Prospectus Approval; - (vii) Transparency Regulation; - (viii) Short Selling Regulation; and - (ix) Supervision and Authorization of Collective Investment Schemes (UCITS and AIFs). ### Directorate structure and staffing - The Directorate is comprised of two divisions: - Investment Firms and Funds Services Division (IFFS): authorization and supervision of investment firms authorized under MiFID, non-retail investment business firms authorized under the IIA, and fund managers, administrators, and depositaries (fund service providers) authorized in Ireland, and safeguarding of client assets. - Securities and Markets Supervision Division (SMSD): supervision of primary and secondary securities markets, authorization and supervision of collective investment schemes. - Staffing notes: over 75 percent of supervisors in the Markets Supervision Directorate commenced in their current role during the period since 2014, indicating considerable turnover; many new staff have prior supervisory experience. - Markets Supervision Directorate staffing totals by year: 2013: 162; 2014: 150; 2015: 168; 2016 (Planned): 182. ### Specialist teams established since 2013 ROSC - Conduct Risk Team (established in IFFS in 2014): assists prudential supervisors in analyzing conduct of business rules for investment firms, supports firm-specific inspections, carries out thematic conduct risk inspections, and provides conduct-specific training to prudential supervisors. - Supervisory Analytics Team (established in SMSD in 2015): activities include: - Working in cooperation with other supervisory colleagues to develop analytical tools and risk dashboards; - Management of datasets; - Implementation of analytical, programming and scripting tools; and - Testing and evidencing of various hypotheses related to market activity. - Supervisory Practices and Regulatory Team (established September 2014): coordinates and manages practical implementation of policies impacting firms within IFFS, provides training, and ensures consistent application of regulations, policies and supervisory practices across the division. - IT Risk Supervisory Team (set up in early 2016): performs IT inspections to evaluate internal IT structures and platforms of supervised entities, including assessment of disaster recovery plans and assessment of information security practices and procedures of third party IT providers. ### Markets Policy Division and coordination - The Markets Policy Division (MPD) in Policy and Risk Directorate complements Markets Supervision Directorate work, especially important in policy and risk. ### Consumer Protection Directorate: scope, structure, and staffing - Consumer Protection Directorate supervises conduct risk for: - (i) Payment Institutions and Related Entities; - (ii) Electronic money Institutions; - (iii) Debt Management Firms; - (iv) Moneylenders; - (v) Insurance; - (vi) Stockbrokers and Investment Firms; - (vii) Retail Intermediaries; - (viii) Credit Institutions and Other Lenders; and - (ix) Credit Servicing Firms. - The Directorate is responsible for prudential supervision and authorization of: - (i) Payment Institutions and Related Entities; - (ii) Electronic money institutions; - (iii) Debt Management Firms; - (iv) Moneylenders; - (v) Retail Intermediaries; and - (vi) Credit Servicing Firms. - Directorate composition: - Consumer Protection: Policy and Authorization — Authorization and Revocation of Retail Intermediaries, Payment Institutions and Related Entities, approval of bank charges, authorization and supervision of Moneylenders, Policy, European Supervisory Authorities (ESAs) and International, Market Intelligence and Research. - Consumer Protection Supervision Division — responsible for supervision of the listed firm types. - Consumer Protection Directorate staffing totals by year: 2013: 82.1; 2014: 82.1; 2015: 88.9; 2016 (Projected): 95.9. ### External institutions with relevant roles - Irish Auditing and Accounting Supervisory Authority (IAASA): supervises how Prescribed Accountancy Bodies regulate and monitor their members; promotes adherence to high professional standards in auditing and accountancy; monitors whether the accounts of certain classes of companies and other undertakings comply with the Companies Acts; acts as a specialist source of advice to the Minister. - Competition and Consumer Protection Commission (CCPC): protect and strengthen competition; empower consumers to make informed decisions; protect them from harmful business practices. - Irish Takeover Panel: monitoring and supervising takeovers and other relevant transactions in companies in Ireland. - Financial Services Ombudsman: deals independently with complaints from consumers about their individual dealings with all financial services providers. - Investor Compensation Company Ltd: arranges funding and payment procedures to ensure eligible clients of a failed firm receive compensation. ### Changes in supervisory framework and practice - PRISM review (2014): review of the PRISM Medium Low Engagement Model led to amended engagement—supervisors meet with the Chief Executive Officers of all Medium Low Impact firms more frequently (typically on an annual basis, compared to at least every 18 months previously); other relevant firm officers engaged as needed; meetings with the Chairman and senior non-executive directors take place on a regular basis. - Themed reviews and inspections: used to review, assess and mitigate risks across industry sectors and individual firms; can be desk based or on-site; findings may include policy changes, specific risk mitigation measures, enforcement actions/directions, speeches and industry letters. Recent themed reviews and inspections (2013–2015) include: - 2013 & 2014: Monitoring and Reporting of Suspicious Transactions related to market abuse - 2013 & 2014: Data Integrity - 2013, 2014 & 2015: Breach / Error Log Themed Inspection (Quarterly Themed Inspections) - 2013: Review of Governance on Pricing Procedures for Hard To Value Assets - 2013: Review of the Oversight of Money Market/Short-Term MMFs - 2013: Monthly Client Asset Return Analysis and Governance Arrangements with regard to Client Asset Accounts - 2013: Management Company Business Plan Application - 2014: Corporate Governance of Investment Managers and Fund Managers - 2014: Final NAV Outsourcing review - 2014: Review of the Calculation Methodologies of Synthetic Risk and Reward Indicator Numbers by UCITS Funds - 2014: Review of Sales Incentives to direct employees of Insurance Companies, Credit Institutions and Investment Firms - 2014: Provision of Information to Clients in Relation to Costs and Charges - 2014: Review of the Practices and Oversight by Depositaries of the Use of Financial Derivative Instruments (FDI’s) by UCITS Funds - 2014: Fair Presentation of Recommendations - 2014: Monthly Client Asset Return Analysis / Review of the Daily Reconciliation Process - 2015: Treatment of NAV Pricing Errors - 2015: Managing Cyber Security - Operational Risk - 2015: Proprietary Trading - 2015: Review of Money Market/Short-Term Money Market Funds (MMF’s) in low yield environment - 2015: Review of Securities Lending Practices by Investment Funds - 2015: Review of the Impact on Irish Authorized Investment Funds of Volatility in the Chinese Stock Markets - 2015: Review of the Implementation of Risk Management Process (RMP’s) by UCITS Funds - 2015: Financial Contracts for Difference - 2015: Depositary Oversight - 2015: Client Categorization - 2015: Conflicts of Interest - 2015: Intermediaries not authorized to hold Client Assets - 2015: Notification of Managers' Transactions - 2015: Suspicious Transaction Monitoring and Reporting - 2015: Review of Firms Not Meeting Minimum Standards of Compliance ### Regulatory Economics Unit: objectives and outputs - Established in 2012 for: (a) understanding the economic impact of regulation; (b) monitoring the regulatory perimeter; (c) conducting system level analysis of the risks in the Irish international financial services industry; and (d) understanding the system level interconnections between the Irish international financial services and other jurisdictions. - Recent outputs include: - Mapping of the activities of Financial Vehicle Companies and Special Purpose Vehicles (SPVs); - Using EMIR derivatives reporting data to understand the network structure of entities which buy and sell Credit Default Swap contracts; - Reducing data gaps in the non-bank financial sector in Ireland through existing regulatory tools e.g., introducing a reporting requirement for non-FVC SPVs as a result of research carried out on their activities; - Research on the economic benefits and risks related to virtual currencies and payments technologies; and - Using AIFMD reporting data combined with EMIR data to understand potential risks. ### Enforcement actions and metrics - Types of enforcement referrals and cases include issues related to: capital adequacy of an investment firm; breaches of client classification requirements and acting as an Investment Firm without authorization, trading on own account without authorization and conduct of business breaches; Money Laundering and Terrorist Financing; Insider dealing; Complaints handling procedures; Minimum Competency Requirements. - Table of Enforcement Action (2011–2015): - All Central Bank pre-referrals: 2011: 72; 2012: 98; 2013: 48; 2014: 59; 2015: 48 - Markets Supervision Pre-Referrals: 2011: 41; 2012: 35; 2013: 28; 2014: 24; 2015: 26 - Cases Accepted: 2011: 20; 2012: 25; 2013: 25; 2014: 17; 2015: 16 - Supervisory Warnings: 2011: 5; 2012: 7; 2013: 13; 2014: 5; 2015: 3 - Settlements: 2011: 5; 2012: 3; 2013: 8; 2014: 4; 2015: 5 - Aggregate Fine (Euro): 2011: 190,000; 2012: 161,900; 2013: 247,590; 2014: 360,900; 2015: 583,040 - Revocation of Authorization: 2011: 1; 2012: 0; 2013: 0; 2014: 2; 2015: 7 - Voluntary Revocations: 2011: 0; 2012: 0; 2013: 2; 2014: 4; 2015: 1 - Refusals: 2011: 1; 2012: 1; 2013: 0; 2014: 0; 2015: 2 - Markets: No Action: 2011: 4; 2012: 3; 2013: 3; 2014: 3; 2015: 1 ### Fitness and probity - Since July 2013, the Enforcement Division has liaised closely with the Markets Supervision Directorate and Consumer Protection Directorate on fitness and probity concerns, assisting with inspections, correspondence with firms, advising supervisory directorates where potential fitness and probity concerns arise regarding relevant appointments, and advising where necessary in relation to refusals of those appointments. The Enforcement Division has also assisted and advised the Consumer Protection Directorate in the conduct of a fitness and probity investigation. ### Co-operation with international partners and systemic risk analysis - The Central Bank engages with peer regulators and associations of regulatory bodies, notably in systemic risk analysis, and participates in IOSCO, ESMA, and ESMA subgroups; peer reviews are conducted by the Supervisory Convergence Standing Committee of ESMA. - Strategy to address potential systemic risk of international financial services (six elements): - Implementation of a data strategy to allow Markets Supervision Directorate to use data collected by all divisions of the Central Bank relevant to monitoring markets, investment firms and investment vehicles and the development of applications and analytical tools to support macro- and micro-prudential supervision. - Effective coordination of supervisors, policy makers, statisticians and economists through an internal 'Task Force on Shadow Banking'; in September 2014 the Central Bank’s Financial Stability Committee (FSC) approved the terms of reference for an internal working group on shadow banking - the Task Force on Shadow Banking. The Task Force coordinated the Central Bank’s participation in the FSB Global Shadow Banking Monitoring Report in 2015. - Development of innovative supervisory techniques such as a liquidity risk supervisory tool being developed by the Markets Supervision Directorate Analytics team: SMSD is currently researching alternative methods for liquidity stress testing of investment funds including categorization by investment/redemption strategy and evaluation of potential liquidity stress testing methodologies, and providing support to the IMF in the FSAP process. - Participation in the FSB annual monitoring exercise: In 2015, Ireland contributed for the first time to the annual FSB’s Global Shadow Banking Report through a Central Bank case study on the Irish shadow banking sector. - Chairing the ESRB Shadow Banking Policy Committee and advocating for the development of coordinated supervisory policies on shadow banking issues through the ESRB (e.g., on Loan Origination and on the development of European policy for defining 'significant' leverage for alternative funds); the policy Task Force chaired by the Central Bank is leading work on assessing the need to develop macro-prudential tools in relation to investment fund leverage and liquidity. - Taking a leading role in IOSCO on liquidity and leverage policy: the Central Bank currently chairs a working group within IOSCO’s Committee 5 on Investment Management focused on liquidity risk management in collective investment schemes. *Source: _cr16314 - 15. The Markets Supervision Directorate’s regulatory responsibilities cover:* ### 35. Principles and recommendations are included below only if they relate to a regulatory ### _cr16314 - 35. Principles and recommendations are included below only if they relate to a regulatory ### Principle 2 - Operational independence and accountability - 2013 Assessment: Partly Implemented - 2013 Assessment Recommended Action: Consideration should be given to including provisions permitting the Central Bank to indemnify staff, officers and Commissioners for their legal costs in the event they are sued in relation to Central Bank duties and make those moneys available to pay costs during the course of the suit. - Update: The Central Bank has a ‘witness support’ policy introduced in late 2013 whereby it pays the reasonably incurred legal costs of staff who are involved in legal actions (as a witness or otherwise) arising from their role in the Central Bank. This policy was and has been used in relation to various personnel who have been called as witnesses at criminal trials and the banking inquiry. ### Principle 3 - Adequate powers, resources and capacity - 2013 Assessment: Partly Implemented - 2013 Assessment Recommended Action: The government should give the Central Bank additional resources and the flexibility to depart from the civil service compensation rules. - Update and key statistics: - Headcount in financial regulation increased from 612 in 2013 to 736 by end 2015. - Markets Supervision Directorate staff increased from 162 in 2013 to 168 by end 2015. - Headcount in Financial Regulation in the Central Bank is projected to increase further by the end of 2016. - Projected increase to 182 staff within the Markets Supervision Directorate by end 2016. ### Principle 4 - Clear and consistent regulatory processes - 2013 Assessment: Broadly Implemented - 2013 Assessment Recommended Action: The process of official consolidation of the laws for public use needs to be accelerated. In the meantime, a competent authority in the State or some part of the government should prepare and post ‘unofficial’ consolidated versions of the key financial services acts and regulations. - Update: - The Companies Act 2014 consolidated the Companies Act 1963 to 2013. - Supervisory Practices and Regulation Team established in September 2014 to ensure consistent application of regulations, policies and supervisory practices across IFFS. ### Principle 5 - Staff professional standards and confidentiality - 2013 Assessment: Fully Implemented - 2013 Assessment Recommended Action: Publish the Employee Code of Ethics on the website so that the public are informed of the high standards of ethical behavior that Central Bank staff is expected to meet. - Update: The Employee Code of Ethics and Behaviour was published on the Central Bank website on 11 February, 2016. ### Principle 6 - Monitor, mitigate and manage systemic risk - 2013 Assessment: Fully Implemented - Regulatory developments: - CRD IV: introduced additional reporting requirements for investment firms and a capital buffer for systemically important institutions; requirement to report certain information regarding systemic risk to the EBA. - Central Bank has investigated several possible sources of systemic risk through Central Bank-wide analysis. - EMIR: provides Central Bank with access to trade repository data on all derivative contracts concluded by counterparties within its remit enabling micro and macro monitoring of derivative exposures. - MiFID II/MIFIR: will introduce position limits and management powers in commodity derivatives, additional intervention powers to ESMA, and require that transactions in derivatives concluded on a regulated market are cleared by a CCP. ### Principle 7 - Regular review of the perimeter of regulation - 2013 Assessment: Fully Implemented - Strategy and actions since 2013: - Implementation of a data strategy allowing Markets Supervision Directorate to use data collected by all divisions relevant to monitoring markets, investment firms and investment vehicles, development of applications and analytical tools to support macro- and micro-prudential supervision, and identification of innovations affecting the appropriate perimeter of regulation. - Internal 'Task Force on Shadow Banking' for coordination of supervisors, policy makers, statisticians and economists to review the perimeter of regulation. - Development of supervisory techniques such as a liquidity risk supervisory tool by the Supervisory Analytics team. - Participation in the FSB annual monitoring exercise. ### Principle 8 - Manage conflicts of interest and misaligned incentives - 2013 Assessment: Fully Implemented - Regulatory developments and guidelines: - CRD IV: introduced a bonus cap to reduce variable remuneration for risk takers; EBA Guidelines on application issued on 21 December, 2015. - AIFMD/UCITS: ESMA ‘Guidelines on sound remuneration policies under the AIFMD’ issued July 2013; AIF Rulebook requires Irish authorized AIFM to comply; UCITS V requires management companies to establish remuneration policies promoting sound risk management. - ESMA issued ‘Guidelines on sound remuneration under the UCITS Directive and AIMFD’ on 31 March, 2016; UCITS remuneration guidelines apply, subject to transitional provisions, from 1 January, 2017. - MiFID II will require: - a formal remuneration policy approved and overseen by senior management aimed to encourage responsible business conduct, fair treatment of clients and to avoid conflicts of interest; - firms not to remunerate or assess staff performance in ways that conflict with clients’ best interests or incentivize unsuitable recommendations to retail clients; - requirements to prevent and manage conflicts of interest and increased disclosure requirements. ### Principle 10 - Comprehensive inspection, investigation and surveillance powers - 2013 Assessment: Fully Implemented - EMIR: - Authorized officers can enter a place without prior notice to ensure obligations in relation to clearing and risk mitigation are being complied with. - Any counterparty in the State that enters into derivative contracts must report contract details and modifications/terminations to an ESMA-registered trade repository no later than the working day following conclusion, modification or termination; trade repositories must make available to the Central Bank all derivative contracts where an Irish entity is counterparty or where the underlying falls within the Central Bank’s supervisory responsibilities and mandate. - MiFID II/MiFIR: - Implementation was meant from 3 January, 2017, but expected to be delayed by 12 months. - Transaction reporting regime will be standardized throughout the EU; scope will increase to include additional financial instruments, further data on transactions, and extend to more trading venues and firms. - The Central Bank has initiated a project to update relevant systems. ### Principle 11 - Comprehensive enforcement powers - 2013 Assessment: Fully Implemented - UCITS V: - Introduces new rules harmonizing administrative penalties across Member States, applying minimum types of penalties and measures, and introducing criteria for determining type and level of sanction(s). - Member States can impose criminal or administrative sanctions including public statement, cease and desist order, suspension/withdrawal of authorization or temporary/permanent ban. - UCITS Managers and Depositaries required to put in place whistle blowing procedures. - Ireland will map its sanctions regime against the new rules to determine whether additional powers are required. - EMIR: - Central Bank provided with functions and powers (including ability to impose sanctions) to enforce compliance with EMIR and EMIR Regulations. - Independent assessor regime designed to provide for investigations of potential breaches by FCs and NFCs of EMIR Title II and/or EMIR Regulations; Central Bank may appoint an assessor where it has reasonable grounds to suspect a prescribed contravention. - MiFID II: - Competent Authorities will have new specific sanctions including: - removal of a board member; - potential criminal sanctions; - maximum fines of up to 10 percent of annual turnover or at least €5m, and at least twice the benefit derived (where this can be determined); - application of sanctions to individuals as well as management bodies. - Transparency Directive: - Sanctioning powers enhanced with common EU standards; in Irish context, pecuniary sanctions amended from €2.5m to €10m or 5 percent of annual turnover for legal entities and €2m for legal persons. - Provision for pecuniary sanctions to be based on a multiple of the profit gained or losses avoided if greater. - Central Bank will have power to suspend exercise of voting rights where persons fail to disclose major holdings of voting rights. - Sanctions should normally be published. ### Principle 12 - Effective use of inspection, investigation, surveillance and enforcement and compliance program - IMF Assessment: Partly Implemented - 2013 Assessment Recommended Action: A more proactive approach to supervision of firms designated by PRISM as Low Impact should be implemented. - Measures since 2013 for Low Impact firms: - Supervisory teams have grown due to Headcount increases. - Volume of themed inspections has sharply increased, resulting in more frequent supervisory engagement with Low Impact firms. - Number of enforcement referrals for Low Impact firms has increased. - Creation of the Supervisory Analytics team in 2015 substantially overhauled use of regulatory data to proactively monitor Low Impact firms, identify risks and take supervisory action. - Enforcement data trend (2013–2015) for Low Impact firms: - Markets Supervisory Warnings and Settlements as a percentage of Market Cases referred to the Enforcement Division increased from 37.5 percent to 50 percent. - 2013 Assessment Recommended Action: More prosecutions should be pursued against individuals. - Update: Across all sectors, the Central Bank took a number of actions against individuals in 2015 who held positions of responsibility in credit institutions, insurance undertakings and intermediaries, and financial service providers. - Other supervisory framework changes: - UCITS V and EMIR-related supervisory reviews (EMIR Unit periodic reviews, e.g., compliance with Data quality requirements). - MiFID II imposes greater consistency across the EU in relation to sanctions and penalties. - Establishment of specialist teams in Conduct Risk, Supervisory Data Analytics, IT Risk and Supervisory Practices and Regulation to enhance supervision. - PRISM review: Engagement Model for Medium Low firms enhanced by increased focus on meetings with CEOs; CEO meetings will take place with increased frequency. ### Principle 16 - Full, accurate and timely disclosure by issuers - 2013 Assessment: Partly Implemented - 2013 Assessment Recommended Action: A change in auditor should be considered a material change giving rise to an obligation for all public companies to immediately inform IAASA and the Central Bank. - Update: - Under various sectoral financial services regulations, the Central Bank will be notified of the change of auditor for all regulated financial service providers. - Under Section 404 of the Companies Act 2014, IAASA must be informed if the auditor has changed within 30 days in the event of cessation of office by an auditor, whether by resignation or removal from office, by both the auditor and the company. - Amendments to the Transparency Directive: - Requirement for issuers of equity and closed ended funds admitted to trading on a regulated market to produce interim management statements was abolished in November 2015. - Timeframe for publishing half-yearly financial reports extended from two to three months after the end of the reporting period for all issuers. - Central Bank retains ability to require issuers to publish periodic financial information more frequently than half-yearly and annual reports in certain circumstances (e.g., financial institutions or highly relevant information for investment decisions). - Sanctioning powers enhanced as detailed under Principle 11. ### Principle 17 - Fair and equitable treatment of holders of securities - 2013 Assessment: Broadly Implemented - Amendments to the Transparency Directive: - Transparency Directive II extends the range of financial instruments to be included when determining disclosure of a major holding of voting rights, including instruments with similar economic effect to holding shares and entitlements to acquire shares. - MAD II/MAR: - Procedures for notification to the market of transactions by persons discharging managerial responsibility (PDMRs) will be strengthened under MAR. - Publication of notifications must take place within 3 days of a transaction as opposed to five days currently. - Issuers will have direct responsibility for publication under the Regulation (currently a requirement under the Central Bank Market Abuse Rules). - PDMRs and persons closely associated will have to notify both the Central Bank and the issuer using an electronically transmitted, standardised form. ### Principle 18 - High-quality accounting standards - 2013 Assessment: Fully Implemented - Amendments to the Transparency Directive: - S.I. No. 44 of 2015 Transparency (Directive 2004/109/EC) (Amendment) Regulations 2015 amend the Transparency Regulations to allow IAASA to make public: - any administrative measure taken as a result of infringements discovered by IAASA; and - any action by an issuer or director in response to an administrative measure taken by IAASA. - This disclosure is intended to have a dissuasive effect and provide information regarding violations. ### Principle 19 - Oversight of auditors - 2013 Assessment: Broadly Implemented - Update: The Companies Act 2014 (reference to consolidation noted). *Source: IMF staff update on Ireland: Table 8. Update on Securities Regulation and Supervision Relative to the IOSCO Objectives and Principles.* ### Section 907(1) of the Companies Act 2014 has reduced the size of the board of directors of IAASA ### _cr16314 - Section 907(1) of the Companies Act 2014 has reduced the size of the board of directors of IAASA ### Companies Act 2014: IAASA board and audit governance - Section 907(1) of the Companies Act 2014 has reduced the size of the board of directors of IAASA from 15, including the CEO to not more than 8 directors plus the CEO. - The Companies Act 2014 extends the requirement to have an Audit Committee to large public companies, as defined under Section 167(1) (a) and (b) of the Companies Act 2014. ### Principle 20 – Auditor independence - 2013 Assessment: Fully Implemented ### Principle 24 – Standards for collective investment scheme operators and marketers - 2013 Assessment: Fully Implemented - UCITS V: - The Central Bank’s enforcement powers have been strengthened by the new UCITS V sanctions regime. - This strengthening means the Central Bank’s powers with respect to remedial action in the event of breach or default may also be strengthened. ### Principle 25 – Legal form, structure, segregation and protection of client assets - 2013 Assessment: Fully Implemented - IM Regulations (adopted March 2015 pursuant to Section 48 of the Central Bank (Supervision and Enforcement) Act 2013): - Any Fund Service Provider (as defined in the IM Regulations) holding IM, for the purpose of subscription or redemption into a collective investment scheme, in a collection account must do so in accordance with the IM Regulations. - The IM Regulations take effect 1 July, 2016. - The IM Regulations are set out under six headings regarded as the six core IM Principles: Segregation, Designation, Reconciliation, Daily Calculation, Risk Management and IM Examination. - CA Regulations (introduced with effect from 1 October, 2015; replaced the Client Asset Requirements 2007): - Investment firms will no longer be permitted to hold discretionary buffer amounts in client asset accounts. - Investment firms will be required to appoint a staff member to fill a pre-approved control function with cross-functional responsibility for client assets. - Investment firms will be required to document a Client Asset Management Plan, which is approved by the board. The Client Asset Management Plan will document the risks to holding client assets and outline how these risks are mitigated. - Increased disclosure including the provision of Client Asset Key Information Document to retail clients setting out arrangements and risks in plain English. - The introduction of a more detailed annual review of client asset arrangements to be conducted by external auditors. - Where an entity is subject to IM Regulations or CA Regulations, it is required to have an external auditor assess, annually, its compliance with the regulations and provide the report to the Central Bank. - The scope of the Client Asset Specialist Team has been widened to include the supervision of both the CA Regulations and IM Regulations. ### Principle 27 – Asset valuation, pricing and redemption of units in collective investment schemes - IMF Assessment: Broadly Implemented - 2013 Assessment Recommended Action: - The Central Bank should issue clear guidance that the valuation of CIS assets are to be performed in accordance with IFRS or UK and Irish GAAP, or some other high quality accepted accounting standard applied on a consistent basis. - Valuation types relevant for CIS: - i. valuations for the purposes of subscriptions and redemptions (which lead to the production of NAVs); - ii. valuations in periodic accounting disclosures. - For (i): AIFMD Level 2 includes detailed requirements regarding the valuation of the assets of AIFs. The Central Bank has issued rules and guidance in relation to the valuation of assets leading to the production of NAVs, included in the AIF Rulebook and the Central Bank UCITS Regulations. The rules and guidance conform to relevant EU legislation and IOSCO principles, including requirements that the NAV of CIS be calculated on a regular basis and in accordance with high quality, accepted accounting standards, that fair valuation of assets is used where market prices are not available, and that independent auditors are required. - For (ii): All regulated investment funds must prepare audited financial statements on an annual basis in accordance with the provisions of the Companies Acts 2014. The Companies Acts 2014 requires that such financial statements must be prepared in accordance with international financial reporting standards or an alternative body of accounting standards. The UCITS Regulations defines alternative body of accounting standards to include standards laid down by bodies in the United States of America; Canada; Japan; or any other state or territory prescribed, in accordance with section 1400(2) of the Companies Act 2014. - 2013 Assessment Recommended Action: - The Central Bank should publish rules relating to pricing errors. - The Central Bank concluded a thematic review on the treatment of NAV pricing errors in 2015. The required amendments to regulations and/or guidance are now under consideration. ### Principle 29 – Minimum entry standards for market intermediaries - 2013 Assessment: Fully Implemented - 2013 Assessment Recommended Action: - The Central Bank should supplement the information made available to the public on the register of firms posted on its website to add: 1) the permitted activities for each investment product intermediary under the IIA; and 2) the identity of senior management and names of other authorized individuals who act in the name of a MiFID investment firm or an IIA firm. - The register of investment product intermediaries maintained in accordance with section 31(4) of the IIA lists entities which hold letters of appointment from product producers as defined in the IIA. Entities included on this register which fall within the definition of an investment product intermediary are Investment Business Firms (investment intermediaries and Certified Persons) and Solicitors. - The permitted activities for the investment intermediaries are contained on other registers, namely Registers of Investment Business Firms authorized or deemed authorized under the IIA. - The Central Bank intends to include a cross-reference on the Section 31 register to inform persons to refer to the Register of Investment Business Firms in order to check the permitted legal activities of investment intermediaries in 2016Q3. - The Central Bank does not disclose the names of approved persons under the Fitness & Probity Regime on public registers and states it does not have the legal power or obligation to do so; data protection issues are cited. ### CRD IV and related prudential frameworks - CRD IV: - Changed the definition of an investment firm compared to CRD III; certain investment firms are not within the scope of CRD IV but remain within the scope of the Pillar I and Pillar 2 requirements of CRD III. - Made slight amendments to the initial capital requirements for firms within the scope of that regime. - Introduced revised and new capital requirements in the following areas: - the quality and quantity of capital held by investment firms; - capital buffers; - leverage requirements; - Securitization Risk Retention Requirements; and - revised rules for counterparty risk. ### Investment Firms Corporate Governance Code & MiFID II - Investment Firms Corporate Governance Code: - Intended to be introduced on a statutory basis with the introduction of MiFID II. - Will introduce new requirements in relation to Board composition, functioning, review and committees, to complement strengthened corporate governance requirements under MiFID II and CRD IV and the Central Bank’s corporate governance code for Credit Institutions and Insurance Undertakings. - Timing of this action was not decided at the time of writing. - MiFID II: - Broadens the scope of MiFID by bringing new activities into scope, removing or narrowing exemptions (e.g. dealing on own account) and covering new financial instruments (e.g., commodity derivatives and a wider range of products (e.g., structured deposits)). - Some firms currently outside the scope of MiFID will need to apply for authorization. - Other changes include: the introduction of a new category of OTFs, new transparency and reporting requirements, enhanced conduct of business and investor protection rules, new organizational requirements, and rules governing third country firms operating in the EU via a branch. ### Principle 30 – Capital and prudential requirements for market intermediaries - 2013 Assessment: Fully Implemented - Investment Intermediaries Handbook (effective from 1 October, 2014; replaced July 2006 Handbook of Prudential Requirements): - Multi-agency intermediaries and authorized advisors are now defined as investment intermediaries. - An investment intermediary must, at all times, be in a position to meet its financial obligations in full as they fall due. - Goodwill and other intangible assets are to be excluded from the calculation of a firm’s balance sheet assets for regulatory reporting purposes. - The requirement to hold Professional Indemnity Insurance has been imposed directly on investment intermediaries. - An investment intermediary must notify the Central Bank in advance where it proposes to outsource any important operational function. An “Important Operational Function” is defined by the July 2014 Prudential Handbook as one such that “if a defect or failure in its performance would materially impair a) the continuing compliance of the investment intermediary concerned with all applicable legislative requirements or regulatory requirements; b) its financial performance; or c) the soundness or continuity of its investment business services and/or investment advice.” ### Principle 31 – Internal compliance functions and risk management - IMF Assessment: Broadly Implemented - 2013 Assessment Recommended Action: - The Central Bank should introduce a general requirement that all firms conduct an annual review of risk management and controls. This review should be required to be performed to objective standards and by a function or entity that is independent of the business of the firm. - Central Bank Oversight: - For all supervisory engagements with firms (whether full risk assessments under PRISM or reactive engagements due to alerts, complaints, whistle-blowers etc.), where supervision teams identify deficiencies in relation to risk management and control environments remedial action will be taken. - Remedial action may include issuing Risk Mitigation Programmes requiring internal audits or skilled person reviews to be undertaken. - External Auditor Oversight: - Under ISA 315 and ISA 265 the external auditors of investment firms have a responsibility to obtain an understanding of the internal controls which are relevant to the completion of the audit. - This involves evaluating the design of controls and determining whether they are implemented. - Where significant deficiencies are identified, they must be communicated to management. *Source: _cr16314 - Section 907(1) of the Companies Act 2014 has reduced the size of the board of directors of IAASA* ### Introduction of IM and CA Regulations ### Introduction of IM and CA Regulations ### IM Examination / Client Asset Examination: scope and reporting requirements - Where an entity is subject to the IM Regulations or CA Regulations an IM Examination or Client Asset Examination, as appropriate, must be carried out by the statutory auditor or another external auditor and provided to the Central Bank on an annual basis. - The IM Examination / Client Asset Examination is required to report on whether: - (a) the relevant entity has maintained processes and systems adequate to meet the requirements of the Regulations throughout the period of the examination; - (b) the relevant entity was compliant with the Regulations as at the period end date; - (c) any matter has come to the attention of the auditor to suggest that the relevant entity has acted in a manner which is not consistent with that documented within the IM management plan / client asset management plan which has been in operation throughout the period to which the examination relates; and - (d) changes made to the IM management plan / client asset management plan since the date of the last report have been drafted in sufficient detail to meet the requirements of these Regulations capturing the risk faced by the entity in holding IM given the nature and complexity of the business of the entity under examination up to the date of the current report. ### Principle 32 — Procedures for dealing with the failure of a market intermediary - Principle statement: There should be procedures for dealing with the failure of a market intermediary in order to minimize damage and loss to investors and to contain systemic risk. - IMF Assessment: Broadly Implemented - 2013 Assessment Recommended Action: The Central Bank should be given the authority to appoint an administrator or monitor to step in and run a firm that is in crisis. - Developments and measures: - S.I. No. 407 of 2015 - Investor Compensation Act 1998 (Return of Investor Funds or Other Client Property) Regulations 2015 introduced rules to facilitate the speedier distribution of client assets where a shortfall in client assets arises following the failure of an investment firm. - The European Union (Bank Recovery and Resolution) Regulation 2015 (BRRD) introduces recovery and resolution powers for 13 of the 96 MiFID authorized investment firms supervised by the Central Bank (representing 2 percent of the MiFID population by AUM, 84 percent of the population by holdings of client assets and 85 percent of the population by clients). - Scope under BRRD: A MiFID investment firm falls into the scope of the BRRD if it has an initial capital requirement of €730k, (i.e. the firm‘s authorization includes the investment service of dealing on own account and/or underwriting on a firm commitment basis). - Current coverage (as of December 2015): - Currently, only 7 of the 32 firms that hold client assets fall within the scope of the BRRD. - For those firms that fall outside of the BRRD, the Central Bank has written to the Department of Finance seeking the application of the recovery powers (specifically Art 27–30 of BRRD) within the MiFID II transposition process to harmonize the options available to supervisors in response to a failing or likely to fail situation. - Summary table (as of December 2015): - BRR Firms / Total Firms / BRR/Total (percent) - AUM (€000's): 7,738,392 / 377,964,219 / 2 - CA (€000's): 23,566,627 / 29,352,698 / 80 - Clients: 112,839 / 132,358 / 85 - Further consideration will take account of untested powers in Central Bank (Supervision and Enforcement) Act 2013 and new powers in MiFID II (including Art 69) due to be transposed into Irish Law before the commencement of the directive. ### Principle 33 — Authorization and oversight of trading systems and securities exchanges - Principle statement: The establishment of trading systems including securities exchanges should be subject to regulatory authorization and oversight. - 2013 Assessment: Fully Implemented - 2013 Assessment Recommended Action: As part of the review conducted by the Central Bank before a new trading venue is authorized it would be prudent to conduct an on-site inspection either immediately before the venue is given authorization or very shortly thereafter. - Developments and procedures: - New MiFID authorization process implemented with effect from 8 January, 2014. Applicants are graded Level 1 (less complex) or Level 2 (complex). - Level 2 applications are project-managed and draw on Consumer Protection; Supervision; Client Assets; Risk; Market Infrastructure; Transaction Reporting; Information Technology; and Senior Management. - All applications from proposed MTFs or Regulated Markets are classed as Level 2 and involve multiple site visits and review of trading software. - Post-authorization supervision: scheduled supervisory engagements/visits/inspections and more intense scrutiny of newly authorized entities in the first few months of operation. - MiFID II / MIFIR changes: - Introduction of OTFs to capture multilateral trading in non-equity instruments that does not currently take place on Regulated Markets or MTFs. - Organizational requirements for MTFs aligned with those of Regulated Markets. - New trading rules for equity and derivative instruments, new pre- and post-trade transparency obligations for equity-like and non-equity instruments, and a regulatory framework for consolidated trade data. - Systematic internalizers will be subject to enhanced firm quote obligations. ### Principle 34 — Ongoing regulatory supervision of exchanges and trading systems - Principle statement: There should be on-going regulatory supervision of exchanges and trading systems which should aim to ensure that the integrity of trading is maintained through fair and equitable rules that strike an appropriate balance between the demands of different market participants. - 2013 Assessment: Fully Implemented - MiFID II / MiFIR status and implications: - MiFID II/MiFIR was meant to apply from 3 January, 2017 but it is expected that implementation will be delayed by 12 months. - Draft regulatory technical standards are currently being prepared at European level. - The transaction reporting regime will be standardized throughout the EU with uniform requirements applying; scope of transaction reporting will increase to include additional financial instruments, further data on transactions, and be extended to more trading venues and firms. - The Central Bank has initiated a project to update relevant systems. ### Principle 36 — Detecting and deterring manipulation and other unfair trading practices - Principle statement: Regulation should be designed to detect and deter manipulation and other unfair trading practices. - 2013 Assessment: Partly Implemented - 2013 Assessment Recommended Action: The Companies Law should be amended or other legislation introduced to prohibit the full scope of activities that are abusive to the market regardless of where that trading takes place or whether the securities are admitted to trading on a Regulated Market. - Legislative developments: - MAD II/MAR will strengthen the Bank’s capacity to detect and deter market abuse, including market manipulation, by extending the scope of the legislation beyond EU regulated markets to include all trading platforms and financial instruments which can impact on them. - MAD II/MAR will include attempted market manipulation as an offence along with attempted insider dealing, and will include inciting and aiding and abetting market abuse as offences. ### Principle 37 — Management of large exposures, default risk and market disruption - Principle statement: Regulation should aim to ensure the proper management of large exposures, default risk and market disruption. - 2013 Assessment: Partly Implemented - 2013 Assessment Recommended Action: The Central Bank should carry out reasonable due diligence on the regimes where the principal clearing and settlement of trades by Irish intermediaries or in Irish securities take place, including the effects of bankruptcy/insolvency regimes on positions (client or intermediary) held in that jurisdiction; obtaining opinions from legal counsel on the treatment of assets and positions on insolvency, particularly in Belgium, the UK and Germany, would be prudent. - Developments and existing arrangements: - The Central Bank considers the ESFS provides an appropriate framework for meeting the aims of this principle. - The Central Bank is satisfied that regulatory regimes in Belgium/UK and Germany are analogous to that in Ireland, all having implemented various EU markets legislation. - Responsibility to inform clients and assess bankruptcy/insolvency regimes may lie with regulated entities rather than the Central Bank; the Central Bank is not directly responsible for the return of assets following an insolvency. - Cross-border supervisory cooperation and MOUs: - 2013 Assessment Recommended Action: Update the MOU with the UK authorities regarding oversight of CREST and put one in place with BaFin regarding oversight of Eurex Clearing to ensure an effective gateway for clearing related information. - Current arrangements: - An annual review meeting is held with the Bank of England at which the MOU is reviewed; content of the MOU to be looked at when regulatory technical standards relating to the EU Commission’s CSD Regulation (Regulation 909/2014) have been finalized. - There is a written agreement between the Central Bank and the German supervisor (BaFin) regarding the running of the supervisory College of EUREX Clearing AG (EUREX CCP). - Under this agreement, the Central Bank can receive certain information from BaFin, the scope of which is partially defined by reference to level-two legislation. - Where BaFin intends to review arrangements, strategies, processes and mechanisms implemented by Eurex Clearing AG to comply with EMIR or to evaluate risks to which EUREX Clearing AG is, or might be, exposed, it shall consult and be informed by views of College Members. - Where BaFin performs a review or evaluation of Eurex Clearing AG under Article 21 of EMIR, it provides detailed results of the findings of the review or evaluation to College Members who are entitled to raise any points of interest or concern. - This arrangement is also covered under Commission Delegated Regulation (EU) No 879/2013, Article 5, ‘Exchange of information among authorises’. *Source: _cr16314 - Introduction of IM and CA Regulations* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2016/_cr16314.pdf_