Guidance Note for Authorisation under MiFID

Transcription

1 July 2015 Guidance Note for Authorisation under MiFID Guidance on completing an Application for Authorisation under Regulation 11 of the European Communities (Markets in Financial Instruments) Regulations 2007 and Commission Regulation (EC) No. 1287/2006 of 10 August

2 Contents 1.0 Introduction Application Process Level 1 Applicant Firms Level 2 Applicant Firms Obligations of an Investment Firm Post Authorisation Application Form Section A Core Details (Applicable to all applicant firms) Structure and Head Office General Business Information Financial Information Capital Requirements Organisational Structure Shareholders/Partners/Members and Qualifying Shareholders Regulatory Background Section B (Level 2 only) Key Policies Conduct of Business 44 Appendix 1 Client Assets 51 Appendix 2 Operation of a Multilateral Trading Facility 59 Appendix 3 Key Facts Document Template 61 Page 2 of 63

3 This document provides guidance in relation to the process and requirements of the Central Bank of Ireland ( the Central Bank ) for establishing an investment firm in Ireland. It does not constitute legal advice nor does it seek to interpret relevant legislation. 1.0 Introduction MiFID Regulations The European Communities (Markets in Financial Instruments) Regulations 2007 (as amended) [ S.I. No. 60 of 2007 / the MiFID Regulations ] and Commission Regulation (EC) No 1287/2006 of 10 August 2006 ( Regulation ), together the MiFID legislation, provide a comprehensive regulatory regime for investment firms and regulated markets in Ireland. Regulation 3(1) provides that Investment firm means, subject to Regulation 3(2) of S.I. No. 60 of , any person, other than a tied agent, which person s regular occupation or business is the provision of one or more investment services to third parties on a professional basis, or the activity of dealing on own account on a professional basis, but does not include a natural person unless: (a) his or her legal status ensures a level of protection for third parties interests equivalent to that afforded by legal persons, (b) he or she is subject to equivalent prudential supervision appropriate to his or her legal status, and, (c) if Regulation 3(3) of S.I. No. 60 of 2007 is applicable, he or she ensures that the conditions set out in Regulation 3(3) 2 are fulfilled. 1 For the purposes of the definition of investment firm, where an individual - (a) provides an investment or ancillary service, or (b) carries on the activity of dealing on own account, and the service or activity is carried on solely for the account of and under the full and unconditional responsibility of an investment firm, an insurance undertaking or a credit institution, the activity or service, as the case may be, shall be regarded as that of the investment firm, insurance undertaking or credit institution itself. 2 For the purposes of the definition of investment firm where a natural person provides services involving the holding of third parties funds or transferable securities, the natural person may be considered as an investment firm only if, without prejudice to the other requirements imposed in the Regulations and in Directive 2006/49/EC, he or she ensures that the following conditions are fulfilled: (a) the ownership rights of third parties in instruments and funds must be safeguarded, especially in the event of the insolvency of the investment firm or of its proprietors, seizure, set-off or any other action by creditors of the firm or of its proprietors; Page 3 of 63

4 It is an offence to act as an investment firm unless authorised to do so 3. The Central Bank is the competent authority in Ireland for the authorisation of such entities. Responsibility for the proper management and control of an investment firm, and the integrity of its systems, rests with the board of directors and its senior management. Ethical behaviour and transparency in business dealings are key values expected of boards and senior management. The Central Bank will be responsible for the supervision of investment firms compliance with the relevant legislation. The Central Bank welcomes applications where the proposed investment firm (hereinafter referred to as applicant / applicant firm / the firm ) can meet the legislative requirements relating to investment firms and all other, current, published requirements (including the recommendations and guidance issued by the European Banking Authority ( EBA ) and the European Securities and Markets Authority ( ESMA ) which are available on their websites and all new requirements issued by the Central Bank, details of which are published on the Central Bank website - Each potential applicant must also consider whether it and its proposed activities / business model: requires authorisation under the MiFID Regulations; can comply with the MiFID Regulations; can comply with the Central Bank s requirements and any other relevant financial services law; and is capable of complying with, and adhering to, the requirements that must be satisfied on an on-going basis. The provisions of Regulation 21 of S.I. No. 60 of 2007 regarding the Central Bank withdrawing an authorisation should be borne in mind when considering whether or not to submit an application for authorisation. (b) the investment firm must be subject to rules designed to monitor the firm s solvency and that of its proprietors; (c) the investment firm s annual accounts must be audited by one or more persons empowered, under Irish law, to audit accounts; (d) where the investment firm has only one proprietor, he or she must make provision for the protection of investors in the event of the investment firm s cessation of business following his or her death, incapacity or any other such event. 3 See Regulation 7 of S.I. No. 60 of Page 4 of 63

5 Firms are advised to seek professional advice for questions relating to legislation and its applicability to an application. Scope of Authorisation Pursuant to Regulation 20(1) of S.I. No. 60 of 2007, applicants who propose to engage in non- MiFID services/activities 4 may seek to have their authorisation extended to include the provision of these investment business services, or cover these investment instruments, as defined in the Investment Intermediaries Act, 1995 (as amended) [the IIA ]. Freedom of Services A key element of the MiFID legislation is that it enables investment firms to carry on business covered by their authorisation throughout the EEA (by opening a branch or passporting services) without seeking further authorisation in another member state. Applicant firms must read this Guidance Note in full prior to filling out the Application Form pertaining to it. Applicant firms are expected to have a working knowledge of the MiFID legislation and where an applicant is unsure of the legislation or completing any part of the process in applying for authorisation, their own professional advice should be obtained. Application documentation is available on the Central Bank s website. 4 Investment Business Services provided in Regulation 2(1) of the IIA that are not provided for in Schedule 1 of S.I. No. 60 of 2007 Page 5 of 63

6 2.0 Application Process The Central Bank applies a risk based process for the authorisation of investment firms based on the investment services proposed, the level of risk and complexity that the investment firm s business model would yield. There are two levels to the process and they are as follows: Level 1: Level 1 comprises small firms with non-complex investment strategies that have an initial capital requirement of 50,000 or 125,000 who provide any combination of the following investment services: Reception and transmission of client orders; Execution of orders, Portfolio management; Investment advice; and/or Placing of financial instruments without a firm commitment. Level 2: Level 2 comprises: (a) Larger firms including those with complex investment strategies that have an initial capital requirement of 50,000 or 125,000 which provide any combination of the following services: Reception and transmission of client orders. Execution of orders Portfolio management Investment advice; and/or Placing of financial instruments without a firm commitment. (b) Operation of a Multilateral Trading Facility; (c) All investment firms with an initial capital requirement of 730,000 providing the following investment services: Dealing on own account; and/or Underwriting of financial instruments or placing of financial instruments on a firm commitment basis; and (d) Market Operator of a Regulated Market 5. 5 While a Market Operator of a Regulated Market will be a Level 2 application, it falls outside the scope of this application process and therefore applicants seeking this service must contact the Central Bank s MiFID Authorisation team for details. Page 6 of 63

7 (e) Any applicant firm that proposes to hold Client Assets An application with a client assets aspect will always be classified as Level 2. Please note: the determination of the appropriate Level will be based on a subjective analysis of the application. The decision on the applicable Level will be made solely by the Central Bank, taking into account all of the above criteria. The application process is determined by the level which the application falls within. Page 7 of 63

8 2.1 Level 1 Applicant Firms The following process applies to the authorisation of Level 1 Applicant Firms: Process 1. Key Facts Document ( KFD ) (a) Applicant firms must complete a KFD (see Appendix 3 attached) (b) The Central Bank will review the KFD and - i. Revert to the applicant firm in writing with any comments on the KFD as soon as possible but expected to be no later than within 20 working days; and ii. Arrange a preliminary meeting with the applicant as soon as possible but expected to be no later than 20 working days of receiving an acceptable KFD. The meeting will be scheduled for the earliest possible date. If the KFD does not contain, or is deficient in relation to, the information required it will not be considered and the applicant firm will be asked to revise and resubmit it with the appropriate level of detail. 2. Preliminary Meeting A preliminary meeting will be held with all applicant firms in advance of an application being made. (a) The KFD will form the basis for the preliminary meeting. (b) The Central Bank will confirm to the applicant the level, at which the application will fall under. (c) The applicant firm will be informed of the Central Bank s authorisation process and timeframes. (d) The Central Bank will advise the applicant of significant issues that are apparent at this juncture that would negatively impact the Central Bank s determination of the application if the firm wishes to proceed to make an application for authorisation (e) It is expected that no more than one preliminary meeting will be held between the Central Bank and the applicant firm. Page 8 of 63

9 3. Receipt and Acceptance of a complete Application (a) Acknowledgement of complete applications will issue by the Central Bank within 5 working days with any comments to follow subsequently within the specified timeframe (see below). (b) Incomplete applications will be returned within 5 working days (see below re. complete application ). The Central Bank will set out why the application is incomplete in this correspondence. 4. Review of the Application (a) The Central Bank will issue comments to the applicant firm within 20 working days of receipt of the application; (b) The applicant firm must respond within 10 working days of receiving first comments; (c) Final comments will be issued to the applicant firm within 10 working days; and (d) The applicant firm must respond within 10 working days of receiving final comments. It is expected that all issues / comments will be addressed in the applicant firm s second submission and therefore the Central Bank will not review more than three submissions before reaching a decision on the application. In order to be in a position to meet its targets on an application for authorisation, the Central Bank cannot engage in an exhaustive analysis of the information provided and therefore the onus is on the applicant firm to ensure all information meets with the relevant requirements in the application form and where applicable this should be verified by the applicant prior to making its filing. 5. Decision on the Application A determination will be made on the application within 60 working days of receipt of a complete application. Page 9 of 63

10 Complete Application An application will not be accepted by the Central Bank unless it is complete, i.e., includes the following: 1. Fully completed (all tick boxes and page references must be filled in where applicable) and signed Application Form; 2. A Business Plan which must include details of each of the following: (a) Business strategy along with a business model that illustrates the regulated investment service(s) to be provided to clients (See Sub-Section 2.5 of the Application Form); (b) High level overview of any non-iia / non-mifid activity to be carried out (if applicable) [See Sub-Section 2.7 of the Application Form]; (c) Organisational structure chart along with staff numbers, their roles, responsibilities and reporting lines, Pre-Approval Controlled Functions ( PCF ) and details of their experience (See Sub-Section and Sub-Section of the Application Form); (d) Corporate Governance Arrangements, e.g., board of directors, committees (if any) [See Sub-Section 5.1.3, Sub-Section and Sub-Section of the Application Form]; 3. Fully completed on-line Individual Questionnaires ( IQs ) 6 for all PCFs including directors and hard-copy IQs for individual qualifying shareholders; 4. Shareholder information including group structure and required supporting documentation (see Sub-Section 6 of the Application Form). This should also include the impact of close links and applicability of consolidated supervision; 6 Regulatory Transactions ( RTD ) is a division within the Central Bank whose responsibilities include managing and improving current processes as well as the fitness and probity process for new Pre- Approval Controlled Function ( PCF ) holders. As part of the MiFID application process but after the preliminary meeting, once the applicant firm communicates to the Central Bank that it wishes to proceed with submitting a MiFID Application Form, the applicant firm must the following information to the Central Bank pertaining to its nominated Systems Administrator: - Name of proposed person; - Telephone Number of proposed person; and - Address of proposed person. The nominated System Administrator will then have the capability to file IQs on-line that pertain to the applicant firm s PCFs. RTD will contact the applicant firm to notify it that the Systems Administrator has received the requisite capability in order for the filing to commence. Page 10 of 63

11 (Note: IQs for individual Qualifying Shareholders must be submitted in paper based hard copy format) 5. Financial Projections for the first 3 years of operation (with detailed notes explaining each line item). This must include: (a) P&L and Balance Sheet for the first three years (year 1 of the P&L account to be in monthly format); (b) Audited Accounts and latest management accounts (where applicable); (c) Regulatory Capital Calculations for year 1; and (d) Details of any charges, guarantees, indemnities or other security to third parties; 6. National Discretion / Derogation requests under the Capital Requirements Regulations and S.I. No. 158 of Required Client Asset Documentation specified at Appendix 1 (if applicable); and 8. Arrangements for both the orderly and forced winding down of the firm which ensures the protection of client assets and fair treatment of clients. Return of Application The Central Bank will return the application to the firm if it is incomplete on receipt. The timeframe undertaken by the Central Bank to make a determination on the application will not commence until a complete application is submitted. Stopping / Starting the Central Bank s determination timeframe Without prejudice to Regulation 15 of the MiFID Regulations, upon receiving a complete application, the Central Bank s determination timeframe as set out on Page 9, No. 5 of this Guidance Note will be stopped and no longer apply under the following circumstances: 1. Any material changes (e.g. change to business model, investment services/financial instruments applied for etc.) made to the applicant s Business Plan at any time during the review process; 2. Any changes to the applicant s shareholder structure during the review process; and / or 3. Where the applicant fails to respond to comments from the Central Bank for a period exceeding 20 or 10 working days, as the case may be. Page 11 of 63

12 The Central Bank will at its discretion commence a new determination timeframe, as described on Page 9, No. 5 of this Guidance Note and apply it in accordance with Regulation 15 (1) of the MiFID Regulations, at the point which caused the previous timeframe to be stopped, once it is satisfied that the application can proceed. Page 12 of 63

13 2.2 Level 2 Applicant Firms The following applies to Level 2 Applicant Firms: Process 1. Key Facts Document ( KFD ) (a) Applicant firms will complete a KFD (see Appendix 3 attached) (b) The Central Bank will review the KFD and i. Revert to the applicant firm in writing with any comments on the KFD as soon as possible but expected to be no later than within 20 working days;; and ii. Arrange a preliminary meeting with the applicant as soon as possible but expected to be no later than 20 working days of receiving an acceptable KFD. The meeting will be scheduled for the earliest possible date. If the KFD does not contain, or is deficient in relation to, the information required it will not be considered and the applicant firm will be asked to revise and resubmit it with the appropriate level of detail. 2. Preliminary Meeting A preliminary meeting will be held with all applicant firms in advance of an application being made. (a) The KFD will form the basis for the preliminary meeting. (b) The Central Bank will confirm to the applicant the level, at which the application will fall under. (c) The applicant firm will be informed of the Central Bank s authorisation process and timeframes. (d) The Central Bank will advise the applicant of significant issues that are apparent at this juncture that would negatively impact the Central Bank s determination of the application if the firm wishes to proceed to make an application for authorisation Page 13 of 63

14 3. Receipt and Acceptance of a complete Application (a) Acknowledgement of complete applications will issue by the Central Bank within 10 working days with any comments to follow subsequently within the specified timeframe (see below). (b) Incomplete applications will be returned (see below). The Central Bank will set out why the application is incomplete in this correspondence within 10 working days. 4. Review of the Application (a) The Central Bank will issue comments to the applicant firm within 40 working days of receipt of the application; (b) The applicant firm must respond within 20 working days of receiving first comments; (c) Second comments will be issued to the applicant firm within 20 working days; (d) The applicant firm must respond within 10 working days of receiving second comments; (e) Final comments will be issued to the applicant firm within 10 working days; and (f) The applicant firm must respond within 10 working days of receiving final comments. It is expected that all issues / comments will be addressed in the applicant firm s third submission and therefore the Central Bank will not review more than four submissions before reaching a decision on the application. In order to be in a position to meet its targets on an application for authorisation, the Central Bank does not intend to engage in an exhaustive analysis of the information provided and therefore the onus is on the applicant firm to ensure all information meets with the relevant requirements in the application form and where applicable this should be verified by the applicant prior to making its filing. 5. Decision on the Application A determination will be made on the application within 120 working days of receipt of a complete application. Page 14 of 63

15 Complete Application An application will not be accepted by the Central unless it is complete, i.e., includes the following: 1. Fully completed (all tick boxes and page references must be filled in where applicable) and signed Application Form; 2. A detailed Business Plan which must include details of each of the following: (a) Business strategy along with a business model that illustrates the regulated investment service(s) to be provided to clients (See Sub-Section 2.5 of the Application Form); (b) High level overview of non-iia / non-mifid activity to be carried out (if applicable) [See Sub-Section 2.7 of the Application Form]; (c) Organisational structure chart along with staff numbers, their roles, responsibilities and reporting lines, Pre-Approval Controlled Functions ( PCF ) and details of their experience (See Sub-Section and Sub-Section of the Application Form); (d) Corporate Governance Arrangements, e.g., board of directors, committees (if any) [See Sub-Section 5.1.3, Sub-Section and Sub-Section of the Application Form]; (e) Outsourcing of critical or important functions (See Sub-Section 8.6 of the Application Form); (f) Compliance Policy (See Sub-Section 8.1 of the Application Form); (g) Risk Management Policy (See Sub-Section 8.2 of the Application Form); (h) Internal Audit Policy (See Sub-Section 8.3 of the Application Form); (i) Conflict of Interest Policy (See Sub-Section 8.4 of the Application Form); (j) Business Continuity Overview (See Sub-Section 8.5 of the Application Form); 3. Fully completed on-line Individual Questionnaires ( IQs ) 7 for all PCFs including directors and hard-copy IQs for individual qualifying shareholders; 7 Regulatory Transactions ( RTD ) is a division within the Central Bank whose responsibilities include managing and improving current processes as well as the fitness and probity process for new Pre- Approval Controlled Function ( PCF ) holders. As part of the MiFID application process but after the preliminary meeting, once the applicant firm communicates to the Central Bank that it wishes to proceed with submitting a MiFID Application Form, the applicant firm must the following information to the Central Bank pertaining to its nominated Systems Administrator: - Name of proposed person; - Telephone Number of proposed person; and - Address of proposed person. Page 15 of 63

16 (Note: IQs for individual Qualifying Shareholders must be submitted in paper based hard copy format) 4. Shareholder information including group structure chart and required supporting documentation (see Sub-Section 6 of the Application Form). This should also include the impact of close links and applicability of consolidated supervision; 5. Financial Projections for the first three years of operation (with detailed notes explaining each line item). This must include: (a) P&L and Balance Sheet for the first three years (year 1 of the P&L account to be in monthly format); (b) Audited Accounts and latest management accounts (where applicable); (c) Regulatory Capital calculations for Year 1; (d) Details of any charges, guarantees, indemnities or other security to third parties; 6. Draft Internal Capital Adequacy Assessment Process ( ICAAP ); 7. National Discretion / Derogation requests under the Capital Requirements Regulations and S.I. (S.I. No. to be inserted after transposition); 8. Required Client Asset Documentation specified at Appendix 1 (if applicable); 9. For applicants who intend to provide services to retail investors, the applicant firm s policy in relation to compliance with conduct of business rules; and 10. Arrangements for the orderly and forced winding down of the firm which ensures the protection of client assets and fair treatment of clients. The nominated System Administrator will then have the capability to file IQs on-line that pertain to the applicant firm s PCFs. RTD will contact the applicant firm to notify it that the Systems Administrator has received the requisite capability in order for the filing to commence. Page 16 of 63

17 Return of Application The Central Bank will return the application to the firm if it is incomplete on receipt. The timeframe undertaken by the Central Bank to make a determination on the application will not commence until a complete application is submitted. Stopping / Starting the Central Bank s determination timeframe Without prejudice to regulation 15 of the MiFID Regulations, upon receiving a complete application, the Central Bank s determination timeframe as set out on Page 9, No. 5 of this Guidance Note will be stopped and no longer apply under the following circumstances: 1. Any material changes (e.g. change to business model, investment services/financial instruments applied for etc.) made to the applicant s Business Plan at any time during the review process; 2. Any changes to the applicant s shareholder structure during the review process; and / or 3. Where the applicant fails to respond to comments from the Central Bank for a period exceeding 20 or 10 working days, as the case may be. The Central Bank will at its discretion commence a new determination timeframe, as described on Page 14, No. 5 of this Guidance Note and apply it in accordance with Regulation 15 (1) of the MiFID Regulations, at the point which caused the previous timeframe to be stopped, once it is satisfied that the application can proceed. Page 17 of 63

18 3.0 Obligations of an Investment Firm An applicant firm must familiarise itself with the obligations and requirements of an investment firm authorised under the MiFID Regulations and such obligations and requirements will include but are not limited to the following: MiFID Regulations; Books and Records Requirements as published by the Central Bank; Capital Requirements Regulation (EU) No. 575/2013 and S.I No.; (S.I. No. to be inserted after transposition) Section 32D of the Central Bank Act 1942 (as inserted by the Central Bank Reform Act, 2010) Supplementary Supervisory Requirements 8 The Investor Compensation Act, 1998 (as amended); The Criminal Justice (Money Laundering and Terrorist Financing) Act 2010 (as amended); Client Asset Regulations 2015 for Investment Firms; Consumer Protection Code 2012; and Minimum Competency Code Successful applicant firms are issued with a letter of authorisation by the Central Bank that sets out their authorisation requirements and any conditions of authorisation. 4.0 Post Authorisation The Central Bank authorises investment firms on the basis of the information provided as part of the application process and in this regard all investment firms will be required to operate in accordance with the information provided in support of its application for authorisation and in accordance with applicable legislation and requirements. The Central Bank will expect that a proven track record in accordance with the original application (including the business plan) be displayed before a newly authorised investment firm can amend/expand its investment services. The application must therefore cover activities that are proposed to be undertaken in the first twelve months post authorisation. 8 Available on the Central Bank website. Page 18 of 63

19 Investment firms must monitor and, on a regular basis, evaluate the adequacy and effectiveness of the policies and procedures, systems, internal control mechanisms and arrangements in place (ensuring that they are kept up to date) and promptly take appropriate measures to address any deficiencies. Policies and procedures must be kept up to date and be made available to the Central Bank, for review, upon request. Once authorised the firm will be subject to prudential supervision under the Central Bank s PRISM TM framework. PRISM TM is a risk based framework for the supervision of all entities regulated by the Central Bank. Detailed guidance can be found on the Central Bank s website. Page 19 of 63

20 5.0 Application Form Please take time to read these notes carefully. Application Form correctly. They will help you complete the The application form is comprised of two Sections: Section A Core Details Form (applicable to all applicant firms); and Section B Level 2 specific details Form (applicable only to level 2 firms). Thus Level 1 firms complete Section A; and Level 2 firms complete Sections A and B. (Depending on the nature of the applicant s proposed services, Appendix 1 and / or Appendix 2 may also be required to be completed) It is important when completing the form that you provide accurate and complete information and disclose all the relevant information. Page 20 of 63

21 5.1 Section A Core Details Form (Applicable to all applicant firms) Sub-Section 1: Structure and Head Office App. Form Ref. 1.1 This name must mirror the constitutional document and the name registered with the Companies Registration Office at date of filing this application form. 1.2 No additional notes. 1.3 The registered trading name that the applicant firm will use for the branding of its services, promotions, advertising etc. 1.4 No additional notes No additional notes No additional notes. 1.6 This address must mirror the registered address lodged with the Companies Registration Office. 1.7 What constitutes a head office / principal place of business is a matter to be determined, given the particular circumstances of each case. In general, the Central Bank interprets head office / principal place of business to mean the location of the mind and management of the applicant firm and the place where the day-to-day decisions about the direction of the applicant firm s business are taken. While the onus of meeting the statutory requirements and satisfying the Central Bank that adequate and effective control of an entity rests in Ireland (not abroad) lies with the applicant firm, some guidance on what the Central Bank would expect to see is set out below. This is not intended to be a formula for meeting the head office / principal place of business requirement. However, it does provide an indication of what the Central Bank will expect to see in this respect. The Central Bank will expect decision making at board and committee level to take place within the State. In addition, to ensure the central management is located within the head office / principal place of business, its functions must include: Financial control; Legal and compliance; and Page 21 of 63

22 Risk management. It follows that there should be a significant senior management presence (within the applicant) in Ireland to ensure that full authority and effective control of the applicant rests within the head office / principal place of business. 1.8 This must be someone who possesses knowledge of the applicant firm s business model and its requirements under the MiFID Regulations and must be someone who works for / will work for the applicant firm if and when authorised, and not a professional advisor No additional notes If completed by a tick by the applicant firm, the Central Bank with this permission from the applicant firm will copy the professional advisor in on correspondence pertaining to this application No additional notes No additional notes If the applicant firm has, or is in the course of developing a website or presence on other social media, please provide the name and its approximate launch date No additional notes No additional notes Depending on the legal structure of the partnership, these may be PCFs and where this is the case an on-line filing must be made as part of this application. Where the role is not a PCF, please submit the IQ in hard-copy format as part of the application. Please refer to Schedule 2 of S.I. No. 437 of 2011 / The Central Bank Reform Act 2010 (Section 20 and 22) Regulations 2011 (as amended) for list of PCFs No additional notes No additional notes. Page 22 of 63

23 5.1.2 Sub-Section 2: General Business Information App. Form Ref This relates to the places of business in the State other than the address listed in Section 1.7 where the applicant firm will be operating from and identification of the head (of management) of those places of business No additional notes No additional notes In addition to providing the address and head (of management) of offices identified, the applicant firm must also provide a concise description of the activities currently carried out or proposed to be carried out outside the State. The description must be sufficiently clear to ascertain the precise objective and nature of activity and whether it falls to be a regulated / non-regulated activity. 2.2 This must cover the period from date of incorporation. If yes, a description of each activity must be provided and be sufficiently clear to ascertain the precise nature and objective of each activity carried out. 2.3 These must mirror the investment services and financial instruments that were disclosed in the Key Facts Document received by the Central Bank and discussed at the subsequent meeting. 2.4 These must mirror the investment business services and/or investment instruments that were disclosed in the Key Facts Document received by the Central Bank and discussed at the subsequent meeting The applicant firm in its Business Plan must outline its business strategy and provide clear details of its business model for each investment (business) service and ancillary service that is ticked The business model for each investment (business) service and ancillary service that is ticked must also contain the following information in the Business Plan: The details of each service must be clearly outlined including details of the transaction flow from start to finish of the business process (e.g. from initial interaction with the client to carrying out the transaction on the trading venue or with another service provider vendor). The transaction flow may include a diagrammed transaction flow and a detailed narrative in relation to each leg of the transaction must also be provided. Page 23 of 63

24 The transaction flow must outline each leg of the transaction and the function 9 within the applicant firm responsible for performing that leg No additional notes No additional notes See definition of Systematic Internaliser in Regulation 3 (1) of the MiFID Regulations. Where the applicant firm proposes to act as a Systematic Internaliser the Central Bank will seek other disclosures / requirements but these will be notified to the applicant at the preliminary meeting stage and the various requirements will be on a case-by-case basis No additional notes. 2.8 A detailed overview of the nature and objective of all Other Regulated (for example insurance mediation business) and non-regulated services / activities (to be) carried out must be disclosed in the Business Plan along with details of the function 10 within the applicant firm that is / will be responsible for carrying out the activity or activities. 2.9 The MiFID and IIA service(s) must specify the particular investment (business) service as set out in the legislation. The category Other Regulated must specify the applicable piece of legislation that the activity falls under. Non-regulated relates to lines of business carried out by the applicant firm not requiring regulation by the Central Bank and a heading describing each line of activity must also be inserted. For each line item the applicant firm must estimate the number of clients to be serviced in Year 1 in respect of each specific activity and also the percentage of total income projected in Year 1 that will be attributed to that activity This relates to the provision of regulated activities only This relates to the provision of non-regulated activities only This includes regulated or a combination of both regulated and non-regulated activity (as the case may be) % indicates that the applicant firm will not at any time be providing investment services to that category of client If the applicant firm proposes to hold client assets, please also complete Appendix 1 in the Application Form Where the applicant firm proposes to appoint a tied agent in another EEA Member State, Section 2.13 of the Application Form relating to the establishment of a branch 9 Cross-refer to the firm s staff organisational chart. 10 Cross-refer to the firm s staff organisational chart. Page 24 of 63

25 must also be completed. Regulation 127(2) states that where an investment firm uses a tied agent established in a member state outside the state, the tied agent shall be assimilated to the branch, and is subject to the provisions of the MiFID Regulations relating to branches i.e. the appointment of tied agents in another member state requires a de facto branch notification No additional notes No additional notes No additional notes No additional notes No additional notes The applicant firm must include in its Business Plan the role and responsibilities of the branch and how these are linked to the operation carried out in the principal business address of the applicant. This section of the Business Plan must also set out the category and profile of clients the branch will be servicing as well as how such clients will be sourced and the services to be provided. Where the applicant firm proposes to establish a branch, the group and staff organisational charts must incorporate the branch and the branch staff in the charts along with the reporting lines of the branch staff (ensure that the staff organisational chart makes the distinction of where all the applicant firm s staff are employed, i.e. the principal office or the branch). It must also be described how the Managing Director / Chief Executive of the applicant maintain oversight of the branch as well as how the Head of the Branch oversees the operations of the branch. The Business Plan must also disclose summary details of arrangements it has in place in order to comply with client asset rules (if applicable), local conduct of business rules, anti-money laundering along with monitoring and controlling critical outsourcing (if applicable). The financial projections of the applicant firm must also incorporate the running of the branch as well as its costs of establishment The board is required to provide separate detailed plans for an orderly and forced wind-down. Each plan must include specific action and trigger points and must be constructed on a phased basis, with each phase clearly setting out the projected timelines for that phase and the resources (in terms of costs and manpower) needed Page 25 of 63

26 to conclude each and every stage. Each plan must also clearly demonstrate how client assets are protected (if applicable) and how fair treatment of clients is ensured until the firm is successfully wound down. In addition, each plan must also demonstrate how the firm would be financially prepared if a wind-down situation arose. The applicant firm s Internal Capital Adequacy Assessment Process ( ICAAP ) must provide for the costs of a wind-down scenario. Page 26 of 63

27 5.1.3 Sub-Section 3: Financial Information App. Form Ref The financial projections must be submitted in hard-copy and in the following format: (a) The projected period must commence at Day 1 of the proposed authorisation period and each period must be titled Year 1, Year 2 and Year 3. (b) The Profit and Loss Account must be in the following format: Income Less Expenses = Gross Profit Less Taxation = Net Profit Less Dividends (if any) = Retained Profit. (c) Only Year 1 of the Profit and Loss Account must be broken up into monthly periods. Year 2 and Year 3 need not be broken up into monthly periods and therefore yearly totals provided for each. (d) The Income section of the Profit and Loss Account must be broken up into separate line items that distinguish between the different investment (business) services, other regulated / non-regulated activities carried out. Each line item must account for the income projected for each activity as highlighted in Section 2.8 of the Application Form. (e) The applicant firm must provide workings / detailed calculations for each month / year in order for the Central Bank to reconcile the projected income to be derived from that line of activity against its assumptions for that activity (for example in the case of an investment management fee: projected assets under management X rate of fee). (f) The Expenses Section of the Profit and Loss Account must break down each individual expense item to the extent that distinguishes between the different categories of expenses. For example, categories of expense will include salaries, rent, utilities, subscriptions etc. and therefore need not be broken down any further. Furthermore where an applicant firm is not currently trading it must be clear how the applicant s set up costs are borne and where borne by the applicant, the Central Bank expects to see management accounts providing for them. (g) The Regulatory Levy and fee to the Investor Compensation Company Page 27 of 63

28 Limited must be included as separate line items in the Expenses section of the Profit and Loss Account. (h) The Retained Profit/Loss must also incorporate the latest financial position of the applicant firm, i.e. where an applicant is currently trading it must carry forward its latest 11 (available) retained profit/loss. (i) The Balance Sheet must be in the following format: Fixed Assets + Current Assets Less Current Liabilities = Net Assets = Shareholders Funds. (j) It is critical that the applicant firm ensures that the Retained Profit / Loss figure in the Balance Sheet reconciles with the Profit and Loss Account while ensuring in cases where an applicant is currently trading, its retained profit / loss figures to date (based on audited accounts and/or latest management accounts) are accurately being carried forward into the projections. (k) The applicant firm must provide a note describing all line items accounted for in the Profit and Loss Account and Balance Sheet. The description can be appropriately brief as long as it is sufficiently clear what the entry is providing for. Furthermore, where an amount in a line item is fluctuating by greater than 10% per year [or month in the case of Year 1 of the Profit and Loss Account (only)] an explanation must be provided in the note to explain the rationale behind the movement The Management Accounts must be the latest available at the time. The Central Bank reserves the right to request more updated management accounts as the application progresses in order to assess the updated capital position of the applicant firm No additional notes. 3.3 No additional notes. 11 Including latest unaudited period. Page 28 of 63

29 5.1.4 Sub-Section 4: Capital Requirements App. Form Ref. 4.1 See investment firm definition under Article 4(1) (2) of Capital Requirements Regulation (EU) No. 575/2013 ( CRR ). 4.2 The legislative reference must be to S.I. No. (S.I. No. to be inserted after transposition) 4.3 (1) Article 92 of the CRR; (2) Article 95(1) and Article 92 of the CRR; (3) Third sub-paragraph of Article 95(2) of the CRR (i.e. for firms referred to in point 2(c) of Article 4(1) of the CRR that provide the investment services and activities listed in points (2) and (4) of Section A of Annex 1 to Directive 2004/39/EC the applied competent authority discretion to apply the own funds requirements that would be binding on those firms according to national transposition measures in force on 31 December 2013 for Directives 2006/48/EC and 2006/49/EC); and (4) Article 96(1) and Article 92 of the CRR. 4.4 Where applicable, the Business Plan must provide detailed calculations as to how the applicant firm is calculating risk weighted exposure amounts / capital requirements for all of its risks. The applicant firm must use its Profit and Loss Account and Balance Sheet as at the end of its projected Year 1 period as the reference period for its regulatory capital requirement. Section The calculations for each risk must include the CRR reference and approach taken in attaining the final risk requirement figure (for example, in respect of Credit Risk the Central Bank will require the relevant CRR reference and approach taken for assigning to an asset item the particular risk weighting). Figures shown should be after applying Article 92(4) of the CRR. Section This section applies to those applicant firms referred to in the third sub-paragraph of Article 95(2) of the CRR i.e. firms referred to in point 2(c) of Article 4(1) of the Page 29 of 63

30 CRR that provide the investment services and activities listed in points (2) and (4) of Section A of Annex 1 to Directive 2004/39/EC to which the competent authority discretion to apply the own funds requirements that would be binding on those firms according to national transposition measures in force on 31 December 2013 for Directives 2006/48/EC and 2006/49/EC applies. The calculations for each risk must include the CRD reference and approach taken in attaining the final capital requirement figure (for example, in respect of Credit Risk the Central Bank will require the relevant CRD reference and approach taken for assigning to an asset item the particular risk weighting). A detailed calculation must also be provided in respect of the Fixed Overhead Requirement Common Equity Tier 1 items (CET1) must comply with Article 26 of the CRR, Additional Tier 1 items must comply with Article 51 of the CRR and Tier 2 items must comply with Article 62 of the CRR and deductions made from regulatory capital must be in accordance with Part Two of the CRR. Under the Category of Capital column the applicant should insert the relevant tier of capital CET1, Additional Tier 1 or Tier No additional notes No additional notes. 4.6 No additional notes Where the applicant firm is part of a group, a submission must accompany the application explaining why consolidated supervision will (including identification of the level) / will not apply to the applicant firm. Additionally the rationale for the answer must be justified by reference to the CRR / CRD IV. This information must also be accompanied by the full group structure chart including an explanation of what activity each company in the group carries out and the regulatory status of each group company (if regulated, the name of the regulatory body must be provided) See Note Where consolidated supervision will apply the applicant firm must provide projected consolidated Profit and Loss Account and Balance Sheet at the level where consolidated supervision will apply, for the first three years post authorisation of the applicant, along with a note explaining each line item (see Note (b) and (i) for details on the format of the accounts). Page 30 of 63

31 4.7.3 Where consolidated supervision will apply, the applicant firm must also provide a projected consolidated capital requirement at the level where consolidated supervision will apply. The firm must provide a detailed note with the calculation explaining how the capital requirement is calculated with reference to the consolidated Profit and Loss and Balance Sheet. The Central Bank reserves the right to comment on the calculation and notes provided. 4.8 Where a National Discretion is to be applied for, ensure the specific legislative reference is provided. (Section to be updated in order to refer to Implementation of the CRR document when it becomes available) Where a derogation is requested, ensure a detailed submission containing all the legislative references are contained in the submission that accompanies the main application. Where applicable, the submission must also demonstrate how the applicant firm meets any criteria / requirements specified in the relevant legislation. Page 31 of 63

32 5.1.5 Sub-Section 5: Organisational Structure App. Form Ref The Business Plan must include the applicant firm s organisational chart that captures all staff (to be) employed 12 at commencement of authorisation with a clear indication if any individual who will be employed on a part-time basis. Where no such indication made, it will be assumed that the staff member will be employed on a full-time basis. The chart must clearly highlight: (i) the function each staff member is responsible for and their reporting line within the applicant firm and in addition, the relevant reporting line to the board; and (ii) whether an individual has more than one function within the applicant firm (e.g. carries out both the compliance and risk functions) and also clearly identity whether a staff member holds a PCF. The Business Plan must also disclose the main (4-5) responsibilities of the applicant firm s senior management. The Central Bank expects the organisational chart to mirror that set out in the KFD received by the Central Bank or subsequently agreed with the Central Bank prior to the applicant being told it may file its application The Business Plan also needs to contain a brief biography of each person carrying out a PCF in the applicant firm in order to highlight their qualifications, expertise and experience The Business Plan must also disclose the minimum reporting frequency by senior managers to the Managing Director / Chief Executive as well as the minimum reporting frequency by the Managing Director / Chief Executive to the board Identification of board members along with the minimum frequency of board meetings and location (which are required to be in the State) of the board meetings 12 Includes direct employment through a contract of employment, a secondment arrangement or an outsourcing arrangement. Page 32 of 63