Out-Law Analysis | 18 Jun 2018 | 12:52 pm | 4 min. read
At a recent event senior representatives of the Central Bank of Ireland told an audience of firms and advisers that applicants who do not begin the process in the next few weeks will find it very difficult to obtain authorisation by March 2019.
Firms were also urged to ensure that they were submitting sufficient information to the regulators as part of their applications, and to consider seriously their plans for investment, staffing and economic substance in Ireland as part of any future business model. Firms will not be permitted to view the Irish entity as a brand or subsidiary, or to delegate as many of their regulatory functions back to the UK as they are perhaps used to.
If you plan to seek authorisation in the next few weeks you must carefully consider your operating model, accepting that your organisational structure could be different and that the Central Bank may require you to change your current models where appropriate. You must also incorporate contingency plans reflecting Brexit risk into your application, taking into account the different possible outcomes to the negotiations between the UK and EU on their future trading relationship.
Deputy governor for prudential regulation Ed Sibley set out the general factors that the Central Bank will consider in respect of any financial firm seeking authorisation:
For fund managers
Director of asset management supervision Michael Hodson said that fund managers seeking top-up permissions had to appreciate that additional permissions meant that the firm's risk profile would change.
In that context, Hodson said that he had been surprised and disappointed by the minimalist approach that some managers were taking to the substance requirements in their initial applications. He said that, while the Central Bank accepts that delegation is an important and necessary part of a firm's day-to-day operating model, an overly minimalistic approach to substance has already caused applications to be delayed. Managers must change their mindset, accept that significant investment and substance in Ireland will be required as part of the new operating model and not view the Irish entity as a branch or subsidiary, he said.
In relation to timing, Hodson said that he had been particularly frustrated and surprised to see that applicants who had contacted the Central Bank for initial discussions and support in relation to their applications did not then immediately proceed to submit a formal application once they had been given the green light to do so. He noted that, with the anticipated date of the UK's departure from the EU fast approaching, the coming months would not be a 'business as usual' period for the Central Bank and that firms could not accept applications to be processed with the usual speed.
On the fund vehicle side, the Central Bank was critical of the limited focus by firms on their contingency arrangements in the context of Brexit. Speakers reminded us that a regulated firm is under an obligation to manage risk and protect investors. Firms should therefore have contingency plans in place to manage Brexit risk, taking into account the difficult possible outcomes to the negotiations.
For more information about the different Irish operating models that UK fund managers could adopt, see our detailed Out-Law guide.
Andrew Candland, who heads up the Central Bank's actuarial, analytics and advisory division, said that UK and Gibraltar insurers which currently write business in Ireland should now be urgently thinking about contingency planning. The Central Bank wrote to these firms in March 2018 setting out their expectations in this regard.
All boards should be asking themselves three questions as part of their contingency plans:
Candland also said that firms had to be very clear about the point at which the contingency plan needed to be triggered.
On contract continuity, the general consensus now is that contracts to write business in Ireland will remain valid post-Brexit. However, firms will need to assess whether they can continue to service those contracts following the loss of passporting rights after the UK leaves the EU.
The UK position
The UK's Financial Conduct Authority (FCA) is currently working to the presumption that, although the UK will leave the EU in March 2019, a transition period will take effect. This transition period will run until the end of December 2020, according to the latest version of the draft withdrawal agreement between the UK and EU.
Speaking at the FCA's 2018 asset management conference, chief executive Andrew Bailey said that it was in the interests of both the UK and EU to avoid a 'cliff edge' at the point of Brexit. It is Bailey's view that equivalence "should be feasible" and the regulator is working off a strong presumption that the UK will be deemed equivalent on day one of Brexit.
Bailey said that the focus in the future would need to be on where the material differences are with respect to the UK and EU regimes post-Brexit. There are mutual benefits of continued access for both the UK and EU, and protectionism will not lead to market stability, he said.
Marilyn Cooney and Gayle Bowen are Dublin-based financial services expert at Pinsent Masons, the law firm behind Out-Law.com.