S.I. No. 375/2017 - European Union (Markets in Financial Instruments) Regulations 2017

• (ii) under any enactment under which the Bank performs functions, or

• (iii) involving fraud, dishonesty or breach of trust;

• (b) circumstances have materially changed since the granting of the authorisation such that, if an application for the authorisation were made at the time of the application to the Court, a different decision would be taken in relation to the application for authorisation;

• (c) the authorisation was obtained by a person knowingly or recklessly—

• (i) making false or misleading statements, or

• (ii) using false or misleading information;

• (d) the investment firm has systematically failed to comply, or failed to comply to a material degree, with a condition provided in, or a requirement of, these Regulations or Regulation (EU) No 600/2014;

• (e) the investment firm no longer fulfils any or all of the conditions or requirements which were—

• (i) imposed when the authorisation was granted, or

• (ii) subsequently imposed;

• (f) the investment firm—

• (i) no longer complies with capital or any other financial requirements specified by the Bank, or

• (ii) is not maintaining, or is unlikely to be able to maintain, having regard to the nature and volume of the firms business adequate capital resources or adequate other resources;

• (g) the investment firm becomes unable or, in the opinion of the Bank, is likely to become unable, to meet its obligations to its creditors or suspends payments lawfully due;

• (h) the investment firm has infringed to a material degree a code of conduct or rules of conduct or regulations issued under the Central Bank Acts 1942 to 2015;

• (i) a director, manager or qualifying shareholder of the investment firm no longer satisfies the Bank as to the matters specified in Regulation 9(1)(c) and (4);

• (j) the investment firm—

• (i) has not complied with a condition, requirement or direction imposed by or under these Regulations or Regulation (EU) No 600/2014, and

• (ii) the circumstances are such that the Bank is of the opinion that the stability and soundness of the firm is or has been materially affected by the non-compliance;

• (k) the investment firm has so organised its business or corporate structure that—

• (i) the firm, and

• (ii) where appropriate, any related undertaking or associated undertaking,

either collectively or individually, is no longer capable of being supervised to the satisfaction of the Bank under these Regulations or Regulation (EU) No 600/2014.

• (3) On an application by the Bank to the Court under this Regulation, the Court may make such interim or interlocutory orders as it thinks fit in the circumstances.

• (4) An application by the Bank to the Court under this Regulation may be heard otherwise than in public.

• (5) The Bank shall not apply to the Court to revoke an authorisation on the grounds set out in paragraph (2)(i) unless the Bank has given the investment firm concerned an opportunity to—

• (a) remove the director, manager or qualifying shareholder, or

• (b) otherwise deal with the concerns of the Bank in relation to the probity or competence of the director, manager or qualifying shareholder,

within such period as the Bank may specify.

Notice of proposed withdrawal of authorisation and publication of withdrawal

• (a) serve notice on the investment firm of its intention, and

• (b) state its reasons in the notice.

• (2) Within 28 days after the withdrawal or revocation of an authorisation of an investment firm, the Bank may publish notice of the withdrawal or revocation in the Iris Oifigiúil or in one or more newspapers circulating in the State.

Prohibition against false or misleading application for investment firm authorisation

• (a) apply for an authorisation to operate as an investment firm using false or misleading information, or

• (b) make false or misleading statements to the Bank in relation to an application for—

• (i) an authorisation in respect of an investment firm, or

• (ii) an approval or permission from the Bank concerning the operation of an investment firm.

PART 3 REGULATION AND SUPERVISION OF INVESTMENT FIRMS

Chapter 1 Management bodies and persons with qualifying holdings

Management bodies

• (2) Without prejudice to the requirements under Regulation 79 of the European Union (Capital Requirements) Regulations 2014, the management body of an investment firm shall—

• (a) define, oversee and be accountable for the implementation of the governance arrangements that ensure effective and prudent management of the investment firm, including the segregation of duties in the investment firm and the prevention of conflicts of interest in a manner that promotes the integrity of the market and the interests of clients,

• (b) monitor, and periodically assess, the effectiveness of the investment firm’s governance arrangements and the adequacy of the policies relating to the provision of services to clients and take appropriate steps to address any deficiencies, and

• (c) monitor and periodically assess the adequacy and the implementation of the investment firm’s strategic objectives in the provision of investment services and activities and ancillary services and take appropriate steps to address any deficiencies.

• (3) The governance arrangements referred to in paragraph (2)(a) shall ensure that the management body defines, approves and oversees—

• (a) the organisation of the investment firm for the provision of investment services and activities and ancillary services, including—

• (i) the skills, knowledge and expertise required by personnel, and

• (ii) the resources, the procedures and the arrangements for the provision of services and activities,

taking into account the nature, scale and complexity of its business and all the requirements the investment firm has to comply with,

• (b) a policy as to services, products and operations offered and provided, in accordance with the risk tolerance of the investment firm and the characteristics and needs of its clients to whom they will be offered or provided, including carrying out appropriate stress testing, where appropriate,

• (c) a remuneration policy for persons involved in the provision of services to clients aiming to encourage responsible business conduct, fair treatment of clients as well as avoiding conflict of interest in the relationships with clients.

• (4) Members of the management body shall have adequate access to information and documents which are needed to oversee and monitor management decision-making.

• (5) When granting an authorisation the Bank may authorise members of the management body to hold one non-executive directorship additional to that allowed in accordance with Regulation 79 of the European Union (Capital Requirements) Regulations 2014.

• (6) The Bank shall regularly inform ESMA of authorisations given under paragraph (5).

• (7) An investment firm shall notify the Bank of all members of its management body and of any changes to its membership, together with all information needed to assess whether the firm complies with paragraphs (1) to (5).

• (8) An investment firm shall ensure that at least 2 persons meeting the requirements specified in Regulations 76 and 79 of the European Union (Capital Requirements) Regulations 2014 effectively direct the business of the investment firm.

• (9) However, notwithstanding paragraph (8), the Bank may grant an authorisation to an investment firm—

• (a) that is an individual, or

• (b) that is managed by an individual,

if the Bank is satisfied that there are arrangements in place which ensure the sound and prudent management of the investment firm and the adequate consideration of the interests of its clients and the integrity of the market and that the individual concerned is of good repute, possesses sufficient knowledge, skills and experience and commits sufficient time to perform his or her duties.

Shareholders and members with qualifying holdings

• (2) Before issuing a direction to a person under paragraph (1), the Bank shall notify the person of its intention to issue the direction and shall give the person an opportunity to make such representations on the matter as he or she may wish to make within a period specified by the Bank in the notification.

• (3) A direction issued under paragraph (1) is an appealable decision for the purposes of Part VIIA of the Act of 1942.

• (4) Where the Bank is of the opinion that a direction under paragraph (1) has not been complied with by the person concerned, or has not been complied with within the specified period of time, the Bank may, without prejudice to any of its other functions, apply to the Court in a summary manner for any one or more of the following:

• (a) an injunction prohibiting the person concerned from issuing directions to directors or to any manager, secretary, officer or staff of, or persons engaged by, the investment firm or market operator and prohibiting any director, manager, secretary, officer or any other person acting on behalf of the investment firm or market operator from seeking directions from, or consulting, the person concerned, or from acting on such directions without the consent of the Bank;

• (b) an order suspending the exercise by the person concerned of any interest in or voting rights attaching to shares held by that person in the investment firm or market operator;

• (c) an order requiring the person concerned to dispose of some or all of his shareholding, interests or rights in the investment firm or market operator within a period specified by the Court;

• (d) such other order as the Court considers appropriate.

• (5) Where the Court is satisfied, because of the nature or the circumstances of the case or otherwise in the interests of justice that it is desirable, the whole or any part of proceedings before it under this Regulation may be heard otherwise than in public.

• (6) The Bank shall refuse authorisation, taking into account the sound and prudent management of the investment firm, if it is not satisfied as to:

• (a) the suitability of the shareholders or members that have qualifying holdings; or

• (b) where close links exist between the investment firm and other natural or legal persons, and such links may prevent the effective exercise of the supervisory functions of the Bank.

Chapter 2 Proposed acquisitions and disposals

Interpretation of Chapter

“proposed acquirer”, in relation to an investment firm, means a person who proposes to make a relevant acquisition in the investment firm and includes a group of persons acting in concert to make such a relevant acquisition;

“proposed disponer”, in relation to an investment firm, means a person who proposes to make a relevant disposal in the investment firm;

“relevant acquisition”, in relation to an investment firm, means an acquisition by which, whether directly or indirectly, a qualifying holding in the investment firm is acquired, or a qualifying holding in the investment firm is increased, and as a result of which—

• (a) the percentage of the voting rights or capital held by the proposed acquirer would reach or exceed one or more of the percentages specified in paragraph (2), or

• (b) the investment firm would become a subsidiary of the proposed acquirer

and any reference to “proposed acquisition” is a reference to a proposed relevant acquisition;

“relevant disposal”, in relation to an investment firm, means a disposal by which a qualifying holding in the investment firm is, whether directly or indirectly, either disposed of or reduced so that—

• (a) the percentage of the voting rights or capital held by the proposed disponer would fall below one or more of the percentages specified in paragraph (2), or

• (b) the investment firm would cease to be a subsidiary of the proposed disponer.

• (2) The percentages referred to in—

• (a) subparagraph (a) of the foregoing definition of “relevant acquisition”, and

• (b) subparagraph (a) of the foregoing definition of “relevant disposal”,

are: 20%, 33% and 50%, each being a percentage of the total voting rights or, as the case may be, capital in the investment firm; each such percentage is subsequently referred to in this Chapter as a “threshold”.

Notification of proposed acquisitions

• (2) Before a proposed disponer makes a relevant disposal in an investment firm, the proposed disponer shall notify the Bank in writing, indicating the size of the intended holding.

• (3) The Bank may publish from time to time the form of notification to be used for the purpose of making a notification under paragraph (1) or (2) and the form standing so published shall be used for that purpose accordingly.

• (4) If a proposed acquirer is—

• (a) an investment firm, a credit institution, an insurance undertaking, an assurance undertaking, a reinsurance undertaking or a UCITS management company authorised in a Member State other than the State or in a sector other than that in which the acquisition is proposed,

• (b) the parent undertaking of an investment firm, a credit institution, an insurance undertaking, an assurance undertaking, a reinsurance undertaking or a UCITS management company authorised in a Member State other than the State or in a sector other than that in which the acquisition is proposed, or

• (c) a person controlling an investment firm, a credit institution, an insurance undertaking, an assurance undertaking, a reinsurance undertaking or a UCITS management company authorised in a Member State or in a sector other than that in which the acquisition is proposed,

and, if as a result of the relevant acquisition, the undertaking would become the acquirer’s subsidiary or come under the acquirer’s control, the assessment of the acquisition shall be subject to the prior consultation provided for in paragraphs (5) and (6).

• (5) In a case to which paragraph (4) applies, the Bank shall, without undue delay, provide any other competent authority concerned with any information that is essential or relevant for the assessment of a proposed acquisition and the Bank shall communicate to each such other competent authority all relevant information upon request and all essential information on its own initiative.

• (6) A decision by the Bank, having authorised the investment firm in which an acquisition is proposed, shall indicate any views or reservations expressed by the Bank or other competent authority responsible.

• (7) If an investment firm becomes aware of any acquisition or disposal of holdings in its capital that cause holdings to exceed or fall below any of the thresholds specified in Regulation 19(2), the investment firm shall inform the Bank without delay.

• (8) An investment firm shall inform the Bank, at least annually, of the names of shareholders and members possessing qualifying holdings and the sizes of such holdings.

• (9) Where a person fails to comply with the obligation to provide prior information in relation to the acquisition or increase of a qualifying holding in accordance with paragraph (1), the Bank shall take measures in accordance with paragraph (4) of Regulation 18 to put an end to that situation (and, accordingly, paragraph (4) of Regulation 18 applies in the case of a foregoing failure to comply as it applies in the case of a failure to comply with a direction under paragraph (1) of Regulation 18).

• (10) If a holding is acquired despite the opposition of the Bank, the voting rights of the acquired holding shall, if the Bank so directs, stand suspended for such period as the Bank specifies in the direction.

• (11) A person who concludes an acquisition to which paragraph (1) applies without having notified the Bank may make an application to the Court under this Regulation and the Court may, if it is satisfied that the failure was inadvertent and that it is in the interests of justice to do so, make an order—

• (a) requiring the person to provide the Bank with the information required under paragraph (1), and

• (b) requiring the Bank to carry out an assessment in accordance with paragraph (5) and Regulations 21 and 22.

• (12) An application under paragraph (11) shall be on notice to the Bank and the Bank shall be entitled to appear, be heard and adduce evidence at the hearing of the application.

• (13) Notice of an application under paragraph (11) shall be served on the Bank at least 14 days before the date of hearing of the application.

• (14) An affidavit giving the names and addresses of, and the places and dates of service on, all persons who have been served with the notice of application, grounding affidavit and exhibits (if any) shall be filed by the applicant at least 4 days before the application is heard.

• (15) Where any person who ought under this Regulation to have been served has not been so served, the affidavit shall state that fact and the reason for it.

• (16) Where the Bank carries out an assessment on foot of an order under paragraph (11), it may—

• (a) lift a suspension of voting rights under paragraph (10) and

• (b) retrospectively validate the exercise of voting rights during such a suspension.

Assessment period

• (2) The Bank shall carry out an assessment of the proposed acquisition within the period of 60 working days after the date of the written acknowledgement of receipt of the notification and the information required by the Bank (referred to in this Regulation as “the assessment period”).

• (3) In its acknowledgement of receipt of a notification referred to in paragraph (1), the Bank shall inform the proposed acquirer of the date on which the Bank is required to complete the assessment.

• (4) No later than the 50th working day after the beginning of the period within which the Bank is, under paragraph (2), required to complete the assessment, the Bank may request any additional information necessary to complete the assessment.

• (5) A request under paragraph (4) shall be made in writing and shall specify the additional information needed.

• (6) If the Bank makes such a request it shall acknowledge the receipt of any information received in response to the request.

• (7) If the Bank makes such a request for additional information the assessment period is taken to be interrupted for the shorter of—

• (a) the period between the date of the request and the date of the receipt of a response from the proposed acquirer, and

• (b) 20working days.

• (8) The Bank may request further information for completion or clarification of information already supplied but such a further request does not cause the assessment period to be interrupted.

• (9) The Bank may, by written notice to a proposed acquirer, extend the applicable period referred to in paragraph (7) in relation to a proposed acquisition by up to 30 working days if the proposed acquirer—

• (a) is a person situated or regulated outside the European Union, or

• (b) is a natural or legal person not subject to supervision under these Regulations or the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations 2011 ( S.I. No. 352 of 2011 ), the European Union (Insurance and Reinsurance) Regulations 2015 S.I. No. 485 of 2015 ) or the European Union (Capital Requirements) Regulations 2014.

• (10) If on completing the assessment of a proposed acquisition the Bank decides to oppose it, the Bank shall, within two working days and before the end of the assessment period, inform the proposed acquirer concerned in writing and give reasons for that decision.

• (11) Subject to section 33BC of the Act of 1942, the Bank shall publish an appropriate statement of the reasons for the decision if the proposed acquirer requests it to do so.

• (12) The Bank may publish such a statement even without any request by the proposed acquirer.

• (13) If the Bank does not give notice in writing within the assessment period in relation to a proposed acquisition that it opposes the acquisition, the acquisition is taken, for the purposes of any law that requires the acquisition to be approved by the Bank, to have been so approved.

• (14) The Bank may fix a maximum period within which the proposed acquisition is to be concluded (and the performance of the functions of the Bank under this Chapter in relation to the proposed acquisition is to be completed) and may extend that maximum period where appropriate.

Assessment

• (a) the reputation of the proposed acquirer;

• (b) the reputation and experience of the individuals who will direct the business of the investment firm as a result of the proposed acquisition;

• (c) the financial soundness of the proposed acquirer, in particular in relation to the type of business pursued and envisaged in the investment firm in which the acquisition is proposed;

• (d) whether the investment firm will be able to comply and continue to comply with the prudential requirements in these Regulations and, where applicable, prudential requirements based on Directives other than the Directive, in particular by the European Communities (Financial Conglomerates) Regulations 2004 ( S.I. No. 727 of 2004 ), the European Union (Capital Requirements) Regulations 2014 or the European Union (Capital Requirements) (No.2) Regulations 2014 ( S.I. No. 159 of 2014 );

• (e) whether the group of which it will become a part has a structure that makes it possible to exercise effective supervision, effectively exchange information among the competent authorities and determine the allocation of responsibilities among the competent authorities;

• (f) whether there are reasonable grounds to suspect that, in connection with the proposed acquisition, money laundering or terrorist financing (within the meaning of Article 1 of Directive 2005/60/EC) is being or has been committed or attempted, or that the proposed acquisition could increase the risk of money laundering or terrorist financing.

• (2) The Bank may oppose the proposed acquisition only if there are reasonable grounds for doing so on the basis of the criteria set out in paragraph (1) or if the information provided by the proposed acquirer is incomplete.

• (3) The Bank shall not—

• (a) examine a proposed acquisition in terms of the economic needs of the market, or

• (b) impose prior conditions in respect of the level of holding that must be acquired,

but without prejudice to subparagraph (b), if the Bank has given notice in relation to a proposed acquisition that the Bank does not oppose the acquisition, the Bank may impose either a condition or a requirement or both, being a condition or a requirement that the Bank considers necessary for the proper and orderly regulation and supervision of an investment firm and may at any time revoke or vary any condition or requirement so imposed.

• (4) Where two or more proposals to acquire or increase qualifying holdings in the same investment firm have been notified to the Bank, the Bank shall treat the proposed acquirers in a non-discriminatory manner.

• (5) The Bank shall make publicly available a list specifying the information that is necessary to carry out the assessment and that must be provided to the relevant competent authorities at the time of the notification referred to in Regulation 20(1).

• (6) The information referred to in paragraph (5) shall be proportionate, and adapted, to the nature of the proposed acquirer and the proposed acquisition.

• (7) The Bank shall not require information, as referred to in paragraph (5), that is not relevant for a prudential assessment.

Chapter 3 Organisational requirements

Organisational requirements

• (a) establish adequate policies and procedures sufficient to ensure compliance of the investment firm and the persons who are its managers, employees and tied agents with—

• (i) the investment firm’s obligations under these Regulations, and

• (ii) the appropriate rules governing personal transactions by such persons (that is to say, the arrangements required under Article 29 of Commission Delegated Regulation 2017/535 to be established, implemented and maintained),

• (b) maintain and operate effective organisational and administrative arrangements with a view to taking all reasonable steps designed to prevent conflicts of interest, as identified in Regulation 30, from adversely affecting the interests of the investment firm’s clients,

• (c) when devising or otherwise creating financial instruments for sale to clients—

• (i) maintain, operate and review a product approval process for each financial instrument and for significant adaptations of existing financial instruments before it is marketed or distributed to clients, and

• (ii) make available to any distributor all appropriate information on the financial instrument and the product approval process, including the identified target market of the financial instrument,

• (d) regularly review financial instruments which it offers or markets, taking into account any event that could materially affect the potential risk to the identified target market, to assess at least—

• (i) whether the financial instrument remains consistent with the needs of the identified target market, and

• (ii) whether the intended distribution strategy remains appropriate,

• (e) where offering or recommending financial instruments which it does not devise or otherwise create, have in place adequate arrangements to obtain the information referred to in paragraph (c)(ii) and to understand the characteristics and identified target market of each financial instrument,

• (f) take reasonable steps to ensure continuity and regularity in the performance of investment services and activities by employing appropriate and proportionate systems, resources and procedures,

• (g) ensure that it takes reasonable steps to avoid undue additional operational risk when relying on a third party for the performance of operational functions which are critical for—

• (i) the provision of continuous and satisfactory service to clients, and

• (ii) the performance of investment activities on a continuous and satisfactory basis,

• (h) ensure that any outsourcing by the investment firm of important operational functions is not to be undertaken in such a way as to impair materially—

• (i) the quality of its internal control, and

• (ii) the ability of the Bank to monitor the investment firm’s compliance with all of the investment firm’s obligations,

• (i) ensure that the firm has—

• (i) sound administrative and accounting procedures,

• (ii) internal control mechanisms,

• (iii) effective procedures for risk assessment, and

• (iv) effective control and safeguard arrangements for information processing systems,

• (j) maintain the confidentiality of data at all times, without prejudice to the Bank’s ability to require access to communications in accordance with these Regulations and Regulation (EU) No 600/2014, by putting in place sound security mechanisms—

• (i) to guarantee the security and authentication of the means of transfer of information,

• (ii) to minimise the risk of data corruption and unauthorized access, and

• (iii) to prevent information leakage,

• (k) when holding financial instruments belonging to clients, make adequate arrangements to—

• (i) safeguard clients’ ownership rights, especially in the event of the investment firm’s insolvency, and

• (ii) prevent the use of a client’s financial instruments on own account, except with the client’s express consent,

• (l) when holding funds belonging to clients, make adequate arrangements to safeguard the clients’ rights and, except in the case of credit institutions, prevent the use of client funds for the firm’s own account, and

• (m) not conclude title transfer financial collateral arrangements with retail clients for the purpose of securing or covering present or future, actual or contingent or prospective obligations of clients.

• (2) For the purposes of paragraph (1)(c) “product approval process” means a system which—

• (a) specifies an identified target market of end clients within the relevant category of clients for each financial instrument, and

• (b) ensures that all relevant risks to the identified target market are assessed and that the intended distribution strategy is consistent with the identified target market.

• (3) The policies, processes and arrangements referred to in paragraph (1)(b), (c), (d) and (e) are to be implemented without prejudice to all the requirements under these Regulations and Regulation (EU) No 600/2014, including those relating to disclosure, suitability or appropriateness, identification and management of conflicts of interests and inducements.

• (4) An investment firm shall arrange for records to be kept of all services, activities and transactions undertaken by the investment firm and ensure that the records are sufficient to enable the Bank to fulfil its supervisory tasks and take enforcement action under these Regulations, Regulation (EU) No 596/2014, Regulation (EU) No 600/2014 and the European Union (Market Abuse) Regulations 2016 ( S.I. No. 349 of 2016 ) and, in particular, to ascertain whether the firm has complied with all obligations including those with respect to clients or potential clients and to the integrity of the market.

• (5) The records that must be kept include recordings of telephone conversations or electronic communications relating to at least—

• (a) transactions concluded when dealing on own account,

• (b) the provision of client order services that relate to the reception, transmission and execution of client orders, and

• (c) telephone conversations and electronic communications that are intended to result in transactions concluded when dealing on own account or in the provision of client order services that relate to the reception, transmission and execution of client orders, even if those conversations or communications do not result in the conclusion of such transactions or in the provision of client order services.

• (6) An investment firm shall take all reasonable steps to record relevant telephone conversations and electronic communications made with, sent from or received by equipment provided by the investment firm to an employee or contractor or the use of which by an employee or contractor has been accepted or permitted by the investment firm.

• (7) An investment firm shall not, by telephone, provide investment services or perform other activities which relate to the reception, transmission and execution of client orders to or for new and existing clients who have not, on at least one occasion before the provision of investment services or performance of other activities, been notified that telephone communications or conversations between the investment firm and its clients that result, or may result, in transactions, will be recorded.

• (8) Where orders are placed by clients through other channels such as mail, fax, email or documentation of client orders made at meetings, they shall be considered equivalent to orders received by telephone and the investment firm shall ensure that all relevant communications are made in a durable medium.

• (9) The content of relevant face-to-face conversations with a client may be recorded using written minutes or notes and such orders shall be considered equivalent to orders received by telephone.

• (10) An investment firm shall take all reasonable steps to prevent an employee or contractor from making, sending or receiving relevant telephone conversations and electronic communications on privately owned equipment which the investment firm is unable to record or copy.

• (11) The records kept in accordance with this Regulation shall be retained by the investment firm—

• (a) for a period of 5 years, or

• (b) for such longer period not exceeding 7 years as the Bank requires.

• (12) Investment firms shall, on request, provide to clients any records relating to their account or accounts kept in accordance with paragraph (11).

• (13) If a branch of an investment firm is located in the State, the Bank shall, without prejudice to the possibility of the competent authority of the home Member State of the investment firm to have direct access to those records, enforce the obligations laid out in paragraphs (4) to (12) with regard to transactions undertaken by the branch.

• (14) The requirements specified in Schedule 3 shall have effect for the purposes of this Regulation.

Algorithmic trading

• (a) are resilient,

• (b) have sufficient capacity,

• (c) are subject to appropriate trading thresholds and limits,

• (d) prevent the sending of erroneous orders or the systems otherwise functioning in a way that may create or contribute to a disorderly market, and

• (e) cannot be used for any purpose that is contrary to Regulation (EU) No 596/2014 or to the rules of a trading venue to which it is connected.

• (2) An investment firm engaging in algorithmic trading shall—

• (a) have effective business continuity arrangements to deal with any failure of its trading systems, and

• (b) ensure that its trading systems are fully tested and monitored to ensure compliance with the requirements of paragraph (1).

• (3) An investment firm that engages in algorithmic trading in the State shall notify the Bank or the competent authority of its home Member State and the competent authority of the trading venue at which it is engaging in algorithmic trading as a member or participant.

• (4) The Bank may require an investment firm to provide, on a regular or ad hoc basis, a description of the nature of its algorithmic trading strategies, details of the trading parameters or limits to which the system is subject and the key compliance and risk controls and details of the testing it has in place pursuant to paragraphs (1) and (2).

• (5) Without prejudice to paragraph (4), the Bank may, at any time, request further information from an investment firm about its algorithmic trading and the systems used for that trading and an investment firm shall provide the information to the Bank.

• (6) The Bank shall, on the request of a competent authority of a trading venue at which an investment firm is engaged in algorithmic trading as a member or participant and without undue delay, communicate the information referred to in paragraph (4) or (5) that it receives from the investment firm.

• (7) An investment firm that engages in algorithmic trading shall arrange for records to be kept in relation to the matters referred to in paragraphs (3) to (6) and shall ensure that those records are sufficient to enable the Bank to monitor compliance with the requirements of these Regulations.

• (8) Where an investment firm engages in a high-frequency algorithmic trading technique, it shall store in a form approved by the Bank accurate and time sequenced records of all placed orders, including cancellations of orders, executed orders and quotations on trading venues and shall make them available to the Bank on request.

• (9) Where an investment firm engages in algorithmic trading to pursue a market making strategy, it shall, taking into account the liquidity, scale and nature of the specific market and the characteristics of the instruments traded—

• (a) carry out the market making continuously during a specified proportion of the trading venue’s trading hours, except under exceptional circumstances, with the result of providing liquidity on a regular and predicable basis to the trading venue,

• (b) enter into a binding written agreement with the trading venue which shall at least specify the obligations of the investment firm in accordance with subparagraph (a), and

• (c) have in place effective systems and controls to ensure that it fulfils its obligations under the agreement referred to in subparagraph (b) at all times.

• (10) For the purposes of this Regulation and Regulation 72, an investment firm that engages in algorithmic trading shall be considered to be pursuing a market making strategy when, as a member of or participant in, one or more trading venues, its strategy, when dealing on own account, involves posting firm, simultaneous two-way quotes of comparable size and at competitive prices relating to one or more financial instruments on a single trading venue or across different trading venues, with the result of providing liquidity on a regular and frequent basis to the overall market.

• (11) An investment firm shall not provide direct electronic access unless it has in place effective systems and controls which ensure—

• (a) a proper assessment and review of the suitability of clients using the service,

• (b) that clients using the service are prevented from exceeding appropriate pre-set trading and credit thresholds,

• (c) that trading by clients using the service is properly monitored, and

• (d) that appropriate risk controls prevent trading that may create risks to the investment firm itself or that could create or contribute to a disorderly market or could be contrary to Regulation (EU) No 596/2014 or the rules of the trading venue.

• (12) An investment firm that provides direct electronic access to a trading venue shall—

• (a) notify the Bank and, if different, the competent authority of the trading venue,

• (b) be responsible for ensuring that clients using the service comply with the requirements of these Regulations and the rules of the trading venue by—

• (i) monitoring transactions in order to identify infringements of these Regulations, disorderly trading conditions or conduct that may involve market abuse, and

• (ii) reporting any infringements to the Bank,

and

• (c) ensure that there is a binding written agreement between the investment firm and its client or clients regarding the essential rights and obligations arising from the provision of the service and under the written agreement the investment firm shall retain responsibility under these Regulations.

• (13) The Bank may require an investment firm to provide, on a regular or ad hoc basis, a description of the systems and controls referred to in paragraph (11) and evidence that such systems and controls have been applied.

• (14) The Bank shall, at the request of the competent authority of a trading venue in relation to which an investment firm provides direct electronic access, communicate without undue delay the information referred to in paragraph (13) which it receives from the investment firm.

• (15) An investment firm shall arrange for records to be kept in relation to the matters referred to in paragraphs (11) to (14) and shall ensure that those records are sufficient to enable the Bank to monitor compliance with the requirements of this Regulation.

• (16) An investment firm acting as a general clearing member for other persons shall—

• (a) have in place effective systems and controls to ensure clearing services are only applied to persons who are suitable and meet clear criteria and that appropriate requirements are imposed on those persons to reduce risks to the investment firm and to the market, and

• (b) ensure that there is a binding written agreement between it and those persons outlining the essential rights and obligations arising from the provision of that service.

Trading process and finalisation of transactions in MTF and OTF

• (a) establish—

• (i) transparent rules and procedures for fair and orderly trading, and

• (ii) objective criteria for the efficient execution of orders,

• (b) have arrangements for the sound management of the technical operations of the facility, including the establishment of effective contingency arrangements to cope with risks of systems disruptions,

• (c) establish transparent rules regarding the criteria for determining the financial instruments that can be traded under its systems,

• (d) ensure that there is access to sufficient publicly available information to enable the users of the MTF or an OTF to form an investment judgement, taking into account both the nature of the users and the types of instruments traded,

• (e) establish, publish, maintain and implement transparent and non-discriminatory rules, based on objective criteria, governing access to the MTF or OTF,

• (f) have arrangements to identify clearly and manage the potential adverse consequences for the operation of the MTF or an OTF, or for the members or participants and users, of any conflict of interest between the interest of the MTF, the OTF, its owners or the investment firm or market operator operating the MTF or OTF and the sound functioning of the MTF or OTF,

• (g) comply with Regulations 72 and 73 and have in place all the necessary effective systems, procedures and arrangements to do so,

• (h) clearly inform the members or participants of the MTF or OTF of their respective responsibilities for the settlement of the transactions executed in that facility,

• (i) ensure that the necessary arrangements are in place in order to facilitate the efficient settlement of the transactions concluded under the systems of the MTF or OTF, and

• (j) comply immediately with any instruction from the Bank, pursuant to Regulation 92(4) to suspend or remove a financial instrument from trading.

• (2) MTFs and OTFs shall have at least three materially active members or users, each having the opportunity to interact with all the others in respect to price information.

• (3) Where a transferable security which has been admitted to trading on a regulated market is also traded on an MTF or an OTF without the consent of the issuer of the transferable security, that issuer is not subject to any obligation relating to initial, ongoing or ad hoc financial disclosure with regard to that MTF or OTF.

• (4) Without prejudice to Regulation 27(1)(a), (4) and (5), an investment firm and market operator operating an MTF or OTF shall provide to the Bank a detailed description of the functioning of the MTF or OTF including—

• (a) any links to or participation by a regulated market, an MTF, an OTF or a systematic internaliser owned by the same investment firm or market operator, and

• (b) a list of their members, participants and users.

• (5) The Bank shall make the information in paragraph (4) available to ESMA on request.

• (6) Every authorisation granted to an investment firm or market operator to operate as an MTF or an OTF shall be notified to ESMA by the Bank.

Specific requirements for MTFs

• (2) An investment firm or market operator operating an MTF shall require that the rules governing access to its MTF comply with the conditions established in Regulation 77(3).

• (3) An investment firm or market operator operating an MTF shall have arrangements—

• (a) to be adequately equipped to manage the risks to which it is exposed, to implement appropriate arrangements and systems to identify all significant risks to the operation and to put in place effective measures to mitigate those risks,

• (b) to effectively facilitate the efficient and timely finalisation of the transactions executed under its systems, and

• (c) to have available, at the time of authorisation and on an ongoing basis, sufficient financial resources to facilitate its orderly functioning, having regard to the nature and extent of the transactions concluded on the market and the range and degree of the risks to which it is exposed.

• (4) Where transactions are concluded under the rules governing an MTF between its members or participants or between the MTF and its members or participants in relation to the use of the MTF, Regulations 31, 32, 33, 35(1) to (4) and (7) to (12) and 36 shall not apply.

• (5) However, where the members of or participants in an MTF acting on behalf of their clients execute their orders through the systems of the MTF, they shall comply with the obligations provided for in Regulations 31, 32, 33, 35 and 36 with respect to their clients.

• (6) An investment firm or market operator operating an MTF shall not execute client orders against proprietary capital or engage in matched principal trading.

Specific requirements for OTFs

• (a) preventing the execution of client orders in the OTF against the proprietary capital of the investment firm or market operator operating the OTF or from any entity that is part of the same group or legal person as the investment firm or market operator, and

• (b) ensuring compliance with matched principal trading.

• (2) An investment firm or market operator operating an OTF may engage in matched principal trading in bonds, structured finance products, emission allowances and certain derivatives only where the client has consented to the process but shall not use matched principal trading to execute client orders in an OTF in derivatives pertaining to a class of derivatives that has been declared subject to the clearing obligation in accordance with Article 5 of Regulation (EU) No 648/2012.

• (3) An investment firm or market operator operating an OTF may engage in dealing on own account other than matched principal trading only with regard to sovereign debt instruments for which there is not a liquid market.

• (4) Without prejudice to paragraph (3) and in accordance with paragraphs (1), (2), (5) and (6), an investment firm or market operator operating the OTF may facilitate negotiation between clients so as to bring together two or more potentially compatible trading interest in a transaction in a system that arranges transactions in non-equities.

• (5) An investment firm or market operator operating an OTF shall not—

• (a) operate within the same legal entity as a systematic internaliser,

• (b) connect with a systematic internaliser in a way which enables orders in an OTF and orders or quotes in a systematic internaliser to interact, or

• (c) connect with another OTF in a way which enables orders in different OTFs to interact.

• (6) An investment firm or market operator operating an OTF may engage another investment firm to carry out market making on that OTF on an independent basis.

• (7) For the purposes of paragraph (6), an investment firm shall not be deemed to be carrying out market making on an OTF on an independent basis if it has close links with the investment firm or market operator operating the OTF.

• (8) An investment firm or market operator operating an OTF shall ensure that the execution of orders on the OTF is carried out on a discretionary basis as is referred to in paragraph (9).

• (9) Without prejudice to Regulations 25 and 35 an investment firm or market operator operating an OTF shall exercise discretion in the execution of orders only in one or more of the following circumstances:

• (a) when deciding to place or retract an order on the OTF operated by it;

• (b) when deciding not to match a specific client order with other orders available in the systems at a given time, provided it is in compliance with specific instructions received from a client and with its obligations in accordance with Regulation 35;

• (c) if, when and how much of two or more orders it wants to match within a system that crosses client orders.

• (10) In accordance with the requirements of this Regulation and without prejudice to the requirements of paragraph (3), in a system that arranges transactions in non-equities, an investment firm or market operator operating an OTF may facilitate negotiation between clients so as to bring together two or more potentially compatible trading interests in a transaction.

• (11) The Bank may require, either when an investment firm or market operator requests to be authorised for the operation of an OTF or on ad hoc basis—

• (a) a detailed explanation as to why the system does not correspond to and cannot operate as a regulated market, MTF, or systematic internaliser,

• (b) a detailed description as to how discretion will be exercised, in particular when an order to the OTF may be retracted and when and how two or more client orders will be matched within the OTF, or

• (c) information explaining its use of matched principal trading so that the Bank can monitor an investment firm’s or market operator’s engagement in matched principal trading to ensure that it continues to fall within the definition of such trading and that its engagement in matched principal trading does not give rise to conflicts of interest between the investment firm or market operator and its clients.

• (12) An investment firm or market operator shall ensure that Regulations 31, 32, 33, 35 and 36 are applied to the transactions concluded on an OTF.

PART 4> OPERATING CONDITIONS FOR INVESTMENT FIRMS

Chapter 1 General provisions

Regular review of conditions for initial authorisation

• (2) The Bank shall monitor compliance by an investment firm with its obligations under paragraph (1).

• (3) An investment firm shall notify the Bank, without delay, of any material change in the conditions and circumstances as they obtain for the time being (and which relate to the firm) from those that obtained at—

• (a) the time of the grant of its authorisation (and which related to the firm), or

• (b) any subsequent time (and which related to the firm), being a time that was the occasion of the Bank imposing or amending any condition or requirement of the authorisation.

• (4) The reference in paragraph (3) to conditions and circumstances obtaining at any time includes a reference to the conditions and circumstances that import any consideration to which the Bank is to have, or may have, regard under these Regulations in deciding whether to grant an authorisation or impose or amend any condition or requirement of an authorisation.

General obligation in respect of on-going supervision

• (a) shall monitor the activities of investment firms so as to assess compliance with the operating conditions provided for in these Regulations, and

• (b) may require any person who possesses information which the Bank considers necessary for assessing the compliance of an investment firm with those operating conditions to provide it to the Bank.

• (2) A person required under paragraph (1)(b) to provide information shall do so without delay.

Conflicts of interest

• (a) within the investment firm,

• (b) between the investment firm and any person, including (but not limited to)—

• (i) its managers, employees and tied agents,

• (ii) one or more persons directly or indirectly linked to the investment firm by control, or

• (iii) the clients of the investment firm,

or

• (c) between a client of the investment firm and one or more of the other clients of the investment firm.

• (2) Where organisational or administrative arrangements made by an investment firm, in accordance with Regulation 23(1)(b) to (e), (2) and (3) to prevent conflicts of interest from adversely affecting the interest of its client are insufficient to ensure, with reasonable confidence, that risks of damage to client interests will be prevented, the investment firm shall clearly disclose to the client—

• (a) the general nature,

• (b) the sources, and

• (c) the steps taken to mitigate those risks,

before undertaking business on the client’s behalf.

• (3) Disclosure to clients pursuant to paragraph (2) shall—

• (a) be made in a durable medium, and

• (b) include sufficient detail, taking into account the nature of the client, to enable the client to make an informed decision with respect to the investment service or ancillary service, or a combination thereof, in the context of which the conflict of interest arises.

Chapter 2 Provisions to ensure investor protection

Duty to act in interests of clients and comply with principles

• (a) act honestly, fairly and professionally in accordance with the best interests of its clients, and

• (b) comply, in particular, with the principles set out in Regulations 32 and 33.

General principles and information to clients

• (a) the financial instruments are designed to meet the needs of an identified target market of end clients within the relevant category of clients,

• (b) the strategy for distribution of the financial instruments is compatible with the identified target market, and

• (c) the investment firm takes reasonable steps to ensure that the financial instruments are distributed to the identified target market.

• (2) An investment firm shall—

• (a) understand the financial instruments it offers or recommends,

• (b) assess the compatibility of the financial instruments with the needs of the clients to whom it provides investment services,

• (c) take account of the identified target market of end clients as referred to in Regulation 23(1)(b) to (e), (2) and (3), and

• (d) ensure that financial instruments are offered or recommended only when this is in the interest of the client.

• (3) An investment firm shall ensure that—

• (a) all information, including marketing communications, addressed by the investment firm to clients or potential clients is fair, clear and not misleading, and

• (b) marketing communications are clearly identifiable as such.

• (4) An investment firm shall ensure that appropriate information is provided in good time to clients or potential clients with regard to—

• (a) the investment firm and its services,

• (b) financial instruments and proposed investment strategies,

• (c) execution venues, and

• (d) all costs and related charges.

• (5) For the purposes of paragraph (4), when investment advice is provided to a client by an investment firm, the obligation of the investment firm includes its informing the client in good time—

• (a) whether or not the advice is provided on an independent basis,

• (b) whether the advice is based on a broad or a more restricted analysis of different types of financial instruments and, in particular whether the range is limited to financial instruments issued or provided by entities having close links with the investment firm or any other legal or economic relationships, such as contractual relationships, so close as to pose a risk of impairing the independent basis of the advice provided, and

• (c) whether the investment firm will provide the client with a periodic assessment of the suitability of the financial instruments recommended to the client.

• (6) For the purposes of paragraph (4), the information on financial instruments and proposed investment strategies shall include appropriate guidance on, and warnings of the risks associated with investments in, those financial instruments or in respect of particular investment strategies and whether the financial instrument is intended for retail or professional clients, taking account of the identified target market in accordance with paragraph (1).

• (7) For the purposes of paragraph (4), the information on all costs and associated charges shall include information relating to both investment services and ancillary services, including the cost of advice, where relevant, the cost of the financial instrument recommended or marketed to the client and how the client may pay for it, also encompassing any third-party payments.

• (8) For the purposes of paragraph (4), the information about all costs and charges, including costs and charges in connection with the investment service and the financial instrument, which are not caused by the occurrence of underlying market risk, shall be aggregated in order to allow the client to understand the overall cost as well as the cumulative effect on return of the investment, and where the client requests an itemised breakdown shall be provided.

• (9) Where applicable, the information referred to in paragraph (8) shall be provided to the client on a regular basis, at least annually, over the lifetime of the investment.

• (10) The information referred to in paragraphs (4) to (8) and (17) shall be provided in a comprehensible form in such manner that the clients or potential clients are reasonably able to understand the nature and risk of the investment service and of the specific type of financial instrument that is being offered and, consequently, to take investment decisions on an informed basis.

• (11) Information to be given for the purposes of paragraphs (4), (8) or (17) may be provided in a standardised format.

• (12) Where an investment service is offered as part of a financial product which is already subject to other provisions giving effect to European Union law relating to credit institutions or consumer credit with respect to information requirements, the investment service shall not be subject to the obligations in paragraphs (3) to (11).

• (13) Where an investment firm informs a client that investment advice is provided on an independent basis, the investment firm shall—

• (a) assess a sufficient range of financial instruments available on the market which must be sufficiently diverse with regard to their type and issuers or product providers to ensure that the client’s investment objectives can be suitably met and must not be limited to financial instruments issued or provided by—

• (i) the investment firm itself or by entities having close links with the investment firm, or

• (ii) other entities with which the investment firm has such close legal or economic relationships, such as contractual relationships, as to pose a risk of impairing the independent basis of the advice provided,

or

• (b) subject to paragraph (15), not accept and retain fees, commissions or any monetary or non-monetary benefits paid or provided by any third party or a person acting on behalf of a third party in relation to the provision of the service to a client.

• (14) Subject to paragraph (15), when providing portfolio management, an investment firm shall not accept and retain fees, commissions or any monetary or non-monetary benefits paid or provided by any third party or a person acting on behalf of a third party in relation to the provision of the service to the client.

• (15) Minor non-monetary benefits that are capable of enhancing the quality of the service provided to the client and are of a scale and nature such that they could not be judged to impair compliance with the investment firm’s duty to act in the best interest of the client shall be clearly disclosed and are excluded from paragraphs (13)(b) and (14).

• (16) For the purposes of paragraph (17), a reference in that paragraph to a fee, commission or non-monetary benefit does not include a reference to a fee, commission or non-monetary benefit that is—

• (a) a fee, commission or non-monetary benefit paid or provided to or by the client or a person on behalf of the client, or

• (b) a fee, commission or non-monetary benefit that—

• (i) enables or is necessary for the provision of investment services, such as custody costs, settlement and exchange fees, regulatory levies or legal fees, and

• (ii) by its nature, cannot give rise to conflicts with the investment firm’s duties to act honestly, fairly and professionally in accordance with the best interests of its clients.

• (17) An investment firm is not to be regarded as fulfilling its obligations under Regulation 30 and this Regulation if, in connection with the provision of an investment service or ancillary service to the client, the investment firm pays or is paid any fee or commission, or provides or is provided with any non-monetary benefit, in connection with the provision of an investment service or an ancillary service, unless—

• (a) the fee, commission or non-monetary benefit—

• (i) is designed to enhance the quality of the relevant service to the client, and

• (ii) does not impair compliance with the investment firm’s duty to act honestly, fairly and professionally in the best interests of the client,

• (b) the existence, nature and amount of the fee, commission or benefit, or, where the amount cannot be ascertained, the method of calculating that amount, is clearly disclosed to the client, in a manner that is comprehensive, accurate and understandable, prior to the provision of the relevant investment service or ancillary service, and

• (c) where applicable, the investment firm also informs the client on mechanisms for transferring to the client the fee, commission, monetary or non-monetary benefit received in relation to the provision of the investment or ancillary service.

• (18) When providing investment services to clients, an investment firm shall ensure that it does not remunerate or assess the performance of its staff in a way that conflicts with its duty to act in the best interests of its clients, and in particular it shall not make any arrangement by way of remuneration, sales targets or otherwise that could provide an incentive to its staff to recommend a particular financial instrument to a retail client when the investment firm could offer a different financial instrument which would better meet the client’s needs.

• (19) When an investment service is offered together with another service or product as part of a package or as a condition for the same agreement or package, the investment firm shall inform the client whether it is possible to buy the different components separately and shall provide for a separate evidence of costs and charges of each component.

• (20) Where the risks resulting from such an agreement of package offered to the retail client are likely to be different from the risks associated with the components taken separately, the investment firm shall provide an adequate description of the different components of the agreement or package and the way in which its interaction modifies the risks.

• (21) The requirements specified in Schedules 4 and 5 shall have effect for the purposes of this Regulation.

Assessment of suitability and appropriateness and reporting to clients

• (2) The Bank shall publish criteria to be used by the Bank to assess the knowledge and competency of the individuals referred to in paragraph (1).

• (3) When providing investment advice or portfolio management an investment firm shall obtain the necessary information about—

• (a) the client’s or potential client’s knowledge and experience in the investment field relevant to the specific type of product or service offered to the client by the investment firm,

• (b) the client’s or potential client’s financial situation, including his or her ability to bear losses, and

• (c) the client’s or potential client’s investment objectives, including his or her risk tolerance,

that is necessary to enable the investment firm to recommend to the client or potential client those investment services and financial instruments that are suitable for the client and, in particular, are in accordance with his or her risk tolerance and ability to bear losses.

• (4) An investment firm shall ensure that where it provides investment advice recommending a package of services or products bundled pursuant to Regulation 32(19) and (20), the overall bundled package is suitable.

• (5) When providing investment services other than investment advice and portfolio management, an investment firm shall—

• (a) ask the client or potential client to provide information regarding his or her knowledge and experience in the investment field relevant to the specific type of product or service offered or demanded,

• (b) take that information into account in order to assess whether the investment service or product envisaged is appropriate for the client, and

• (c) where a bundle of services or products is envisaged pursuant to Regulation 32(19) and (20), consider the appropriateness of the overall bundled package for the client.

• (6) Where the investment firm considers, on the basis of the information provided pursuant to paragraph (5), that the product or service is not appropriate for the client or potential client, the investment firm shall warn the client or potential client; and the warning may be provided in a standardised format.

• (7) Where a client or potential client—

• (a) does not provide the information referred to in paragraph (5), or

• (b) provides insufficient information regarding the client’s or potential client’s knowledge and experience,

the investment firm shall warn the client or potential client that the investment firm is not in a position to determine whether the service or product envisaged is appropriate for the client or potential client; and the warning may be provided in a standardised format.

• (8) When an investment firm provides to its clients investment services that consist only of—

• (a) the execution of client orders, or

• (b) the reception and transmission of client orders,

with or without ancillary services, excluding the granting of credits or loans as specified in paragraph 1 of Part 2 of Schedule 1 that do not comprise existing credit limits of loans, current accounts and overdraft facilities of clients, the investment firm may do so without the need to obtain the information, or to make the determination, provided for in paragraphs (5) to (7) if all of the conditions in paragraph (9) are met.

• (9) The conditions referred to in paragraph (8) are that—

• (a) the services relate to any of the following financial instruments:

• (i) shares in companies admitted to trading on a regulated market or on an equivalent third-country market or on an MTF other than shares in AIFs and shares that embed a derivative;

• (ii) bonds or other forms of securitised debt admitted to trading on a regulated market or on an equivalent third-country market or on a MTF other than those that embed a derivative or incorporate a structure which makes it difficult for the client to understand the risk involved;

• (iii) money market instruments other than those that embed a derivative or incorporate a structure which makes it difficult for the client to understand the risk involved;

• (iv) shares or units in UCITS other than structured UCITS as referred to in the second subparagraph of Article 36(1) of Regulation (EU) No 583/2010;

• (v) structured deposits other than those that incorporate a structure which makes it difficult for the client to understand the risk of return or the cost of exiting the product before term;

• (vi) other non-complex financial instruments,

• (b) those services are provided at the initiative of the client or potential client,