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

• (6) The Bank may use its powers for the purpose of cooperation with the competent authorities of other Member States even if the matters in which the competent authorities seek the Bank’s cooperation do not involve a contravention of any law in force in the State.

• (7) If the Bank has good reason to suspect that acts contrary to the Directive or to Regulation (EU) No 600/2014 are being or have been carried out by an entity not subject to the Bank’s supervision in the territory of another Member State, the Bank shall notify the competent authority of the other Member State and ESMA, in as specific a manner as possible.

• (8) Where the Bank receives information pursuant to Article 79(4) of the Directive from the competent authority of another Member State (referred to in this paragraph and paragraph (9) as “the notifying competent authority”) the Bank shall—

• (a) take appropriate action, and

• (b) inform the notifying competent authority and ESMA of—

• (i) the outcome of the action, and

• (ii) to the extent possible, significant interim developments.

• (9) Paragraph (8) is without prejudice to the competence of the notifying competent authority.

• (10) Without prejudice to the preceding provisions of this Regulation, the Bank shall notify ESMA and other competent authorities of the details of—

• (a) any requests made by the Bank to any person to take steps to reduce the size of a position or exposure pursuant to Regulation 92(4)(o), or

• (b) any limits imposed by the Bank on the ability of any person from entering into a commodity derivative pursuant to Regulation 92(4)(p), including the introduction of limits on the size of a position any person can hold at all times.

• (11) Such a notification shall, where relevant, include—

• (a) details of the request or demand made by the Bank pursuant to Regulation 92(4)(j), including the identity of the person or persons to whom it was addressed and the reasons for it, and

• (b) the scope of the limits introduced by the Bank pursuant to Regulation 92(4)(p), including the person concerned, the applicable financial instruments, any limits on the size of positions the person can hold at all times or any exemptions thereto granted in accordance with Regulation 81 and the reasons for it.

• (12) The notification shall be made by the Bank not less than 24 hours before the actions or measures are intended to take effect, except in exceptional circumstances where it is not possible to give 24 hours’ notice.

• (13) Where the Bank receives notification under the national law of a Member State implementing Article 79(5) of the Directive the Bank may take measures in accordance with Regulation 92(4)(o) or (p) where it is satisfied that the measures are necessary to achieve the objective of the other competent authority and the Bank shall also give notice of such action in accordance with this Regulation.

• (14) Where the Bank’s actions pursuant to paragraph (10)(a) or (b) relate to wholesale energy products, the Bank shall also notify the Agency for the Cooperation of Energy Regulators (ACER) established under Regulation (EC) No. 713/2009.

• (15) In relation to emission allowances, the Bank shall cooperate with the Environmental Protection Agency in order to ensure that they can acquire a consolidated overview of emission allowances markets.

• (16) In relation to agricultural commodity derivatives, the Bank shall report to and cooperate with the Minister for Agriculture, Food and the Marine.

Cooperation in supervisory activities, for on-site verifications or in investigations

• (2) If the supervisory activity, verification or investigation relates to investment firms that are remote members or participants of a regulated market authorised by the Bank, the Bank—

• (a) may choose to address the members or participants directly, and

• (b) if it so chooses, shall inform the competent authority of the home Member State of the investment firm accordingly.

• (3) Where the Bank receives a request with respect to an on-the-spot verification or an investigation, the Bank shall—

• (a) carry out the verification or investigation itself,

• (b) allow the requesting authority to carry out the verification or investigation, or

• (c) allow auditors or experts to carry out the verification or investigation.

• (4) The Bank may request the cooperation of the competent authority of another Member State in a supervisory activity or for an on-the-spot verification or in an investigation.

Exchange of information

• (2) The Bank, in exchanging information with other competent authorities under these Regulations may indicate that the information supplied must not be disclosed without the express agreement of the Bank, in which case such information may be exchanged solely for the purposes for which the Bank gave its agreement.

• (3) The Bank shall not transmit any such information to other persons—

• (a) without the express agreement of the competent authority which disclosed the information, and

• (b) solely for the purposes for which the competent authority gave its agreement,

except in duly justified circumstances.

• (4) When the Bank, in duly justified circumstances as permitted under paragraph (3), transmits information to any person, the Bank immediately afterwards shall inform the competent authority that sent the information in question.

• (5) Any person receiving confidential information under paragraph (1) or under Regulation 130 or 141 may use it only in the course of their duties, in particular—

• (a) to check that the conditions governing the taking-up of the business of investment firms are met and to facilitate the monitoring, on a non-consolidated or consolidated basis, of the conduct of that business, especially with regard to the capital adequacy requirements imposed by Directive 2013/36/EU, administrative and accounting procedures and internal control mechanisms,

• (b) to monitor the proper functioning of trading venues,

• (c) to impose sanctions,

• (d) in administrative appeals against decisions by the Bank,

• (e) in court proceedings initiated under Regulation 129, and

• (f) in the extra-judicial mechanism for investor complaints provided for in Article 75 of the Directive.

• (6) Neither this Regulation nor Regulation 141 shall prevent the Bank from transmitting to ESMA, the European Systemic Risk Board, central banks, the European System of Central Banks and the European Central Bank, in their capacity as monetary authorities, and, where appropriate, to other public authorities responsible for overseeing payment and settlement systems, confidential information intended for the performance of their tasks.

• (7) In addition such authorities or bodies shall not be prevented from communicating to the competent authorities such information as they may need for the purposes of performing their functions provided for in this Directive or in Regulation (EU) No 600/2014.

Binding mediation

• (a) to carry out a supervisory activity, an on-the-spot verification or an investigation, as provided for in Regulation 133, or

• (b) to exchange information as provided for in Regulation 134.

has been rejected or has not been acted upon within a reasonable time.

Refusal to cooperate

• (a) proceedings have already been initiated in respect of the same actions and the same persons before a court in the State, or

• (b) final judgment has already been given by a court in the State in respect of the same actions and the same persons.

• (2) In the case of such a refusal, the Bank shall notify the requesting competent authority and ESMA accordingly, providing as detailed information as possible.

Consultation before authorisation

• (a) a subsidiary of any entity authorised in that Member State that is an investment firm, credit institution or market operator,

• (b) a subsidiary of the parent undertaking of an investment firm or credit institution authorised in that Member State, or

• (c) controlled by the same persons who control an investment firm or credit institution authorised in that Member State.

• (2) The Bank shall consult the competent authority of any other relevant Member State responsible for the supervision of credit institutions or insurance undertakings, before granting an authorisation to an investment firm or market operator which is—

• (a) a subsidiary of a credit institution or insurance undertaking authorised in the European Union,

• (b) a subsidiary of the parent undertaking of a credit institution or insurance undertaking authorised in the European Union, or

• (c) controlled by a person who controls a credit institution or insurance undertaking authorised in the European Union.

• (3) Without limiting the generality of paragraphs (1) and (2), the Bank shall consult, without undue delay, the responsible competent authority when assessing—

• (a) the suitability of the shareholders or members of another member of the same group as that to which the investment firm belongs, or

• (b) the reputation and experience of persons who—

• (i) effectively direct the business, or

• (ii) are involved in the management,

of another such member.

• (4) The Bank shall exchange information regarding the matters referred to in paragraph (3)(a) or (b) with the relevant competent authority for the purposes of—

• (a) deciding whether to grant an authorisation under these Regulations to an investment firm, and

• (b) the ongoing assessment of compliance by an authorised investment firm with operating conditions imposed under these Regulations.

Powers for host Member States

• (2) The Bank may require investment firms that have branches in the State to provide the Bank with all information necessary for the monitoring by the Bank of their compliance with the standards set by these Regulations.

• (3) The requirements imposed by the Bank under paragraph (2) for the provision of information shall not be more stringent than those imposed on authorised investment firms for the monitoring of their compliance with the same standards.

Precautionary measures to be taken by host Member States

• (a) acts within the State under the freedom to provide services, or

• (b) has a branch within the State,

has contravened any of the obligations arising from these Regulations for which the Bank does not have enforcement powers, the Bank shall refer its findings in support of that opinion to the competent authority of the investment firm’s home Member State.

• (2) If, despite the measures taken by the competent authority of the home Member State or because such measures prove inadequate following a referral of the Bank’s findings under paragraph (1) about an investment firm, the investment firm persists in acting in a manner that, in the opinion of the Bank, is prejudicial to—

• (a) the interests of investors in the State, or

• (b) the orderly functioning of markets,

the Bank, after informing the competent authority of the home Member State, shall take all the appropriate measures under these Regulations or other provisions of the law of the State that are needed in order to protect investors and the proper functioning of markets.

• (3) Those measures include, but are not limited to, preventing the investment firm concerned from initiating any further transactions in the State.

• (4) The Bank shall inform the European Commission and ESMA without undue delay of any measures taken by the Bank under this Regulation.

• (5) Where the Bank is of the opinion that an investment firm that has a branch within the State has failed to fulfil any of its obligations under these Regulations, the Bank shall require the investment firm concerned to fulfil the obligation or obligations concerned as soon as possible.

• (6) If the investment firm does not comply with a requirement made of it under paragraph (5), the Bank shall take all appropriate measures under these Regulations to ensure that the investment firm concerned rectifies the situation as soon as possible.

• (7) The Bank may refer matters under this Regulation to ESMA, who may act in accordance with the powers conferred on it under Article 19 of Regulation (EU) No 1095/2010.

• (8) The Bank shall communicate the nature of the measures taken to the competent authorities of the investment firm’s home Member State.

• (9) If, despite the measures taken by the Bank, the investment firm continues to fail to fulfil the obligations referred to in paragraph (5), the Bank, after informing the competent authorities of the investment firm’s home Member State, shall take appropriate measures under these Regulations needed in order to protect investors and the proper functioning of the markets.

• (10) Where the Bank has clear and demonstrable grounds and is of the opinion that—

• (a) the market operator of a regulated market,

• (b) a MTF, or

• (c) an OTF,

established in another Member State and operating in the State has failed to fulfil any of its obligations under these Regulations, the Bank shall refer those findings to the competent authority of the home Member State of the regulated market, MTF or OTF.

• (11) If, following a referral of the Bank’s findings under paragraph (10), the operator of the regulated market, MTF or OTF persists in acting in a manner that, in the opinion of the Bank, is prejudicial to—

• (a) the interests of investors in the State, or

• (b) the orderly functioning of markets,

the Bank, after informing the competent authority of the home Member State, shall take all the appropriate measures under these Regulations that are needed in order to protect investors and the proper functioning of the markets.

• (12) In addition to its powers under this Regulation the Bank may refer the matter to ESMA.

• (13) Any measure adopted pursuant to this Regulation involving sanctions or restrictions on the activities of an investment firm or of a regulated market shall be properly justified and communicated to the investment firm or to the regulated market.

Cooperation and exchange of information with ESMA

• (2) The Bank shall, without undue delay, provide ESMA with all information necessary to carry out its duties under this Directive and under Regulation (EU) No 600/2014 and in accordance with Articles 35 and 36 of Regulation (EU) No 1095/2010.

PART 13 COOPERATION WITH THIRD COUNTRIES

Exchange of information with third countries

• (a) subject to guarantees of professional secrecy at least equivalent to those required under Article 76 of the Directive, and

• (b) intended for the performance of the tasks of those authorities, bodies and persons.

• (2) The Bank may enter into cooperation agreements providing for the exchange of information between the competent authorities of third countries only if the exchange of information is—

• (a) subject to guarantees of professional secrecy at least equivalent to those required under Article 76 of the Directive, and

• (b) intended for the performance of the tasks of those competent authorities.

• (3) The Bank may enter into cooperation agreements providing for the exchange of information with third country authorities, bodies and other persons responsible for one or more of—

• (a) the supervision of credit institutions, other financial institutions, insurance undertakings and financial markets,

• (b) the liquidation and bankruptcy of investment firms and other similar procedures,

• (c) carrying out statutory audits of the accounts of investment firms and other financial institutions, credit institutions and insurance undertakings, in—

• (i) the performance of their supervisory functions, or

• (ii) the administration of compensation schemes,

• (d) overseeing the bodies involved in the liquidation and bankruptcy of investment firms and other similar procedures,

• (e) overseeing persons charged with carrying out statutory audits of the accounts of insurance undertakings, credit institutions, investment firms and other financial institutions,

• (f) oversight of persons active on emission allowance markets for the purpose of ensuring a consolidated overview of financial and spot markets, and

• (g) oversight of persons active on agricultural commodity derivatives markets for the purpose of ensuring a consolidated overview of financial and spot markets.

• (4) Where an agreement referred to in paragraph (2) or (3) involves the transfer of personal data, it shall comply with Chapter IV of Directive 95/46/EC if the information is to be transferred to a third country by the Bank.

• (5) The cooperation agreements referred to in paragraph (4) may be concluded only where the information disclosed is subject to guarantees of professional secrecy at least equivalent to those required under Article 76 of the Directive.

• (6) Such exchange of information shall be intended for the performance of the tasks of those authorities or bodies or other persons.

• (7) Where a cooperation agreement involves the transfer of personal data by a Member State, it shall comply with Chapter IV of Directive 95/46/EC and with Regulation (EC) No. 45/2001 if ESMA is involved in the transfer.

• (8) Information that originates in another Member State—

• (a) may not be disclosed by the Bank under agreements referred to in paragraph (2), without the express agreement of the competent authority from which the Bank received the information and, where appropriate, may only be disclosed for the purposes for which that competent authority gave its agreement, and

• (b) may not be disclosed by the Bank under agreements referred to in paragraph (3), without the express agreement of the competent authorities from which the Bank received the information and, where appropriate, may only be disclosed for the purposes for which those authorities, bodies or persons gave their agreement.

PART 14 FINAL PROVISIONS

Amendments to the Investment Intermediaries Act 1995

• (2) Section 2(1) of the Act of 1995 is amended—

• (a) by inserting the following after the definition of “deposit broker”;

“ ‘Directive 2014/65/EU’ means Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU;”,

• (b) by inserting the following after the definition of “life assurance intermediary”:

“ ‘management body’ means the body or bodies of an investment business firm which are appointed in accordance with the law of the State or the law of another Member State, which are empowered to set the firm’s strategy, objectives and overall direction, and which oversee and monitor management decision-making and includes persons who effectively direct the business of the entity;”, and

• (c) by inserting the following after the definition of “supervisory authority”:

“ ‘tied agent’ means a person appointed under section 25I as a tied agent by an investment business firm that meets the criteria of Article 3(1)(a), (b) and (c) of Directive 2014/65/EU;”.

• (3) Section 10(5) of the Act of 1995 is amended—

• (a) in paragraph (j), by substituting “investors,” for “investors.”, and

• (b) by inserting the following after paragraph (j):

• “(k) in the case of a proposed investment firm that meets the criteria of Article 3(1)(a), (b) and (c) of Directive 2014/65/EU, in addition to the preceding paragraphs, it provides—

  • (i) information on the minimum time that will be devoted by a member of the management body to the performance of the person’s functions within the firm (annual and monthly indications),

  • (ii) information on human and financial resources devoted to the induction and training of the members (annual indications), and

  • (iii) forecast information at an individual and, where applicable, at consolidated group and sub-consolidated levels, including:

    • (I) forecast accounting plans for the first three business years including forecast balance sheets and forecast profit and loss accounts or income statements;

    • (II) planning assumptions for the above forecasts as well as explanations of the figures, including expected number and type of customers and expected volume of transactions and orders and expected assets under management.”.

• (4) The Act of 1995 is amended by inserting the following sections after section 25G:

“Register of tied agents

25H. (1) The Bank shall establish, update on a regular basis, and in such manner as it sees fit make available, a public register of tied agents of investment business firms and include on the public register all tied agents established within the State under this Act.

• (2) The Bank may include a tied agent on the public register only if satisfied that the tied agent—

  • (a) is of good repute, and

  • (b) possesses the appropriate general, commercial and professional knowledge and competence to enable the tied agent to deliver—

    • (i) the investment business services or ancillary services which the tied agent is to deliver, and

    • (ii) the accurate communication of all relevant information about those services,

    to the client or potential client of the investment business firm for whom the tied agent acts or will act,

    in accordance with applicable requirements.

• (3) For the purposes of subsections (1) and (2), the Bank may rely on the information supplied under section 25I to the Bank by the investment business firm concerned that meets the criteria of Article 3(1)(a), (b) and (c) of Directive 2014/65/EU.

Appointment of tied agents — provisions governing such appointments and consequential matters

25I. (1) An investment business firm that meets the criteria of Article 3(1)(a), (b) and (c) of Directive 2014/65/EU (in this section referred to as a ‘relevant investment business firm’) may appoint persons as tied agents for the purposes of—

- (*a*) promoting the services of the firm,

- (*b*) soliciting business or receiving orders from clients or potential clients and transmitting them, and

- (*c*) providing advice to clients in respect of—

    - (i) financial instruments which they are authorised to advise on, and

    - (ii) investment business services offered by the investment business firm which the tied agent is authorised to advise on.

• (2) A relevant investment business firm that appoints a tied agent—

  • (a) remains fully and unconditionally responsible for any act or omission on the part of the tied agent when acting on behalf of the firm, and

  • (b) shall ensure that the tied agent when contacting or before dealing with any client or potential client discloses at the outset—

    • (i) the capacity in which the tied agent is acting, and

    • (ii) the firm which the tied agent is representing.

• (3) A relevant investment business firm shall monitor the activities of the firm’s tied agents, established or operating in the State, to ensure the firm’s compliance with this Act when the tied agents are acting on behalf of the firm.

• (4) A relevant investment business firm proposing to appoint a tied agent established in the State—

  • (a) shall report the proposed tied agency arrangements to the Bank at least 6 months before entering into the arrangements, and

  • (b) shall confirm to the Bank that the requirements of subsection (2) have been satisfied.

• (5) If a relevant investment business firm appoints a tied agent which provides—

  • (a) services and activities not covered under this Act, and

  • (b) services and activities to which this Act applies,

  the firm shall take adequate measures to avoid any negative impact the services and activities described in paragraph (a) could have on the services that are described in paragraph (b) and that are provided by the tied agent on behalf of the firm.

• (6) A relevant investment business firm shall only appoint tied agents once they have been entered in the public register established and maintained under section 25H.

• (7) A tied agent may act on behalf of one relevant investment business firm only.

• (8) The Bank may impose requirements additional to those contained in this section on tied agents operating in the State.

• (9) Tied agents operating in the State may not handle clients’ money or clients’ financial instruments.”.

Transitional provisions

• (a) the Directive, and

• (b) Commission Delegated Directive (EU) 2017/593,

into the law of that home Member State.

Further transitional provisions

• (a) the clearing obligation set out in Article 4 of Regulation (EU) No 648/2012 and the risk mitigation techniques set out in Article 11(3) thereof shall not apply to C6 energy derivative contracts entered into by non-financial counterparties that meet the conditions in Article 10(1) of Regulation (EU) No 648/2012 or by non-financial counterparties that shall be authorised for the first time as investment firms as from 3 January 2018, and

• (b) such C6 energy derivative contracts shall not be considered to be OTC derivative contracts for the purposes of the clearing threshold set out in Article 10 of Regulation (EU) No 648/2012.

• (2) C6 energy derivative contracts benefiting from the transitional regime set out in paragraph (1) shall be subject to all other requirements laid down in Regulation (EU) No 648/2012.

• (3) The exemption referred to in paragraph (1) shall be granted by the relevant competent authorities.

• (4) The Bank shall notify ESMA of the C6 energy derivative contracts which have been granted an exemption in accordance with paragraph (1) and ESMA shall publish on its website a list of those C6 energy derivative contracts.

Revocation of existing Regulations

• (2) References to, or to any provision of, those Regulations in any enactment have effect on and after that date as references to the corresponding provision of, or to, these Regulations or Regulation (EU) No 600/2014.

• (3) References to terms as defined in those Regulations in any enactment have effect on and after that date as references to the equivalent terms defined in these Regulations or Regulation (EU) No 600/2014.

Liquidators, receivers, administrators, examiners, official assignees or creditors

• (2) Notwithstanding paragraph (1), a liquidator, receiver, administrator, examiner or official assignee may have recourse or right against client funds or client financial instruments or documents of title relating to such financial instruments received, held or paid on behalf of a client by an investment firm in respect of such reasonable expenses as are incurred—

• (a) in the carrying out of their functions under these Regulations or under the Investor Compensation Act 1998 , or

• (b) in the distribution of client funds and financial instruments to clients of the investment firm where the general assets of the investment firm are insufficient or are shown by the liquidator, receiver, administrator, examiner or official assignee to be likely to be insufficient.

Application to the Court

• (2) For the purposes of Regulation 146 and this Regulation, an investment firm is deemed to hold client funds where—

• (a) the funds have been lodged on behalf of a client of the investment firm to an account in accordance with paragraph 3 of Schedule 3 in the name of the investment firm or of any nominee of the firm, and

• (b) the investment firm has the capacity to effect transactions on that account.

• (3) For the purposes of Regulation 146 and this Regulation, an investment firm is deemed to “hold” client financial instruments where the investment firm—

• (a) has been entrusted by or on account of a client with those instruments, and

• (b) either—

• (i) holds those financial instruments, including by way of holding documents of title to them, or

• (ii) entrusts those financial instruments to any nominee,

and the investment firm has the capacity to effect transactions in respect of those financial instruments.

• (4) In this Regulation—

“nominee” means a person acting on behalf of an investment firm as nominee, custodian, or otherwise, and includes an eligible custodian and a nominee company;

“relevant party” means an exchange, clearing house, intermediate broker, OTC counterparty or investment firm.

Winding up of investment firm or market operator by the Court

“committee of inspection” means a committee of inspection appointed under section 666 of the Companies Act 2014 ;

“investment firm” includes a former investment firm;

“market operator” includes a former market operator.

• (2) Notwithstanding section 569 of the Companies Act 2014 , the Bank, by presenting a petition, may apply to the Court to have an investment firm, data reporting service provider or the market operator of a regulated market wound up, under Chapter 2 of Part 11 of that Act, on any of the following grounds:

• (a) the investment firm or market operator is unable or, in the opinion of the Bank, may be unable to meet its obligations to its clients or creditors;

• (b) the authorisation of the investment firm or market operator has been withdrawn or revoked and the firm or operator has ceased to carry on business as an investment firm or to operate a regulated market;

• (c) the Bank considers that it is in the interest of the proper and orderly regulation and supervision of investment firms or regulated markets or is necessary for the protection of investors that the investment firm or the market operator of the regulated market be wound up;

• (d) the investment firm or market operator has failed to comply with any direction given by the Bank under these Regulations.

• (3) Where the petition for the winding up of an investment firm or the operator of a regulated market is presented by a person other than the Bank, a copy of the petition shall be served on the Bank and the Bank is entitled to be heard on the petition; this paragraph is in addition to the provisions of sections 571 and 572 of the Companies Act 2014 and the relevant rules of court.

• (4) Where an investment firm or the operator of a regulated market is being wound up voluntarily and the Bank has reason to believe that any of the grounds set out in paragraph (2) are applicable, then, the Bank may, notwithstanding section 569 of the Companies Act 2014 or any other provision of that Act, apply to the Court to have an order made that an investment firm or market operator be wound up under Chapter 2 of Part 11 of that Act and the Court may make such an order accordingly.

• (5) Where—

• (a) an investment firm or the market operator of a regulated market or a former investment firm or the former market operator of a regulated market is being wound up, and

• (b) the Bank is not a creditor,

any notice or document, by whatever name called, which is required to be sent to a creditor of the firm or operator shall be sent also to the Bank.

• (6) The Bank, in writing, may authorise an officer or employee of the Bank or some other suitably qualified person to attend a meeting of creditors of an investment firm, the market operator of a regulated market or a former investment firm or former market operator of a regulated market.

• (7) The Bank, in writing, may appoint an officer or employee of the Bank or some other suitably qualified person to be a member of a committee of inspection appointed in relation to an authorised investment firm, the market operator of a regulated market or a former authorised investment firm or market operator of a regulated market.

• (8) A person appointed under paragraph (6)—

• (a) is not to be counted in computing the maximum or minimum number of members of a committee of inspection specified by the Companies Act 2014 , and

• (b) may not be removed from membership of the committee without the consent of the Bank.

• (9) The rules of court relating to the winding up of companies shall, pending the making of rules of court for the purposes of this Regulation, apply for such purposes with such adaptations as may be necessary.

• (10) In the case of an unincorporated body of persons that is an authorised investment firm or is the market operator of a regulated market, the Bank may apply by petition to the Court for a decree of dissolution and, for that purpose, section 35 of the Partnership Act 1890 (53 and 54 Vict., c39) shall extend to the Bank and shall apply as if the grounds specified in paragraph (2) (a) to (d) were incorporated in that section.

• (11) In the case of an individual that is an authorised investment firm or is the market operator of a regulated market, the Bank may apply by petition to the Court for an adjudication of bankruptcy within the meaning of the Bankruptcy Act 1988 (No. 27 of 1988) and the Bankruptcy Act 1988 shall apply as if the grounds specified in paragraph (2) (a) to (d) were acts of bankruptcy (within the meaning of the Bankruptcy Act 1988 ).

SCHEDULE 1 INVESTMENT SERVICES AND ACTIVITIES AND FINANCIAL INSTRUMENTS

PART 1 Investment services and activities

PART 2 Ancillary services

PART 3 Financial instruments

PART 4 Data reporting services

SCHEDULE 2 PROFESSIONAL CLIENTS

Definition of “professional client”

Clients which are professional clients

• (a) the following entities which are required to be authorised or regulated to operate in the financial markets, including all authorised entities carrying out the characteristic activities of the entities mentioned (whether entities authorised by a Member State under a Directive, entities authorised or regulated by a Member State without reference to a Directive or entities authorised or regulated by a third country):

• (i) credit institutions;

• (ii) investment firms;

• (iii) other authorised or regulated financial institutions;

• (iv) insurance companies;

• (v) collective investment schemes and management companies of such schemes;

• (vi) pension funds and management companies of such funds;

• (vii) commodity and commodity derivatives dealers;

• (viii) local firms;

• (ix) other institutional investors;

• (b) large undertakings meeting two of the following size requirements on a company basis:

• (i) a balance sheet total of €20,000,000;

• (ii) net turnover of €40,000,000;

• (iii) own funds of €2,000,000;

• (c) national and regional governments, including public bodies that manage public debt at national or regional level, central banks, international and supranational institutions such as the World Bank, the IMF, the ECB, the EIB and other similar international organisations;

• (d) other institutional investors whose main activity is to invest in financial instruments, including entities dedicated to the securitisation of assets or other financing transactions.

Request for higher level of protection by professional clients

• (2) Where the client of an investment firm is an undertaking referred to in paragraph 2, the investment firm shall inform it prior to any provision of services that, on the basis of the information available to the investment firm, the client is deemed to be a professional client, and will be treated as such unless the investment firm and the client agree otherwise.

• (3) The investment firm shall also inform the customer that he or she can request a variation of the terms of the agreement in order to secure a higher degree of protection.

• (4) It is the responsibility of the client, considered to be a professional client, to ask for a higher level of protection when it deems it is unable to properly assess or manage the risks involved.

• (5) The foregoing higher level of protection is to be provided when a client who is considered to be a professional enters into a written agreement with the investment firm to the effect that it shall not be treated as a professional for the purposes of the applicable conduct of business regime.

• (6) Such an agreement shall specify whether the treatment of the client (as not being a professional) applies to one or more particular services or transactions, or to one or more types of product or transaction.

Clients who may be treated as professionals on request

• (2) Investment firms may therefore treat any of those clients as professionals if the relevant criteria and procedure mentioned in the following provisions of this paragraph are fulfilled but those clients shall not, however, be presumed to possess market knowledge and experience comparable to that of the categories listed in paragraph 2.

• (3) Any such waiver of the protection afforded by the standard conduct of business regime shall be considered to be valid only if an adequate assessment of the expertise, experience and knowledge of the client, undertaken by the investment firm, gives reasonable assurance, in light of the nature of the transactions or services envisaged, that the client is capable of making investment decisions and understanding the risks involved.

• (4) The fitness test applied to managers and directors of entities licensed under Directives in the financial field may be regarded as an example of the assessment of expertise and knowledge.

• (5) In the case of small entities, the person subject to that assessment shall be the person authorised to carry out transactions on behalf of the entity.

• (6) In the course of that assessment, as a minimum, two of the following criteria shall be satisfied:

• (a) that the client has carried out transactions, in significant size, on the relevant market at an average frequency of 10 per quarter over the previous four quarters;

• (b) that the size of the client’s financial instrument portfolio, defined as including cash deposits and financial instruments exceeds €500,000;

• (c) that the client works or has worked in the financial sector for at least one year in a professional position, which requires knowledge of the transactions or services envisaged.

Procedure for clients who may be treated as professionals on request

• (a) they shall state in writing to the investment firm that they wish to be treated as a professional client, either generally or in respect of a particular investment service or transaction, or type of transaction or product;

• (b) the investment firm shall give them a clear written warning of the protections and investor compensation rights they may lose;

• (c) they shall state in writing, in a separate document from the contract, that they are aware of the consequences of losing such protections.

• (2) Before deciding to accept any request for waiver, investment firms shall take all reasonable steps to ensure that the client requesting to be treated as a professional client meets the criteria in paragraph 4(6).

• (3) However, if before 3 January 2018 clients have already been categorised as professionals under similar parameters and procedures similar to those referred to above, the foregoing provisions are not to be construed as meaning that their relationships with investment firms are to be affected by any new rules adopted pursuant to this Schedule.

• (4) Investment firms shall implement appropriate written internal policies and procedures to categorise clients.

• (5) Professional clients shall be responsible for keeping the investment firm informed about any change which could affect their current categorisation.

• (6) If the investment firm becomes aware however that the client no longer fulfils the initial conditions, which made the client eligible for a professional treatment, the investment firm shall take appropriate action.

Definition

SCHEDULE 3 SAFEGUARDING CLIENT FINANCIAL INSTRUMENTS AND FUNDS

Regulation 23

Safeguarding client financial instruments and funds

• (a) keep records and accounts enabling them at any time and without delay to distinguish assets held for one client from assets held for any other client and from their own assets,

• (b) maintain their records and accounts in a way that ensures their accuracy, and in particular their correspondence to the financial instruments and funds held for clients and that they may be used as an audit trail,

• (c) conduct, on a regular basis, reconciliations between their internal accounts and records and those of any third parties by whom those assets are held,

• (d) take the necessary steps to ensure that any client financial instruments deposited with a third party, in accordance with paragraph 2, are identifiable separately from the financial instruments belonging to the investment firm and from financial instruments belonging to that third party, by means of differently titled accounts on the books of the third party or other equivalent measures that achieve the same level of protection,

• (e) take the necessary steps to ensure that client funds deposited, in accordance with paragraph 3, in a central bank, a credit institution or a bank authorised in a third country or a qualifying money market fund are held in an account or accounts identified separately from any accounts used to hold funds belonging to the investment firm, and

• (f) introduce adequate organisational arrangements to minimise the risk of the loss or diminution of client assets, or of rights in connection with those assets, as a result of misuse of the assets, fraud, poor administration, inadequate record-keeping or negligence.

• (2) If, because of any enactment, investment firms cannot comply with paragraph 1 to safeguard clients’ rights to satisfy the requirements of Regulation 23(1)(k) and (l), investment firms are required to put in place arrangements to ensure that client assets are safeguarded to meet the objectives of paragraph 1.

• (3) If the applicable law of the jurisdiction in which the client funds or financial instruments are held prevents investment firms from complying with subparagraphs (d) or (e) of paragraph 1, the Bank may prescribe requirements which have an equivalent effect in terms of safeguarding clients rights.

• (4) When relying on such equivalent requirements under Schedule 3 paragraph (1) subparagraphs (d) or (e), investment firms shall inform clients that in such instances they do not benefit from the provisions envisaged under these Regulations and this Schedule.

• (5) Security interests, liens or rights of set-off over client financial instruments or funds enabling a third party to dispose of client’s financial instruments or funds in order to recover debts that do not relate to the client or provision of services to the client are not permitted except where this is required by applicable law in a third country jurisdiction in which the client funds or financial instruments are held.

• (6) Investment firms are required, where the firm is obliged to enter into agreements that create such security interests, liens or rights of set-off, to disclose that information to clients indicating to them the risks associated with those arrangements.

• (7) Investment firms shall record in client contracts and the firm’s own accounts where security interests, liens or rights of set-off are granted by the firm over client financial instruments or funds, or where the firm has been informed that they are granted to make the ownership status of client assets clear, such as in the event of insolvency.

• (8) Investment firms are required to make information pertaining to clients’ financial instruments and funds readily available to the following entities:

• (a) The Bank;

• (b) appointed insolvency practitioners;

• (c) those responsible for the resolution of failed institutions.

• (9) The information shall include the following:

• (a) related internal accounts and records that readily identify the balances of funds and financial instruments held for each client;

• (b) where client funds are held by the investment firm in accordance with paragraph 3, as well as details of the accounts where client funds are held and the relevant agreements with those entities;

• (c) where financial instruments held by the investment firm in accordance with paragraph 2, as well as details of accounts opened with third parties and the relevant agreements with those entities;

• (d) details of third parties carrying out any related (outsourced) tasks and details of any outsourced tasks;

• (e) key individuals of the firm involved in related processes, including those responsible for oversight of the firm’s requirements in relation to the safeguarding of client assets;

• (f) agreements to establish client ownership over assets.

Depositing client financial instruments

• (2) Investment firms shall take into account the expertise, and market reputation of the third party as well as any legal requirements related to the holding of those financial instruments that could adversely affect clients’ rights.

• (3) Where an investment firm proposes to deposit client financial instruments with a third party, the investment firm shall only deposit financial instruments with a third party in a jurisdiction where the safekeeping of financial instruments for the account of another person is subject to specific regulation and supervision and that third party is subject to this specific regulation and supervision.

• (4) Investment firms shall not deposit financial instruments held on behalf of clients with a third party in a third country that does not regulate the holding and safekeeping of financial instruments for the account of another person unless one of the following conditions is met:

• (a) the nature of the financial instruments or of the investment services connected with those instruments requires them to be deposited with a third party in that third country;

• (b) where the financial instruments are held on behalf of a professional client, that client requests the firm in writing to deposit them with a third party in that third country.

• (5) The requirements under subparagraphs (3) and (4) shall also apply when the third party has delegated any of its functions concerning the holding and safekeeping of financial instruments to another third-party.

Depositing client funds

• (a) a Central Bank;

• (b) a credit institution authorised in accordance with Directive 2013/36/EU;

• (c) a bank authorised in a third country;

• (d) a qualifying money market fund.

• (2) Subparagraph (1) shall not apply to a credit institution authorised in accordance with Directive 2013/36/EU in relation to deposits within the meaning of those Regulations held by that institution.

• (3) Where investment firms do not deposit client funds with a central bank, they shall exercise all due skill, care and diligence in the selection, appointment and periodic review of the credit institution, bank or money market fund where the funds are placed and the arrangements for the holding of those funds and they consider the need for diversification of these funds as part of their due diligence.

• (4) In particular, investment firms shall take into account the expertise and market reputation of such institutions or money market funds with a view to ensuring the protection of clients’ rights as well as any legal or regulatory requirements or market practices related to the holding of client funds that could adversely affect clients’ rights.

• (5) Investment firms shall ensure that clients give their explicit consent to the placement of their funds in a qualifying money market fund. In order to ensure that this right to consent is effective, investment firms shall inform clients that funds placed with a qualifying money market fund will not be held in accordance with the requirements for safeguarding client funds set out in this Schedule.

• (6) Where investment firms deposit client funds with a credit institution, bank or money market fund of the same group as the investment firm, they shall limit the funds that they deposit with any such group entity or combination of any such group entities so that funds do not exceed 20% of all such funds.

• (7) An investment firm is not required to comply with the foregoing limit where it is able to demonstrate to the Bank that, in view of the nature, scale and complexity of its business, and also the safety offered by the third parties considered in the preceding subparagraph, and including in any case the small balance of client funds the investment firm holds the requirement under the preceding subparagraph is not proportionate. Investment firms shall periodically review the assessment made in accordance with this subparagraph and shall notify their initial and reviewed assessments to the Bank.

Use of client financial instruments

• (a) the client has given their prior express consent to the use of the instruments on specified terms, as clearly evidenced in writing and affirmatively executed by signature or equivalent;

• (b) the use of that client’s financial instruments is restricted to the specified terms to which the client consents.

• (2) In respect of financial instruments which are held on behalf of a client in an omnibus account maintained by a third party, investment firms shall not enter into arrangements for the securities financing transactions, or otherwise use financial instruments held in such an account for their own account or for the account of any other person, unless, in addition to the conditions set out in subparagraph (1), at least one of the following conditions are met:

• (a) prior express consent must be given by each client whose financial instruments are held together in an omnibus account in accordance with subparagraph (1)(a);

• (b) the investment firm must have in place systems and controls which ensure that only financial instruments belonging to clients who have given prior express consent in accordance with subparagraph (1)(a) are so used.

• (3) The records of the investment firm shall include details of the client on whose instructions the use of the financial instruments has been effected, as well as the number of financial instruments used belonging to each client who has given his consent, so as to enable the correct allocation of any loss.

• (4) Investment firms shall take appropriate measures to prevent the unauthorised use of client financial instruments for their own account or the account of any other person such as:

• (a) the conclusion of agreements with clients on measures to be taken by the investment firms in case the client does not have enough provision on its account on the settlement date, such as borrowing of the corresponding securities on behalf of the client or unwinding the position;

• (b) the close monitoring by the investment firm of its projected ability to deliver on the settlement date and the putting in place of remedial measures if this cannot be done;

• (c) the close monitoring and prompt requesting of undelivered securities outstanding on the settlement day and beyond.

• (5) Investment firms shall adopt specific arrangements for all clients to ensure that the borrower of client financial instruments provides the appropriate collateral and that the firm monitors the continued appropriateness of such collateral and takes the necessary steps to maintain the balance with the value of client instruments.

• (6) Investment firms shall not enter into arrangements which are prohibited under Regulation 23(1)(m).

Inappropriate use of title transfer collateral arrangements

• (2) When considering, and documenting, the appropriateness of the use of title transfer collateral arrangements, investment firms shall take into account all of the following factors:

• (a) whether there is only a very weak connection between the client’s obligation to the firm and the use of title transfer collateral arrangements, including whether the likelihood of a clients liability to the firm is low or negligible;

• (b) whether the amount of client funds or financial instruments subject to title transfer collateral arrangements far exceeds the client’s obligation, or is even unlimited if the client has any obligation at all to the firm;

• (c) whether all clients’ financial instruments or funds are made subject to title transfer collateral arrangements, without consideration of what obligation each client has to the firm.

• (3) Where using title transfer collateral arrangements, investment firms shall emphasise to professional clients and eligible counterparties the risks involved and the effect of any title transfer collateral arrangement on the client’s financial instruments and funds.

Governance arrangements concerning the safeguarding of client assets

• (2) Investment firms shall decide, ensuring full compliance with this Schedule, whether the appointed officer is to be dedicated solely to this task or whether the officer can discharge responsibilities effectively whilst having additional responsibilities.

Reports by external auditors

SCHEDULE 4 PRODUCT GOVERNANCE REQUIREMENTS

Regulation 32

Product governance requirements for investment firms manufacturing financial instruments

• (2) Investment firms devising or otherwise creating financial instruments shall comply, in a way that is appropriate and proportionate with the relevant requirements in paragraphs 3 to 18, taking into account the nature of the financial instrument, the investment service and the target market for the product.

• (3) Investment firms are required to establish, implement and maintain procedures and measures to ensure the devising, or the creation otherwise, of financial instruments complies with the requirements on proper management of conflicts of interest, including remuneration. In particular, investment firms devising or otherwise creating financial instruments shall ensure that the design of the financial instrument, including its features, does not adversely affect end clients or does not lead to problems with market integrity by enabling the firm to mitigate or dispose of (or both) its own risks or exposure to the underlying assets of the product, where the investment firm already holds the underlying assets on own account.

• (4) Investment firms are required to analyse potential conflicts of interest each time a financial instrument is devised or otherwise created. In particular, firms shall assess whether the financial instrument creates a situation where end clients may be adversely affected if they take:

• (a) an exposure opposite to the one previously held by the firm itself; or

• (b) an exposure opposite to the one that the firm wants to hold after the sale of the product.

• (5) Investment firms shall consider whether the financial instrument may represent a threat to the orderly functioning or to the stability of financial markets before deciding to proceed with the launch of the product.

• (6) Investment firms are required to ensure that relevant staff involved in the devising, or the creation otherwise, of financial instruments possess the necessary expertise to understand the characteristics and risks of the financial instruments they intend to devise or otherwise create.

• (7) Investment firms are required to ensure that the management body has effective control over the firm’s product governance process. Investment firms shall ensure that the compliance reports to the management body systematically include information about the financial instruments devised or otherwise created by the firm, including information on the distribution strategy. Investment firms shall make the reports available to their competent authority on request.

• (8) Investment firms shall ensure the compliance function monitors the development and periodic review of product governance arrangements in order to detect any risk of failure by the firm to comply with the obligations set out in this Schedule.

• (9) Investment firms shall, where they collaborate, including with entities which are not authorised and supervised in accordance with these Regulations or third-country firms, to create, develop, issue or design a product (or do more than one of those things), outline their mutual responsibilities in a written agreement.

• (10) Investment firms shall identify at a sufficiently in-depth level the potential target market for each financial instrument and specify the type or types of client for whose needs, characteristics and objectives the financial instrument is compatible. As part of this process, the firm shall identify any group or groups of clients for whose needs, characteristics and objectives the financial instrument is not compatible. Where investment firms collaborate to devise or otherwise create a financial instrument, only one target market needs to be identified.

• (11) Investment firms devising or otherwise creating financial instruments that are distributed through other investment firms shall determine the needs and characteristics of clients for whom the product is compatible based on their theoretical knowledge of and past experience with the financial instrument or similar financial instruments, the financial markets and the needs, characteristics and objectives of potential end clients.

• (12) Investment firms are required to undertake a scenario analysis of their financial instruments which shall assess the risks of poor outcomes for end clients posed by the product and in which circumstances these outcomes may occur. Investment firms shall assess the financial instrument under negative conditions covering what would happen if, for example:

• (a) the market environment deteriorated;

• (b) the person devising or otherwise creating or a third party involved in devising or otherwise creating or functioning of the financial instrument (or both) experiences financial difficulties or other counterparty risk materialises;

• (c) the financial instrument fails to become commercially viable; or

• (d) demand for the financial instrument is much higher than anticipated, putting a strain on the firm’s resources or on the market of the underlying instrument (or both).

• (13) Investment firms shall determine whether a financial instrument meets the identified needs, characteristics and objectives of the target market, including by examining the following elements:

• (a) the financial instrument’s risk/reward profile is consistent with the target market;

• (b) financial instrument design is driven by features that benefit the client and not by a business model that relies on poor client outcomes to be profitable.

• (14) Investment firms shall consider the charging structure proposed for the financial instrument, including by examining the following: