S.I. No. 355/2021 - European Union (Investment Firms) Regulations 2021

Notice of the making of this Statutory Instrument was published in

“Iris Oifigiúil” of 24th September, 2021.

I, PASCHAL DONOHOE, Minister for Finance, in exercise of the powers conferred on me by section 3 of the European Communities Act 1972 (No. 27 of 1972) and for the purpose of giving effect to Directive (EU) 2019/2034 of the European Parliament and Council of 27 November 2019¹ , hereby make the following regulations:

Part 1 PRELIMINARY

Citation

1.

Interpretation

2.

“Act of 1942” means the Central Bank Act 1942 (No. 22 of 1942);

“Act of 2013” means the Central Bank (Supervision and Enforcement) Act 2013 (No. 26 of 2013);

“authorisation” means authorisation of an investment firm in accordance with the MiFID Regulations;

“Bank” means the Central Bank of Ireland;

“ESFS” means the European System of Financial Supervision;

“financial services legislation” has the same meaning as it has in the Act of 2013;

“General Data Protection Regulation” means Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016² ;

“Investment Firms Directive” means Directive (EU) 2019/2034 of the European Parliament and Council of 27 November 2019³ ;

“MiFID Regulations” means the European Union (Markets in Financial Instruments) Regulations 2017 ( S.I. No. 375 of 2017 ).

• (2) A word or expression which is used in these Regulations and is also used in the Investment Firms Directive has, unless the context otherwise requires, the same meaning in these Regulations as it has in the Investment Firms Directive.

Scope

3.

• (2) Parts 4 and 5 shall not apply to an investment firm referred to in Article 1(2) of Regulation (EU) 2019/2033 or which has been allowed, in accordance with Article 1(5) of that Regulation, to apply the requirements of Regulation (EU) No 575/2013.

• (3) An investment firm referred to in Article 1(2) of Regulation (EU) 2019/2033 or which has been allowed, in accordance with Article 1(5) of that Regulation, to apply the requirements of Regulation (EU) No 575/2013, shall be supervised for compliance with prudential requirements under Parts 6 and 7 of the European Union (Capital Requirements) Regulations 2014 ( S.I. No. 158 of 2014 ) in accordance with the second subparagraph of Article 1(2) and the third subparagraph of Article 1(5) of Regulation (EU) 2019/2033.

Bank discretion

4.

• (a) the total value of the consolidated assets of the investment firm is equal to or exceeds €5,000,000,000, calculated as an average of the previous 12 months, and

• (b) one or more of the following criteria apply:

• (i) the investment firm carries out those activities on such a scale that the failure or the distress of the investment firm could lead to systemic risk;

• (ii) the investment firm is a clearing member as defined in point (3) of Article 4(1) of Regulation (EU) 2019/2033;

• (iii) the Bank considers it to be justified in light of the size, nature, scale and complexity of the activities of the investment firm concerned, taking into account the principle of proportionality and having regard to one or more of the following factors:

• (I) the importance of the investment firm for the economy of the European Union or of the State;

• (II) the significance of the investment firm’s cross-border activities;

• (III) the interconnectedness of the investment firm with the financial system.

• (2) Paragraph (1) shall not apply to an investment firm that is—

• (a) a commodity and emission allowance dealer,

• (b) a collective investment undertaking, or

• (c) an insurance undertaking.

• (3) Where the Bank decides to apply the requirements of Regulation (EU) No 575/2013 to an investment firm in accordance with paragraph (1), that investment firm shall be supervised for compliance with prudential requirements under Parts 6 and 7 of the European Union (Capital Requirements) Regulations 2014.

• (4) Where a decision under paragraph (1) is made or revoked by the Bank, it shall inform the investment firm concerned without delay.

• (5) A decision made by the Bank under paragraph (1) in respect of an investment firm shall cease to apply where the investment firm no longer meets the threshold referred to in that paragraph, calculated over a period of 12 consecutive months.

• (6) The Bank shall inform EBA without delay where it makes or revokes a decision under this Regulation.

Part 2 COMPETENT AUTHORITY

Designation of competent authority

5.

• (2) The Bank shall supervise the activities of investment firms and, where applicable, of investment holding companies and mixed financial holding companies to assess compliance with the requirements of the Investment Firms Directive and Regulation (EU) 2019/2033.

• (3) An investment firm shall provide the Bank with all the information necessary to assess compliance by the firm with these Regulations and Regulation (EU) 2019/2033.

• (4) An investment firm shall put in place internal control mechanisms and administrative and accounting procedures to enable the Bank to check compliance by the firm with these Regulations and Regulation (EU) 2019/2033.

• (5) An investment firm shall record all of its transactions and document the systems and processes of the firms which are subject to these Regulations and Regulation (EU) 2019/2033 in such a manner that the Bank is able to assess compliance with these Regulations and Regulation (EU) 2019/2033 at all times.

Cooperation within European System of Financial Supervision

6.

• (2) The Bank shall—

• (a) as a party to the ESFS, cooperate with the competent authorities of other Member States with trust and full mutual respect, in particular when ensuring the exchange of appropriate, reliable and exhaustive information between them and other parties to the ESFS,

• (b) participate in the activities of EBA and, as appropriate, in the colleges of supervisors referred to in Regulation 44 and in Regulation 104 of the European Union (Capital Requirements) Regulations 2014,

• (c) make every effort to ensure compliance with the guidelines and recommendations issued by EBA pursuant to Article 16 of Regulation (EU) No 1093/2010 and to respond to the warnings and recommendations issued by the European Systemic Risk Board pursuant to Article 16 of Regulation (EU) No 1092/2010 of the European Parliament and of the Council, and

• (d) cooperate closely with the European Systemic Risk Board.

European Union dimension of supervision

7.

Part 3 INITIAL CAPITAL

Initial capital

8.

• (2) An investment firm seeking authorisation, or authorised, to carry out an activity listed at paragraph 1, 2, 4, 5 or 7 of Part 1 of Schedule 1 to the MiFID Regulations and which is not permitted to hold client money or securities belonging to its clients shall have initial capital of €75,000.

• (3) An investment firm authorised to carry out the activity listed at paragraph 9 of Part 1 of Schedule 1 to the MiFID Regulations and which engages in dealing on own account or is permitted to do so shall have initial capital of €750,000.

• (4) An investment firm, other than one referred to in paragraph (1), (2) or (3), shall have initial capital of €150,000.

Composition of initial capital

9.

Part 4 PRUDENTIAL SUPERVISION

Chapter 1 Principles of prudential supervision

Competence of Bank and host Member State competent authority

10.

• (2) Paragraph (1) is without prejudice to a provision of these Regulations which confers responsibility of the competent authority of a host Member State of an investment firm.

Cooperation between competent authorities

11.

• (a) information about the management and ownership structure of the investment firm;

• (b) information about compliance with own funds requirements by the investment firm;

• (c) information about compliance with the concentration risk requirements and liquidity requirements of the investment firm;

• (d) information about the administrative and accounting procedures and internal control mechanisms of the investment firm;

• (e) any other relevant factors that may influence the risk posed by the investment firm.

• (2) Where the State is the home Member State of an investment firm, the Bank shall immediately provide the competent authority of the host Member State with any information and findings about any potential problems and risks posed by the investment firm to the protection of clients or the stability of the financial system in the host Member State which the Bank has identified when supervising the activities of the investment firm.

• (3) Where the State is the home Member State of an investment firm, the Bank shall act upon information provided by the competent authority of the host Member State by taking all measures necessary to avert or remedy potential problems and risks referred to in paragraph (2).

• (4) Where the State is the home Member State of an investment firm, the Bank shall upon request, explain in detail to the competent authority of the host Member State how they have taken into account the information and findings provided by the competent authority of the host Member State.

• (5) Where, following the communication of information and findings corresponding to those referred to in paragraph (2), the Bank, as competent authority of the host Member State of an investment firm, considers that the competent authority of the home Member State of the investment firm has not taken the necessary measures corresponding to those referred to in paragraph (3), the Bank may, after having informed the competent authority of the home Member State of the investment firm, EBA and ESMA, take appropriate measures to protect clients to whom services are provided or to protect the stability of the financial system.

• (6) The Bank may refer to EBA cases in which a request for collaboration, in particular a request to exchange information, has been rejected or has not been acted upon within a reasonable time.

• (7) Where the Bank, as competent authority of the home Member State of an investment firm, disagrees with the measures, corresponding to those referred to in paragraph (3), taken by the competent authority of the host Member State of an investment firm, it may refer the matter to EBA.

• (8) For the purpose of assessing the condition in point (c) of the first subparagraph of Article 23(1) of Regulation (EU) 2019/2033, the Bank, as competent authority of the home Member State of an investment firm, may request the competent authority of a clearing member’s home Member State to provide information relating to the margin model and parameters used for the calculation of the margin requirement of the investment firm.

On- the- spot checking and inspection of branches established in another Member State

12.

• (2) Where the State is the host Member State of an investment firm, the Bank shall, for supervisory purposes and where it considers it to be relevant for reasons of stability of the financial system in the State, have the power to carry out, on a case- by- case basis, on- the- spot checks and inspections of the activities carried out by branches of the investment firm in the State and require information from a branch about its activities.

• (3) Before carrying out the checks and inspections referred to in paragraph (2), the Bank shall, without delay, consult the competent authority of the home Member State of the investment firm.

• (4) As soon as possible following the completion of the checks and inspections referred to in paragraph (2), the Bank shall communicate to the competent authority of the home Member State of the investment firm the information obtained and findings that are relevant for the risk assessment of the investment firm.

Professional secrecy and exchange of confidential information

13.

• (2) In a case in which the Bank or a person referred to in paragraph (1) receives confidential information in the course of the Bank’s duties or the person’s duties, as the case may be, that information may be disclosed only where—

• (a) the information is disclosed in summary or aggregate form, and

• (b) individual investment firms or persons cannot be identified from the information that is disclosed.

• (3) Paragraph (2) is without prejudice to any restrictions on the disclosure of information under the law of the State applicable to criminal proceedings.

• (4) Where an investment firm has been declared bankrupt or is being compulsorily wound up, confidential information which does not concern third parties may be disclosed in civil proceedings, where such disclosure is necessary for carrying out those proceedings.

• (5) The Bank shall use the confidential information collected, exchanged or transmitted pursuant to these Regulations and to Regulation (EU) 2019/2033 only for the purpose of carrying out its duties, and in particular for the following purposes:

• (a) to monitor the prudential rules set out in these Regulations and in Regulation (EU) 2019/2033;

• (b) to impose sanctions;

• (c) in appeals against decisions of the Bank under Part VIIA of the Act of 1942.

• (6) Where a natural or legal person or other body, other than the Bank, receives confidential information pursuant to these Regulations or Regulation (EU) 2019/2033, the person or body, as the case may be, shall use that information only for the purposes for which the Bank expressly provides or in accordance with law.

• (7) The Bank may—

• (a) exchange confidential information for the purposes of paragraph (5),

• (b) expressly state how that information is to be treated, and

• (c) expressly restrict any further transmission of that information.

• (8) The Bank may transmit confidential information to the Commission where that information is necessary for the exercise of the powers of the Commission.

• (9) The Bank may provide EBA, ESMA, the ESRB, central banks of the Member States, the European System of Central Banks (ESCB) and the European Central Bank in their capacity as monetary authorities, and, where appropriate, public authorities responsible for overseeing payment and settlement systems, with confidential information where that information is necessary for the performance of their tasks.

Cooperation arrangements with third countries for the exchange of information

14.

• (a) performing the Bank’s supervisory tasks pursuant to these Regulations or Regulation (EU) 2019/2033, or

• (b) exchanging information,

where the information disclosed pursuant to that arrangement is subject to guarantees of professional secrecy that are at least equivalent to those provided for in Regulation 13.

• (2) The persons referred to in paragraph (1) are—

• (a) third- country supervisory authorities, and

• (b) third- country authorities or bodies responsible for the following tasks:

• (i) the supervision of financial institutions and financial markets, including the supervision of financial entities licensed to operate as central counterparties, where central counterparties have been recognised under Article 25 of Regulation (EU) No 648/2012 of the European Parliament and of the Council;

• (ii) the liquidation and bankruptcy of investment firms and similar procedures;

• (iii) oversight of the bodies involved in the liquidation and bankruptcy of investment firms and similar procedures;

• (iv) the carrying out of statutory audits of financial institutions or institutions which administer compensation schemes;

• (v) oversight of persons charged with carrying out statutory audits of the accounts of financial institutions;

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

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

Duties of persons responsible for the control of annual and consolidated accounts

15.

• (a) constitutes a material breach of these Regulations,

• (b) may affect the continuous functioning of the investment firm, or

• (c) may lead to a refusal to certify the accounts or can lead to the expression of reservations.

Sanctions

16.

• (a) following an inquiry under section 33AO of the Act of 1942, or

• (b) in accordance with section 33AR or section 33AV of the Act of 1942.

• (2) The power of the Bank to impose any of the sanctions referred to in paragraph (4) is in addition to and not in substitution for its power to impose any of the sanctions specified in section 33AQ of the Act of 1942.

• (3) For the purposes of these Regulations, any reference in the Act of 1942 to the sanctions set out in section 33AQ of that Act is to be read as including a reference to the sanctions set out in this Regulation.

• (4) The sanctions mentioned in paragraph (3) are—

• (a) a public statement which identifies the natural or legal person, investment firm, investment holding company or mixed financial holding company responsible and the nature of the breach,

• (b) an order requiring the natural or legal person responsible to cease the conduct and to desist from repeating that conduct,

• (c) a temporary ban, for members of the investment firm’s management body or any other natural persons who are held responsible, on exercising functions in investment firms,

• (d) subject to paragraph (5), in the case of a legal person, administrative pecuniary sanctions of up to 10 per cent of the total annual net turnover, including the gross income consisting of interest receivable and similar income, income from shares and other variable or fixed- yield securities, and commissions or fees of the undertaking in the preceding business year,

• (e) in the case of a legal person, administrative pecuniary sanctions of up to twice the amount of the profits gained or losses avoided due to the breach where those profits or losses can be determined, and

• (f) in the case of a natural person, administrative pecuniary sanctions of up to €5,000,000.

• (5) Where an undertaking referred to in paragraph (4)(d) is a subsidiary, the relevant gross income shall be the gross income resulting from the consolidated account of the ultimate parent undertaking in the preceding business year.

• (6) The Bank shall, when determining the type of sanction and, where applicable, the level of administrative pecuniary sanction, take into account all relevant circumstances, including, where appropriate—

• (a) the gravity and the duration of the breach,

• (b) the degree of responsibility of the natural or legal persons responsible for the breach,

• (c) the financial strength of the natural or legal persons responsible for the breach, including the total turnover of legal persons or the annual income of natural persons,

• (d) the importance of profits gained or losses avoided by the legal persons responsible for the breach,

• (e) any losses incurred by third parties as a result of the breach,

• (f) the level of cooperation with the Bank of the natural or legal persons responsible for the breach,

• (g) previous breaches by the natural or legal persons responsible for the breach, and

• (h) any potential systemic consequences of the breach.

Publication of sanctions

17.

• (2) The information published under paragraph (1) shall—

• (a) include the following information—

• (i) the type and nature of the breach, and

• (ii) the identity of the natural or legal person on whom the sanction is imposed,

and

• (b) be published—

• (i) without undue delay after that person is informed of those sanctions, and

• (ii) to the extent that the publication is necessary and proportionate.

• (3) Where the Bank publishes information under paragraph (1) in relation to sanctions against which there is an appeal, the Bank shall, without undue delay, also publish on its official website information on the appeal status and outcome thereof.

• (4) The Bank shall publish information under paragraph (1) on an anonymous basis in the following circumstances:

• (a) the sanction has been imposed on a natural person and publication of that person’s personal data is found to be disproportionate;

• (b) the publication would jeopardise an ongoing criminal investigation or the stability of financial markets;

• (c) the publication would cause disproportionate damage to the investment firms or natural persons involved.

• (5) Subject to paragraph (6), the Bank shall ensure that information published under paragraph (1) remains on its official website for at least five years.

• (6) Personal data published under paragraph (1) may only be retained on the official website of the Bank in accordance with the General Data Protection Regulation, the Data Protection Act 2018 and any statutory instruments made under that Act.

Reporting sanctions to EBA

18.

• (a) sanctions imposed under Regulation 16,

• (b) any appeal against such sanctions, and

• (c) the outcome of any such appeal.

Reporting of breaches

19.

• (2) The mechanisms referred to in paragraph (1) shall include the following:

• (a) specific procedures for the reception, treatment and following up of such reports, including the establishment of secure communication channels;

• (b) appropriate protection against retaliation, discrimination or other types of unfair treatment by the investment firm for employees of investment firms who report breaches committed within the investment firm;

• (c) protection of personal data concerning both the person who reports the breach and the natural person who is allegedly responsible for that breach, in accordance with the General Data Protection Regulation;

• (d) clear rules that ensure that confidentiality is guaranteed in all cases in relation to the person who reports the breaches committed within the investment firm, unless disclosure is required by the law of the State in the context of further investigations or subsequent administrative or judicial proceedings.

• (3) The Bank shall require investment firms to have in place appropriate procedures for their employees to report breaches internally through a specific independent channel.

Right of appeal

20.

Chapter 2 Review Process

Internal capital and liquid assets

21.

• (2) The arrangements, strategies and processes referred to in paragraph (1) shall be—

• (a) appropriate and proportionate to the nature, scale and complexity of the activities of the investment firm concerned, and

• (b) subject to regular internal review.

• (3) Where an investment firm meets the conditions, set out in Article 12(1) of Regulation (EU) 2019/2033, to qualify as a small and non- interconnected investment firm, the Bank may request the firm to apply the requirements provided for in this Regulation to the extent that the Bank deems it to be appropriate.

Scope of application of Regulations 23 to 31

22.

• (2) Where an investment firm which has not met all of the conditions set out in Article 12(1) of Regulation (EU) 2019/2033 subsequently meets those conditions, Regulations 23 to 31 shall cease to apply after a period of six months from the date on which those conditions are met.

• (3) Regulations 23 to 31 shall cease to apply to an investment firm after the period referred to in paragraph (2) only where—

• (a) the investment firm continued to meet the conditions set out in Article 12(1) of Regulations 23 to 31 without interruption during that period, and

• (b) the investment firm has notified the Bank accordingly.

• (4) Where an investment firm determines that it no longer meets all of the conditions set out in Article 12(1) of Regulation (EU) 2019/2033, it shall notify the Bank and comply with Regulations 23 to 31 within 12 months of the date of that determination.

• (5) An investment firms shall apply Regulation 29 to remuneration awarded for services provided or performance in the financial year following the financial year in which the determination referred to in paragraph (4) is made.

• (6) Where Regulations 23 to 31 and Article 8 of Regulation (EU) 2019/2033 apply to an investment firm, Regulations 23 to 31 shall apply to the firm on an individual basis.

• (7) Subject to paragraph (8), where Regulations 23 to 31 apply to an investment firm and prudential consolidation as referred to in Article 7 of Regulation (EU) 2019/2033 is applied to the firm, Regulations 23 to 31 shall apply to the firm on an individual and consolidated basis.

• (8) Regulations 23 to 31 shall not apply to subsidiary undertakings included in a consolidated situation that are established in third countries, where the parent undertaking in the European Union can demonstrate to the Bank that the application of Regulations 23 to 31 is unlawful under the laws of the third country where those subsidiary undertakings are established.

Internal governance

23.

• (a) a clear organisational structure with well- defined, transparent and consistent lines of responsibility;

• (b) effective processes to identify, manage, monitor and report the risks that investment firms are or might be exposed to, or the risks that they pose or might pose to others;

• (c) adequate internal control mechanisms, including sound administration and accounting procedures;

• (d) remuneration policies and practices that are consistent with and promote sound and effective risk management.

• (2) The remuneration policies and practices referred to in paragraph (1)(d) shall be gender neutral.

• (3) When establishing the arrangements referred to in paragraph (1), an investment firm shall take into account the requirements of Regulations 25 to 30.

• (4) The arrangements referred to in paragraph (1) shall be appropriate and proportionate to the nature, scale and complexity of the risks inherent in the business model and the activities of the investment firm.

Country-by-country reporting

24.

• (a) the name, nature of activities and location of any subsidiaries and branches;

• (b) turnover;

• (c) the number of employees on a full time equivalent basis;

• (d) profit or loss before tax;

• (e) tax on profit or loss;

• (f) the public subsidies received.

• (2) The information referred to in paragraph (1) shall be audited in accordance with Directive 2006/43/EC and, where possible, shall be annexed to the annual financial statements or, where applicable, to the consolidated financial statements of the investment firm concerned.

Role of management body in risk management

25.

• (a) the risk appetite of the investment firm, and

• (b) managing, monitoring and mitigating the risks the investment firm is or may be exposed to,

taking into account the macroeconomic environment and the business cycle of the investment firm.

• (2) The management body of an investment firm shall devote sufficient time to ensure proper consideration of the matters referred to in paragraph (1) and that it allocates adequate resources to the management of all material risks to which the investment firm is exposed.

• (3) An investment firm shall establish reporting lines to the management body for all material risks and for all risk management policies and any changes thereto.

• (4) Where the value of an investment firm’s on and off- balance sheet assets is on average greater than €100,000,000 over the four- year period immediately preceding the given financial year, the investment firm shall establish a risk committee composed of members of the management body who do not perform any executive function in the investment firm concerned.

• (5) Members of the risk committee referred to in paragraph (4) shall—

• (a) have appropriate knowledge, skills and expertise to fully understand, manage and monitor the risk strategy and the risk appetite of the investment firm, and

• (b) ensure that the risk committee advises the management body on the investment firm’s overall current and future risk appetite and strategy and assists the management body in overseeing the implementation of that strategy by senior management.

• (6) The management body shall retain overall responsibility for the investment firm’s risk strategies and policies.

• (7) An investment firm shall ensure that its management body in its supervisory function and the risk committee of that management body, where a risk committee has been established, have access to information on the risks to which the investment firm is or may be exposed.

Treatment of risks

26.

• (a) material sources and effects of risk to clients and any material impact on own funds;

• (b) material sources and effects of risk to market and any material impact on own funds;

• (c) material sources and effects of risk to the investment firm, in particular those which can deplete the level of own funds available;

• (d) liquidity risk over an appropriate set of time horizons, including intra- day, so as to ensure that the investment firm maintains adequate levels of liquid resources, including in respect of addressing material sources of risks under subparagraphs (a), (b) and (c).

• (2) The strategies, policies, processes and systems referred to in paragraph (1) shall—

• (a) be proportionate to—

• (i) the complexity, risk profile and scope of operation of the investment firm, and

• (ii) the risk tolerance set by the investment firm’s management body, and

• (b) reflect the investment firm’s importance in each Member State in which it carries out business.

• (3) For the purposes of paragraphs (1)(a) and (2), the Bank shall assess, in particular, compliance by the investment firm concerned with the law of the State relating to segregation applicable to client money, including but not limited to, the Central Bank (Supervision and Enforcement) Act 2013 (Section 48(1)) (Investment Firms) Regulations 2017 ( S.I. No. 604 of 2017 ).

• (4) For the purposes of paragraph (1)(a), an investment firm shall consider holding professional indemnity insurance as an effective tool in its management of risks.

• (5) For the purposes of paragraph (1)(c), material sources of risk to an investment firm shall include, if relevant—

• (a) material changes in the book value of assets, including any claims on tied agents,

• (b) the failure of clients or counterparties,

• (c) positions in financial instruments, foreign currencies and commodities, and

• (d) obligations to defined benefit pension schemes.

• (6) An investment firm shall give due consideration to any material impact on own funds where the risks referred to in paragraph (5) are not appropriately captured by the own funds requirements calculated under Article 11 of Regulation (EU) 2019/2033.

• (7) Where an investment firm needs to wind down or cease its activities, the Bank shall require that the investment firm, by taking into account the viability and sustainability of its business models and strategies, gives due consideration to requirements and necessary resources which are realistic, in terms of timescale and maintenance of own funds and liquid resources, throughout the process of exiting the market.

• (8) Notwithstanding Regulation 22, paragraph (1)(a), (c) and (d) shall apply to an investment firm that meets the conditions for qualifying as a small and non- interconnected investment firm set out in Article 12(1) of Regulation (EU) 2019/2033.

Remuneration policies

27.

• (a) senior management,

• (b) risk takers,

• (c) staff engaged in control functions, and

• (d) any employees—

• (i) receiving overall remuneration equal to at least the lowest remuneration received by senior management or risk takers, and

• (ii) whose professional activities have a material impact on the risk profile of the investment firm or of the assets that it manages.

• (2) The principles referred to in paragraph (1) are as follows:

• (a) the remuneration policy is clearly documented and proportionate to the size, internal organisation and nature, as well as to the scope and complexity of the activities, of the investment firm;

• (b) the remuneration policy is a gender- neutral remuneration policy;

• (c) the remuneration policy is consistent with and promotes sound and effective risk management;

• (d) the remuneration policy is in line with the business strategy and objectives of the investment firm, and also takes into account long term effects of the investment decisions taken;

• (e) the remuneration policy contains measures to avoid conflicts of interest, encourages responsible business conduct and promotes risk awareness and prudent risk taking;

• (f) the investment firm’s management body in its supervisory function adopts and periodically reviews the remuneration policy and has overall responsibility for overseeing its implementation;

• (g) the implementation of the remuneration policy is subject to a central and independent internal review by control functions at least annually;

• (h) staff engaged in control functions are independent from the business units they oversee, have appropriate authority, and are remunerated in accordance with the achievement of the objectives linked to their functions, regardless of the performance of the business areas they control;

• (i) the remuneration of senior officers in the risk management and compliance functions is directly overseen by the remuneration committee referred to in Regulation 30 or, where such a committee has not been established, by the management body in its supervisory function;

• (j) the remuneration policy, taking into account the national rules on wage setting, makes a clear distinction between the criteria applied to determine the following:

• (i) basic fixed remuneration, which primarily reflects relevant professional experience and organisational responsibility as set out in an employee’s job description as part of his or her terms of employment;

• (ii) variable remuneration, which reflects a sustainable and risk adjusted performance of the employee, as well as performance in excess of the employee’s job description;

• (k) the fixed component represents a sufficiently high proportion of the total remuneration so as to enable the operation of a fully flexible policy on variable remuneration components, including the possibility of paying no variable remuneration component.

• (3) For the purposes of paragraph (2)(k), an investment firm shall set the appropriate ratios between the variable and the fixed component of the total remuneration in their remuneration policies, taking into account the business activities of the investment firm and associated risks, as well as the impact that different categories of staff referred to in paragraph (1) have on the risk profile of the investment firm.

• (4) An investment firm shall establish and apply the principles specified in paragraph (2) in a manner that is appropriate to its size and internal organisation and to the nature, scope and complexity of its activities.

• (5) In this Regulation, “national rules on wage setting” includes the following:

• (a) the National Minimum Wage Acts 2000 and 2015;

• (b) orders made under section 10D of the National Minimum Wage Act 2000 (No. 5 of 2000);

• (c) registered employment agreements, within the meaning of Chapter 2 of Part 3 of the Industrial Relations (Amendment) Act 2015 (No. 27 of 2015);

• (d) sectoral employment orders, within the meaning of Chapter 3 of Part 3 of the Industrial Relations (Amendment) Act 2015 ;

• (e) employment regulation orders, within the meaning of Part IV of the Industrial Relations Act 1946 (No. 26 of 1946).

Investment firms that benefit from extraordinary public financial support

28.

• (a) shall not pay any variable remuneration to members of the management body, and

• (b) shall limit variable remuneration to a portion of net revenue where payment to staff, other than members of the management body, would be inconsistent with—

• (i) the maintenance of a sound capital base of an investment firm, and

• (ii) the timely exit of the investment firm from extraordinary public financial support.

Variable remuneration

29.

• (a) where variable remuneration is performance related, the total amount of variable remuneration is based on a combination of the assessment of the performance of the individual, of the business unit concerned and of the overall results of the investment firm;

• (b) when assessing the performance of the individual, both financial and non- financial criteria are taken into account;

• (c) the assessment of the performance referred to in subparagraph (a) is based on a multi- year period, taking into account the business cycle of the investment firm and its business risks;

• (d) the variable remuneration does not affect the investment firm’s ability to ensure a sound capital base;

• (e) there is no guaranteed variable remuneration (other than in respect of the first year of employment of new staff employed by an investment firm with a strong capital base);

• (f) payments relating to the early termination of an employment contract reflect performance achieved over time by the individual and shall not reward failure or misconduct;

• (g) remuneration packages relating to compensation or buy out from contracts in previous employment are aligned with the long- term interests of the investment firm;

• (h) the measurement of performance used as a basis to calculate pools of variable remuneration takes into account all types of current and future risks and the cost of the capital and liquidity required in accordance with Regulation (EU) 2019/2033;

• (i) the allocation of the variable remuneration components within the investment firm takes into account all types of current and future risks;

• (j) at least 50 per cent of the variable remuneration consists of any of the following instruments:

• (i) shares or equivalent ownership interests, subject to the legal structure of the investment firm concerned;

• (ii) share- linked instruments or equivalent non- cash instruments, subject to the legal structure of the investment firm concerned;

• (iii) Additional Tier 1 instruments or Tier 2 instruments or other instruments which can be fully converted to Common Equity Tier 1 instruments or written down and that adequately reflect the credit quality of the investment firm as a going concern;

• (iv) non- cash instruments which reflect the instruments of the portfolios managed;

• (k) by way of derogation from subparagraph (j), where an investment firm does not issue any of the instruments referred to in that point, the Bank may approve the use of alternative arrangements fulfilling the same objectives;

• (l) at least 40 per cent of the variable remuneration is deferred over a three- to five- year period as appropriate, depending on the business cycle of the investment firm, the nature of its business, its risks and the activities of the individual in question, except in the case of variable remuneration of a particularly high amount where the proportion of the variable remuneration deferred is at least 60 per cent;

• (m) up to 100 per cent of the variable remuneration is contracted where the financial performance of the investment firm is subdued or negative, including through malus or clawback arrangements subject to criteria set by investment firms which in particular cover situations where the individual in question—

• (i) participated in or was responsible for conduct which resulted in significant losses for the investment firm, and

• (ii) is no longer considered fit and proper;

• (n) discretionary pension benefits are in line with the business strategy, objectives, values and long- term interests of the investment firm.

• (2) An individual referred to in Regulation 27(1) shall not use personal hedging strategies or remuneration and liability- related insurances to undermine the principles referred to in paragraph (1).

• (3) Variable remuneration shall not be paid through financial vehicles or methods that facilitate non- compliance with these Regulations or with Regulation (EU) 2019/2033.

• (4) For the purposes of paragraph (1)(j), the instruments referred to therein shall be subject to an appropriate retention policy designed to align the incentives of the individual with the longer- term interests of the investment firm, its creditors and clients.

• (5) For the purposes of paragraph (1)(l), the deferral of the variable remuneration shall vest no faster than on a pro- rata basis.

• (6) For the purposes of paragraph (1)(n), where an employee leaves the investment firm concerned before retirement age, discretionary pension benefits shall be held by the investment firm for a period of five years in the form of instruments referred to in paragraph (1)(j).

• (7) Where an employee reaches retirement age and retires, discretionary pension benefits shall be paid to the employee in the form of instruments referred to in paragraph (1)(j), subject to a five- year retention period.

• (8) Paragraph (1)(j) and (l) and paragraphs (6) and (7) shall not apply to—

• (a) an investment firm, where the value of its on and off- balance sheet assets is on average equal to or less than the threshold for the institution, as specified in paragraph (9) or, where applicable, under paragraph (10), over the four- year period immediately preceding the given financial year, or

• (b) an individual whose annual variable remuneration does not exceed €50,000 and does not represent more than one quarter of that individual’s total annual remuneration.

• (9) Subject to paragraph (10), the threshold for an investment firm, for the purposes of paragraph (8)(a), shall be €100,000,000.

• (10) The Bank may specify, for the purposes of paragraph (8)(a), a threshold for an investment firm that is greater than €100,000,000 and less than or equal to €300,000,000 where—

• (a) the Bank is satisfied that it is appropriate to apply a threshold of the specified amount to the investment firm, taking into account the nature and scope of the investment firm’s activities, its internal organisation, and, where applicable, the characteristics of the group to which it belongs, and

• (b) the investment firm satisfies the following criteria:

• (i) the investment firm is not one of the three largest investment firms established in the State in terms of total value of assets;

• (ii) the investment firm is not subject to obligations or is subject to simplified obligations in relation to recovery and resolution planning in accordance with Article 4 of Directive 2014/59/EU;

• (iii) the size of the investment firm’s on and off- balance sheet trading- book business is equal to or less than €150,000,000;

• (iv) the size of the investment firm’s on and off- balance sheet derivative business is equal to or less than €100,000,000.

Remuneration committee

30.

• (2) A remuneration committee referred to in paragraph (1)—

• (a) shall be gender balanced,

• (b) shall exercise competent and independent judgment on remuneration policies and practices and the incentives created for managing risk, capital and liquidity, and

• (c) may be established at group level.

• (3) A remuneration committee referred to in paragraph (1) shall be responsible for the preparation of decisions regarding remuneration, including decisions which have implications for the risk and risk management of the investment firm concerned and which are to be taken by the management body.

• (4) The Chair and the members of a remuneration committee referred to in paragraph (1) shall be members of the management body who do not perform any executive function in the investment firm concerned.

• (5) When preparing the decisions referred to in paragraph (3), the remuneration committee referred to in paragraph (1) shall take into account the public interest and the long- term interests of shareholders, investors and other stakeholders in the investment firm.

Oversight of remuneration policies

31.

• (a) collect—

• (i) the information disclosed in accordance with points (c) and (d) of the first subparagraph of Article 51 of Regulation (EU) 2019/2033, and

• (ii) the information provided by investment firms on the gender pay gap under paragraph (4), and

• (b) use that information to benchmark remuneration trends and practices.

• (2) An investment firm shall provide the Bank with information on the number of natural persons per investment firm that are remunerated €1,000,000 or more per financial year, in pay brackets of €1,000,000, including—

• (a) their job responsibilities,

• (b) the business area involved, and

• (c) the main elements of salary, bonus, long- term award and pension contribution.

• (3) An investment firm shall provide the Bank, upon demand, with the total remuneration figures for each member of the management body or senior management of the firm.

• (4) An investment firm shall provide the Bank, upon demand, with information on the gender pay gap in the investment firm.

• (5) The Bank shall provide the information referred to in paragraphs (1), (2), (3) and (4) to the EBA.

Supervisory review and evaluation

32.

• (a) the risks referred to in Regulation 26;

• (b) the geographical location of an investment firm’s exposures;

• (c) the business model of the investment firm;

• (d) the assessment of systemic risk, taking into account the identification and measurement of systemic risk under Article 23 of Regulation (EU) No 1093/2010 or recommendations of the ESRB;

• (e) the risks posed to the security of the investment firm’s network and information systems to ensure confidentiality, integrity and availability of its processes, data and assets;

• (f) the exposure of the investment firm to the interest rate risk arising from non- trading book activities;

• (g) governance arrangements of the investment firm and the ability of members of the management body to perform their duties.

• (2) For the purposes of a review and evaluation, the Bank shall duly take into account whether the investment firm concerned holds professional indemnity insurance.

• (3) The Bank shall establish the frequency and intensity of the review and evaluation—

• (a) having regard to the size, nature, scale and complexity of the activities of the investment firms concerned, and, where relevant, their systemic importance, and

• (b) taking into account the principle of proportionality.

• (4) The Bank shall decide on a case- by- case basis whether and in which form a review and evaluation is to be carried out with regard to an investment firm that meets the conditions for qualifying as a small and non- interconnected investment firm set out in Article 12(1) of Regulation (EU) 2019/2033, only where the Bank deems it to be necessary due to the size, nature, scale and complexity of the activities of the investment firm.

• (5) For the purposes of paragraph (3), the Bank shall assess compliance by the investment firm concerned with the law of the State relating to segregation applicable to client money, including but not limited to, the Central Bank (Supervision and Enforcement) Act 2013 (Section 48(1)) (Investment Firms) Regulations 2017.

• (6) An investment firm shall provide access to the Bank, for the purpose of the review and evaluation of the matter referred to in paragraph (1)(g), to—

• (a) agendas, minutes and supporting documents for meetings of the management body and its committees, and

• (b) the results of internal or external evaluations of the performance of the management body.

• (7) In this Regulation, “review and evaluation” means a review and evaluation by the Bank under paragraph (1).

Ongoing review of the permission to use internal models

33.

• (2) The Bank shall, in particular—

• (a) have regard to changes in an investment firm’s business,

• (b) have regard to the implementation of the internal models referred to in paragraph (1) to new products, and

• (c) review and assess whether the investment firm uses well- developed and up- to- date techniques and practices for the internal models referred to in paragraph (1).

• (3) The Bank shall ensure that material deficiencies identified in the coverage of risk by an investment firm’s internal models are rectified, or take steps to mitigate their consequences, including by imposing capital add- ons or higher multiplication factors.

• (4) Where, for internal risk- to- market models, numerous overshootings as referred to in Article 366 of Regulation (EU) No 575/2013 indicate that the internal models of an investment firm are not or are no longer accurate, the Bank shall revoke the permission to use the internal models or impose appropriate measures to ensure that the internal models are improved promptly within a set timeframe.

• (5) Where an investment firm that has been granted permission to use internal models no longer meets the requirements for applying those internal models, the Bank shall require the investment firm either—

• (a) to demonstrate that the effect of non- compliance is immaterial, or

• (b) to present a plan and a deadline to comply with those requirements.

• (6) The Bank shall require improvements to a plan presented under paragraph (5)(b) where that plan is unlikely to result in full compliance or where the deadline is inappropriate.

• (7) Where it is unlikely that an investment firm will comply by the prescribed deadline or has not satisfactorily demonstrated that the effect of non- compliance is immaterial, the Bank shall revoke the permission to use internal models or limit it to compliant areas or to those areas where compliance can be achieved by an appropriate deadline.

• (8) The Bank shall take into account analysis and guidelines prepared by the EBA under Article 37(4) of the Investment Firms Directive for the review referred to in paragraph (1).

Supervisory measures

34.

• (a) an investment firm does not meet the requirements of these Regulations or of Regulation (EU) 2019/2033;

• (b) the Bank has evidence that an investment firm is likely to breach these Regulations or Regulation (EU) 2019/2033 within the next 12 months.

Supervisory powers

35.

• (a) to require an investment firm to have own funds in excess of the requirements set out in Article 11 of Regulation (EU) 2019/2033, under the conditions laid down in Regulation 36, or to adjust the own funds and liquid assets required in case of material changes in the business of the investment firm;

• (b) to require the reinforcement of the arrangements, processes, mechanisms and strategies implemented in accordance with Regulations 21 and 23;

• (c) to require an investment firm to present, within one year, a plan to restore compliance with supervisory requirements pursuant to these Regulations and to Regulation (EU) 2019/2033, to set a deadline for the implementation of that plan and require improvements to that plan regarding scope and deadline;

• (d) to require an investment firm to apply a specific provisioning policy or treatment of assets in terms of own funds requirements;

• (e) to restrict or limit the business, operations or network of an investment firm or to request the divestment of activities that pose excessive risks to the financial soundness of an investment firm;

• (f) to require the reduction of the risk inherent in the activities, products and systems of an investment firm, including outsourced activities;

• (g) to require an investment firm to limit variable remuneration as a percentage of net revenues where that remuneration is inconsistent with the maintenance of a sound capital base;

• (h) to require an investment firm to use net profits to strengthen own funds;

• (i) to restrict or prohibit distributions or interest payments by an investment firm to shareholders, members or holders of Additional Tier 1 instruments where that restriction or prohibition does not constitute an event of default of the investment firm;

• (j) to impose additional or more frequent reporting requirements to those set out in these Regulations and in Regulation (EU) 2019/2033, including reporting on capital and liquidity positions;

• (k) to impose specific liquidity requirements in accordance with Regulation 38;

• (l) to require additional disclosures;

• (m) to require an investment firm to reduce the risks posed to the security of the investment firm’s network and information systems to ensure confidentiality, integrity and availability of its processes, data and assets.

• (2) For the purposes of paragraph (1)(j), the Bank may only impose additional or more frequent reporting requirements on an investment firm where the information to be reported is not duplicative and one of the following conditions is met:

• (a) one of the cases referred to in Regulation 34(a) or (b) applies;

• (b) the competent authority considers it to be necessary to gather the evidence referred to in Regulation 34(b);

• (c) the additional information is required for the purpose of the supervisory review and evaluation process referred to in Regulation 32.

• (3) Information shall be deemed to be duplicative where—

• (a) the Bank already has the same or substantially the same information, or

• (b) that information is capable of being produced by the Bank or of being obtained by the Bank through other means than a requirement on the investment firm to report it.

• (4) The Bank shall not require additional information where the information is available to the Bank in a different format or level of granularity than the additional information to be reported and that different format or granularity does not prevent it from producing substantially similar information.

Additional own funds requirement

36.

• (a) the investment firm is exposed to risks or elements of risks, or poses risks to others that are material and are not covered or not sufficiently covered by the own funds requirement, and especially K- factor requirements, set out in Part Three or Four of Regulation (EU) 2019/2033;

• (b) the investment firm does not meet the requirements set out in Regulations 21 and 23 and other supervisory measures are unlikely to sufficiently improve the arrangements, processes, mechanisms and strategies within an appropriate timeframe;

• (c) the adjustments in relation to the prudent valuation of the trading book are insufficient to enable the investment firm to sell or hedge out its positions within a short period without incurring material losses under normal market conditions;

• (d) the review carried out in accordance with Regulation 33 shows that non- compliance with the requirements for the application of the permitted internal models will likely lead to inadequate levels of capital;

• (e) the investment firm repeatedly fails to establish or maintain an adequate level of additional own funds as set out in Regulation 37.

• (2) For the purposes of paragraph (1)(a), risks or elements of risks shall be considered not to be covered or to be insufficiently covered by the own funds requirements set out in Parts Three and Four of Regulation (EU) 2019/2033 only where the amounts, types and distribution of capital considered adequate by the Bank following the supervisory review of the assessment carried out by an investment firm in accordance with Regulation 21(1) are higher than the investment firm’s own funds requirement set out in Part Three or Four of Regulation (EU) 2019/2033.

• (3) For the purposes of paragraph (2), the capital considered to be adequate may include risks or elements of risks that are explicitly excluded from the own funds requirement set out in Part Three or Four of Regulation (EU) 2019/2033.

• (4) The Bank shall determine the level of the additional own funds required pursuant to Regulation 35(1)(a) as the difference between the capital considered adequate pursuant to paragraph (2) and the own funds requirement set out in Part Three or Four of Regulation (EU) 2019/2033.

• (5) The Bank shall require an investment firm to meet the additional own funds requirement referred to in Regulation 35(1)(a) with own funds subject to the following conditions:

• (a) at least three quarters of the additional own funds requirement is met with Tier 1 capital;

• (b) at least three quarters of the Tier 1 capital is composed of Common Equity Tier 1 capital;

• (c) those own funds are not used to meet any of the own funds requirements set out in points (a), (b) and (c) of Article 11(1) of Regulation (EU) 2019/2033.

• (6) The Bank shall set out in writing its decision to impose an additional own funds requirement as referred to in Regulation 35(1)(a) by giving a clear account of the full assessment of the elements referred to in paragraphs (1) to (5), including, in relation to paragraph (1)(d), a specific statement of why the level of capital established in accordance with Regulation 37(1) is no longer considered sufficient.

• (7) The Bank may impose an additional own funds requirement in accordance with this Regulation and the regulatory technical standards, if any, adopted under Article 40(6) of the Investment Firms Directive on an investment firm that meets the conditions for qualifying as a small and non- interconnected investment firm set out in Article 12(1) of Regulation (EU) 2019/2033 on the basis of a case- by- case assessment and where the Bank deems it to be justified.

Guidance on additional own funds

37.

• (2) The Bank shall, where appropriate, review the level of own funds that has been set by each investment firm that does not meet the conditions for qualifying as a small and non- interconnected investment firm set out in Article 12(1) of Regulation (EU) 2019/2033, in accordance with paragraph (1) and, where relevant, shall communicate the conclusions of that review to the investment firm concerned, including any requirements for adjustments to the level of own funds established in accordance with paragraph (1).

• (3) A communication of the conclusions of a review under paragraph (2) shall include the date by which the Bank requires the adjustment to be completed.

Specific liquidity requirements

38.

• (a) the investment firm is exposed to liquidity risk or elements of liquidity risk that are material and are not covered or not sufficiently covered by the liquidity requirement set out in Part Five of Regulation (EU) 2019/2033;

• (b) the investment firm does not meet the requirements set out in Regulations 21 and 23 and other administrative measures are unlikely to sufficiently improve the arrangements, processes, mechanisms and strategies within an appropriate timeframe.

• (2) For the purposes of paragraph (1)(a), liquidity risk or elements of liquidity risk shall be considered not to be covered or to be insufficiently covered by the liquidity requirement set out in Part Five of Regulation (EU) 2019/2033 only where the amounts and types of liquidity considered adequate by the competent authority following the supervisory review of the assessment carried out by investment firms in accordance with Regulation 21(1) are higher than the investment firm’s liquidity requirement set out in Part Five of Regulation (EU) 2019/2033.

• (3) The Bank shall determine the level of the specific liquidity required pursuant to Regulation 35(1)(k) as the difference between the liquidity considered adequate pursuant to paragraph (2) and the liquidity requirement set out in Part Five of Regulation (EU) 2019/2033.

• (4) The Bank shall require an investment firm to meet the specific liquidity requirements referred to in Regulation 35(1)(k) with liquid assets as set out in Article 43 of Regulation (EU) 2019/2033.

• (5) The Bank shall set out in writing its decision to impose a specific liquidity requirement as referred to in Regulation 35(1)(k) by giving a clear account of the full assessment of the elements referred to in paragraphs (1) to (3).