CBI Implementation Notice regarding IFD/IFR

On 1 October 2021, the Central Bank of Ireland (the CBI) published an implementation notice outlining its approach to National Competent Authority (NCA) discretions under the Investment Firms Directive ((EU) 2019/2034) (the IFD) (the Implementation Notice) and the Investment Firms Regulation ((EU) 2019/2033) (the IFR), which is available here.

By way of background the principal purpose of the IFD/IFR is to ensure harmonised prudential supervision of investment firms across the EU as well as providing clear, consistent and harmonised criteria in respect of the variable remuneration requirements applicable to investment firms which fall outside of CRD IV.

The Implementation Notice is limited in scope to the discretions whose exercise has been delegated to the CBI under the applicable Irish legislation:

1). S.I. No. 355 of 2021, European Union (Investment Firms) Regulations 2021 (the Irish IFD Regulations), which implement the IFD; and

2). S.I. No 356 of 2021, European Union (Investment Firms) (No. 2) Regulations 2021 (the Irish IFR), which relate to the IFR.

The CBI first outlined its proposed approach to the IFD/IFR NCA discretions in a consultation paper, which proposed to approach each of the NCA discretions on a case-by-case basis. The CBI further stated that the onus would be on an investment firm to apply for the exercise of a particular NCA discretion in its favour in a timely manner. The Implementation Notice provides that this is the approach the CBI will largely adopt.

The Implementation Notice discusses what the CBI considers the key NCA discretions and provides a full list of all NCA discretions in the appendices to the Implementation Notice. The structure of the Implementation Notice is as follows:

• Section 2 - discretion to apply the CRDIV/CRR regime to investment firms in certain circumstances
• Section 3 - discretion to require Class 3 investment firms to perform an assessment of internal capital and liquid assets
• Section 4 - specific liquidity discretions
• Section 5 - discretions to make adjustments to K-Factors under certain circumstances
• Section 6 - specific variable remuneration discretions
• Appendix I lists competent authority discretions in the Irish IFD Regulations.
• Appendix II lists competent authority discretions in the Irish IFR and, by reference, the Capital Requirements Regulation ((EU) No 575/2013).

We believe that the CBI’s approach to the following NCA discretions will be of most interest to clients:

• The CBI has decided to require that Class 3 investment firms perform an assessment of their internal capital and liquid assets to ensure they have adequate capital to cover the nature and level of risks they may post to others or to which they may be exposed whereas the CBI may have exercised its discretion to exempt Class 3 investment firms.
• The CBI has decided that it will exercise its discretion in relation to the adjustment of K-Factors following a material change in business activity on a case-by-case basis. The CBI’s discretion is available in certain circumstances such as, but not limited to, where an investment firm is seeking authorisation for a new investment activity or where an investment firm is significantly expanding its activities and the K-factor is no longer reflective of the proposed level of activity.
• The CBI will exercise its discretion on the default thresholds for variable remuneration requirements on a case-by-case basis.

Simmons & Simmons are actively considering the NCA discretions and would be happy to assist clients in applying for the exercise of NCA discretions in their favour.