Brexit FAQ – Financial Services Firms

The Central Bank has a uniquely diverse mandate covering:

• Price stability
• Financial stability
• Consumer protection
• Market integrity
• Supervision and enforcement
• Regulatory policy development
• Payment, settlement and currency systems operations and oversight
• The provision of economic advice and financial statistics
• The recovery and resolution of distressed financial services firms.

The Central Bank regulates approximately 10,000 firms providing financial services. We undertake this regulation through risk-based supervision, underpinned by a credible threat of enforcement. Our role is to provide high quality and credible financial regulation and supervision designed to promote financial stability, protect consumers and facilitate a well-functioning financial system supporting the economy.

In assessing any application, we are guided by our mandate so that each application is assessed to understand the business, its risks and how they are managed and mitigated.

On 1 January 2021, UK and Gibraltar firms lost their right to passport, i.e. to pursue business in EU Member States on a Freedom of Establishment and Freedom of Services basis.

Firms which intend to continue or intend to commence providing services in EU Member States, must ensure that they hold the appropriate authorisation.

In the case of insurance, the Central Bank and the Department of Finance have worked together to establish a Temporary Run-Off Regime (TRR) for UK and Gibraltar registered insurers and insurance intermediaries. The purpose of the TRR is to allow firms to run off their books of business for a time-limited period of 15 years and to protect consumers by ensuring that existing insurance policies can continue to be serviced during that time. 

We engage with UK firms that are exploring the possibility of relocating aspects of their operations to Ireland. The Central Bank deals with all enquiries in an open, engaged and constructive manner. We approach new authorisations and material business model changes in a similar way – through a clear, well-structured, transparent, consistent and predictable authorisation process. The purpose of this predictability and consistency is so that firms will know:

• What to expect from us
• What we expect from them in terms of deliverables and timelines.

The Central Bank has significant experience in dealing with the authorisation and supervision of financial services firms. Additional staff were recruited and new teams established in order to manage Brexit-related authorisation queries across banking, insurance, investment firms, investment funds, financial markets infrastructures and payments.

The Central Bank engages with a range of EU authorities on a day-to-day basis, including the European Central Bank (ECB) and the three European Supervisory Authorities: the European Securities and Markets Authorities (ESMA), the European Banking Authority (EBA) and the European Insurance and Occupational Pensions Authority (EIOPA). The Central Bank, as a member of these authorities, is an active participant in their various decision-making bodies, standing committees and working groups. The role of these authorities in the context of processing applications for the authorisation of firms varies.

Since November 2014, the ECB – through the establishment of the Single Supervisory Mechanism (SSM) – has been responsible for direct supervision of significant credit institutions (SIs) in the euro area. The Central Bank remains responsible, within the SSM, for the direct supervision of less significant credit institutions (LSIs). The ECB and the Central Bank carry out their supervisory responsibilities jointly and work closely together.

The ECB is responsible for all so-called “common procedures” in the SSM, irrespective of whether they relate to SIs or LSIs. These include, in particular:

• The granting of authorisations to conduct business operations
• The withdrawal of such authorisation
• Qualifying holding procedures
• Passporting

Applications for Authorisation as a Credit Institution

The ECB is the competent authority for authorising credit institutions in Ireland.  The Central Bank is the main point of contact for entities seeking to locate in Ireland, and we work with the relevant areas of the ECB throughout the authorisation process. At the end of the assessment process, the Central Bank will decide whether to recommend approval to the ECB to authorise the applicant. Should this be the case, the application is then submitted to the SSM Supervisory Board for consideration. The Supervisory Board comprises senior representatives from the 19 national competent authorities in the euro area, including the Central Bank. This process ensures consistency in the standards applied to bank authorisations across the Eurozone. The Supervisory Board prepares a draft decision for consideration by the Governing Council, comprising the governors of the national central banks of the 19 euro area countries, for adoption under a “non-objection” procedure.

Other Authorisation Applications

The Central Bank is the decision-making authority for authorisation decisions in relation to applications for authorisation in other industry sectors.

The European Supervisory Authorities (ESAs) are tasked with improving the functioning of the internal market by ensuring appropriate, efficient and harmonised European regulation and supervision.

The Central Bank fully supports, and has been closely engaged in, efforts at EU level to promote a consistent approach across the different countries in the context of Brexit-related decision-making. The Central Bank has been influential in the development of policy on Brexit-related issues at the European Supervisory Authorities (ESAs) and the Single Supervisory Mechanism (SSM).

The SSM issued a FAQ for banks considering relocating their business within the euro area. These FAQ set out the SSM’s supervisory expectations in a number of areas, including internal governance, risk management and outsourcing.

The European Banking Authority (EBA) published an Opinion on issues related to Brexit in October 2017 in order to provide guidance on supervisory expectations. The EBA has published a number of further statements on its website outlining the importance of adequate preparation for Brexit on the part of financial institutions and that financial institutions should communicate clearly with their customers on the impact of Brexit. 

The European Securities and Markets Authorities (ESMA) published an Opinion setting out nine general principles aimed at fostering consistency in authorisation, supervision and enforcement relating to the relocation of entities, activities and functions from the UK. In addition, ESMA published three further Opinions setting out sector-specific principles in the areas of investment firms, investment management and secondary markets, aimed at fostering consistency in authorisation, supervision and enforcement related to the relocation of entities, activities and functions from the UK.

For insurance, the European Insurance and Occupational Pensions Authority (EIOPA) published four Opinions and one Recommendation in light of the UK withdrawing from the EU:

• EIOPA Opinion on Supervisory Convergence sets out principles with the aim of fostering supervisory convergence and consistency in the authorisation process across the European Union Members States related to the relocation of (re)insurance undertakings from the United Kingdom.
• EIOPA Opinion on Service Continuity outlines guidelines for insurers to ensure contingency plans are adopted to ensure insurance service contract continuity after the Withdrawal Date. EIOPA Opinion on Solvency Position considers the impact of the UK becoming a third country on the solvency position of an undertaking.
• EIOPA Opinion on Disclosure to Customers highlights the importance of advising customers and beneficiaries on the implications for both existing insurance contracts and for any new insurance contracts incepted prior to the Withdrawal Date.
• EIOPA Recommendations for the insurance sector in light of the United Kingdom withdrawing from the European Union.

In October 2020, EIOPA also published a statement calling on the insurance sector to complete preparations for the end of the UK transition period.

The Central Bank will continue to be actively involved, via the ESAs working groups and membership of the relevant Boards of Supervisors, in developing a common approach to Brexit-related issues across the sectors.

In assessing applications for authorisation, the Central Bank adopts an outcomes-focused, risk-based approach. This seeks to ensure that firms are well-run, financially sound, and comply with EU and Irish authorisation requirements. This “gatekeeper” role is critically important in ensuring we safeguard financial stability and protect consumers.

Our approach is pragmatic, efficient, open and rigorous and has been developed and refined based upon our considerable experience in dealing with authorisations. The Central Bank regulates approximately 10,000 financial services providers (including banks, credit unions, investment funds, fund service providers, investment firms, market infrastructure firms, insurance firms, payment institutions, e-money institutions, insurance intermediaries and mortgage credit intermediaries) and processes a large number of new authorisation applications each year.

The UK’s decision to withdraw from the EU resulted in a large number of UK-based firms engaging with the Central Bank as they sought to restructure to continue to provide service within the EU27, post Brexit. In addition there were a number of branches of UK entities in Ireland who as a result of Brexit, had to also consider their future corporate structures.

The Central Bank remains committed to a transparent, robust and timely approach to the authorisation process. The Central Bank publishes a bi-annual Regulatory Service Standards Report that outlines our performance against service standards in respect of firm authorisation. For more information on authorisation timelines and the Regulatory Service Standards Report see: What are the timelines for the pre-application phase and the formal application process?

The authorisation process requires both applicant firms and the Central Bank to dedicate sufficient resources to ensure that the proposed applicant has demonstrated to the Central Bank, as referred to above, that it is well-run, financially sound and complies with EU and Irish authorisation requirements. The process also requires firms to clearly demonstrate to the Central Bank that they meet the applicable standards. The processing of Fitness and Probity Pre-Approved Control Function Individual Questionnaire applications is a further important element of the authorisation process. Applicant firms should be planning for a comprehensive authorisation process with appropriate challenge, and that applications will likely require a longer timeframe in cases of complexity or where the Central Bank remains to be satisfied that the firm meets the required standards.

Our approach can be broken into the following distinct phases:

Exploratory Pre-application Phase

Generally, authorisations for larger and more complex entities begin with an exploratory pre-application phase. The purpose of this phase is to provide us with an insight into the nature and scope of the firm’s proposed business model. This stage also provides firms with an insight into the Central Bank’s requirements and approach and allows us to identify any potential areas of concern early in the process. This approach helps firms to develop completed applications in the most efficient way.

At this early stage, we focus on a number of different areas, including:

• The firm’s proposed strategy
• The organisational structure
• The firm’s risk appetite
• The firm’s approach to governance, risk management, and issues such as capital and liquidity arrangements, including its approach to recovery and resolution.

This exploratory phase will also comprise a number of dedicated face-to-face meetings to cover the main areas of the application.

For larger applications, we establish a designated team with a single point of contact. For less complex firms, a single team may be responsible for a number of applications.

Our outcomes-focused, risk-based approach means that applicant firms can expect regular meaningful exchanges focused on key issues and their potential solutions.

Submission Phase

In the case of larger and more complex applications, the firm will now be in a position to submit a completed formal application. Applications are assessed in line with the legislative timelines as set out in the relevant and sector-specific legislation.

See below for information on our sector specific approach and timelines for authorisations:

• Credit Institutions
• MiFID Investment firms
• Insurers and Re-insurers
• Funds
• Fund Service Providers
• Market Infrastructure
• Payment Institutions
• E-Money institutions
• Insurance & Mortgage Credit Intermediaries

The Central Bank publishes a Regulatory Service Standards Performance Report on a bi-annual basis. This report sets out our standards for dealing with authorisation applications in the different sectors and our performance against those standards. Sectoral legislation sets out timeframes within which the Central Bank must inform an applicant of its decision.

The timeframe commences when the Central Bank has received a complete application. The length of this process can be strongly influenced by the complexity of the proposed business, the quality of the application and an applicant’s timeliness in responding to the Central Bank’s queries. Therefore, the length of the individual application process varies from applicant to applicant. We have found that this engagement is more productive and efficient where an applicant firm has engaged in some detailed planning and has taken appropriate advice in advance.

For our part, we are committed to progressing our assessment of applications quickly, transparently and efficiently, without compromising on the robustness of the assessment.

Where it was intended to maintain continuity of business in the UK post Brexit, firms should have engaged with the UK authorities.

For more details on the Bank of England’s and FCA announcements on Brexit see: https://www.bankofengland.co.uk/eu-withdrawal and https://www.fca.org.uk/brexit

HM Treasury has legislated such that a Temporary Permissions Regime (TPR) will now take effect from the end of the transition period. The aim of the TPR is to allow firms that wish to continue carrying out business in the UK in the longer term to operate in the UK for a limited period after the passporting regime ends while they seek authorisation from UK regulators. Firms are required to notify the FCA if they wish to enter the TPR. Fund managers also need to notify which of their passported funds they wish to continue to market in the UK. Further information is available on the FCA website.

The Central Bank encourages firms or fund managers to whom this may be relevant to consult the PRA / FCA website as regards the deadlines for notification and to notify the UK regulator in a timely manner.

For detailed information on our approach to regulation, including ongoing supervision, see How we regulate

From a regulatory and supervisory perspective, a primary concern was to ensure that regulated firms that have business models with direct or indirect exposures to the UK economy address and plan appropriately for the potential negative impacts of Brexit. Therefore, we expect regulated firms across all sectors to have considered, planned and adapted to the potential implications for their business models and revenue streams.

It is the responsibility of firms’ Boards of Directors to think carefully about the potential impact of Brexit on their firm and to have planned accordingly including early engagement with the Central Bank and relevant UK authorities as appropriate.

Regulated firms are bound by the relevant sectoral legislation, which set out requirements in relation to organisational structure and governance requirements.

It is necessary that firms have a substantive presence in their jurisdiction of authorisation. We take a holistic approach to this question based on our view of a firm’s proposed business model and structure.

We want to ensure that firms authorised by us are well-governed, compliant with European and Irish regulatory obligations, and can be effectively supervised.

Essentially the Central Bank requires that entities seeking to locate in this jurisdiction are controlled by their boards and management and not run from elsewhere.

While the seniority, expertise and level of staffing required by firms depends on the nature, scale and complexity of the business, the Central Bank expects that the firms are adequately resourced and decision-making takes place in the Irish entity.

The Central Bank will also seek to ensure that firms are capable of managing material risks locally. This means that the risks associated with the business of the entity are governed, managed and mitigated by the Irish entity and its staff. As part of risk management, we expect a well-designed internal control framework commensurate with the nature, scale and complexity of the business model.

The Central Bank recognises that outsourcing, where permitted under relevant legislation, forms a part of many business models. Outsourcing is a common practice and feature of doing business for regulated firms across all sectors. It can provide many benefits, including cost and operational efficiencies for regulated firms.

Outsourcing, however, can also be the source of material risks. While it may be appropriate for a firm to outsource a particular activity, the responsibility for the performance of that activity remains with the regulated entity. Where outsourcing is a feature of a firm’s proposed business model, the Central Bank will expect that these arrangements are appropriately monitored and controlled and are fully compliant with all regulatory requirements. In line with our determination of appropriate substance, the Central Bank will not allow outsourcing to the extent that the firm becomes an “empty shell”.

Outsourcing should not limit the ability of the Central Bank to effectively supervise regulated entities, and supervisors will at all times need to have access to full information and the ability to inspect the entity providing the services.

The amount, quality and robustness of outsourcing oversight is also a key factor in helping us to determine whether an entity can demonstrate sufficient substance in the jurisdiction.

Generally, outsourcing arrangements, including those to third countries, will be reviewed and assessed on a case-by-case basis by the Central Bank.

The Fitness and Probity Regime was introduced by the Central Bank Reform Act 2010. It applies to persons in senior positions – referred to in the legislation as Controlled Functions (CFs) and Pre-Approval Controlled Functions (PCFs) within regulated financial service providers (RFSP). The Fitness and Probity Regime also applies to RFSPs that are obliged to ensure that their senior personnel comply with the Fitness and Probity Regime.

The core function of the Fitness and Probity Regime is to ensure that persons in senior positions within RFSPs are competent and capable, honest, ethical and of integrity, and financially sound. The Central Bank has published a statutory code (the Fitness and Probity Standards) and guidance documents to assist RFSPs and individuals performing CF and PCFs to comply with their fitness and probity obligations.

Specific recommendations regarding the development of an individual accountability framework for firms regulated by the Central Bank, and the individuals working within them, were set out in our July 2018 report “Behaviour and Culture of the Irish Retail Banks”.These recommendations are timely given developments internationally and the increased focus on culture, behaviour and accountability. The introduction of such a framework would require legislative amendments to provide the Central Bank with the necessary enabling powers. The design, implementation and operationalisation of such a framework would be a multi-year project for the organisation and would include appropriate consultation with stakeholders.

The Central Bank will expect that all Pre-Approval Controlled Function (PCF) holders dedicate sufficient time to discharging their responsibilities for the Irish regulated entity. We would consider proposals for “dual-hatting” on a case by case basis based, inter alia, on the nature of the roles being "dual hatted", the time being dedicated to the Irish entity, management of any conflicts, availability of sufficient resources and plans to remove the “dual-hatting” as the business grows.

It will be the firm’s responsibility to put forward its reasons and plans for how the dual hatting will work and how it will transition into a full time role.

The Central Bank recognises that secondment can be a useful business solution for staffing of certain functions, especially in the early and growth stages of a business. Where secondments are used on a long term basis, the Central Bank will expect that the secondees are close to the business of the Irish firm and do not present a conflict of interest.

Applications for the use of secondees will be considered by the Central Bank on a case-by-case basis. The Central Bank will consider, among other things, the time being dedicated to the operations of the Irish firm and availability of sufficient local management resources to oversee the seconded employees. The Central Bank will also consider the extent to which the interests of the secondees are aligned with the Irish firm or are in reality aligned with another economic or legal entity.

Back-to-back and remote booking are common features of the international banking landscape. They can serve a valuable purpose in enhancing risk management, leveraging scarce resources and promoting efficiency.

At the same time, done incorrectly, back-to-back and remote booking can undermine the issue of substance and/or give rise to undue risks. Back-to-back and remote booking do not remove risk – rather they are about risk transformation.

Our approach, which is consistent with the approach of the Single Supervisory Mechanism (SSM), seeks to ensure that arrangements strike the correct balance between these aspects. We will want to have a clear understanding of the rationale for the approach proposed by the entity.

Entities that engage in risk transformation should ensure that all risks are effectively managed, be capable of executing key business activities and have control over their balance sheet and exposures. Where risk transformation is conducted through other group entities, we shall consider whether these entities are subject to equivalent regulations as applied in the EU on a consolidated basis. The entity should be in a position to respond directly and independently to potential enquiries by the European Central Bank (ECB) or the Central Bank on all activities affecting the entity and provide information swiftly. The governance and risk management mechanisms should be commensurate with the nature, scale and complexity of the business and fully comply with European legislation.

The Central Bank will undertake a thorough assessment of the proposed booking models as part of any authorisation application, in particular against resolution concerns. Where risk transformation is conducted through other group entities, consideration will be given to the supervisory equivalence of these entities. However, post any transitional arrangements agreed with the firm, supervisors would expect a part of relevant risk to be managed locally as part of an overall coherent risk management strategy. There will need to be demonstrated capabilities to manage potential crystallisation of risks in a crisis situation. Proposals must also be consistent with substantive presence principles. The specific requirements will depend, among other things, on the structure of the booking model, as well as on the underlying contractual relations and internal arrangements.

In line with the Capital Requirements Regulation (CRR), the use of internal models will require a new application for approval in the case of:

• Newly established banks or investment firms in the euro area
• Existing banks or investment firms in the euro area that intend to change their underlying portfolios.

We have been working as part of the Single Supervisory Mechanism (SSM) to develop a pragmatic approach that will facilitate new euro area banks expanding or migrating from the UK to continue to use their models for a limited period and subject to certain conditions.

Such conditions dictate that:

• The internal models must have been approved by the UK supervisory authority in line with the CRR, and the scope and content of this approval at the consolidated level must match the portfolios that will exist in the new/expanded entity.
• The banks or investment firms must have applied to the Central Bank for internal model approval.
• In line with the principle of proportionate supervision, consideration will be given to front-loading certain checks (e.g. the materiality of the assets in scope of the model, the time elapsed since the model was approved and findings from validation activities).
• If significant deficiencies are found as part of this check, then appropriate measures (e.g. requiring the institution to return to the Standardised Approach if necessary) will be taken.

In line with Solvency II, internal models must be approved prior to use for regulatory purposes. The Central Bank will need to be satisfied as to the appropriateness of the model, that it is embedded in the firm’s risk management system and that the firm satisfies the use test requirements.

We are pragmatic in assessing applications and recognise that, in cases where a business is transferring from the UK, we may be able to place some reliance on previous assessments and approvals by the UK Prudential Regulatory Authority. The extent of such reliance will depend on a number of factors, including but not limited to:

• The appropriateness of the model to the business profile of the new undertaking
• The extent to which there are changes in the underlying portfolio / lines of business covered by the model
• Issues arising during the validation of the model
• The period elapsed since the model was originally approved
• Any regulatory issues arising in the interim.

Our approach is in keeping with EIOPA’s Opinion on Supervisory Convergence in light of the United Kingdom withdrawing from the European Union.

The Central Bank recognises that reinsuring certain lines or blocks of business, as a risk mitigation strategy, can be beneficial and appropriate. However, this needs to be done appropriately as part of a coherent business and risk management strategy. Otherwise it may affect the capacity of a firm to effectively manage its risks locally and undermine the substantive presence of the firm in the jurisdiction.

We will review the approach to and levels of reinsurance proposed on a case-by-case basis in the context of the substance and overall business model of the applicant. In general, we require an appropriate level of local risk management by insurance undertakings authorised in Ireland.

Our approach is in keeping with EIOPA’s Opinion on Supervisory Convergence in light of the United Kingdom withdrawing from the European Union.

In the case of credit institutions (banks), this will depend on their significance. If a bank is designated as a ‘significant institution’ (SI) for the purposes of the Single Supervisory Mechanism (SSM) Regulation, then the ECB is the responsible prudential supervisor and, by corollary, the Single Resolution Board (SRB) is the responsible resolution authority. Additionally, the SRB is the responsible resolution authority for other cross-border banking groups established in more than one Banking Union-participating Member State, e.g. where a bank and its subsidiary are established in two different Banking Union Member States. The SRB works in close cooperation with the Central Bank as the Irish national resolution authority (NRA) in the context of the Single Resolution Mechanism (SRM).

For banks designated as ‘less significant’ institutions (LSIs) for the purposes of the SSM Regulation, as well as for investment firms in-scope of the Bank Recovery and Resolution Directive (BRRD) but not forming part of banking groups designated as SIs, nor cross-Banking Union banking groups, the Central Bank is the responsible resolution authority. For LSIs, the Central Bank works in close cooperation with the SRB in the context of the SRM.

The BRRD requires all in-scope institutions to contribute to resolution financing arrangements. Credit institutions and certain investment firms that are part of a group subject to consolidated supervision by the European Central Bank (ECB) are required, under the SRM Regulation to contribute to the Single Resolution Fund (SRF). Contributions to the Bank and Investment Firm Resolution (BIFR) Fund is required by Irish branches of institutions authorised in a non-EEA State (third country branches), as well as investment firms that are within the scope of the BRRD but not part of a group subject to consolidated supervision by the ECB. The levy requirements for the SRF and the BIFR Fund are calculated on an annual basis.

Yes. In accordance with the Bank Recovery and Resolution Directive, resolution authorities are required to develop a resolution plan for all in-scope EU institutions.

Yes. On 15 November 2018 the SRB published a position paper on expectations to ensure the resolvability of banks in the context of Brexit. In 2020, the SRB published its Expectations for Banks and its MREL Policy, which lay out measures applicable to third country institutions. In addition, the EBA has published opinions on preparations for Brexit, which address a number of resolution relevant matters.  The Central Bank expects institutions to carefully review these documents and ensure that they adhere to the expectations and recommendations set out therein.

The Financial Action Taskforce (FATF) sets international standards, known as recommendations, for combatting AML. The European Union (EU) implements these standards by way of EU Directives. However, countries are allowed a degree of flexibility when implementing these standards. Therefore, EU Directives can contain some areas of discretion as to how EU Member States transpose these laws into their national legislation. For example, a level of minimum harmonisation may be set which all EU Member States must adhere to, with the option for EU Member States to adhere to a higher (or different, to reflect national realities) standard.

Accordingly, even within the EU, certain differences can arise between national AML legislative frameworks, and minor differences may already exist between the UK and Ireland’s national AML legislative frameworks. Firms authorised to provide services in one jurisdiction need to be cognisant of any differences that may exist in another jurisdiction’s AML legislative framework if they plan on providing services in that other jurisdiction.

The Anti-Money Laundering section of our website contains details on the Irish legislation, Regulatory Requirements, Guidance, and useful links to other sources of information. AML risks will be considered as part of the authorisation process.