So, after weeks of conversations with various regulators across Europe, I am delighted to be able to share the views of the Central Bank of Ireland towards UK payment and e-money institutions looking to set up a new office in Ireland as part of their Brexit strategy. Since firms started thinking about their Brexit strategies, Ireland has often been mentioned by clients of fscom as their first consideration, principally based on common language and proximity. Indeed, being based in Belfast, we find our own proximity to Dublin to be particularly helpful in helping firms with the Central Bank. As we have seen though, there are many other factors that need to be taken into account. As ever though, I do not pass comment on the Central Bank’s views in this article, preferring to simply pass them on to help you make up your own mind. So, thanks again to the Central Bank for granting me access and, in particular, to Russell Burke from the Payments Authorisation Team.
Tell me about the payments market in Ireland
Details of all authorised payment institutions (PI) and electronic money institutions (EMI) are available on the Central Bank of Ireland's Registers website. There are currently 12 PI firms and two EMI firms listed on the Registers. The Central Bank is currently assessing a number of PI/EMI applications, most of which are Brexit-related.
Talk me through the application process; can UK firms submit information submitted to the FCA?
Full details of the application process and the relevant Application Forms, which reflect the EBA Authorisation Guidelines, together with a useful Guidance Note in respect of these forms are available on the Central Bank’s website for both PIs and EMIs. Included on these webpages are details regarding the various stages in the authorisation process and the service standards that apply. While applicants may wish to leverage off documentation submitted to the FCA, they must ensure that their application submission reflects and focuses on the entity seeking authorisation in Ireland and how it proposes to operate.
Given that firms will have to set up a new legal entity, does the Central Bank have a ‘minimum requirement’ in terms of staffing levels in the new Irish office?
The Central Bank does not set a minimum staffing level. However, it would expect that an applicant can demonstrate its compliance with the statutory requirements relating to organisational structure and governance arrangements as set out in the European Union (Payment Services) Regulations 2018 (PSR) or the European Communities (Electronic Money) Regulations 2011 (EMR) in its application submission and its head office must be in Ireland. The seniority, expertise and level of staffing should be commensurate with the nature, scale and complexity of the activities to be undertaken by the applicant. The onus is on the applicant to demonstrate to the Central Bank that the proposed staffing levels are adequate in light of the activities proposed.
The PSR and the EMR do not define what is meant by a firm’s “head office” and so it is a matter to be determined given the particular circumstances in each case. In general, the Central Bank interprets “head office” to mean the location of the mind and management of the applicant and the place where the day-to-day decisions about the direction of the applicant’s business are taken. The onus of meeting the statutory requirements and satisfying the Central Bank that adequate and effective control of the applicant rests in Ireland (not abroad) lies with the applicant. The Central Bank’s Guidance Note on Completing an Application (Guidance Note) sets out further details regarding what the Central Bank would expect in this area.
The Central Bank does require a minimum of one independent non-executive director on the board of directors.
What is the process, as distinct from other regulators perhaps?
Full details of the application process and the relevant Application Forms, which reflect the EBA Authorisation Guidelines, together with a useful Guidance Note in respect of these forms, are available on the Central Bank’s website for both PIs and EMIs. The Central Bank highly recommends that all applicants refer to this Guidance Note when making an application for authorisation. Given that PSD2 is a maximum harmonisation directive the Central Bank would not expect there to be much divergence between the processes for EU regulators. The Central Bank is also of the view that the publication of the EBA Authorisation Guidelines has further driven supervisory convergence in this area. In assessing applications for authorisation to do business in Ireland and Europe, the Central Bank adopts an outcomes-focused, risk-based approach that seeks to ensure that firms are well-run, financially sound and comply with EU and Irish authorisation requirements. The Central Bank’s approach is pragmatic, efficient, open and rigorous and has been developed and refined based on its experience in dealing with applications. The Central Bank is committed to a transparent and timely approach to the authorisation process and to that end it has committed additional resources to deal with PI/EMI applications and it also publishes a bi-annual Regulatory Service Standards Report that outlines its performance against service standards in respect of firm authorisation.
What are your expectations in relation to outsourcing?
The Central Bank recognises that outsourcing forms part of many business models and is now a common practice in the payments and e-money sector. While outsourcing is permitted, the PI/EMI remains responsible and accountable for any activity that has been outsourced and the Central Bank will expect that outsourcing arrangements are appropriately monitored and controlled and are fully compliant with all regulatory requirements. In line with its determination of appropriate substance, the Central Bank will not allow outsourcing to the extent that the firm becomes an “empty shell”. Essentially, the amount, quality and robustness of outsourcing oversight is a key factor in helping the Central Bank to determine whether a firm can demonstrate sufficient substance in the jurisdiction.
When reviewing outsourcing proposals, the Central Bank will examine in particular:
- The extent of the outsourcing proposed and whether this leads to any concerns regarding substance in the jurisdiction;
- The adequacy of the internal control framework in place within the firm to oversee the outsourced activities on an on-going basis;
- Whether the proposed outsourcing arrangement will impact on the Central Bank’s ability to effectively supervise the firm.
Safeguarding has been a particular problem for UK firms with many banks reluctant to open segregated accounts for this sector. Is there similar difficulty in Ireland?
The Central Bank is not aware of any such difficulty in Ireland among its current applicants or authorised firms in the PI/EMI sector.
How long might it take for an application to be determined?
Full details of the application process, including the Central Bank’s service standard timeframes for all stages of the authorisation process, are available on the Central Bank’s website for both PIs and EMIs.
Will you entertain a pre-application meeting with the firm?
Absolutely, the Central Bank offers the facility of an optional pre-application meeting to all potential applicants to answer specific questions about any aspect of the application process and completing the relevant Application Forms. Full details are available on the Central Bank’s website for both PIs and EMIs.
Is there an application fee?
No, the Central Bank does not charge an application fee. All regulated financial service providers in Ireland are however subject to an annual regulatory levy. Information on what firms can expect to pay post authorisation is available on the Industry Levy page on the Central Bank’s website.
The FSA/FCA did not allow payment institutions to hold funds on a payment account without a completed payment order, resulting in many firms seeking an e-money licence. What is the Central Bank’s view on such businesses?
The Central Bank reviews each proposal on its own merits on a case-by-case basis. In an application for authorisation as a PI/EMI, applicants are required to demonstrate to the Central Bank that the activities proposed constitute the regulated activity for which authorisation has been sought.
And FX forwards?
The Central Bank would decide this on a case-by-case basis in the context of each application submission.
Anything else you would want to draw to the attention of prospective applicants?
The Central Bank recommends that all applicants take the time to ensure that they have reviewed the Guidance Note and provided all of the information and documentation set out in the relevant Application Form before they make their application submission.
So, if you would like assistance in compiling your application to the Central Bank of Ireland (or, indeed, any other EEA jurisdiction), or would like to explore the options in a bit more detail, please do not hesitate to get in touch with us at fscom.