Background
In issuing their Guidance, the CBI has taken this opportunity to outline their authorisation objectives in the sector, specifying that firms must:
- Protect consumers and safeguard users’ funds.
- Be financially and operationally resilient.
- Have business models which are viable and sustainable.
- Be able to demonstrate an appropriate level of ‘substance’ in Ireland, resulting in firms which are well governed, with appropriate cultures, effective risk management and control arrangements in place.
- Be able to recover critical or important business services from a significant unplanned disruption, while minimising impact and protecting their customers and the integrity of the financial system.
- If they cannot recover, be able to exit the market in a safe and orderly manner.
Overview of the Authorisation Process
The Guidance maps the authorisation process, comprising of the following stages:
- Exploratory Stage
- Assessment Stage
- Authorisation/Registration Decision Stage
Exploratory Stage
The Exploratory Stage provides applicant firms with the opportunity to directly engage with the CBI in relation to their proposal. The first step in the Exploratory Stage is for the applicant firm to attend a meeting with CBI to outline their proposal and to demonstrate to the CBI that they can meet the regulatory requirements. The applicant firm can also use the meeting to gain clarity on areas of uncertainty.
The CBI will use the initial meeting to identify any issues in the proposal in the proposal, including those which we preclude the application from approval.
The second step in the Exploratory Stage is the submission of required information (Key Information Check) followed by appointment of CBI case manager and initial document assessment.
Assessment Stage
During this stage, the CBI will evaluate the application, aiming to completing their assessment within the within 90 business days of commencement of the assessment stage. During this stage, the CBI will conduct assessment meetings and raise queries in respect of the application.
Authorisation/Registration Decision Stage
The CBI will either approve or reject the application. In circumstances where the CBI rejects an application, they will issue a Minded to Refuse letter outlining the issues which precluded the applicant firm from authorisation.
CBI Authorisation Expectations
Applications
In their Guidance, the CBI has flagged that applicant firms must ensure they submit high quality applications which set out in detail the rationale for seeking authorisation. Applicant firms are expected to have a comprehensive understanding of the relevant regulatory guidance and rules.
The CBI has called out the following common challenges applicant firms face when seeking authorisation:
- Inadequate or incomplete applications
- Unclear or changing business models
- Lack of responsiveness to CBI communications
- Proposal of unsuitable PCF candidates
Set out below are some of the key requirements which applicant firms must demonstrate to the CBI when making their submission for authorisation.
Governance
The Guidance provides that applicant firms must put governance arrangements in place which are commensurate to the nature, scale and complexity of their business. This includes having a board which is comprised an appropriate balance of executive, non-executive and independent non-executive directors, who possess the requisite skills, experience and knowledge to oversee the operations of the firm. More particularly, independent non-executive directors are expected to provide effective challenge to the executive members of the board.
Staffing and PCFs
Applicant firms must be able to demonstrate that they will have appropriate staffing, human resources and senior appointments to ensure effective and compliant management of their business. As highlighted in the Guidance, the proposal of unsuitable PCF candidates by applicant firms poses a significant challenge when seeking authorisation. Accordingly, applicant firms need to ensure that they carry out comprehensive due diligence when identifying candidates. Candidates will generally be expected to attend interview with the CBI in advance of being approved as PCF role holders.
Additionally, the CBI have flagged the following regarding PCFs:
- PCF role holders should have sufficient proximity to undertake the role (i.e. appropriate residence);
- Triple-hatting of PCF roles is not appropriate;
- Interim PCFs are only permissible in exceptional circumstances;
- Boards of applicant firms must ensure they have appropriate succession plans in place; and
- Boards of applicant firms should ensure that diversity and inclusion is demonstrated in their staffing model, particularly at senior management level.
Safeguarding
Applicant firms must ensure they have a comprehensive, clearly articulated, and well formulated safeguarding framework in place. The second and third lines of defence must oversee the safeguarding of funds and provide appropriate challenge where necessary.
Business Model, Financial Projections and Capital
The Guidance specifies that applicant firms must be able to demonstrate the viability and sustainability of their business model and provide supporting financial projections. Applicant firms must also be able to demonstrate that they can meet their capital requirements on an on-going basis for the first three years of operation.
Outsourcing, Risk Management and Compliance
The CBI sets out the importance of applicant firms demonstrating appropriate frameworks, planning and governance in respect of outsourcing, risk management and compliance.
Business Continuity and Wind-Down Planning
In respect of business continuity, the CBI expects that suitable business continuity be documented and in place. This includes implementing a business continuity plan ("BCP") and conducting business impact analysis and regular BCP testing.
Further, the CBI requires that applicant firms document a suitable wind-down plan, comprising of the following elements:
- Governance and Escalation Process
- Scenario Testing
- Risk Management Structure
- Assessment of Resources
- Stakeholder Impact Assessment
- Protection of Users’ Funds
- Operational Plan
- Communication Plan
- Group Impacts
Next Steps
The publication of the Guidance will likely provide welcome clarity to firms considering seeking approval as PIs and EMIs in Ireland.
