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    Central Bank of Ireland Consults on Treatment of Discretions in IFR

    January 14, 2021

    The Central Bank of Ireland is consulting on the treatment of competent authority discretions set out in the Investment Firms Directive and Regulation (IFD and IFR). The consultation also includes proposed changes to the general reporting requirements for investment firms to align with the new reporting regime under IFD and IFR. The comment period for this consultation ends on March 26, 2021. On considering the feedback received to this consultation, the Central Bank intends to publish, by the end of June 2021, a Regulatory Notice on the implementation of national competent authority discretions in IFD and IFR.

    IFD and IFR . IFD, as an EU Directive, will require transposition at national level and certain competent authority discretions arise therein. The IFR, as an EU Regulation, which becomes directly applicable from June 26, 2021, will not necessitate transposition but a number of competent authority discretions do arise within IFR also. The manner in which certain key discretions in IFD and IFR are exercised affects the supervisory approach to be applied by the Central Bank of Ireland and will have a fundamental impact on the firms’ preparation for the new regime. Therefore, the Central Bank of Ireland considers it important to set out how it intends to exercise the discretions on a timely basis. This consultation document is only concerned with the national discretions that are available to the competent authority in IFD and IFR. 

    The key discretions discussed in the consultation relate to the prudential regime that will apply to larger investment firms to ensure such firms are subject to appropriate prudential requirements and to the application of the new liquidity risk requirements and requirements related to the assessment of internal capital of smaller investment firms. The consultation presents the proposed approach of Central Bank of Ireland toward key discretions in the following areas:

    • Application of the Capital Requirements Directive (CRD) regime to investment firms—The Central Bank proposes to exercise its discretion to apply the Capital Requirements Regulation (CRR) to investment firms on a case-by-case basis, if it considers this justified in light of the size, nature, scale, and complexity of the activities of the concerned investment firm. 
    • Liquidity requirements—The Central Bank proposes to exempt investment firms subject to consolidated supervision from the application of the liquidity requirements on a case-by-case basis where the Bank is satisfied that all relevant conditions have been met. The Bank also proposes to only exercise the discretion to exempt Class 3 firms from the requirement to hold one-third of their fixed overhead requirement in liquid form on an exceptional basis. In addition, the Bank proposes to exercise the discretion to exempt investment firms from the application of the consolidated liquidity requirements on a case-by-case basis.
    • Assessment of internal capital and liquid assets—The Central Bank proposes to exercise the discretion to require all Class 3 investment firms to perform an assessment of 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.
    • K-factor adjustment—Central Bank of Ireland proposes to exercise the discretion related to the adjustment of K-Factor and to replace missing historical data points based on business projections of an investment firm

    Certain discretions set out in the IFD and IFR either mirror or are materially similar to those in the CRD IV/CRR and a consistent or equivalent treatment to that already in place has been proposed. These discretions have been addressed in the list of the competent authority discretions in Appendices 1 and 2 of the consultation. Where relevant, the onus is on an investment firm to apply for a particular discretion. Each investment firm should also reapply for the continued application of discretions on a case-by-case basis where the conditions relevant to the exercise of a discretion have changed. 


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    Comment Due Date: March 26, 2021

    Keywords: Europe, Ireland, Banking, Securities, Investment Firms, IFD, IFR, K-Factor Regime, Reporting, Options and Discretions, Liquidity Risk, Central Bank of Ireland

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