Ireland Exercises National Discretions Under IFR/IFD – Finance and Banking

Introduction

On 24 May 2021, the Department of Finance published its feedback
statement (Feedback Statement) concerning the
outcome of is public consultation on the exercise of national
discretions under the Investment Firms Directive (EU) 2019/2034
(IFD). A copy of the Feedback Statement can be
accessed here.

The IFD and the Investment Firms Regulation (EU/2019/2033)
(IFR) will, for most existing investment firms,
replace the existing prudential requirements for investment firms
set out in the Capital Requirements Regulation (575/2013)
(CRR) and Directive 2013/36/EU (CRD
IV). The IFD is required to be transposed into Irish law
by 26 June 2021. The IFR will take effect in Ireland from the same
date.

National discretions

As set out in an earlier Dillon Eustace briefing paper (which
can be accessed 
here) the Department of Finance published a public consultation
paper on 6 May 2020 on the exercise of national discretions
contained in the IFD (Consultation Paper). The
Consultation Paper related to the small number of provisions within
the IFD which allow Member States to exercise a national
discretion.

The Consultation Paper sought input on whether and in what
manner those national discretions should be exercised. The Feedback
Statement confirms the decisions of the Department of Finance in
relation to each of the discretions. These decisions will now be
reflected in the Irish legislation implementing the IFD.

Role of the Central Bank of Ireland

The Feedback Statement confirms that the Minister for Finance
will designate the Central Bank of Ireland as the national
competent authority for the purposes of the IFD/IFR.

Variable remuneration discretions

A number of discretions were consulted on relating to the
variable remuneration requirements set out in Article 32 of the
IFD, in particular relating to elements of the pay-out process,
namely the payment of variable remuneration in instruments and the
deferral of payment of variable remuneration. The Feedback
Statement confirms the approach to be adopted in Ireland in respect
of each of these potential national discretions as follows:

(i) Types and designs of instruments in which variable
remuneration may be paid

Article 32(3) allows a Member State or a national competent
authority the discretion to place restrictions on the types and
designs of instruments or to prohibit the use of certain
instruments for the purposes of variable remuneration. The Feedback
Statement indicates that the Minister for Finance will not exercise
this discretion and the provisions of the IFD will apply in Ireland
without amendment as regards the types and designs of instruments
in which variable remuneration may be paid.

(ii) Balance sheet threshold for exemption

Article 32(5) and (6) of IFD provides that the requirements for
the pay out of variable remuneration in instruments and the
deferral of payment of variable remuneration will not apply to
firms with at least €100 million of on and off-balance sheet
assets. A Member State is given the discretion to either; (i)
increase the threshold exemption to a maximum of €300 million
provided certain criteria set out in Article 32(5) relating to the
size of the firm and its business are fulfilled; or (ii) decrease
this threshold to below €100 million if certain criteria are
met (Article 32(6)).

The Feedback Statement indicates that for Ireland this
discretion will be exercised and the balance sheet threshold for
exemption will be set at €300 million provided that those
certain criteria set out in Article 32(5) are fulfilled. The
Feedback Statement also indicates that a discretion is being
provided to the Central Bank to lower this threshold if the Central
Bank of Ireland is satisfied that it is appropriate, taking into
account the nature and scope of an investment firm’s
activities, the internal organisation of the investment firm, and,
where applicable, the characteristics of the group to which the
investment firm belongs.

(iii) Individual exemption

Article 32(4) of the IFD provides that an individual (i.e. staff
member) whose annual variable remuneration is less than the
€50,000 threshold and does not represent more than 25% of that
individual’s total annual remuneration is entitled to an
exemption from the requirements regarding the pay out of variable
remuneration in instruments and the deferral of payment of variable
remuneration.

Article 32(7) of the IFD grants a discretion to a Member State
to decide not to grant this exemption because of: (a) national
specificities in terms of remuneration practices; or (b) the nature
of the responsibilities and job profile of those staff member. The
Feedback Statement indicates that the Minister for Finance will not
exercise this discretion.

Discretions to be exercised by the Central Bank under the IFD
and IFR

IFD and IFR separately provide for a number of other discretions
to be exercised by national competent authorities of member states.
On 14 January 2021, the Central Bank published the paper
‘Consultation on Competent Authority Discretions in the
Investment Firms Directive and the Investment Firms Regulation’
(CP135) whereby it consulted on the various
discretions afforded to the Central bank under the IFD and the IFR.
A Dillon Eustace briefing paper on this topic can be
accessed 
here.

The Central Bank has not yet published a feedback statement in
response to CP135 indicating how it will exercise these
discretions.