MiFID II – National Discretions

The Department of Finance has published a feedback statement setting out Ireland’s proposed approach to discretions in the regulations transposing the MiFID II Directive 2014/65 into Irish law. This briefing sets out this approach and should be read in conjuction with our other briefing on MiFID II and the safe-harbour exemption, which also relates to the feedback statement here.

Optional exemptions

MiFID II contains a number of optional exemptions from its scope, some of which reflect existing exemptions available under the European Communities (Markets in Financial Instruments) Regulations, 2007 (“MiFID Regulations”), which transpose the MiFID Directive 2004/39 (“MiFID I”) into Irish law.

Regulation 5(3) of the MiFID Regulations exempts persons that:

  • are not permitted to hold clients’ funds or securities;
  • are only allowed to provide the investment services of receipt and transmission of orders in transferable securities and units in collective investment undertakings and/or investment advice in relation to those securities and units; and
  • in the course of providing those services are only allowed to transmit orders to MiFID authorised investment firms and their third country branches, credit institutions and their third country branches, collective investment undertakings and their managers and investment companies with fixed capital.

In Ireland this exemption is primarily used for retail investment intermediaries authorised under the Investment Intermediaries Act 1995, and by administrators. Regulation 5(3) transposes Article 3(1) of MiFID I into Irish law.

MiFID II retains the discretion set out in Article 3(1) with the added proviso that such persons must be subject to requirements which are “at least analogous” to the MiFID II requirements concerning conditions and procedures for authorisations, supervision, conduct of business rules and organisational requirements.

The Minister for Finance (“Minister”) intends to continue the exemption in the transposing regulations. Amendements will be made to the Consumer Protection Code 2012 and the Investment Intermediaries Act 1995 to ensure that firms qualifying for the exemption are subject to such analogous requirements.

MiFID II also contains additional optional exemptions in relation to certain investment services in commodities, emission allowances and derivatives. The Minister does not intend to provide for this exemption as it has not received compelling evidence as to why this is necessary or would be the best course of action.

The Minister intends to maintain the requirement that all investment firms, including those qualifying for an exemption under Article 3(1) of MiFID II, must be covered by the investor compensation scheme. Consequently, it does not intend to use the discretion set out in Article 3(2) of MiFID II which allows member states to exempt investment firms from being covered by such a scheme provided they hold professional indemnity insurance and where, “taking into account the size, risk profile and legal nature of the persons exempt in accordance with paragraph 1 of this Article, equivalent protection to their clients is ensured”.

Investor protection including conflicts of interests

Article 24 of MiFID II sets out general principles that apply to an investment firm when providing investment services to clients, as well as provisions governing client information, inducements, remuneration, and tied offers. Under Article 24(12) member states may impose additional requirements on investment firms in respect of the matters covered in Article 24. The Minister has decided not to exercise this discretion but will give further consideration to this issue following the outcome of the Central Bank's public consultation on the payment of commission to intermediaries later in the year.

Client order handling rules

Article 22 of MiFID I requires investment firms to facilitate the earliest possible execution of a client order. In the case of certain client limit orders which are not immediately executed, an investment firm must make public that client limit order in an easily accessible manner. Article 22 also provides that member states may decide that investment firms comply with this obligation by transmitting the client limit order to a regulated market or multi-lateral trading facility ("MTF"). This discretion is reflected in Regulation 108 of the MiFID Regulations, which provides that an investment firm will comply with its obligation to facilitate the earliest possible execution of a client order by transmitting the client limit order to a regulated market or MTF.

Article 28 of MiFID II is in similar terms as Article 22 of MiFID I. It provides that member states may decide that investment firms comply with this obligation by transmitting the client limit order to a trading venue. The MiFID II Delegated Regulation clarifies that a client limit order shall be considered to be made available to the public when the investment firm has submitted the order for execution to a regulated market or MTF or the order has been published by a data reporting services provider and can be easily executed as soon as market conditions allow.

The Minister has decided to exercise this discretion under MiFID II.

Third Country Firms and branches

Third Country Firms will be required to set up a branch if they wish to provide services to retail clients and opted up professional clients.  The safe-harbour exemption will continue to be available to investment firms providing services to professional clients and eligible counterparties, subject to a number of conditions. See our related briefing here.

Higher fees applying to cancelled orders

MiFID II introduces a new regulatory regime for firms which engage in algorithmic and/or High-Frequency Trading (“HFT”). Under MiFID II, HFT firms will be subject to a range of restrictions and controls, which include testing of algorithms by the participants, built in circuit breakers and the introduction of minimum tick sizes across trading venues. In addition to these requirements, MiFID II provides member states with a discretion in relation to the fees charged by trading venues for cancelled orders. Essentially, the discretion, if exercised, would permit regulated markets to adjust fees (upwards) for cancelled orders. The Minister has decided to exercise this discretion.

Designation of National Competent Authorities

Article 67(1) of the MiFID II Directive requires each member state to designate the competent authority for carrying out the duties provided for under the MiFID II Directive and the Markets in Financial Instruments Regulation 600/2014.  The Minister intends to designate the Central Bank of Ireland as the single national competent authority.


Under section 5 of the Markets in Financial Instruments and Miscellaneous Provisions Act 2007 a person guilty of an offence is liable on conviction on indictment to a fine not exceeding €10,000,000 or imprisonment for a term not exceeding 10 years or both. The offences in question are for specified infringements of the MiFID Regulations, mostly related to obstruction/refusal to cooperate and breach of authorisation conditions.

The Minister has decided to retain the criminal sanctions provided for in the MiFID Act and extend them to cover equivalent offences by new MiFID II categories (e.g. market operators of Organised Trading Facilities, Data Service Providers). The precise list of infringements and sanctions will be set out in primary legislation and will follow the transposing regulations.

The Minister has also decided to set a €5 million administrative fine for a natural person.  In addition, it will align the maximum level of administrative fine for a legal person with the maximum level in the Central Bank Supervision and Enforcement Act 2013, namely €10 million.  The Minister will also provide for a disgorgement amount of twice the benefit derived from the infringement where the benefit can be determined.

Unlike MiFID I, the MiFID II Directive and MiFIR also impose obligations on certain non-regulated persons.  The Minister intends to use the assessment regime, based on the regulations giving further effect to European Markets Infrastructure Regulation (EMIR)  in Irish law, as the applicable enforcement regime for such persons.


Articles 16(8) – (10) of MiFID II deal with organisational requirements in respect of client assets (financial instruments and funds) as well as the use of title transfer collateral arrangements. Under Article 16(11) of MiFID II, a member state may, in exceptional circumstances, impose additional requirements concerning the safeguarding of client assets provided it notifies these to the Commission.  The Commission must then provide its opinion on the proportionality of and justification for the additional requirements, within two months of the notification.

The Commission has approved the maintenance of the client asset rules set out in the Central Bank (Supervision and Enforcement) Act 2013 (Section 48(1)) Client Asset Regulations 2015 for Investment Firms. These rules will be amended to reflect MiFID II.  The Central Bank will consult industry on the regulation and the Department of Finance expects the revised client asset regulations to be in place by 3 January 2018.

 Next Steps

The Department of Finance is continuing to work on the transposing regulations, which it expects to complete in the coming weeks. According to the Feedback Statement, firms currently authorised under the MiFID Regulations will not have to undergo an authorisation process under MiFID II.

This document has been prepared by McCann FitzGerald LLP for general guidance only and should not be regarded as a substitute for professional advice. Such advice should always be taken before acting on any of the matters discussed.