knowledge | 1 February 2018 |
Ireland as a Location for Banks
Ireland is an attractive location for banks both because of the many advantages associated with its European Union membership and because of its position as a global financial services centre.
Among other things:
- a bank established in Ireland can passport its products and services throughout the European Economic Area (“EEA”), either on a branch or a cross-border services basis;
- Ireland is a highly tax efficient location, due to a combination of a 12.5% corporate tax rate and an exceptionally extensive and comprehensive set of double tax agreements; and
- Ireland has a sophisticated financial services ecosystem with a deep pool of staff, managers, professional advisers, regulators and service providers including not only native English speakers but a sizeable international population (roughly 17%).
Currently, there are over 20 banks established in Ireland and over 400 others are operating in Ireland through an EEA passport. It is also possible for a non-EEA credit institution (a “Third Country Bank”) to establish a branch to carry on a banking business in Ireland (a “Third Country Branch”). Over half of the world’s top 50 banks have internationally focused operations in Ireland.
Banking in Ireland is regulated both by at EU and domestic level. While the Central Bank of Ireland (“CBI”) is the initial point of contact for applications for an Irish banking authorisation, or to extend an existing authorisation, the European Central Bank ("ECB") is ultimately responsible for deciding whether or not to grant the authorisation. The ECB must also authorise the acquisition of certain participations in an existing bank.
Significant Irish banks are directly supervised by the ECB, while the CBI supervises less significant banks: both apply the same regulatory framework for supervisory purposes. EU banking law, including in particular the Capital Requirements legislation, is fully applied in Ireland without the imposition of any significant additional domestic requirements.
Passporting/Third Country Banks
An EEA authorised bank may operate in Ireland on either a branch or a cross-border services basis, without obtaining any additional authorisations, but subject to certain notification requirements.
A Third Country Bank that wishes to carry out activities specifically in Ireland, could set up a Third Country Branch: it would not be possible to passport from that branch to other EEA member states.
A Third Country Bank that wishes to passport to other EEA member states from Ireland could either establish an Irish authorised bank or acquire an existing Irish authorised bank.
The Authorisation Process
All applications for authorisation as a bank in Ireland must be submitted to the CBI. There are three principal stages to the authorisation process:
Exploratory Phase: the applicant should determine whether it needs a banking licence and whether it can fulfil the authorisation requirements. It should also arrange a preliminary meeting with the CBI to discuss its authorisation application.
Submission and Assessment: the applicant must submit the completed application to the CBI. The CBI and ECB will then review the application, focusing in particular on corporate governance and oversight arrangements, risk management, internal controls, the business plan and capital and financial projections.
Decision: the ECB will grant a banking authorisation once both it and the CBI are satisfied that the applicant complies with the authorisation requirements set out in Irish and EU law. While the length of time for deciding on an application varies, it usually takes six months from the applicant providing a complete application. In any event a decision must be taken within 12 months of that date.
Further information is available from the CBI’s website here, including Guidelines and a Checklist for completing and submitting Bank Licence applications and a Policy Statement for applicants for authorisation as a Third Country Branch.
An entity, including a Third Country Bank that intends to acquire an existing Irish authorised bank will have to notify the CBI by completing an Acquiring Transaction Notification Form (available here). The Acquiring Transaction will then have to be approved by the ECB. The approval process takes approximately two months, although this period may be interrupted if additional information or clarification is sought from the applicant.
An entity that wishes to obtain a banking authorisation under Irish law must fulfill a number of requirements. For existing groups with substantial operations outside Ireland, an important requirement will be the CBI’s emphasis on ensuring that the entity's “heart and mind” will be located in Ireland. This essentially means that the CBI will need to be satisfied that the applicant bank will be properly run in Ireland and that the CBI will be able to supervise it effectively. Among other things, the CBI will expect to see present in Ireland:
- a senior management team with strength and depth overseen and directed by a strong board; and
- organisation structure and reporting lines which ensure there is appropriate separation and oversight of all activities.
There is no requirement for any specific individual to be resident in Ireland. However, ideally, the personnel who are to fulfill the applicant bank’s core functions should operate out of Ireland.
There is nothing to prevent an Irish licensed bank from outsourcing/ delegating some of its activities to entities in other jurisdictions. However, overall responsibility for ensuring compliance with legislative requirements must stay in Ireland. In addition, the CBI must be notified of any material outsourcing of a bank’s activities.
UK banks may loose their right to passport throughout the EEA once the UK leaves the EU. Consequently a number of UK banks are considering establishing a subsidiary in the EU27 to retain passporting rights. The ECB, the European Banking Authority and the CBI have each published information on how they intend to treat authorisation applications from UK banks.
How Can McCann FitzGerald Help?
McCann FitzGerald is one of Ireland’s premier law firms and advises on the full range of banking and financial activities undertaken in Ireland. We have substantial experience in successfully guiding applicants through the bank licence application process and in helping them comply with their legal obligations, once established. If you are considering setting up a bank authorised under Irish legislation, please contact us for further information as to how we can help.
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.