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Post-Brexit licensing options in Ireland for UK asset managers

Ireland is an attractive location for UK asset managers seeking to retain EU passporting rights post-Brexit given ease of access and communication, time zone and workforce considerations.

This guide was last updated in March 2018

Last year, many of the larger asset managers chose Ireland as the location for their 'SuperManCo' and MiFID applications. Medium and smaller-sized managers are closely monitoring developments, but many have yet to implement their strategies despite the looming deadline and lack of clarity around transition.

There are a number of licenses potentially available to asset managers in Ireland. The most appropriate licence for each manager's business will depend on a number of factors, including:

  • cost;
  • types of activities in which it wishes to engage;
  • the amount of substance it can provide in Ireland;
  • how much it wishes to delegate back to the UK, or elsewhere;
  • number of funds managed;
  • domicile.

Regardless of the preferred model, UK-based managers must now be urgently considering their options. With potentially just 12 months left until exit day, a significant number of UK managers will be seeking authorisation for their Irish funds at the same time, putting pressure on the Central Bank of Ireland (CBI). Managers need to decide now on their Brexit strategy solution and look to implement it within the next three months to ensure that they are 'day one' ready at the end of March 2019.

Different licensing options

Typically, a larger manager will seek a 'SuperManCo' (super management company, with ancillary permissions) and MiFID licences, which have higher substance requirements. Medium to smaller managers are more likely to consider a self-managed investment company (SMIC) licence or delegated SuperManCo licence, or to appoint a third-party manager.

The extent to which the business must have a physical presence in Ireland depends on the type of licence being sought. The CBI will require that full responsibility is retained and oversight carried out in Ireland, but does not usually require that day to day activities be performed in Ireland. Day to day activities may therefore be delegated back to the UK provided that are properly overseen in Ireland.

For fund management companies that have not sought MiFID add-on permissions, substance requirements can essentially be met by the board of directors and 'designated persons' performing the firm's managerial functions. Designated persons can be directors or employees of the manager. The proportion of directors and designated persons that must be Irish, or EEA, resident depends on the complexity of the business.

MiFID entities must meet a 'head office' requirement, to be agreed with the CBI on a case by case basis. Entities seeking ancillary add-on permissions usually require a head of investments and risk/compliance function, but this will vary on a case by case basis depending on the complexity of the business.

Here are the requirements for each type of licence, and the pros and cons of each.

Self-managed investment company

For smaller fund managers, setting up an SMIC is the least administratively complex option, requiring only €300,000 of initial capital which can be met using shareholder funds. This model works well as a means of managing a single fund, and requires fewer staff on the ground: two Irish-resident directors; and 2-3 designated persons.

The SMIC retains oversight of portfolio management (PM) and risk management (RM) functions, but must delegate day to day activities. It is not permitted to manage or advise on segregated account mandates, and must delegate to a regulated investment manager.

Allow 6-8 months for authorisation during high volume periods.

SuperManCo with delegates ('v1')

The SuperManCo delegated option allows for the management of multiple fund umbrellas, while requiring fewer staff on the ground than the v2 or full MiFID authorisation options. Setting up a v1 option requires 2-3 Irish-resident directors and 2-3 designated persons.

A SuperManCo is subject to stricter capital requirements than an SMIC: either one quarter of total expenditure in its most recent annual accounts or €125,000 plus up to 0.02% of any assets under management (AUM) exceeding €250 million, whichever is greater, up to a maximum of €10m. Again, the v1 model is unable to perform all PM activities and is not permitted to manage segregated account mandates.

Allow 6-8 months for authorisation during high volume periods.

SuperManCo with add-on authorisations ('v2')

The v2 model is permitted to perform or to delegate PM or RM activities, provided it does not delegate more than it retains, and is permitted to manage multiple funds and segregated account mandates via add-on licences. However, the administrative requirements are stricter than under the v1 model. The v2 will need to meet similar presence requirements as a firm with full MiFID authorisations adepending on the complexity of the business and number of branches required.

V2 is subject to the same capital requirements as v1. Allow 8-9 months for authorisation during high-volume periods. Additional v2 permissions can be 'passported' throughout the EEA without the need to seek additional authorisations.

MiFID firm

Full MiFID authorisation may be the best option for the largest firms. However, it is also the most administratively complex and requires 'substantive presence' in Ireland; meaning the firm's must have a significant senior management presence in Ireland meaning all key decisions must be taken in Ireland, with sufficient staff and resources to manage the risks and oversee delegates. Firms will also be subject to CRD IV/CRR capital requirements, and to the tougher MiFID 2 regime which came into force in January 2018.

MiFID authorisation allows a firm to provide the full range of PM and RM services and outsourcing, including to other EEA states and third countries, is permitted where in line with applicable law and best practice. The firm will also be permitted to 'passport' services throughout the EEA without the need to seek additional authorisations.

Allow 9-10 months for authorisation during high volume periods.