Londinium is authorised by the Central Bank of Ireland pursuant to the European Communities Markets in Financial Instruments Regulations 2007 (MiFID) .
The Markets in Financial Instruments Directive (“MiFID”) was transposed into Irish law by the European Communities (Markets in Financial Instruments) Regulations, 2007 as amended (the “MiFID Regulations”) with effect from 1 November 2007.
MiFID creates a single authorisation for investment firms enabling firms to do business anywhere in the EU with a minimum of red tape while increasing customer protection.
The objective of MiFID is to produce an effective single financial services market in the EU. MiFID established a regulatory framework for the provision of investment services by investment firms. It imposed obligations on investment firms relating to conduct of business rules and their organisational structure.
Regulation of Investment Firms
MiFID requires that Member States must license and regulate investment firms carrying out investment services in their jurisdiction. It also establishes high-level organisational and conduct of business standards that apply to all investment firms. These standards include managing conflicts of interest, best execution, customer classification, suitability requirements for customers and pre-trade and post-trade transparency requirements.
MiFID also requires that Member States recognise investment firms licensed in other Member States and permit such investment firms to operate within their jurisdiction without imposing any further requirements on them. The access rights of third country firms (i.e. non-Member States) is not harmonised under MiFID and is therefore subject to national laws; currently national regulators impose equivalency requirements on third country firms operating in their territories.
Investment firms offering investment services to clients or customers located within the EU must be authorised.
Authorisation is granted to an investment firm by the competent authority of its home Member State, the Central Bank of Ireland is the competent authority in Ireland for the purposes of MiFID. Once authorisation has been granted it is valid for operating in all Member States under passporting arrangements.
From 1 November 2007 Londinium was authorised by the Central Bank of Ireland to provide the services of portfolio management and investment advice to clients and on 29 May 2009 its authorisation was amended by the Central Bank to include the provision of services also to private clients. Londinium can passport investment services into the following EU Member States:
Given the territorial scope of MiFID is limited to the EU, Londinium will only be able to provide investment services in non EU countries if permitted by the regulations of that country and after informing the Central Bank of Ireland.
The Capital Requirements Directive sets out the level of regulatory capital which an investment firm must maintain. The Capital Requirements Directive introduced a pillar approach to capital requirements. The Capital Requirements Directive was transposed into Irish law via the European Communities (Capital Adequacy of Investment Firms) Regulations 2006 (S.I. No. 660 of 2006) and European Communities (Capital Adequacy of Credit Institutions) Regulations 2006 (S.I. No. 661 of 2006). The amount of regulatory capital depends on a number of factors such as the size of the investment firm and the investment services which it provides. The Central Bank distinguishes between “small, non-complex firms” and “large and/or complex firms” when assessing and applying capital requirements. The Central Bank has classified Londinium as a small non-complex firm. The minimum capital requirement for Londinium is the greater of the minimum regulatory capital (€125,000), the fixed overhead requirement and the sum of the market and risk requirements. Londinium maintains at all time the minimum capital requirement.
Each investment firm is required to formulate an Internal Capital Adequacy Assessment Process (ICAAP) as a means of determining an adequate level of capital required to cover the business’s risks.
Conduct of Business Requirements
The MiFID Regulations contain certain conduct of business requirements which apply to the activities of Londinium which include:
- Client Classification
All clients must be classified as either; (i) retail clients; (ii) professional clients; or (iii) eligible counterparties and must receive specific information depending on such classification. Londinium classifies clients as either retail, professional and eligible counterparties.
- Best Execution
Londinium must take reasonable steps when executing orders to ensure the best possible result for its clients, taking account of price, cost, speed, likelihood of execution and settlement, size, nature and any other consideration relevant to the execution of an order.
Londinium has established and implemented an ‘order execution policy’ that ensures the best possible result for the client. This policy includes information on different entities or venues where Londinium places its client orders and the factors affecting the choice of the entity or venue. Londinium also provides appropriate information to its clients on the order execution policy and is required to obtain the prior consent of its clients to the execution policy.
Londinium monitors the effectiveness of its order execution arrangements including execution venues and execution policy to achieve best execution opposed to any alternatives at least on an annual basis. Londinium is required to advise customers of any material changes to their order execution policy or arrangements.
- Client Order Handling
Londinium has an Order Allocation Policy in place to ensure the fair allocation of aggregated orders and transactions and to address how the volume and price of orders relates to how they will be allocated in each case.
Ongoing Organisational requirements
MiFID applies high-level organisational and conduct of business standards to all investment firms. The organisational requirements required by MiFID include the following which Londinium applies consistently to its business:
- General Compliance Procedures
Londinium has established adequate policies and procedures sufficient to ensure its compliance with its obligations.
- Monitoring and Evaluating Systems Control Mechanisms
Regulation 35 of the MiFID Regulations requires that firms must monitor and evaluate the adequacy and effectiveness of their systems and internal controls on a regular basis and take appropriate measures to address deficiencies. This must include maintaining a permanent, independently operating compliance function. Londinium has an independent compliance function that reports directly to the board and monitoring is carried out on a regular basis.
- Risk Management Function
A firm is required under Regulation 36 to establish, implement and maintain adequate risk management policies and procedures, to adopt processes and arrangements to manage those risks and to monitor compliance with those risk policies and procedures. An independent risk management function is envisaged where it is proportionate and appropriate in light of the nature, scale and complexity of the investment firm’s business. Londinium has an independent risk management function.
- Conflicts of Interest Procedures
Londinium maintains and operates effective organisational and administrative arrangements with a view to taking all reasonable steps designed to identify potential conflicts of interest and take steps to prevent these conflicts adversely affecting the interests of its clients.
If a conflict of interest cannot be prevented, Londinium is obliged to disclose the nature and/or sources of the conflict of interest to the client before undertaking the business.
- Business Continuity Procedures
Londinium ensures continuity and regularity in the performance of investment services and activities by implementing and carrying out appropriate and proportionate systems, resources and procedures.
- Operational Risk Control Procedures
Londinium takes reasonable steps to avoid undue additional operational risk when relying on third parties for the performance of certain operational functions.
- Administrative and Accounting Procedures and Systems Control Procedures
Londinium has in place and uses (i) sound administrative and accounting procedures and internal control mechanisms, (ii) effective risk assessment procedures, and (iii) effective control and safeguard arrangements for information processing systems.
- Record Retention Procedures
Londinium keeps records of all services and transactions undertaken and ensure that the records are sufficient to enable the Central Bank to monitor the firm’s compliance with the MiFID Regulations and, in particular, to ascertain whether the firm is complying with its obligations with respect to clients or potential clients.
- Business, Procedures, Internal Controls and Reporting
Londinium has established, implemented and maintains decision-making procedures and an organisational structure relevant for its business; internal control mechanisms to ensure compliance with these procedures; records of the business and internal organisation; security and confidentiality procedures to safeguard this information.
- Complaints Procedures
A firm is required under Regulation 38 of the MiFID Regulations to maintain effective and transparent procedures for the reasonable and prompt handling of complaints and keep records of such complaints and their resolution. Londinium has an effective and transparent complaints procedure in place.