Internal Governance Requirements And The Hall Of Mirrors In The CRD and MIFID

Author:Ms Paula Kelleher
Profession:Dillon Eustace
 
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Introduction

With some overlapping between the Capital Requirements

Directive (CRD) and the Markets in Financial Instruments Directive (MiFID)

credit institutions and investment firms have the opportunity now to minimise

duplication of compliance measures by identifying the common requirements,

revising their internal governance framework accordingly and consequently improving

their governance cohesion and reducing costs.

Next year credit institutions and investment firms which are

subject to the Capital Requirements Directive (ìCRDî) and the Markets in

Financial Instruments Directive (ìMiFIDî) may be forgiven for feeling faint

when they face two separate sets of internal governance requirements, many of

which regulate the same matters. Credit institutions and investment firms have

the opportunity now to minimise duplication of compliance measures by

identifying the common requirements, revising their internal governance

framework accordingly and consequently improving their governance cohesion and

reducing costs.

The regulatory map for credit institutions and investment firms

(ìfirmsî) is currently undergoing significant reshaping in the Office of the

Parliamentary Counsel to the Government as we wait for the signed national

regulations to implement the CRD and MiFID. Public consultation on the CRD by

the Financial Regulator is underway and most recently the Financial Regulator

has written to firms requesting their views on its proposals for implementation

of the CRD. In particular firms have been asked to notify the Financial

Regulator when they plan to switch to the new regulatory requirements of the

CRD.

Firms intending to switch to the new CRD regulatory regime on 1

January 2007 or 1 January 2008 must notify the Financial Regulator by 31

October 2006 and 31 December 2006 respectively. Prior to switchover various

elements of the current 'Capital Adequacy Directive' e.g. calculation of

regulatory capital, and the CRD will apply to firms. In particular the

'internal governance obligations' of the CRD will apply to firms from 1 January

2007. Under Article 22 of the CRD, firms are required to have in place an

internal governance framework to include;

A clear organisational structure with well defined, transparent

and consistent lines of responsibility (new stated requirement).

Effective processes to identify, manage, monitor and report risks

(new stated requirement) Adequate internal control mechanisms - to include

administrative and accounting procedures.

Further detailed guidance regarding the implementation of these

requirements is contained in Annex V of the CRD and the...

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