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

Author:Ms Paula Kelleher
Profession:Dillon Eustace
 
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1. 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, write Paula Kelleher and Shane King. Next year credit institutions and investment firms which are subject to the Capital Requirements Directive ("CRD") and the Markets in Financial Instruments Directive ("MiFID") 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 ("firms") 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)...

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