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FinTechs belonging to this category operate trading platforms or online marketplaces for investment opportunities or certain financial contracts – e.g. securities, factoring etc. and sometimes furthermore provide contact to financial experts and tools for the decision-making.
FinTech-signalling and social trading platforms provide users with the opportunity to exchange opinions on financial investments and offer signal providers and traders the possibility to make their securities portfolio publicly visible. This way the portfolios can be linked to and followed by other traders via the platform automatically, so that the trading and investment strategy of the followed traders can be copied.
The platform often cooperates with a financial services provider or a credit institution where both the trader and the follower hold their securities accounts, and which execute the orders both of the trader and the follower and to which the platform passes on the trading decisions.
Introduction
Attitude of the country towards trading, social trading or signalling platforms
The Central Bank of Ireland is engaging with FinTech companies offering trading platforms, with such activity being a regulated investment service requiring Central Bank authorisation. There are consumer protection and regulatory concerns with regard to signalling and copy trading which may be deemed to be unregulated investment advice. The FCA have raised concerns about such activities offered by unregulated entities.
Legal affairs
Obligations and requirements to provide trading, social trading or signalling platforms described above
As noted above, the operation of trading platforms for “transferable securities” and other financial securities is a regulated investment service that requires Central Bank authorisation under the Irish MiFID II Regulations, which provide for the regulation of investment firms and various types of securities exchanges, including market operators, regulated markets, multilateral trading facilities (MTFs) and organised trading facilities (OTFs).
The Capital Requirements Directive sets out the level of regulatory capital which investment firms must maintain. 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.
If the proposed investment firm is considered to be small and non-complex then a lower initial capital requirement will apply and will be either €75,000 or €125,000. If the investment firm wants to carry out the investment service of dealing on an own account, then the initial capital requirement is increased to €750,000.
The minimum capital requirement will be the greater of the initial capital requirement or 25% of projected fixed overheads as set out in the financial projections.
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. The Central Bank distinguishes between “small, non-complex firms” and “large and/or complex firms” when assessing and applying capital requirements.
The timing for authorisation will usually take between 4-6 months from the date of the original submission of complete application.
Additional comments regarding the legal situation for trading, social trading or signalling platforms or what FinTech’s must be aware of in this business area
It is important to be mindful when taking investment decisions based exclusively on information from social media and other unregulated online platforms if they cannot verify the reliability and quality of that information. The European Securities and Markets Authority (ESMA) has i