By Kieran Donoghue, Global Head of Strategy, Public Policy and International Financial Services, IDA Ireland
Brexit has been looming over the City of London and the European financial services industry for close to half a decade. While politicians were negotiating the fine detail of the UK exit and future trade arrangements, most banking and finance firms were quietly getting on with the necessary preparations to ensure continued access to their clients and markets in the European Union (EU).
When the Trade & Cooperation Agreement (TCA) failed to adequately address financial services in January, many UK firms pinned their hopes on the UK being granted “equivalence”. Yet, this is by no means certain and negotiations could drag on for years – with UK firms frozen out of the lucrative market in the meantime.
Senior managers, therefore, have some big decisions to make in the face of heightened uncertainty about the terms, conditions and sustainability of future market access. In this context, businesses need a partner that can minimise the disruption to their operations while retaining access to the single market. Dublin – and more broadly Ireland – offers that partnership.
With respect to financial services, London and Dublin have a very strong relationship going back several decades. Many UK-based financial services providers already have sizeable operations in Ireland, thanks to the country’s reputation as a safe and readily understood sister market for the sale of financial products. These include Barclays, HSBC, Aberdeen, Ashmore, Legal & General, Aviva, Prudential, M&G, Baillie Gifford, Revolut, Starling and many more.
In terms of business culture, financial sophistication and general attitudes, the Irish market is viewed – rightly – as an obvious first step outside of the UK (and vice-versa for Irish entities looking to grow internationally). The two countries also mirror each other in terms of regulatory regimes and legal frameworks i.e. a common law legal system – as well as the obvious yet deep advantages of speaking and contracting in the same language.
Then there is Dublin’s longstanding role as a service centre for global capital markets. London’s dominance for trading and front-office operations is complemented by Dublin’s strong middle and back-office capabilities, as well as shared services and innovation and fintech development centres. These capabilities have been joined in recent years by increasing numbers of regulated front office operations particularly for Anglosphere banks and asset managers looking for a conducive environment for pan-European (or even pan-EMEA) operations. Groups in this category with a significant presence in Ireland include Bank of America, Citi, Morgan Stanley and Wells Fargo. In this context, London and Dublin are, in many respects, two sides of the same coin.
These developments suggest that a solution for those financial services firms still seeking a long-term and sustainable solution to EU market access may be to increase that longstanding, deep and mutually beneficial partnership between the London and Dublin financial markets. In fact, UK firms are already starting to swing towards Ireland in their relocation efforts. A new study by think tank New Financial on the impact of Brexit on the City shows Dublin emerging as the biggest beneficiary – with 135 relocations, followed by Paris with 102, Luxembourg with 95, Frankfurt with 63, and Amsterdam with 48. In fact, the study confirmed that a third of all asset management firms that have moved some element of their operations as a result of Brexit have chosen Dublin.
A skilled workforce with top-quality expertise
Financial services firms require access to a diverse workforce comprising seasoned professionals as well as young, highly educated, hardworking and ambitious new hires. With a labour market of 325 million people, it comes as no surprise that UK firms are looking closely at European cities for international talent. The location selected, therefore, for a future in-market EU presence will need to deliver a talent pool of sufficient depth and quality in order for a company to thrive and position for the future.
In Ireland, UK firms are sourcing skilled and experienced staff both locally and from across the EU. Thanks to Ireland’s close ties with countries such as the United States, a fast-track visa programme also exists to hire staff from across the globe.
What’s more, the Irish government is dedicated to creating industry-driven higher education programmes to ensure the workforce is keeping pace with the fast-changing landscape and skill requirements of the sector. For example, when demand grew for Artificial Intelligence (AI) skills in Ireland, the University of Limerick launched a newly created innovative Master’s programme – in collaboration with the Irish Centre for High End Computing (ICHEC) and leading industry players such as Accenture, Google and Citibank – to ensure that the talent pool is ready to address current and future industry needs. With other industry-driven programmes being developed – such as a Master’s programme in Cyber Security – Ireland is gearing up to provide the skills and knowledge that leading financial services will require in the coming years.
Strong and stable business environment
Another priority for firms working within the financial services industry is the implementation of strong and effective governance and compliance frameworks, which are essential to a firm’s operating environment.
These factors cannot be ignored when considering a new EU domicile, and UK firms will expect robust, yet balanced and proportionate regulation and supervision. The chosen base will need to prove itself capable of providing high-quality, timely and transparent processes in regulation, supervision, and policy development.
Countries across Europe have been vying for the potential benefits that Brexit can provide, offering incentives to companies looking to relocate or expand to their cities. While the presence of the European Central Bank (ECB) is a natural advantage to Frankfurt, other European hubs such as Paris have used tax incentives to lure high-earning talent to their cities.
Elsewhere, the attractiveness of the Dutch central bank (DNB) and the national financial authority (AFM) – both considered to be transparent, fair and cooperative regulators – has helped Amsterdam displace London as Europe’s main centre for share trading.
The Irish government, meanwhile, has successfully confirmed its strong pro-business track record. Named one of the best countries in the world for ease of doing business by Forbes Magazine, the country has attracted some of the world’s leading Asset Managers over the years – including Blackrock, Amundi, Fidelity Investments, Goldman Sachs, Mediolanum and Vanguard.
A strategic partner
The New Financial study revealed the extent of Brexit’s impact on the City, with more than 400 financial firms in Britain shifting activities, staff and a combined €1.62 trillion in assets to hubs in the EU, with more to come in future. What’s more, this analysis is almost certainly a significant underestimate of true figures, as banks and asset managers with existing EU headquarters may have slipped under the radar. However, the good news is that this activity enables UK firms to continue accessing EU markets and supporting their clients across the continent.
London will remain a major global financial centre – that much is certain. However, as time passes, and more emphasis is placed on establishing trade agreements with Asia and emerging markets, the UK will still need a friend in Europe. Dublin can be – and is – this strategic partner.
Ireland has longstanding and close ties to the UK, going well beyond a common language, time zone and legal system. With a diverse and experienced talent pool, deep financial services and technology domain knowledge, a Common Travel Area (CTA) with the UK and a continuing voice in European policy and regulatory fora, Ireland is well placed to support the UK financial services industry as it prepares for a post-Brexit world.