Funds industry profits from Brexit

There were some gleeful predictions of a new boom for the Irish funds industry in the wake of the Brexit vote in 2016. That didn’t really happen, but Ireland’s funds industry has been a net beneficiary of Britain’s departure from the EU, nonetheless.

The latest edition of the EY Financial Services Brexit Tracker published in the spring of last year reveals that 44 per cent (97 out of 222) of the largest UK financial services firms have announced plans to move some UK operations and/or staff to the EU since the referendum in 2016. In addition, 24 firms had publicly declared their intention to transfer more than £1.3 trillion of UK assets to the EU.

Dublin remains the most popular destination for staff relocations and new European hubs or offices, with 36 financial services firms announcing intentions to relocate UK operations and/or staff to the city.

“Looking at the EY report, funds is the area we did best in,” says Patricia Callan, director of Financial Services Ireland, the Ibec trade association representing the interests of the financial services sector in Ireland.

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The report reveals that wealth and asset managers have primarily chosen Dublin (18 companies) and Luxembourg (14 companies) while Frankfurt and Paris are the most popular relocation destinations for the banking sector, attracting 19 and 15 investment banks respectively.

Niamh Ryan, partner and head of the funds group with international law firm Simmons & Simmons believes it is still quite early in the process. “It’s not like people were going to up sticks and leave London straight away,” she points out. “London is much too important and large a financial centre for that. It takes a while for large organisations to decide to move people or functions around. We are only now seeing functions starting to move to Frankfurt, Paris, Luxembourg and Dublin. Sometimes this has to do with the organisations already having people in those jurisdictions.”

She also notes that, to coin a phrase, Brexit is not yet done – as far as financial services is concerned, at any rate. Financial services was, in effect, excluded from the Trade and Cooperation Agreement (TCA) between the UK and the EU. That resulted in approximately 10,000 pages of EU financial services regulations being transposed into English law in the immediate wake of the TCA. Since then, the UK government has made a number of important regulatory changes in different areas of financial services and further changes are in prospect.

That increasing regulatory divergence will generate further opportunities for countries like Ireland.

One big area of opportunity is distribution, according to Ryan. “Typically, a lot of it was done from the UK. That doesn’t really work any more if you’re distributing in the EU,” Ryan says. “The reality of not being in the EU is only starting to come home now. Firms will set up EU distribution hubs. We will see them staffing up in Ireland. That’s already happening. It’s less headline grabbing but it is a definite Brexit impact.”

The nature of the new roles is also important. “We are seeing more expertise and decision makers coming into Ireland,” she adds. “That move up the value chain is good for us. It will make us more attractive.”

Callan points out that Ireland ticks a lot of boxes when it comes to attracting funds’ industry investments. “We are still the only native English speaking common law jurisdiction in the EU. We have a highly educated workforce with decades of experience,” Callan says. “A lot of companies have been here since the 1980s and an ecosystem has grown up around the industry in terms of professional services firms and other advisers and support services.”

The Irish industry is also highly innovative. “The funds industry here is creating cutting edge new products,” she notes. “We are supporting skills development for that through the IFS Skillnet which launched a new course in sustainable finance for compliance professionals last year.

“The regulatory regime is top of mind for everyone,” Callan says. “There is a very strong sense that companies want a robust regulatory regime for brand reputation and investor confidence. Some regulators are better than others and some have upped their game of late. The UK regulator now has a competition mandate, and the Luxembourg regulator has been flying the flag for that jurisdiction as well and we need to be conscious of that.”

Both Ryan and Callan note Ireland’s infrastructural challenges in areas like housing, public transport, and education options for children which can act as deterrents for people considering a move here. “All of that ties into our belief that you can’t have successful businesses without a successful society,” says Callan.