Bruton warns against over-regulation

Former Taoiseach says Ireland should seek to become centre of excellence in compliance

President of the Irish Financial Services Centre, John Bruton,  said Ireland should seek to become a centre of excellence in compliance. Photo: Eric Luke/The Irish Times

President of the Irish Financial Services Centre, John Bruton, said Ireland should seek to become a centre of excellence in compliance. Photo: Eric Luke/The Irish Times

 

Ireland should seek to become a centre of excellence in compliance and risk management for financial services companies, John Bruton, president of IFSC Ireland told a banking conference in Dublin today.

“Compliance is an increasingly costly activity for banks,” the former Taoiseach told the annual conference of the Federation of International Banks in Ireland.

“Those involved in it are well paid. Complex regulation is an inherently expensive business. But for Ireland it can be an opportunity.

“Just as Ireland has become a centre of excellence in the fields of aircraft leasing and fund administration in the past, we should seek to become a centre of excellence in compliance and risk management in the future. The IDA and our universities are already putting funds behind R&D in finance and this is a basis to build on.”

Mr Bruton said other opportunities exist to increase activity in the IFSC here, including clearing and settlement, collateral and risk management, and green and Islamic finance.

“The recent decision, contained in the recent Central Bank Act, to allow non-EU banks to open branches here is a major opportunity. Some banks, now operating in the UK in high cost locations, may be able to relocate activities on a branch basis in Ireland,” he added.

Mr Bruton warned against over regulation in financial services although he said it might benefit Ireland.

He cited a recent study on banking by McKinsey that estimated that, if all the regulations currently in the pipeline were now in force, it would reduce the return on equity on European banks from 10 per cent to 6 per cent.

“This is a non-trivial issue for the Irish taxpayer who has, albeit reluctantly, acquired a disproportionately large equity holding in banks, and needs a return on that equity to meet basic services.

“On the other hand, the increased compliance cost may force financial institutions to look for the most cost effective locations in which to undertake this high-cost activity and this may be an opportunity for Ireland.”

Eamonn Tuohy, chairman of FIBI, said that from a recent survey of its members, one-third of respondents expect to hire more staff this year. This follows an 8 per cent increase in employment in the sector in Dublin in 2012.

However, he said the collapse of our domestic banking sector since 2008 continues to weigh on Ireland’s reputation as a financial services location while there are also concerns about our “capacity to attract very high calibre people to locate here” due to “comparatively high rates of personal tax”.

Mr Tuohy said Ireland also needs to streamline its regulation of the financial sector.

This would include shortening the lead time to securing decisions from the regulator, streamlining the fitness and probity tests, getting greater clarity from the regulator about what kinds of activity are likely to be acceptable or unacceptable, and improved retention of staff at the Central Bank with the necessary experience and skills.