‘Dismay’ at flight from IFSC offers timely reminder of its importance to economy
There are worrying signs of drift with the operation of the centre but it’s not quite clear if a rot has set in
The IFSC in Dublin: There’s no doubt it has been a big success since Dermot Desmond first suggested the idea. Photograph: Bryan O’Brien
His comments about the International Financial Services Centre were a particular surprise; he said he was “dismayed” at the number of banks who have handed back their licences over the past two years. “Nobody is going to come out and say it [but] it’s because of heavy regulation,” he said. “It’s one we could have grown more. I’m dismayed to see the drift out now.”
When I put Somers comments to the Central Bank, this was its reply: “Regulation of banks in Ireland has intensified since the crisis. This has undoubtedly added to the cost of compliance for regulated firms.
“The Central Bank is careful to avoid placing an undue burden on regulated firms, but attaches priority to its statutory responsibility to ensure the proper and effective regulation of financial service providers and markets.
“The banking sector is undergoing a period of consolidation and deleveraging following the financial crisis, particularly involving reduced international operations and rationalisation of legal entities by banking groups, and it is clear that this has and will likely continue to impact the IFSC.
“Central Bank supervision of financial services companies is conducted within a risk-based framework based on the inherent impact of a firm in case of failure and the probability of problems occurring as identified through on-site assessment and other supervisory work.”
The regulator distanced itself from any suggestion that it is at the root of the problem.
It should be remembered that in 2005 the New York Times branded the IFSC as the “wild west” of European finance. The regulator would also be within its rights to point out how failures of one sort or another at Cologne Re, Sachsen LB and Depfa Bank tarnished the reputation of Dublin in the run-up to the collapse of the economy here.
String of defections
Figures from the Central Bank show that nine banking licences have been handed back within the past three years by IFSC operators, and no new licences have been issued in the past two years. Two of the licences handed back belonged to IBRC Mortgage Bank and Irish Nationwide, both of which are being consigned to history by the State.
Probably the highest-profile defection has been Goldman Sachs Bank Europe plc, following a reorganisation of its activities here after its fund management business was transferred to State Street.
There’s no doubt the IFSC has been a big success since Dermot Desmond first suggested the idea. Driven initially by tax breaks, it received clearance from the EU in 1987 and the companies based there pay about €1 billion annually in corporate taxes.
In 2010, IFSC Ireland, which is funded by a number of groups in the financial sector, came together and appointed former taoiseach John Bruton to act as a global ambassador for the centre. Bruton has had his mandate extended out to 2014 and is regarded by those in the industry as doing a good job.
The IFSC Clearing House Group, which is chaired by the secretary general of the Department of the Taoiseach, has set a target of creating 10,000 net new jobs over five years. The Department of Finance is also believed to be looking at how the IFSC operates and how it might be helped grow.
While there are worrying signs of drift with the operation of the IFSC, it’s not quite clear if a rot has set in.
Clearly, some of the operators there are not happy with the level of regulation being imposed on them.
Somers comments are timely in reminding us of the importance of the IFSC to the economy and how we need to up our game if it is to continue to prosper and create employment.
With IFSC Ireland, the IDA, the IFSC Clearing House Group, the Central Bank and the departments of the Taoiseach and finance, there are a lot of cooks in the kitchen. Perhaps too many.
Maybe that’s where we should start when looking for a solution to the drift taking place there.