No longer an economic jewel, IFSC is at a critical stage in its evolution
New strategy aims to kick-start the sector which is facing more competition
A major change signalled in the IFS 2020 report on the IFSC is the abolition of the Clearing House Group and its replacement with two separate bodies – one representing the private sector and the other the public – which will come together four times a year.
A new name is imminent, a new strategy has just been launched and a new model for public private partnership has been put forward. But will it be enough to kick-start Ireland’s international financial services sector?
Just two years shy of its thirtieth anniversary, Ireland’s international financial services (IFS) sector is at a critical point in its evolution. No longer the economic jewel it once was, the sector has been tarnished somewhat in the face of heightened international competition, the lengthy global financial crisis and a decline in its reputation – both at home and abroad.
But there are signs of a revival. Last week fund administration specialist NorthernTrust announced a significant expansion of its Limerick operation, while latest figures from the Revenue Commissioners show that the total corporation tax take from companies formerly licensed under the IFSC regime was € 545 million in 2014, up from € 497m in 2013. While this is well below the peak of € 1.1bn reached in 2006, it is the second year of consecutive growth for former IFSC companies.
Now the new Minister of State with responsibility for the IFSC Simon Harris has prepared a new strategy for the sector, following a consultation process which generated about 100 submissions to the Department of Finance.
Launching a new strategy ahead of St. Patrick’s Day makes sense – after all the very first promotional seminar for the IFSC was held in the Whitbread Brewery in the heart of the City of London on St. Patrick’s Day 1988, when the first signs that the centre might actually be a success emerged when 407 people turned up for the seminar – even though only one hundred and fifty were invited.
But a major reason for the success of the IFSC in those early days, and in the years since, is to be no more.
A major change signalled in the IFS 2020 report is the abolition of the Clearing House Group and its replacement with two separate bodies - one representing the private sector and the other the public – which will come together four times a year. While the CHG has repeatedly been cited as a source of success in the development to date of the sector, the cosiness of its structure, and the apparent ability of private interests in the group to influence Government policies, has called it into question of late.
Another change which both private and public interests alike must adapt to is the new role of the Central Bank. As an independent regulator, which no longer has a promotional role for IFS, there is a challenge in ensuring that it remains, as Mr Harris puts it, “business responsive”. Given that industry has repeatedly questioned the efficiency of the regulator in making decisions, particularly in comparison with other competing centres, it will be a challenge trying to please everyone, although Mr Harris says that co-operation will be key, and that operational metrics will be sought from the Central Bank.
Areas for growth
Just as in previous reports, the latest strategy and its focus on fintech is not the first time the sector has tried to exploit a new opportunity. Previous efforts have included trying to attract fund managers from traditional hubs of London and Geneva to Dublin and boosting investment from China, while Islamic finance was once a hot-topic as was the much-touted “green IFSC”.
Although progress has been made in each of these areas, the impact has been less than might have been desired. What the future holds for fintech remains to be seen therefore.
A new name
It’s been talked about for years, but it seems that a move away from “IFSC”, which for some has connotations with low tax and “wild west” style regulation, is imminent.
Whatever shape the new brand does take, it’s also likely to reflect the fact that the sector has moved on considerably from its original footprint in Dublin’s docklands, which is still referred to the “IFSC”, and is now a national activity. Indeed more than 10,000 people work in the sector outside of Dublin. One suggestion for example is to move to “International Financial Services Ireland” , with specific sectoral brands fitting under this.