Stealthy as she goes in pursuit of post-Brexit banking spoils
Ireland must tread a delicate political line as it courts London’s financial services sector
Paris is aggressively marketing its wares to bankers based in the City of London. Frankfurt is dangling the possibility of easing its hire-and-fire laws. Poland is sending senior ministers to openly court institutions that have operated in London for decades.
Dublin, however, is taking a different approach to chasing post-Brexit spoils.
Diplomacy, discretion and stealth – rather than naked displays of opportunism – are the strategies being employed.
“Our style and approach is just different to other jurisdictions,” said Kieran Donoghue, head of international financial services at IDA Ireland, the country’s inward investment agency. “It’s probably not as explicit and public as the approach of others.”
Unlike France, where President François Hollande has taken the strongest line among EU leaders in calling for Britain to pay a heavy price for quitting the bloc, and Poland, whose migrating builders and plumbers were a flashpoint in the referendum debate, Ireland must tread a more delicate line as Britain prepares to start negotiations on its exit from the EU.
A century after the Easter Rising that would pave the way to Irish independence, the UK remains by far the country’s biggest trading partner and its closest ally in Brussels on many issues, particularly tax. Britain also provided a bilateral loan when Ireland needed an international bailout during the crisis.
But the biggest fear among politicians here is the prospect of a nasty Brexit settlement triggering the return of a “hard border” between the Republic and Northern Ireland.
Political sensitivitiesDeirdre Somers
The sensitivities “haven’t prevented us doing our job,” said Donoghue.
“We’re just going about it in a different way. We have relationships with [international financial] groups for a long, long time – at very senior levels,” he said, adding that many appreciate Ireland’s low-key approach to exploring opportunities. “We’ve had several dozen queries from groups as a consequence of the Brexit vote.”
Dublin’s International Financial Services Centre, set up in 1987 in the city’s then-decaying docklands with a special 10 per cent corporation tax rate – a fifth of the national rate at the time – has grown to employ more than 38,000 in a population of 4.6 million. These are mainly in asset administration as Ireland is the home to almost $2 trillion of global funds, insurance, aircraft leasing and payments. A further 10,000 work in international financial services outside the capital, helped by the gradual lowering of the overall company tax rate to 12.5 per cent by 2003.
Ireland is seen as particularly benefitting from UK-based funds being re-domiciled elsewhere in Europe, especially if the UK is no longer able to market services via passport in the EU following the Brexit talks. The turnaround time for funds licensing can be a matter of days.
However, banks and insurers will not have the luxury of waiting for the final accord, according to Donoghue.
“For groups that have to take pretty major decisions, especially in the banking space, there is a long lead time to setting up a regulated entity, with some analysts estimating this could take up to two years,” he said. “Those will have to take decisions in the first half of next year.”
However, the former Dublin financial services centre grandee, and former senior Central Bank official, said businesses now have to plan.
“The advantages of having a base in Ireland are well known. We’re English-speaking, have a great workforce, and culturally there are a reasonable number of similarities [with the UK] and we’ve already got a lot of firms here who also have offices in London,” said Slattery. “We have a common law jurisdiction, which is also very important.”
However, Ireland also has disadvantages compared with other European financial hubs, including a dearth of quality office space and a patchy public transport system in Dublin, a Government-acknowledged housing crisis and lack of schools offering programmes such as the globally-recognised international baccalaureate that would cater for children of overseas executives.
“It’s too early to tell what levels of business will move from London to Dublin. There’s a lot of tyre-kicking going on,” said Kevin Nowlan, chief executive of listed property firm Hibernia Reit, among those leading a revival of office construction after the crash.
With vacancy rates in Grade A office space in Dublin at less than 2 per cent in Dublin’s key districts south of the River Liffey, according to Nowlan, financial companies and agents making contact with Hibernia on its development plans are “very varied”, with many also in financial technology, he said.
“But I think if we’re going to see activity moving to Dublin, it’ll mainly be in back office functions,” he said.
Dublin’s shortage of rental accommodation is one of the key challenges facing those pitching the city against the likes of Paris, Frankfurt and Amsterdam. Rents in the capital have surged, as a result, by more than 11 per cent in the year to July, according to property website Daft.ie, leaving them 5 per cent above their previous peak before the financial crisis.
“You can see loads of cranes across Dublin working on offices and student accommodation, but there’s no activity in the buy-to-let or develop-to-let space,” said Nowlan, adding that such building is being curbed by high levies, value-added tax and costly building standards.
“We’ve looked at it, as we’ve €200 million to invest, but it doesn’t make financial sense. I can buy a residential scheme for the same yield as I can get developing it, where I would be taking all of the planning and construction risks. It would also take me about three years to get the building developed and rented out.”
Cautious Central Bank
“It’s not clear that all of our authorities are as welcoming and positively disposed towards the migration of UK financial services to Ireland as they might be,” said Slattery. “If firms are not made to feel welcome, that’s a significant disincentive to them locating in Ireland.”
However, the Central Bank is open for business and committed to transparency and clarity with respect to authorisation and setting performance standards for firms, the regulator’s director of policy and risk Gerry Cross told a Brexit conference in Dublin on October 3rd.
Still, he made it clear that those seeking to set up brass-plate outfits need not apply.
“We will want to be satisfied that we are authorising a business or a line of business that will be run from Ireland and which we will be effectively supervising,” he said. “We will expect there to be a substantive presence.”