Ireland is at the heart of the apparent logjam in Brexit talks between the UK and the EU. No country would suffer more from a hard border with Northern Ireland in a no-deal scenario. Yet optimists see Ireland’s “Brexit dividend” coming into view.
Amid turmoil in Westminster over Britain’s withdrawal from the EU, intensive activity is under way in Dublin as regulators accelerate the authorisation of London-based groups seeking to retain access to European markets.
With the terms of the UK’s scheduled exit next month still in doubt, the Central Bank of Ireland is processing a large volume of applications from London financial institutions. A Dublin official familiar with the authorisation process says “a broad number” in excess of 100 groups are on track for approval “based on current circumstances”.
Ed Sibley, the CBI’s deputy governor, has signalled that more than half the applications received had been fully processed by the start of this month “and we expect that an additional significant number will be processed in full over the coming weeks”.
The migration of asset management, investment and insurance companies might have been even greater but for a cautious regulator, which has been criticised for blocking some companies and jobs in a sector already going through significant change. Ten years after Ireland’s financial crash, the reputation of the regulator hangs on maintaining the stability that has been restored to the financial system.
The UK’s withdrawal from the bloc is proving to be the largest moving part in Ireland’s shifting financial services landscape, which in the past year has also seen its banks hard-pressed to make a profit and its stock exchange roll out plans aimed at strengthening its role as a fund listing hub. Research by accountants EY Ireland shows 27 financial services companies so far have committed to relocate staff or operations to Dublin since the 2016 referendum. They include Citi, Bank of America, Morgan Stanley, Barclays, Legal & General, Axa XL, Coinbase and Hermes Investment Management.
Dublin is expected to receive “hundreds of billions of euro” from an estimated €900bn in assets moving from London to Europe as Brexit nears, says Cormac Kelly, financial services Brexit lead for EY Ireland. “That will solidify as we start to see the firms execute [plans] and their portfolios actually land.”
Ireland’s Brexit gains are not confined to financial services, as pharmaceutical and legal firms are also moving business to the country before the UK leaves the EU. IDA Ireland, the state’s inward investment agency, says Brexit is linked to more than 55 new investment projects across various sectors and could create more than 4,500 jobs.
“We’re very pleased with the diversity of services and institutions that have chosen Ireland as the place to do business because of Brexit,” Michael D’Arcy, minister for financial services, tells the Financial Times. “We haven’t tried to capitalise on Brexit. [But] we have said all along that if a company has a Brexit difficulty . . . Ireland can be part of the solution.”
British and global institutions have relied on the EU’s so-called passporting rules to sell products elsewhere in the bloc from the City of London. They are set to lose those rights as Brexit looms, prompting Dublin and other financial centres in Europe to vie for business from the UK capital. EY research suggests the 27 firms that had chosen Dublin by January compares favourably against rival cities: 17 are moving to Frankfurt; 16 to Luxembourg; and 15 to Paris. “Dublin has competed as well as or better than those other cities and has received more than its fair share of new arrivals,” asserts Mr Kelly.
Ireland’s relatively low 12.5 per cent corporate tax headline rate has long been a draw for inward investment. To emphasise its credentials as a European hub, the country has also stressed its use of the English language, its commitment to the EU and the fact that its common law system is similar to the UK’s.
Yet Dublin still sees more risk than upside. “We know that there is no positive scenario for Ireland from Brexit, notwithstanding the fact that it is driving investment in our direction,” Martin Shanahan, IDA Ireland chief executive, said at a press conference in January.
He still expects the new jobs linked to Brexit and the number of firms expanding in Dublin to rise further. “These are the initial jobs that companies have said they expect to bring with them. But as they set up here and they develop there is every chance that number will grow,” Mr Shanahan said.
“We are aware clearly of companies who are going through the [Central Bank of Ireland authorisation process] which we are not including in our numbers at the moment. So that number is going to increase.”
Although the central bank has acknowledged having to “re-prioritise” its normal supervisory work as Brexit applications rise, it has signalled that Ireland’s banking system can withstand any no-deal disruption. “I am satisfied that from a financial stability perspective and on the basis of the work that we and others have undertaken, these cliff-edge risks are now manageable,” Mr Sibley said in speech in January.
For financial groups grappling with Brexit risks, the drama at Westminster means there is little clarity over when exactly they will lose their EU passporting rights. They could yet be retained until early next decade if a transition period comes into force, or as early as March 29 this year if the UK crashes out of the EU with no deal.
In the face of such uncertainty, big institutions have had no choice but to move early to avoid being caught out. Most large groups in Dublin are well into the process of executing their Brexit plans, says Mr Kelly of EY. “We’re seeing much more focus on being ready rather than being in a decision process of what to do. They’ve made their decision, they’re executing on it.”
Citi, which set up in Dublin more than 50 years ago, says it has been planning for a scenario in which the UK leaves the EU without a definitive agreement or any type of transition. Zdenek Turek, chief executive of Citibank Europe, tells the FT that plans to establish its European headquarters in Dublin were already in train before the UK decided to hold the Brexit referendum.
Mr Turek says Citi is now executing a co-ordinated plan so it can service clients through Brexit with minimal disruption. “We have expanded some other functions in Dublin such as commercial [credit] cards and agency and trust services,” he says. “We have also strengthened our ability to support these functions by increasing the size of our finance, legal, compliance and risk management teams.”
All of this marks a step change from when Ireland made the far-sighted decision in the 1980s to establish a specialist financial centre in Dublin. Ten years after an economic crash that led to a humiliating international bailout, that centre is now set for a new phase of development as the country’s closest neighbour prepares to leave the EU.
“I actually think it will be a fundamental change, on the basis that Ireland will have moved up the value chain,” says Mr D’Arcy, the minister. “We‘re moving to being a venue where the decision makers are based here [as opposed to] decision-takers.”
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