A lot of the news regarding the financial services sector in Ireland has been concerned with the impact of Brexit. Understandably so, as we are less than a month from the scheduled date of departure of the UK from the European Union. Brexit is a tectonic shift in the landscape of global financial services, and it will have long felt consequences. Nonetheless, it is not the only issue facing the sector in Ireland.
One might argue that Brexit represents one of those points of inflection in life and business, from where various changes can be measured. The impacts of Brexit and its interaction with other factors will likely only be fully understood in a decade or more. In that regard, Ireland will have to make decisions now which have a long impact on the development of the financial services sector in Ireland. At a macro level, three key issues are perhaps most influential in terms of the development of the industry here; the landscape for international trade in goods and services; technological developments; and regulation.
The first of these, the international trading landscape includes, of course, the Brexit event - but also other changes arising from, for example, the US position on global trade agreements and the response of European, UK, Chinese and others - and has some facets. These include the reordering of the organisation of financial services geographically and institutionally, the impact of that reorganisation on economic, regulatory and taxation flows, and the impact on general economic and business needs of a reordered series of trade relationships. Taking the Brexit case as an example, change will often be slow - the EU and UK have sensibly agreed a basis under which the role of London in many essential elements of the financial services business, such as securities clearing and settlements. Nonetheless, these will have consequences for the global positioning of businesses over the longer term, which inevitably impact a small open country such as Ireland.
Technological developments similarly have many consequences. The focus to date has been around the automation or enhancement of existing business - fintech has, in many ways, been a proxy term for the development of traditional businesses such as payments, rather than bringing very new business offerings or models to the market. This will continue but will inevitably bring some newer elements to the market. A second facet is the impact of different technologies - RPA in customer interfaces and compliance, algorithms in trading settings, the use of AI in decision making - in changing the level and nature of human interaction in the business, and in altering the profile and nature of risks attaching to many more traditional business operations.
All of this, of course, has a range of consequences for regulators and regulatory frameworks - and their interplay obviously has an impact on how financial services businesses will position and make strategic choices. Similarly, the ongoing debate about fair taxation - whether corporate, personal or capital taxes does and will have an impact on the sector.
So how then does Ireland best position in this changing landscape? I would make three suggestions. First, Ireland should look to build on what is a strong eco-system for the development of technology businesses and bring an additional focus to fostering technologies for use in and by the financial services sector. This should include the development of training and educational programmes at different levels, as well as a strategic perspective on the impact of technology on how we work, to ensure our people are well equipped to flourish in the sector. Secondly, Ireland can be a strategic facilitator of trade between EU and non-EU countries and should plan its market position in this regard in the long term.
Finally, and perhaps counter-intuitively, Ireland should strengthen the national regulatory capabilities - traditionally regulators chase the industry, and this is sub-optimal both for regulated and regulator. A better equipped and resourced regulator with an appropriate mandate could work with the sector to create a robust and fair framework for the development of the industry. Similarly, one might look at the interaction of some regulators who have overlapping interests - for example, the interface of data protection regulations with financial services might be better served by a national “college” of regulators who can interact positively with the sector. I am not arguing here for a traditional pendulum of “light” or “heavy” regulation; the opposite in fact. Rather I am suggesting a better basis of exchange, ensuring that the sector is well regulated in a mature regulatory framework, which allows the business to develop and flourish in a way that is beneficial to the sector, to the economy and to the end customer.
This article first appeared in Business & Finance magazine in April 2019.