Financial Services Ireland

Brexit uncertainty: financial services perspectives from Dublin and the EU

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With less than two months remaining until the UK is next due to depart the EU, the uncertainty around Brexit shows no immediate sign of abating. Outcomes will be determined by UK domestic politics and further negotiations.

After three years of this Brexit uncertainty, most FS firms are well-advanced in building new European structures. Focus is gradually switching from Brexit contingency to regular operations and optimisation in new jurisdictions. Whilst efforts have been focused on serving clients seamlessly, regardless of political outcomes, the consequences and considerations have been complex. The impact on businesses of a highly competitive environment (both for clients and talent), and a complicated and fragmenting regulatory system and ever-changing global pressures, provides continuing short- and longer-term challenges.

Dublin has seen movement in all sectors, where 29 firms are considering or have confirmed the relocation of operations. There has been a significant inflow of international FS institutions into Dublin across the banking, capital markets, wealth management and insurance sectors. Some of these firms had a small or speciality presence prior to the Brexit vote, and have utilised entities and experience to expand their authorisations to allow them to implement new business models from the Irish jurisdiction.

The Central Bank of Ireland (CBI), working with the SSM for significant institutions, has applied a consistent and robust regulatory approach and process, during which it set out a rules-based structure and the expectation that all new firms will consistently meet all the local regulatory requirements from the time of authorisation. Firms are adapting to the style and requirements of both regulators and have been focused on a number of challenges.

Key challenges for firms moving operations to Dublin

A key challenge for all has been the application process, which has required extensive senior management involvement and proved to be time-consuming, resource-intensive and sometimes complex, as firms have had to redefine their business and new European operating model to the satisfaction of both their group and the regulators. This has required firms to provide a significant amount of detailed information, timely explanations and answers to probing questions regarding booking models, governance, risk frameworks, outsourcing and resourcing, to name just a few.

Most of the significant firms are now approved and almost through the process of getting operationally ready to take on client business. Resourcing the new roles has been a hot topic in Dublin, and we have witnessed a healthy repatriating of Irish professionals, inflow and secondment of talent from major overseas financial centres, and a significant movement of capable candidates from FS players already based in Ireland.

Another significant challenge for a number of firms has been the fitness and probity process of gaining the regulators’ approval for key people management control functions. High expectations of seniority, experience and competency have been applied and should stand the sector in good stead as Dublin develops its new status as a major European financial hub. Although the leave mechanics for Brexit still need to be decided, most firms have now moved into business-as-usual mode regarding their Irish or European entity. Immediate day to day focus is now revolving around completing their business, functional and regulatory commitments with a major concentration on servicing clients across Europe. For significant institutions senior teams across the organization are preoccupied with preparing for their initial regulatory test of comprehensive assessment and Asset Quality Review. Most firms are doing these regulatory tests for the first time, which is likely to be a challenge as they will be quite different from what most experienced previously regarding the level of detail and the style deployed by the European regulator.

High expectations of seniority, experience and competency have been applied and should stand the sector in good stead as Dublin develops its new status as a major European financial hub.

The regulatory challenge has been immediate for new firms, as supervisory aspects kick in instantly upon authorisation and new management teams have already been receiving invites from the regulator to engage on topics such as conduct, outsourcing, the Senior Managers Regime and the InterBank Offered Rate (IBOR).

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Fidelma Clarke

FS Partner, Sustainable Finance Consulting
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