Central Bank governor Philip Lane has sought to play down fears that Ireland lacks the regulatory capacity to capitalise on a flight of financial institutions from in the event of a “hard Brexit”. Prof Lane told a Reuters Newsmakers event in London that the EU as a whole had to prepare for the regulatory challenge ahead.
“There will be now some degree of shift in terms of financial activity between London and the EU and this is going to be a general challenge. And from what I see, of course in any part of the EU, if you’ve not regulated a given line of activity before, any regulator in Europe will face that challenge,” he said.
He said that banking regulation was now the responsibility of the EU’s Single Supervisory Mechanism, including issues surrounding resourcing and skill sets.
“So this is a question for the whole EU, it’s not particularly a question for us,” he said.
“If activity does come to Dublin, of course we already have a really large financial centre, we already have all sorts of business in Ireland. So we have many people working on all sorts of regulated activities. But of course any big shift like this will present a challenge.”
‘Substantive discussions’
Prof Lane said that, since UK prime minister Theresa May announced that formal Brexit negotiations would begin next March, the Central Bank had engaged in "substantive" discussions with financial institutions considering relocating some activity to Dublin.
“It’s still discussions with many different types of entities about what might happen, as opposed to any hardcore decisions. I’m not familiar with any hardcore decisions as yet,” he said.
As British government statements point increasingly towards a “hard Brexit”, with Britain leaving the European single market, financial institutions based in London face the loss of “passporting” rights, which allow businesses regulated in any member state to sell financial services across the EU. Some banks are considering relocating some activities to other European financial centres, including Frankfurt, Paris and Dublin.
“If the UK-EU negotiations deliver an agreement that effectively preserves the single passport for UK-resident entities selling into the EU, the net impact on the structure of the European financial system might be quite minor,” Prof Lane said.
Migration
“However, in scenarios in which UK-resident firms are no longer treated as equivalent to EU firms for regulatory purposes, it is likely that significant migration of financial activity from the UK to the EU will occur.”
The governor said that, despite relatively benign UK economic figures since the referendum, Britain could face more serious economic consequences once the Brexit negotiations get under way. He said the Central Bank’s downward adjustment of its 2017 growth forecast from 4.2 per cent to 3.6 per cent reflected the material impact of Brexit on the Irish economy.
“At the same time, the Irish economy is far more diversified today than in the past, so that Brexit is just one factor among many in determining overall economic performance. Still, we view Brexit as a major downside risk for the Irish economy and will be closely monitoring developments in the UK economy as the full impact of Brexit takes hold,” he said.
