It is difficult to get to grips with the battle to attract banks and other financial players relocating from London after Brexit. This is in part because the financial institutions themselves are reacting to significant uncertainties.
The rules they will face in future in trading between London and the European Union are far from clear and for this reason many are planning for the worst and establishing new EU bases.
Judging where Ireland stands in the battle to attract investment is also tricky. We have had some wins and are told that more are on the way.
For IDA Ireland, the difficult bit is that announcements cannot be made until deals are fully tied up – and some of the big firms are understandably sensitive to " take" jobs out of London.
Being seen to win jobs from the UK is also a sensitive political issue for Ireland, as the Brexit talks get under way and we seek co-operation from London on key issues. Hence it may suit both sides to portray some investments as only related in part to Brexit.
Insurers
Recently, a number of big players, notably in the insurance sector, have announced that they were choosing other EU centres in preference to Dublin.
In the immediate wake of the Brexit vote, Dublin had been seen as having advantages for insurers in terms of regulation and the use of the English language.
However, Luxembourg, in particular, has emerged as a strong contender.This has led to some industry criticism of the Central Bank’s regulatory approach and of the overall national effort to win investment.
Is there more Ireland could – or should – be doing?
The Central Bank is firm in saying it is acting appropriately, as outlined in a letter from governor Philip Lane to the Seanad Brexit committee. The Central Bank's legal remit, since 2010, has not included the aim of promoting the financial sector, he noted.
The bank’s case is that promoting Ireland is for other organisations – mainly IDA Ireland. Its job, Lane said, is to regulate and protect consumers, not to roll out the red carpet.
Stung not only by the domestic bank crisis but also problems in IFSC banks such as Germany’s Depfa, the Central Bank is likely to err on the side of caution.
Others may be willing to take a riskier approach. Eoghan Murphy, then the responsible minister of State, said in January that some countries were engaging in "regulatory arbitrage" – in other words promoting easy regulation in return for Brexit-related financial investment.
The perception would be that the European Central Bank set down strict guidelines for regulators early on in terms of bank investment, but that the insurance regulator, EIOPA, was a bit slower off the mark, allowing some countries to take a more aggressive approach in terms of the regulatory offer.
Substance
Among the crunch issues are rules about what are called “ substance” – in other words, what level of operations and management must be located in a centre to justify the establishment of an EU headquarters.
A brass plate should not be enough.
Is the Central Bank being too cautious? This is hard for the outsider to call. Certainly comments from some companies who are to establish in Luxembourg that the regulator there is prepared to be “flexible” and “pragmatic” bring back some uncomfortable echoes of our own pre-crisis “soft-touch” regulation and the pressure from the sector on the Central Bank at that time.
There is, no doubt, a delicate line here. Pragmatism and flexibility may be appropriate, of course, but only up to a point.
What must not happen is that we lose investments because of lack of focus in our national effort, or – say – the lack of the appropriate numbers of skilled regulatory staff. If the Government needs to act, for example, to help the Central Bank to beef up in key areas, then this should be given priority.
However, if someone does not like the regulatory rules here or how they are applied, then that is another matter. The Central Bank has to be allowed to do its job.
We will have only one chance to win post-Brexit business and this will be a key counterpoint to the overall negatives Brexit may bring. An important job for the Cabinet is to ensure that all our ducks are in a row – without impinging on the Central Bank’s independence. The next few months will be crucial.
