Brexit - Definitely a Threat, But Is It Also An Opportunity?

Brexit - Definitely a Threat, But Is It Also An Opportunity?

Financial Service Providers are looking to the British Government to provide the support, guidance and clear direction that will allow them to respond to what is obviously a serious threat to London as the World’s leading Financial Services centre.  It is a moot point if Mrs May’s 12 point plan provides this guidance. For many of these Financial Services companies, the solution to their problems may lie in equivalence (where similar services are offered in two jurisdictions under identical or similar rules, this is currently the case for the UK and the EU). This, however, is not seen as a long term solution as rules are likely to diverge over time and equivalence can be withdrawn at short notice. This uncertainty will inevitably lead others to take a more pragmatic approach, they will be considering the option of opening a subsidiary or branch in an EU Financial Services Centre, here-in lies Ireland’s Brexit opportunity.

Pass porting

UK Financial Institutions under the EU single market directive are able to “pass port” their services across the EEA without the need for a separate license for each state that they operate in. The EU’s far less developed Financial Services industry can also “pass port” into London.

This is a highly cost efficient method of service delivery and greatly facilitates London’s global reach. Loss of pass porting would be a considerable blow to the U.K.  The City Establishments are beginning to face this reality.  For many there is an acceptance that if they want to continue to service their European customers they will have to establish a significant presence in one or more of the EU’s Financial Centres. Ireland will be hoping that a significant portion of business finds its way to Dublin and helps negate some of the trade related downsides of Brexit.

Dublin as a Financial Centre

It may come as a surprise to many that London is still the number one Financial Centre in the world for 2016 according to the Global Financial Centres Index, although this may be somewhat explained by much of the polling been done prior to the UK referendum vote. This index is compiled by the Z/Yen group who use statistical data and poll finance professionals on the attractiveness of each location.

Ireland comes in at number 31 (significant improvement from 39 in 2015) for attractiveness as a financial centre with Luxembourg 12th, Frankfurt 19th, Paris 29th and Amsterdam 33rd. This is important because these are the financial centres that Dublin is competing against for business that may relocate from London. Dublin and other potential destinations will be accessed on a number of competitive factors; the Business Environment, Financial sector developments, Infrastructure factors, Human capital and Reputational factors. They will also consider, tax, political stability, competiveness, the availability of office space, the housing market as well as transport and infrastructure. They will  look at availability of skilled market practioners, labour laws and labour flexibility. Cultural issues and the overall attractiveness of the financial centre to a highly remunerated and mobile workforce will also be high on their checklists. Individual Financial Institutions may well decide that they will have more than one European Centre, they may concentrate individual product lines and selective services in one centre while concentrating other services in another. We need to bear this in mind when pitching for City business and lead with our strengths.

UK Financial Institutions checklists

Any UK Financial Institution that is contemplating relocating some or all of their activities to a Financial Centre in the EU will have drawn up their own checklist of factors that they consider key to their relocation decision making. While the Banking, Insurance, Legal and Accounting industries will have their own industry priorities, we can safely say that their lists will be broadly similar. From discussions I have had with Market participants in London, company checklists will most likely include; 1) Size of the Financial Sector 2) Regulatory factors 3) Tax environment 4) Sovereign Rating 5) Labour laws 6) Talent pool 7) Operational costs 8) Infrastructure factors 9) Human Resource issues and 10) Legal issues

If we take each of these in turn we may begin to see how attractive Ireland is as a relocation centre for UK businesses. The exercise I have undergone is quite subjective. I have endeavoured to mark each factor out of 10, you (the reader) may come to a different assessment on any one factor or may disagree with the overall conclusion.

Size of the financial sector - 5

Dublin’s funds management and leasing sectors have the scale that will attract UK firms, however our Banking sector will not as it is small and concentrated in our two pillar banks with a few smaller challengers.

Regulatory Factors - 7

There is a great deal of uncertainty over the future regulatory environment, this is preventing firms drawing up firm plans. Companies will be most concerned about pass porting and the provision of cross border financial services to their customers. Companies that have substantial operations in an EU financial centre will be analysing their relationship with the Regulator of that centre, they will be estimating how quickly the Regulator can approve licenses and pass porting arrangements. Has the Regulator the experience of dealing with Brokers and Dealers? They will be asking themselves can we build a good working relationship with the Regulatory team in a particular location. The Irish Regulator has experience of dealing with overseas Banks, Brokers, Funds Managers and Insurance Companies. That they are untainted by Libor and Forex scandals may be seen as a plus however they also have little experience of dealing with Institutions that have had to remediate such conduct issues, this may be seen as a negative.

Tax Environment - 9

The integrity of Ireland's tax regime has been called into question by the European Commission’s ruling on Apple’s Irish tax affairs. Companies considering moving to Ireland will be heartened by the Country’s strong defence of its multi- national sector and what it sees as an assault on its sovereignty by the European Commission.

Ireland’s 12.5% corporation tax rate is an obvious attraction for UK companies seeking to relocate some or all of their activities to Ireland. What may be less well known, but can also be a key factor in deciding to base in Ireland, is the Special Assignee Relief programme (SARP). This reduces the cost to the employer of bringing high –paid executives or senior management to Ireland. There are also additional tax reliefs for temporary Assignees and Secondi’s. For an impartial view, the World Bank’s “Doing Business” report ranked Ireland’s tax regime as the most business friendly among OECD high income countries.

 Sovereign Rating - 7

Ireland’s Sovereign credit rating was downgraded by the principal credit rating agencies as a consequence of the recession and subsequent financial bailout. Moody’s widely regarded as the most conservative of the main credit rating agencies upgraded Ireland's credit rating to ‘A3’ on Saturday 14th of May 2016. This is significant as Moody’s were the only agency to downgrade Ireland to junk status in 2011. Regaining our single ‘A’ rating status from all of the major agencies is important in terms of the Brexit debate and will be a significant factor in relocation discussions. However the implications of Brexit itself will be a significant headwind for further upgrades.

Employment laws - 8

The similarities between UK and Irish employment laws far outweigh the differences. The UK, in a post Brexit environment, could change their employment laws; in practice they are unlikely to radically change them. Mrs May in her speech on January 17th was at pains to underline this fact. Where the UK may take the opportunity to make some changes is in the area of “Transfer of Undertaking - Protection of Employment” (TUPE), they may lift the prohibition on changing employee terms of employment on a business transfer. The similarity of both legal systems, especially in their broad interpretation of employment contracts, redundancy and pensions will likely be seen as a positive relocation factor for UK companies.

Talent pool - 5

While Dublin can boast a well-educated workforce, it has a modest pool of talent in the area of Financial Services. It has pockets of talent concentrated in commercial banking, Aircraft Leasing, Asset Management, Fund Administration and the legal and accountancy professions however in general it lacks Traders, Quants, Algorithmic programmers, Structured Product specialists, risk specialists and the senior management with experience of working in a trading environment. Ireland has a large diaspora working in the chief financial centres around the globe, opportunities arising from companies relocating to Dublin as a result of Brexit, may be the catalysts for many of these professionals to return home.  

Operational Costs - 6

While a myriad of factors contribute to the operational cost base for Financial Services companies, not least the afore mentioned tax rates where Ireland scores well. The real proof of how competitive Ireland’s or any other Financial Centre lies in the number of Financial Services companies that it attracts. Dublin has already ~ 450 International Financial Institutions mostly operating out of the IFSC, when you add in the 700 managed entities under the IFSC programme you see that we are already a destination of choice for most major International Financial companies.

The National Competiveness Council’s excellent report, “the cost of doing business in Ireland 2016” highlights a number of areas of concern. To quote from their report, Ireland’s labour costs grew by 2.1, while the Euro Area has grown by 1.2%. The report also shows that rents are showing rapid growth across all sectors, commercial, office and private. Ireland was the 6th highest for commercial rents in the Euro Area in 2015. Ireland is the 4th most expensive country for transport costs, we are the 5th most expensive in the Euro Area for large electricity users but are relatively competitive for telecoms services. Irish consumer prices remain over 20% above the average for the Euro Area. This report describes Ireland as “an expensive location in which to do business with a price profile which can be described as “high cost, rising slowly”.

Infrastructure Factors - 5

Ireland’s business infrastructure is under severe pressure and that’s before any additional strain from companies relocating here after the Brexit vote. There has been little investment in our sub structure during the recession. That much bandied term “fiscal space” is a recent phenomenon, and if grounded in reality, it should be used to update our creaking infrastructure. This will be a key factor for many companies contemplating Dublin as a relocation centre.

Human Resource (HR) & People issues - 9

When companies consider relocating from the “City”, the people factor is high in their list of things that they “must get right”. They will consider factors such as availability of affordable housing, a good transport system, good restaurants, a good social scene and strong local culture as key metrics when weighing up a location. Our principal competitors all have their unique selling points, however it is debatable, that any of them, when we take all these factors into account would come out ahead of Dublin.

Dublin also edges the other centres in having English as it’s working language and having similar (not the same) working conditions, labour laws and legal system to the UK. This work place familiarity will be an important factor whether it’s in the considerations of the HR department, the executive offices or the boardroom.


This is my rather off the cuff analysis of the likely relocation checklists circulating among the decision makers in the City of London. I have arbitrarily scored Dublin at 61/90, this in itself means little without also scoring the other competing centres, however it does attempt to highlight Dublin’s strengths and weaknesses as well as indicating areas that we can and should improve. 

Eamonn O’Connor worked in the Markets division of an Irish Bank for thirty five years both as a Trader and on SME and Large Corporate sales. He has extensive knowledge and experience of the challenges presented by cross border trade.



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