Marc Coleman
FSI is currently engaged in a useful dialogue with the City of London on how to progress an agenda for strong but proportionate regulation of financial markets and we appreciate the value of Britain’s voice in Europe.
As Ibec has pointed out, Brexit will have broader consequences for our economy and these are likely to be adverse. Progress towards an all-island economy may be affected and trade could be disrupted by increased volatility in euro/sterling currency movements and also by greater uncertainty surrounding the regulations and laws that affect trading relationships.
Finally, there will be an impact on FDI. In the near term Brexit is likely to make the UK a less attractive place for FDI to locate. Certainly no one could be faulted for engaging with financial services companies that, uncertain about their future in a post-Brexit UK, are exploring alternative locations. But Brexit is not necessarily the boon for Ireland’s FDI drive that it might at first appear.
As the ESRI has pointed out its paper Scoping the possible implications of Brexit on Ireland, the British Government could well respond to an exit vote by introducing strong counter measures to compensate any adverse impact of Brexit. Free from EU legislative and regulatory requirements on tax, labour legislation and other areas, Ireland could get more than it bargained for from Brexit if Britain’s corporate tax rate falls and if its income tax and labour market advantages relative to Ireland become more sharply defined.
Another interested observer, McCann Fitzgerald, has identified a number of specific impacts of Brexit on international financial services in its paper Brexit; Ireland- UK implications. These include the following:
• British payment companies would no longer be guaranteed access to EU payment markets and would not benefit from the Payment Services Directive mark II;
• Insurance companies would no longer automatically receive passporting rights into EU markets;
• Under the European Markets Infrastructure Regulation UK Central Counterparties would become third party Central Counterparties and require recognition by the European Securities Markets Authority; and
• Neither UK Undertakings for Collective Transferrable Securities nor Alternative Investment Fund Management products would benefit from passporting rights.
The suggestion that Brexit would afford the UK greater flexibility in terms of regulation may also be unfounded. In a post Brexit environment British financial services firms could find themselves having to comply with British regulatory requirements as well as seeking the approval of bodies like ESMA to preserve the access they currently enjoy in EU markets, resulting in an increase rather than a decrease in their regulatory burden.
Some - perhaps many - may seek to relocate their headquarters to a remaining EU member state or to establish branches in such a state. Our wish to see Britain remain in the EU should not blind us to the possibility that there may be an FDI benefit for us in the short term at least.
But neither should that short term benefit blind us to the longer term side effects of possibly lower growth in London’s economy and financial services sector and the negative implications they pose for us.
In summary, therefore, we must take a holistic and long term view and be prepared for any eventuality. Positioning ourselves to avail of whatever compensating benefits might accrue under Brexit is not inconsistent with our current wish for a continued close UK engagement with the rest of the EU. But whatever happens, we must ensure there is a strong, integrated response here in Ireland to the challenge of Brexit.