Even in the highly unlikely event that Brexit were not to happen, some of the initiatives and planning of FS firms - such as UK-based asset managers moving the assets of European investors from UK funds to Luxembourg or Dublin - are ‘largely irreversible’, according to William Slattery. However, he also thought that ‘other more fundamental changes may not occur or may be delayed in the event of a lengthy transition.’ He was speaking at the Financial Centres Summit, Dublin, 2018 on 3rd October, prior to the softening of the EU stance towards the use of London’s clearing infrastructure after Brexit reported late last year.
In his address Slattery welcomed the work being undertaken by the EU’s markets and securities regulator, ESMA, on a standard memorandum of understanding with the UK that is expected to be rolled out upon completion of Brexit negotiations. Such an agreement would mean there is no cliff-edge effect when it comes delegation of investment funds activity which is critically important for Europe’s funds industry. The EU’s changed stance regarding clearing activity is an encouraging sign that a similar, pragmatic solution has already been agreed in principle with regards delegation.
‘From the point of view of the Irish funds industry, there has been a large number of applications from asset managers to establish Mifid authorised management companies in Ireland, in particular to be responsible for marketing and branching for those entities throughout the European Union,' he said.

'The Irish funds industry is hugely successful, is large and has operated a robustly controlled environment on the basis of a manifestly effective governance regime, which has continued to evolve, a globally pioneering approach to the oversight role of the depository, world class audit standards for funds and accompanied by certain core activities being retained in or delegated to other jurisdictions, such as investment management and distribution,’ he said.

‘It is unnecessary and costly to duplicate in Ireland costs that are already being incurred in other sister well-regulated jurisdictions, including the UK. Such costs are ultimately borne by investors. No one can argue that the UK is not a highly regulated jurisdiction. It is important that the European and Irish authorities take this into account when establishing requirements with regard to resourcing of local subsidiaries of UK and other non-EU companies in Ireland.

'Clearly the issue of delegation of activities such as investment management remains of vital importance to the funds industry. And the recent public commentary on the work that has been undertaken by ESMA on a standard memorandum of understanding with the UK which will be ready to be rolled out, if the commentary is to believed, upon completion of the Brexit negotiations is very welcome. Similarly, the UK has been clear that it will continue to allow uninterrupted inward marketing of UCIT funds for at least a transition period of three years and this is also important.’

Looking at the insurance industry Slattery said ‘overly-conservative initial positions adopted to issues such as intragroup reassurance arrangements’ had seen Ireland lose out on some high profile applications in the sector, notably to Luxembourg, Belgium and Netherlands. But that since these early moves sector engagement with the authorities has improved in Ireland.

‘Right now it appears Ireland has been in receipt of a significant number of insurance intermediary applications, currently regulated by the Insurance Intermediaries Intermediation Directive, wishing to engage in cross-broader insurance intermediation in Europe. An important issue for the insurance sector is the operation of managing general agency arrangements, so called MGAs,’ Slattery said.

He added that MGAs are ‘important business structures for large reputable global assurance and reassurance companies and such companies operating in Ireland need to be able to continue to use MGAs for risk management and transfer mechanisms. Use of MGAs has been brought into disrepute through misuse by certain high profile motor insurers operating from small European jurisdictions into Ireland. That has aroused, reasonably and very legitimately, very strong criticism. But that should not be allowed to undermine the overall use of this concept, which is widely used in the global insurance industry.’

Slattery also warned against complacency with regard to Ireland’s international financial services industry. ‘International financial services have been a fantastically successful industry for Ireland... The sector generates billions of euros in corporation tax and PAYE income tax revenue while requiring zero financial subsidy. Within the fantastic success story of the broader international traded services sector, and that’s the sector which has generated all the growth in Ireland post the devastating financial crisis we experienced, the international financial services sector is the only sector which employs 90 per cent plus Irish employees,' he said.

'Now that is not a criticism of the other sectors which do need a much higher proportion of very skilled professionals from other countries, but it shows the match between the skill requirements of the international financial sector and the educational output of the Irish institutions - and that is why international financial services is so important to us. But those of us operating in the sector understand acutely that it is a globally fiercely competitive sector and nothing exemplifies this more than the length to which the larger European countries have gone to win Brexit-related business from the UK, with political and regulatory involvement at the very highest levels in those countries and major legislative initiatives being promised. This is a reminder, if one should be necessary, to the authorities in this country of the dangers of the taking of success of the international financial sector for granted.’

Slattery said that core principles which have been established by the European Court of Justice with regard to state engagement with the sector, such as reasonableness, proportionality and subsidiarity, must be respected in the administrative decision making. 'Just as a small example, subsidiarity refers within Europe to the delegation of reasonable activity to the national level. In this time of the establishment of overarching European supervisory authorities such as ESMA the EBA and the related insurance authority, authorities should keep very close and understand the importance of subsidiarity, of a national country being free to take certain decisions without everything being referred centrally.

'And there will be and is a direct penalty to be paid for neglect of these principles in loss of employment and tax receipts. Having said this we must acknowledge that the political environment in which the international financial sector is operating in Ireland is very difficult, even though the enormous trauma which the Irish economy experienced during the crisis had nothing to do with the international sector.

‘For the sector to continue to be successful, it’s imperative that its representative bodies engage as widely as possible across the political spectrum while continuing to work with government and the other authorities to make the necessary enhancement to the key legislative infrastructure which the sector needs in order to be competitive, such as the long waited changes to the investment limited partnership legislative structure,’ he said.
The reliance of the UK Government’s Chequers statement on the World Trade Organisation’s general agreement on trade in services is a disappointment for the UK’s FS industry as it heavily implies an EU-UK relationship based on enhanced equivalence, rather than the preferred option of mutual recognition, said Slattery. He added that the hope now in the UK is that if an initial agreement with the EU can be concluded that it will be as vague as possible as regards financial services and that transitional arrangements will be put in place to the end of 2020 allowing the status quo to prevail until then.

Analysing how Brexit will impact Ireland’s FS industry Slattery said: ‘Brexit does not alter the fact that UK is geographically part of Europe, with enormous volumes of trade and goods and services flowing both ways. As someone who currently lives and works in London, I am also aware that London is the most multicultural large city in Europe - and perhaps globally - and that there are large numbers of citizens from all countries in the EU living and working there, including from Ireland...

'This multicultural nature of London has been especially beneficial to the financial services industry in Ireland, as we all know, or those of us who have worked there, because our industry is heavily interelated to the equivalent sectors in London, with whom there are very important and close relationships for language, culture and historical reasons.

'So, notwithstanding the direct short-term benefits of Brexit to the financial sector here, I believe that it is in the long-term interest of Ireland and the Irish financial services industries that a close trading relationship and a liberal approach to the free movement of people continues to be maintained between the UK and the EU and that the Irish Government should be a strong advocate of that position in the internal deliberations of the EU on this very important subject. I don’t see that awareness in the public positions taken by the Irish Government.’