This benign market backdrop has nevertheless been the context in which the financial services industry has had to adjust to and manage an evolving and challenging regulatory environment, both domestically in Ireland, and internationally.

Individual Accountability Framework
While all financial services organisations have to and are managing their business in the context of global regulatory demands, regulatory challenge in the form of Ireland’s own domestic regulatory framework the Individual Accountability Framework dominated concerns in 2023, especially as the deadline loomed for enactment on December 27rh 2023.

As reflected in a compilation of industry concerns and views published in Finance Dublin (October 2023), and in analytical articles by lawyers and regulatory specialists there has been significant pushback on many fronts to the proposed legislation - mostly centering on the transition of sanctioning powers to the Central Bank without what has been later perceived at Judiciary level as inadequate legal redress. This was enhanced by a belief that as the legislation consciously seeks to reduce or even strip the protection from accountability afforded by primary corporate responsibility for misdemeanours from individual corporate servants, reaching beyond the traditional and historic protection of bodies corporate.

While the new year was ushered in with the new legislation in place, accompanied by assurances such as those given by the regulator (included in an article on the implementation of the new law in the December 2023 issue of this publication) few, not least the Central Bank expected the findings of a judicial review by the chair of the Irish Financial Services Appeals Tribunal former Supreme Court Justice John MacMenamin who on February 14th 2023 issued a 91 page judgement on the ‘AB Case’, so described to protect the professional privacy of an executive who was disqualified from eligibility for fund industry board membership.

These findings have resulted in a response from the Central Bank of Ireland to initiate an immediate review of its IAF/SEAR process, chaired by Andrea Enria, outgoing chair of the ECB Supervisory Board. It remains to be seen whether the review will also explicitly cover the aspect highlighted by a number of observers - the right of individual executives to make a living.

This point has remained central to the industry’s concerns, as reflected in several articles in this Yearbook.

Other Regulatory Developments
The continued development of regulation of the financial services industry and the rules of finance have remained at the forefront of the Industry’s DNA, a continuing trend since the global financial crisis of 2007-8, and its after effects. The rising tide of ESG concerns globally, and their impact on financial services regulation, for example through the SFDR regulatory framework in the European Union has again been a feature of developments in 2023, and there is no reason to expect the pace of change in this respect will slacken in the years to come.

Where clarity will inevitably come is likely to be with regard to the distinct nature of the aspirations embodied in the term ESG. The ‘E’ part is subject to quite different dynamics and stochastic effects - climate change - than the others, which have to do with human societal and political issues. The ESG objectives outlined in the Irish Government’s Ireland for Finance Strategy are illustrative of this, having been updated twice in the 2023-24 timeframe, first in April 2023, and in March 2024.

At an EU level, the vision of the European Union being an innovative leader and brand quality pioneer remained.

This is illustrated by, for example, the idea of the EU being a global standard setter, for example in the IFS sphere, with the UCITS concept, and the discovery, over the years, of the power of individual regulatory brand wrappers, such as Ireland’s Section 110 securitisation vehicle, the ICAV, and recent suggestions, such as that from the Irish Debt Securities Association, of an updated Irish securitisation vehicle, the Irish SPE (Special Purpose Entity).

The concept of good regulation, and “better regulation” has underpinned the regulatory agenda of Irish Governments in the IFS sphere, since the financial crisis years, and continues to feature as a central part of the public dialogue.

Yet objective developments continue to intrude - such as the continued evidence of a drift of public equity to the United States from Europe. This past year has seen the primary listing of Ireland’s largest publicly quoted company, CRH, move from Europe (London) to the NYSE, and the shareholders of Flutter voting to do so also.

There remains a distinct understanding that the US, despite its political and societal problems, manages to sustain a more vibrant economy than Europe, whether it be defined narrowly as the EU, or wider, including the UK and other non EU countries.

The chief executive of the $1.6 trn Sovereign Fund of Norway Nicolai Tangen was quoted in an interview in the Financial Times in 2024 saying that Europe ‘is less hard-working, less ambitious, more regulated, and more risk averse’ than the US, with, and this is the crucial point - ‘the gap between the two continents only getting wider’.

His views are significant given that the fund is one of the largest investors in the world, owning on average 1.5% of every listed company globally and 2.5% of every European equity. However, that European share is declining, with US shares now accounting for almost half of all its equities compared with 32% in 2013. The challenges that are being made to the reach of regulatory oversight is a healthy development, and industry bodies, legal representatives, and watchdog institutions, such as the Irish Financial Services Appeals Tribunal under former Supreme Court Justice John MacMenamin should continue to be supported by Government. It is through a healthy system of checks and balances that liberal democratic economies are enabled to flourish, while at the same time enabling the ‘Leviathan’, representing the state and regulatory bodies such as the Government and the Central Bank to act in the public good.

A series of analyses in this year’s Yearbook in subsequent pages detail specifically how this is being rolled out in various financial sectors.

Markets
Finance and financial services both contribute to and derive their sustainability from the ‘real’ economy, and as such it is a ‘productive’ contributor to overall GDP.

The IFS sector being international derives its sustainability from global economic conditions, and, with the OECD projecting GDP growth at a broadly similar level in 2024 to 2023 (c.3%) the markets background in the early months of 2024 was relatively benign.

This also reflects expectations, a fundamental feature of the strength and direction of financial markets.

In recent years, economists at the IMF have derived an objective indicator, the “World Uncertainty Index” (WUI) which attempts to measure on an ongoing basis uncertainty in global finance and trade markets.

As uncertainty, and its mitigation, through the provision of risk management products, are so central to the business of financial services provision it is a crucial indicator of trends over the medium and indeed longer term.

The index, see chart above, provides a number of insights, and helps provide perspective regarding sentiments that can be affected by claims regarding supposed catastrophic events sometimes emanating from the ‘fake news’ attributed to the growth of ‘social media’, and indeed also from the mainstream media and other, often unscientific, subjective and opportunistic sources.

The index, itself based on analysis from a widely trusted ‘mainstream media’ source, The Economist Intelligence Unit, shows that since the international financial crisis of 2007-2008, (which incidentally it failed to predict, not surprisingly, as that was a ‘black swan’ event) there has been an elevated level of uncertainty in markets.

It also shows that in the 21st century there has been a gradual upwards creep in the WUI, a contrast to the benign trend of the 1990s, which in retrospect appears as something of a golden decade.

This some will say reflects the ‘end of history’ optimism that accompanied the fall of the Soviet Union, and the ending of the cold war. By contrast the sustained uncertainty levels of the post Covid period in 2022-24 may be associated with concerns about global peace, centrally involving the autocratic states of Russia and China.

This index of geopolitical tensions certainly underpins the continued need for risk management at both the general corporate and individual levels, and a continued need for the services provided by a well regulated but not over-regulated finance and financial services industry.

ESG & Political issues
There has been a growing appreciation in recent years of the importance of regulatory and governance issues, and indeed wider soft economy factors underpinning the relative success of different economies.

In Ireland, this has contributed to the idea that better regulation, not just of financial services, but of other outwards markets-facing sectors such as life sciences, and communications is a key underpinning of economic growth.

The outperformance of Ireland as an economy, and the associated long term elimination of a structural deficit in the Irish public finances is the engine of the jurisdiction’s economic success. The debt ratio has fallen below 50% of national income (see the Finance Dublin Debt Clock), and continues to fall, with interest outlays now accounting for only c. 1% of national income.

This contrasts, for example with the United States where the debt ratio is now more than twice that of Ireland, and where the scope for fiscal discretionary policy is considerably more curtailed than in Ireland, which just over a decade ago, was still under the close fiscal supervision of the Washington DC-based IMF.

Tax and its importance
Nevertheless, alongside the growing appreciation of Ireland’s qualities as a western, pro business jurisdiction, which is unique in being an English speaking Common Law jurisdiction within the EU, taxation still remains a critically important feature of the Irish economic success story.

The success of the Irish Government, and the Irish Department of Finance in negotiating the ability to continue to maintain a headline Corporation tax rate of 12.5% for the vast majority of companies (those with turnover of under €750m a year) was an achievement that may rank as a seminal moment in modern Irish economic history.

It promises to rank with the decision to introduce the economy-wide 12.5% rate of corporation tax in 1997-8 by then Finance Minister Ruairi Quinn, and Taoiseach John Bruton, whose passing was marked by a state funeral in February 2024.

But it was for large companies that the OECD BEPS negotiation, led by Finance Minister Paschal Donohoe in 2023, and critically involving agreement with the US, in negotiations with US Treasury Secretary Janet Yellen that secured significant success in copperfastening an Irish corporation tax rate at the lower end of the range of tax options amongst first ranking locations for mobile foreign direct investment (FDI).
The rolling out of the BEPS process is occupying the attentions of tax advisers in detail, as is chronicled on a monthly basis in the Irish Tax Monitor in Finance Dublin, and which is tracking the implementation of the changes in individual industry sectors, including asset management, aviation finance, aircraft leasing and insurance.

Technology & Innovation
Technical advance has always underpinned rapid economic growth, and indeed is the remedy to inflation and stagnation, if allowed to flourish.
Fintech continues to strongly advance, and in 2023 continued to transform all areas of financial and professional services provision.

In the e-money and payments area this has been evident. Writing in this publication, Alison Donnelly of FSCOM, says that despite the high barriers to entry there are to the e money and payments sector, there is great demand for authorisation in Ireland “with many global firms viewing the country as their preferred European base”. Technological advances mean that traditional banks no longer have a monopoly on payments, and there are now around 50 authorised payment and e-money institutions in Ireland. This number is likely to increase because, while there have been over 100 applications in the four and a half-years before mid-2023, only 12 authorisations have been sealed in that time, she says.

Any company that becomes regulated should be better placed for long-term sustainability after meeting the high expectations at the authorisation gateway.

This digital advance is also underpinning IFS developments in insurance. Referencing the sector, the Minister of State for IFS Neale Richmond says in his interview in this issue of the Yearbook that “we are the largest exporter of insurance services in the EU. We are also the fifth largest market for direct insurance business, and the third largest market for reinsurance, after France and Germany.’

How the regulatory nuances of insurance regulation are coming together to mesh tech considerations and sciences such as psychology are illustrated in the observations of legal advisers, Eoin Caulfield, Head of William Fry’s Insurance Department and Marguerite Sinnott in their article in the Yearbook, where they say that “much of the new regulation, such as the updated Consumer Protection Code, seeks at the same time to be ‘tech agnostic’.

“Regardless of how a firm gets to an end-sale it should be fair. The psychology as a customer navigates through an app or platform must be carefully considered and not lead to pre-determined conclusions (e.g. that a product is purchased rather than not). Broadly speaking, there must be equivalence of treatment regardless of whether selling via a tech channel or a traditional physical presence. There is the need to ensure no-one is left behind relative to technological advances. It includes regulatory requirements on appropriate treatment of ‘vulnerable customers’ and the less tech-savvy generally,” they say.

Technology has been to the fore in the development of professional financial services, AI being rapidly embraced by a swathe of legal firms in 2023 with a series of major commercial law firms announcing their embrace of the ‘Harvey AI’ platform, which enables maximum efficiency in the coal face delivery of legal services to clients.

The Accountancy industry has been equally adept in its embrace of technology, and continued buoyant hiring of new recruits to the industry has been matched by robust revenue growth in fee income, with strong advances reported across the board by the top accountancy firms, as reported in Finance Dublin’s annual Accountancy Survey. It showed EY challenging KPMG for top slot in the Republic of Ireland market, in close proximity to the other ‘big four’ firms, PwC and Deloitte, in turn pursued by fast growing challengers Grant Thornton, BDO and Mazars.

Deals & business wins
Corporate law business is sustained significantly by the pulse of deals, across the six category areas traditionally covered in the Finance Dublin annual Deals of the Year Awards, which in their 2024 incarnation reveal a very strong underlying market, calmed nevertheless by the impact of the interest rate environment. The 2024 awards nevertheless show record levels of activity, but activity that marks growing added value as the dealmaing expertise of the Irish corporate finance community takes a further decisive step forwards.

Deal making in 2023 was also strongly spurred by activity in the aircraft leasing sector, where eventual respite for the Irish industry came in 2023, following the twin blows of Covid, and Putin’s Ukraine war in which billions worth of Irish aircraft assets were seized.

The investment funds industry also has featured in Irish dealmaking in the past two years, with serial Irish industry entrepreneur Joan Kehoe emerging again in 2023 with a new venture, following the disposal of former investments, with the creation of a new company Alchelyst.

Consolidation also continued apace at the top of the industry with major mandates being moved amongst the largest global custodians and fund administrators, as Blackrock for example shifted its mandates, while in the mid end of the market developments in the early part of 2024 saw Sanlam Ireland awarding an $8.3 billion mandate to Northern Trust.