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Wednesday, 10th June 2026 |
| Memoirs of the IFSC - Part 2 |
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| The second part of our Memoirs of the IFSC by key figures including Paul McGowan, KPMG, Ronan Moloney, McCann Fitzgerald, Padraig Rushe, Bank of Ireland, Declan O'Neill, Ulster Bank, Pat Wall, Pricewaterhousecoopers, Catherine Duffy A&L Goodbody, Gerry Brady, Bank of Bermuda, PJ Henehan, Ernst & Young, Aidan Brady, Citigroup, Aileen O'Donoghue, FSI, John Fitzpatrick, Northern Trust, David McCabe, Bank of Ireland |
Paul McGowan, Partner, KPMG - I was very positive about the concept of the IFSC from the very beginning. To continue to attract a sufficient volume of inward direct investment we needed to shift our incentives further towards international services. I had some involvement with the Shannon Development Project to attract international banking to the area two years earlier, which was unfortunately stillborn. Therefore I was very hopeful that this initiative would be successful.
I don’t believe that the IFSC worked out as anybody really expected in 1987. Apart from the obvious opportunity to expand on the success that Shannon had in attracting aircraft leasing I believe we all expected to see the centre develop through the establishment by the major international banks of at least mid-office if not front-office activities in Dublin. This clearly did not happen.
There are many factors which led to the success of the IFSC but for me there are three contributors:
• In 1987 interest rates in the major currencies were relatively high, corporate tax rates were also high and Ireland already had a significant network of double tax treaties. As a result we were able to offer a simple and easy to understand tax arbitrage opportunity which could offer significant after tax benefits for asset financing companies, corporate treasuries for multi-national and even investment companies. These tax benefits kick-started the IFSC and attracted many significant financial institutions to Dublin many of whom went on to establish commercially based operations in Dublin. Without that initial tax impetus they might never have come.
• The establishment of the IFSC co-incided with the passing of the first EU UCITS Directive. We were one of the first countries to adopt the directive into domestic legislation and we introduced a regulatory and tax regime, which was internationally competitive. The funds sector has done much for raising the IFSC’s profile internationally and it is the largest single provider of employment.
• The IFSC Initiative was supported by a joint public sector private sector committee, which fostered a unique partnership of mutual respect and co-operation which ensured that legislative regulatory or administrative roadblocks were not allowed to inhibit the centre. This was key to the development of the IFSC and remains critical for its continued success.
I believe the sector can continue to be a success but only if we as a country remain focused on the sector and remain light on our feet to adjust our service offerings to the changing demands in the marketplace and to the actions of our competitors.
The partnership within the private and public sector must continue in the same spirit as in the past and there must be commitment from Government that acknowledges the importance of the sector and that is prepared to back that acknowledgement with the necessary regulatory and legislative changes which are needed for us to maintain our competitiveness. In 15 years time there will still be an international financial services sector and provided we remain fresh and alert we should be able to maintain an appropriate market share.
Ronan Molony, Chairman, McCann FitzGerald - In 1991 McCann FitzGerald moved to the International Financial Services Centre. The establishment of the centre and the integration of professional advisers within its business provided a stern test for financial services sections of law firms in particular. The demands made of lawyers by IFSC work often were novel in an Irish context, and sometimes were groundbreaking internationally. We were required to gear up quickly to respond to clients’ needs for sophisticated and timely advice in complex and high value transactions with early completion dates. Often the nature of IFSC work drew in many legal jurisdictions and required an integrated approach by a team of advisers. Law firms have responded well to these challenges and are considerably the better for having done so.
The IFSC was and remains a ‘public private partnership’ in the wider sense of the term. The centre has thrived primarily because of the quality and creativity of the people, and the drive and enthusiasm of the businesses which have located here. However, the success of the IFSC has been facilitated by the State. Ireland has benefited from light-touch regulation within structures, which stand the test internationally. In terms of financial services legislation, Ireland implements relevant EU law promptly, and the Irish tax treaty network is comprehensive.
The importance of the IFSC is reflected in frequent legislative and tax innovation - each Finance Act since 1987 has included IFSC-specific measures, and some years as many as ten. This has been essential to the Centre’s success. The current and previous Governments have delivered a legal and tax regime in which the IFSC has been able to compete internationally, and win. It has placed Ireland on the banking and finance map.
In return, the Centre makes an enormous contribution to Ireland’s bottom line measured in the tax-take from operations and salaries, and has provided thousands of well-paid and fulfilling positions for a wide range of skilled people. The physical rejuvenation of the Custom House Docks area is also notable. This partnership between the State and private enterprise is key to the success of the centre.
The Irish have a creative mentality, and such creativity has been the characteristic style of the IFSC, but it must be nurtured and exploited to a greater extent. In coming decades, competition from jurisdictions with lower cost bases, principally those in Eastern Europe, will increase. Financial services and other high-skill, high-value industries should be bedrock for Ireland’s future prosperity, although physical constraints in Dublin may make dispersal and regionalisation within Ireland more attractive.
For McCann FitzGerald, our association with the centre in its first 15 years - and more generally with banking and financial services - has been a key driver of our business. The changes the next 15 years will bring cannot be predicted with any degree of certainty. However, it would seem a safe bet that banking and financial services activity will remain a key service area for Ireland and that McCann FitzGerald’s involvement will continue, through whatever changes unfold.
Padraig Rushe, Director, Corporate Banking, Bank of Ireland - I was based with Bank of Ireland in Chicago when I first heard of the IFSC Project and got a glimpse of the original marketing brochure. I was gob smacked! The enormity of the physical development proposed and the ambitious employment target seemed totally unachievable. I returned to Ireland in 1991 and at that stage had very little knowledge of how things were developing. In 1992 I moved to the IFSC to set up a corporate banking unit for BOI.
Everything was at a standstill (on the construction front) but we were beginning to see very strong interest in the IFSC from all over the world. We also had a large population of IFSC companies located around Dublin waiting for ‘appropriate’ office space to be developed yet some of the existing buildings seemed to be having difficulty getting tenants. Even then complaints abounded about the lack of a service infrastructure though a strong rumour doing the rounds suggested that a bar and restaurant was to be located in the old Harbourmaster’s Offices.
It didn’t work out the way I expected but nothing ever does in business! On a positive side the physical element eventually took off and has now surpassed all expectations with IFSC 2 having developed into more of a ‘commercial’ centre than the original site.
From a business perspective the statistics speak for themselves in terms of numbers of companies, business volumes and numbers employed, all of which have now have surpassed original estimates.
There are many answers to the question of why was it a success but in my view the overall key to the success of the IFSC has been the overwhelming support provided by the local stakeholders from the outset. I include in this the Irish banks, law firms, accountants, Government, IDA, the various Government departments and others. All of these came together and committed in a meaningful way to the IFSC dream.
As the banks set up and developed IFSC businesses they purchased the buildings in the IFSC which gave the overall project the early impetus it required. Together with the other stakeholders they traveled the globe attending conferences and other events and promoting the IFSC story. Back home industry committees were formed and various obstacles removed via Government legislation, the adoption of EU directives and development of new business concepts.
Of course all of this activity was greatly facilitated by a competitive tax and regulatory environment and the excellent reputation enjoyed by Ireland in the whole area of supervision and regulation. In addition we had the high quality workforce, which set us apart from many other competing locations.
The IFSC will continue to be a success. I was greatly concerned when the licensing process ended. Apart from the obvious due diligence process involved it did also provide the impetus that maintained the committee structure and its momentum. It also fuelled competition for available licenses and that in turn kept all the business developers on their toes. For some reason over the past few years this has been lost. I think therefore that for starters we need to have an active and meaningful ‘lobby group’ to help promote and maintain the focus on Ireland as a location for financial services.
Over the years other centres have learned from the IFSC experience and have freshened up their offerings. (Coincidentally I have just received the April issue of Euromoney. On the front cover the following caption illustrates the point; ‘Kazakhstan hopes to be a capital markets hub’). We must therefore remain competitive and at the cutting edge of innovation. In recent years Ireland’s overall competitiveness has definitely slipped.
We are witnessing an evolution of sorts at the moment with a number of banking operations closing or scaling back activities. I wonder if any effort has been made to analyse this trend and see if there is a need to adjust the support infrastructure or make any other ‘incentives’ available to retain these high profile entities in Dublin. Not too long ago they were heralded as major ‘coups’ for the IFSC.
As to what it will be like in 15 years time, does ‘IT’ exist anymore ? Up to now I have made the assumption that we are talking about the IFSC as originally established in a discreet area of Dublin. It is now a whole of Ireland business and my forward-looking views are made in that context.
My guess is that the funds industry will continue to grow and prosper and will remain the dominant industry provided it is allowed the freedom by the regulatory authorities to evolve in line with global trends and developments. The insurance sector too should continue to hold its own but with a renewed focus it can become a more serious player as part of the US/Bermuda/European axis.
The broadly defined banking sector, taken to include all of Ireland and expanding into all aspects of finance and treasury activity, is evolving but with the Irish financial institutions having anchored major businesses here and continuing to expand their international portfolios the overall sector should continue to expand. (Presuming the anchor holds!).
Corporate treasury activity is well established already, albeit, with somewhat modest activity in recent times. In the past, US corporates dominated the sector, but as the EU expands there may be some renewed interest across Europe. Apart from some of the existing IFSC businesses other areas such as private banking, pensions, securitisations and indeed the expansion of the Pfandbrief business, should provide additional opportunities for new growth. I expect that much of this growth will come from within the existing population of IFSC entities rather than as a result of a fresh intake of new projects. It will be vital to the overall development of activity that the new regulatory body IFSRA maintains the high quality regulation that has existed in the past and remains flexible and highly commercial in its deliberations.
Declan O’Neill, Head of Financial markets, Ulster Bank - When the IFSC was established in the late 1980s I was working abroad. I think it would be fair to say that people were sceptical about its success but at the time the Irish economy was in the doldrums and clearly this was an avenue worth exploring.
I don’t think the IFSC really worked out as envisaged. On the basis of it being successful I envisaged the IFSC attracting major Japanese and US investment bank capital markets particularly from London.
Total commitment from Government and other relevant bodies coupled with a favorable economic climate globally led to its success. The availability of a cadre of Irish talent working abroad played no small part in its success.
In order for it to continue the IFSC needs to reinvent itself in the face of fierce competition as others look to replicate the Irish model - there can be no room for complacency.
In fifteen years time I can see the IFSC positioning itself at the upper end of financial services while the centralised support function will probably migrate to lower cost locations.
Pat Wall, Partner, PricewaterhouseCoopers - It’s a tribute to the success of the IFSC that so many people claim to have been there at its birth. I was fortunate to work with some of the groups who first began to look at Dublin as a base for pan-European distribution.
My fondest memories are of pioneers like Bill Dooley from AIG, Willie Cotter and Bob Craddock from BOI and the redoubtable William Slattery then in the Central Bank.
From very humble and at times confused beginnings the industry is now firmly established. The only thing that can stop our onward advance is complacency but I see precious little of that. Our ability to respond to opportunity has become the scourge of our competitors. Long may it last!
Catherine Duffy, Partner, A&L Goodbody Solicitors - When the idea of the IFSC based in Dublin’s docklands was first conceived, those involved did not envisage or contemplate the level and type of business which has developed in the centre.
It was initially intended that the activities to be conducted in the IFSC would be international ‘front-office’ financial services. The list of permitted activities capable of being conducted in the IFSC clearly envisaged this. However, the real growth and development of business in the IFSC has been in back office activities and, in particular, treasury, administrative and custodial services. This spur of activity was undoubtedly attributable in a substantial way to the introduction of the UCITS Directive in 1989. The mutual funds industry currently employs more people in the IFSC than any other industry, yet, when the IFSC was created, such industry was not even on the radar screen of its promoters.
Looking to the future of the IFSC, many of the attractions for locating there continue to exist. Increased regulation is affecting the financial services industry in all jurisdictions including Ireland. This adds legitimacy to business activities. Ireland, due to its size, tends to be less rigid and cumbersome, and more business friendly, than the more established financial centres in the US, the UK and Germany in its approach to regulation.
In our view, the expiration of the IFSC licences gives greater freedom to conduct business activities in the Irish as well as the international market, while accessing a low corporation tax rate. There seems no reason why the IFSC should not continue to attract new projects with its developed infrastructure designed to meet the requirements of the financial services industry.
Gerry Brady, Managing Director, Bank of Bermuda - At first sight, the whole concept of the IFSC appeared to be a never-to-be-attained aspiration, rather than an objective or goal, which could realistically be met within a reasonable time period. In the 1980s, apart from a smattering of international names based in Ireland solely to avail of export sales relief, Ireland’s, and Dublin’s, focus was very domestic and this was particularly evident in the financial services sector. The emergence of a thriving IFSC seemed light years away.
With very, very few exceptions, the IFSC has wildly exceeded all expectations. Who would have believed that Dublin would become the preferred domicile in Europe for something called captive insurance and international insurance/reinsurance?
The real success story, providing most employment, has been the mutual funds sector but who would have thought that Dublin would surpass Luxembourg as the preferred domicile for such mutual funds? The development of the international banks and the treasury agency centres was perhaps more predictable but once again who would have believed that an initiative to provide employment, sweetened by a preferential tax regime of 10 per cent, would yield such bulging tax returns for the Exchequer?
There are many reasons why the IFSC has been such an unqualified success. Chief among these has been the harnessing of Ireland’s most precious resource: its young, well-educated and ‘affordable’ workforce, which has always provided a natural competitive advantage to Ireland. Other factors contributing to the success of the IFSC have been:
• The effective partnership forged between business, regulator and government, which contributed to Ireland being ‘cutting edge’ with a ‘can do’ attitude to financial services business;
• The 10 per cent ‘headline’ preferential tax rate, which grabbed the attention of the international financial community and provided Ireland with a competitive advantage over its more established competitors in Luxembourg and the Channel Islands;
• Ireland’s positioning as the English speaking, common law jurisdiction most committed to the EU.
The IFSC can, and should, continue to be successful but, just as Luxembourg, and more particularly the Channel Islands realise, past success is no guarantee of future prosperity. We live in a global village with constant change in the international business world. Ireland has become affluent and its appetite in embracing future change, whether that be developments in hedge funds or covered bonds, will dictate how relevant the IFSC will be in 15 years.
All students of Life Cycle Theory will recognise that special care will be required to prolong the useful life of the IFSC. The solution is very simple; we must not lose sight of what contributed to the success of the IFSC in its early life. Thus, we must continue to ensure that we maintain the highest standards in education and we must ensure that the business - regulator - government alliance continues to be cutting edge and pioneering.
The danger signs are there - businesses struggling to recruit staff and less keen to deal with new business developments; over-burdened regulators dealing with increasing numbers of EU directives chipping away at the competitive advantage afforded by Ireland’s pragmatic application of regulation; and Irish government in a new full employment Ireland with priorities other than the IFSC.
In 15 years time Ireland’s IFSC will be in competition with a range of IFSCs which will have emerged among the new entrants to the EU in Eastern Europe. Ireland’s IFSC will have positioned itself at the upper end of the financial services spectrum in international insurance, banking and treasury, investment management and administration and financial engineering. Employment in the IFSC will have declined but the average employee will be more experienced and better paid. The IFSC will continue to play a dominant role in Europe and Ireland will remain the domicile of choice for much financial services activity. Aspiration or reality - the choice is ours.
PJ Henehan, Partner, Ernst & Young - Shortly after the creation of the idea to set up a financial centre in Dublin Docks, the IDA and representatives of the original committee visited all of the professional services firms to galvanise support for the new venture and to brainstorm for ideas on how to get it off the ground. I remember explaining that we should be targeting the insurance sector as a major potential source of business.
Of course, there were a number of hurdles that needed to be overcome; in particular, the ability to write direct insurance business cross-border was not yet a reality. The initial focus was, therefore, on reinsurance business and, in particular, the new reinsurance companies in Bermuda. The first major success for the IFSC in this area was the attraction of CentreRe; then a new independent reinsurance company created by Michael Palm and Steve Gluckstern (two former schoolteachers), which attracted substantial institutional funding in the US. Michael came to Dublin with a view to expanding his Bermudian based business into Europe, liked what he saw and decided to set up a company here; this was done in 1991. The success of the CentreRe operation here led others to follow in their footsteps, e.g. ACE, XL and London Life and General Reinsurance Company Limited (the first life reinsurer).
The IDA strategy of targeting major groups and creating clusters, which other companies would follow, was an excellent one and paid off handsomely in relation to the insurance sector. Next to follow were the major captive groups, which then numbered about ten but now have been reduced to four following industry consolidation.
The real breakthrough for the insurance sector came with the passing of the Fourth Life and Non-Life Directives in 1994 which enabled companies to set up in Ireland and market their services within the EU without having to establish branches in other countries. This has proven to be a huge attraction for life insurance companies setting up here, with major groups such as AIG, Rothschild’s, Prudential Assurance, Canada Life, Norwich Union International, San Paulo Life, Irish Life International and Grow Life, to name but a few. While this area is in some difficulty at the moment because of the weakness of international stock markets and the general slow-down in economies worldwide, there is still enormous potential for growth in the future.
On the other hand the September 11th tragedy has been a compensating factor as it was largely responsible for the hardening insurance market. This, in turn, sparked off renewed growth in the captive insurance sector and the creation of a number of new reinsurance companies to take advantage of this turn in the cycle. While most of these new reinsurers are funded by US investors and, therefore, almost automatically, have their headquarters in Bermuda, a number of them have set up operations in Dublin to target the European market - Axis being the most prominent.
A completely unexpected source of business and potentially a very important one going forward is the securitisation of insurance risks. The main focus, up to now, has been on catastrophe bonds; about three or four transactions have been done in Ireland.
There are other potential securitisation transactions, particularly in relation to life assurance policies which, given the right regulatory/legislative framework, can be developed in Ireland.
The key issues for the insurance sector going forward are to ensure that: -
• We continue to have the stability and consistency under the new single regulator (IFSRA) that we had under the DETE.
• We have flexibility to make adjustments to the law quickly where these are needed to ensure that important transactions can proceed;
• We remain competitive in terms of our cost base vis-?-vis other jurisdictions;
• We continue to innovate and increase the range of structures and products that can be undertaken in Ireland.
To ensure that all of the above works correctly is a very delicate balance - get it right and we will ensure the continued success of Dublin as a financial centre, get it wrong and we could easily lose out to the numerous competitors that are out there. More than most industries, insurance is constantly changing as it tries to meet the demands of its customers and reacts to a rapidly changing world and the changes in risk that flow from this. If Dublin is to repeat the insurance success of the past fifteen years, then we must have the skills and flexibility to meet these changes positively with energy and determination. Recently the idea of having an insurance commissioner has been mooted to promote Dublin as an insurance centre. I would welcome this development and suggest that the sooner it is put in place (with appropriate funding) the better.
Peter Coyne, Chief Executive, Dublin Docklands Development Authority - The IFSC Centre has been a resounding success, with 14,000 highly skilled professionals now employed in world class, high spec offices which, not too long ago, were disused warehouses. The centre currently accommodates 184,000 sq.m. of office space with more in the development pipeline. With more than E100 million being administered or managed at the IFSC, and the contribution of these companies to the Exchequer in corporation tax, the centre has become an essential part of the economy in Dublin’s city centre.
The success of the IFSC can be attributed to a wide range of factors: financial incentives to encourage high-quality urban renewal and investment, the special 10 per cent rate of corporation tax for certified companies, and also to the locational advantages of the area, arising from its proximity to Dublin city centre and public transport routes. The IFSC is considered a quality address and attractive to the finance industry both at home and abroad.
The DDDA, which subsumed the role of the Custom House Docks Development Authority (CHDDA) in 1997, including development of the IFSC, has achieved major progress with the completion of the second phase of the IFSC. This includes the construction of the National College of Ireland and a wide range of restaurant and retail offerings which have further enhanced the living and working environment in the area.
The opening of custom house quay (chq), a stunning new luxury shopping and dining destination, is the last piece in the puzzle.
Brendan Logue, Manager, Financial Services, IDA Ireland - Although I wasn’t present at the inaugural meeting of what is now the Clearing House Committee at the Department of the Taoiseach, I heard, that the then Taoiseach, C J Haughey, who spearheaded the development said something along the following lines… ‘Ladies and gentlemen I’ve called you here together not to ask you if we are going to have an international financial centre - but to tell you we are going to have one. I expect to have your co-operation in making it a success and to oversee the process I have appointed the secretary of my department to oversee the process.’
This was the IFSC equivalent of the Gettysburg address as it set the tone and structure for the successful implementation of the project. It created the working environment which avoided inter bureaucratic squabbling and set the widely diverse interest groups both at public and private sector level on a route which had common purpose and specific objectives. Those who saw with certainty a herd of white elephants in Dublin’s docklands seemed to miss this vital point.
In the mid-nineties I was interviewed by a journalist from The Economist about the IFSC. His main question was why the project had been such a success - had there been a master plan? In answering his question I used a phrase I had heard someone use to some effect at some stage in the past. I said the development route was planned using ‘dynamic research’ and then added, somewhat injudiciously, ‘which is another way of saying we made it up as we went along’. The subsequent headline ‘Policy-making on the Hoof at the IDA’, contrary to my fears, was received quite favourably.
I use this anecdote to make the point that it reflected the idea that the IFSC development process was fast and flexible and not hidebound by fixed positions in the minds of policy makers, legislators and the full range of agencies and practitioners.
At the present time when the Department of the Taoiseach is seeking to reinvigorate the development process many people are looking at how we can recapture this pioneering culture in the admittedly different political-economic environment of 2003. I’ve no doubt that it can be done. Certainly the goodwill and commitment are there in abundance on all sides.
What will the international financial sector be like after another 15 years? I see Ireland as a high-skills centre of excellence in the sector. The complexity of the sector suits the psyche of the Irish and there is a widespread acceptance of its economic importance to Ireland. That sounds like quite a positive mix for the future.
Aidan Brady, Country Corporate Officer, Citigroup - When I was appointed country corporate officer for Citibank in 1992, we had already begun to develop financial products based around the IFSC. While we were part of a large financial institution we took an entrepreneurial approach locally. Indeed, we were the first company to establish an agency treasury offering, one of the hallmark products of the early days of the IFSC. In 1993, we took a strategic decision to relocate to the IFSC. While some of our new products and services required us to be located in the IFSC, to fulfil license requirements, the majority of our business was traditional in nature and did not require that physical move. However, it was our sense that our future lay in innovation and to look outside Ireland to grow our business. This ‘leap of faith’ move to the IFSC has proven to be a great success for us. When we moved into IFSC House in 1993, we had 80 employees; by the time we had built our own building in 2000 we had over 1,100 employees.
Initially, our earliest expectations were that we might double our staff. While we had the broad view to look offshore for growth, we had no specific plan and we chased each individual idea - some worked, some did not. But it was exciting and largely new to us. Certainly, the establishment of the IFSC has seen the Irish operations at Citigroup grow by leaps and bounds. The IFSC has also allowed international banks the opportunity to network with each other and establish best practices. In my opinion, the IFSC has been a huge success.
The simple answer regarding the success of the IFSC is the overwhelming advantages that Ireland offers to financial services operations locating here and the desire and success of local management and staff to market those advantages consistently to their overseas colleagues. The advantages are well known - tax, a well-educated workforce, relatively low cost environment and business friendly proactive government agencies and regulatory authorities. Of course, the other major element needed is a customer who is in a position to take advantage of the advantages a global financial services company has to offer!
We are also lucky in the fact that in early 1996, Citibank was looking to centralise many of the operational functions for its cash management business from across Europe into one location. Ireland, for the reasons stated above, was one of the locations under consideration. A feasibility study was undertaken by the bank and the results proved conclusive - Ireland was the most suitable location for a new regional processing centre to be called the Dublin Service Centre with up to an additional 300 jobs to be created. The overall memory I have is the enthusiasm and excitement that all the parties had in being part of something new and growing.
I believe that the IFSC is undoubtedly a success, and now has an overall participant and staff skills base that would be hard to replicate. Whether it will grow depends on the constituents - existing entities, government bodies, the IDA and local service providers - rekindling the old enthusiasm and creating new growth areas. It would be a mistake to rest on our laurels as being the ‘funds centre’ - we need development and research on a broad range of products within financial services. We need a new crop of financial services entrepreneurs to take the lead!
For the IFSC to continue to be a success, it will need to leverage its existing advantages to ward off competition from countries that are also seeking to establish financial centres similar to the IFSC.
It is interesting, that despite the very difficult economic world-wide environment, I don’t think I have felt more optimistic about our industry. Perversely, the tougher times get, the more compelling are Ireland’s advantages. Our employment costs might have risen more rapidly than other locations, but counterbalancing this, we have built, in the IFSC, a strong pool of experienced talent who will continue to build upon the IFSC’s success. What will it be like in 15 years time? - well, 15 years ago I had no great foresight as to what would transpire - let’s just say it will be bigger, better and different.
Aileen O’Donoghue, Director, Financial Services Ireland - International financial services accounts for over ?700 million in corporation tax receipts and directly employs almost 13,000 people. By any yardstick the growth of the IFSC has been truly impressive.
So, after such an impressive first fifteen years, what can the financial centre do for an encore? More particularly, what steps can be taken in the medium term to maintain and grow the international financial sector? Industry has recently given this issue some thought, with special marketing workshops convened by FSI, in relation to banking and treasury and international insurance, and the DFIA in relation to funds, considering this issue. There are really two core issues that have emerged: high-level public sector engagement and support, particularly in relation to innovation, and branding and an effectively resourced marketing strategy.
The support of the public sector, particularly in relation to the tax and regulatory framework, is one of the bedrocks of the competitive package for international financial services. It is critical that this reputation is protected.
There is a wide degree of emerging consensus regarding the ‘IFSC’ brand. For most, the ‘IFSC’ brand has outlived its usefulness and its continued use lacks relevance. There is a demand to look at this issue afresh and to explore other options, e.g., developing a strong ‘Dublin’ brand.
Beyond the issue of branding, there is the broader marketing strategy to consider. Firstly, it is worth articulating the rationale for having an effectively resourced marketing strategy. In 2002, the IFSC generated 15 per cent of overall estimated corporation tax receipts. In addition, direct employment in the IFSC is estimated to have grown to 13, 000. Effective marketing of the international financial services sector will contribute to its growth and development. Aggressive international marketing of Ireland as a premier location for international financial services is essential if we are to continue to attract business and investment to Ireland.
I am confident that the support from the public sector and the commitment of the private sector will continue to drive the growth of the financial centre. Last September, the Taoiseach challenged the industry to identify five objectives for international financial services, which the public and private sector could work on throughout 2003. The industry responded by identifying marketing, withholding tax and double taxation agreements, international insurance, pan-european pensions and greater collaboration on regulatory developments as the core strategic areas which engagement between the public and private sector should focus on throughout 2003. It is heartening to see that progress on each of these objectives is being made. Beyond these objectives, and, perhaps, more importantly, our collective vision to maintain and grow international financial services remains strong. Our ambition to succeed will be rewarded if we continue to nurture the invaluable partnership between industry and the public sector.
John Fitzpatrick, Director, Northern Trust (Ireland) - The IFSC initially appeared to me to be an interesting concept. While the original concept was asset management it soon became very clear, that regardless of corporate tax benefits, Dublin was not exactly location of choice for asset management.
Mutual funds on the other hand, although not exactly understood by the Irish, were seen as the better option. The UCITS Directive was swiftly implemented and the poor old Unit Trust Act, 1972, which was only used by two domestic banks, was suddenly overhauled to reflect a more modern environment. The initial years were interesting with one or two fund promoters embracing the new domicile, and the industry started to evolve with a mixture of Irish and UK institutions all getting behind developing the industry.
Ireland was a good place to do business and everyone within both private and public sector worked together. For me, I found it difficult to comprehend that one-day we would compete on a global basis together.
In those days it was very competitive and Luxembourg did not like Dublin. Although to tell the truth we had to start somewhere so it became very competitive. In the early 1990s conferences were the main method of marketing Ireland along with cold calling. Many Irish participants attended those conferences, and I guess in comparison to our historical links of the ‘Wild Geese’, those attending the conferences became known as the ‘Irish Mafia’.
While the IFSC didn’t work out as I expected, it still worked out beyond my expectations - look at all those employed for example, and at the geographical position of the IFSC itself, which used to be derelict land.
The IFSC has been such a success for many reasons, including the willingness of everyone to get it to work. Willie Slattery best sums it up ‘we had a fire in our belly’. The Government wanted it to happen and each successive Taoiseach since Charles Haughey - Albert Reynolds, John Bruton and Bertie Ahern - regardless of their political affiliation, have been strong supporters. I also include the political parties either in Government or in opposition.
In addition we should not underestimate the power of the ‘Irish Mafia’. The contribution that they made was enormous, very hard to quantify in value but in those early days, it was marketing Ireland first and then the company.
Can the success continue? Yes it can, but you expect me to say this. We have come a long way since the 1990s and today we are the 6th largest domicile for funds in Europe and 10th in the world. We still aspire to be as large as Luxembourg, (we believe we can achieve this) but the difference now is that we are more mature and compete alongside them rather than against. Promoters have choice - choice of product and choice of domicile.
In order to maintain this success we need to go back again and get that ‘fire in the belly’. We need to:
• Look at the products available
• Develop more through regulation and expansion
• Maintain competitiveness
• Maintain the integrity of the regulatory environment while at the same time continue to have that reputation of commerciality
In fifteen years time I predict that the EU Single Market will be a reality and Ireland will be location of choice by an enlarged Europe, including Russia and China as our principal markets. As for our current benchmark, Luxembourg, we will no longer have to look with envy regarding asset size, as we both have to compete with domiciles Estonia and Bosnia. And finally, Dublin will have ?2.4 trillion in assets, with Luxembourg having ?2.38 trillion.
David McCabe founded Bank of Ireland International Finance in 1987 and was Managing Director until 1992 when he was appointed head of marketing for the Bank of Ireland Group in the IFSC. He retired in June 1995 and is now an independent advisor to and a non-executive director of a portfolio of IFSC companies and mutual funds - Bank of Ireland moved into La Touche House in December 1990. At that time there were only the three large green-glassed buildings in the IFSC and the rest of the site around the two docks was wilderness and dereliction. It is generally acknowledged that Gandon, under the leadership of Tim Brosnan, obtained the first licence and that KB Financial Services (Ireland) (now known as KBC Finance) obtained the second license. Bank of Ireland was the third approval.
We started Bank of Ireland International Finance in November 1987 but did not receive our IFSC certificate until March 1988 when we completed our first transaction.
For me the concept of the IFSC really commenced in 1986. Ireland was in the grip of a dreadful economic recession and new corporate lending in the domestic market was hard to find. In seeking to develop new ideas, I became fascinated by the small, but growing, number of financial companies setting up in Shannon lead by GPA and set out to understand the complexities of combining a low tax rate (Shannon was then the only location in Ireland where a 10 per cent tax rate applied to financial services) with Double Taxation Agreements. Indeed in December 1966 the Shannon Free Airport Development Company (SFADCo) issued us with a licence to carry on international banking activities.
However in February 1987 during the second of my many trips to Luxembourg a general election in Ireland brought Charles J. Haughey to power and the IFSC was born. In those early days we owed a lot to the Taioseach and his drive to amend much fiscal and related legislation affecting the IFSC.
Our initial business was primarily structured transactions exploiting suitable Double Taxation Agreements whereby we could raise funds for the Bank of Ireland at rates substantially below LIBOR. Luxembourg, Belgium, Denmark, and Sweden were favourable markets but France proved impossible to exploit because of the famous tax rule 209B. The ‘coathanger’ structure was developed.
What we (and others) were doing was pioneering new ideas and new structures. Using unlimited companies, multi-currency share capital, mixed equity and redeemable preference capital, tax treaties, favourable foreign taxation legislation etc ‘Extending the frontiers’ or ‘pushing out the boundaries’ we called it. To today’s practitioners this may seem pretty ordinary financial engineering but in the 1987-1990 period it was quite innovative.
Slowly but surely the IFSC changed from being essentially an urban renewal project from which the Government expected little employment and few tax revenues to an employment generating financial centre. The corporation tax take for the Government was minimal - only ?3.7 million in 1989 but by 1993 this had risen to ?133.1 million (and a reported E700 million last year). People started to get excited. Building work re-commenced although it was still almost impossible to interest investors in purchasing IFSC office blocks! The tenants will not stay after 2005 they claimed!
The establishment of ‘coathanger’ companies on behalf of foreign banks was instrumental in interesting those foreign banks to consider setting up a ‘real presence’ in the IFSC. One of the first of these was Dresdner Bank who set up their own operation in 1990.
However the days of tax arbitrage structured transactions were clearly numbered and in January 1990 the Luxembourg Authorities announced that no further approvals would be granted for Luxembourg Banks to participate in new coathanger structures.
This forced us in Bank of Ireland International Finance to expand into the international corporate lending market taking advantage of the 10 per cent rate of corporation tax. A slim margin of say 50 basis points on a loan looks much better when taxed at 10 per cent rather than the then 48 per cent!! Indeed within two years all of Bank of Ireland’s international corporate lending was carried out in the IFSC and our offices in London, New York and Hong Kong were curtailed or closed.
By 1993 Bank of Ireland International Finance was well established and the IFSC had achieved critical mass. The growth of the off-shore funds industry took many of us by surprise and lead the way to the IFSC as we see it today. |
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