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In a modern economy, there will always be finance; there will always be people within companies needed to manage it; and there will always be financial services needed for individuals and collective concerns.

Corporates and banks

The report by the Economist Intelligence Unit and A.T. Kearney on how corporate e-commerce is changing the nature of the services required of banks by corporates is one such reminder. Large corporates are devoting their efforts to supply chain efficiencies, and it if their banks are not part of the solution, then software vendors and suppliers will be. Banks may be by-passed altogether for treasury management functions. Add to that trend the still-early notion of e-money outside of the system of central bank control and the radical vistas for the future of corporate banking open up. In the 1980s, the worry globally for banks was the disintermediation of saving and the provision of debt capital, a process brought on by the growth of mutual funds and corporate debt markets. Now the disintermediation of payment systems altogether is looming as a real possibility. There are major challenges for finance managers in corporates as well as bankers in the process. It serves to underline that the two have a lot more in common than the relationship of provider (banks) and consumer (corporates) of financial services would imply.

Irish sector

“After more than 200 years, never again will an Irish bricks-and-mortar financial institution list its shares for the first time on any Stock Exchange”. A year ago, this may have seemed like a wild exaggeration. Following a very bad second half of 1999 for bank stocks and the collapse of the merger/flotation of ACC/TSB, it is much more plausible. We will not see the likes of Bank of Ireland – the first stock listed in Dublin – again. Two inexorable forces support this contention: the consolidation of traditional financial institutions and burgeoning technology which enables the electronic delivery of financial services. Does it matter if there is never again a new branch-bank listed? Not as long as shareholders and managers acclimatise to the change. Not to workers, it seems likely that the end of new listings and branch closures will happen alongside growth in employment in services – services which are a mix of software and financial management. And there will be new listings, not of bricks and mortar, but of these type of ‘finance-service’ companies. A new language will be coined too.

12.5 per cent rate

Anything which calls into question the commitment to, and general applicability of, the 12.5 per cent rate is bad for the economy. The international corporate sector, including international financial services, will be quick to lose faith in the long term commitment to 12.5 per cent if it is tampered with in advance. The EU Commission and other EU member states will hammer Ireland if the 12.5 per cent rate is made sectoral – yes, for profits and industries we like, no for those we don’t or want to punish. No amount of re-assurance is enough on this point. As ever, actions will speak louder than words.

Multiple advisers

One area where the PAC recommendations on DIRT are problematic, with the best will in the world, are the proposal for external tax auditors, and the prohibition on audit firms supplying management services to their clients. The pool of audit and tax expertise is not deep enough in Ireland to prevent unwieldy multiple relationships between the numerous financial institutions and much fewer professional services firms practices capable of providing services to banks.

A bank could end up with one firm doing the audit and tax, another being an external tax auditor, another providing management consultancy and, on top of that, internal audit on which more regulatory responsibilities are being placed, and, to finish with, an occasional friendly audit from Revenue. Perhaps those bricks and mortar will be necessary after all to accommodate everyone at once.

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