Speech by Assistant Secretary, Michael McGrath to the Irish Funds 7th Annual UK Symposium 2019

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Introduction

Good morning. Thank you all, and thanks to Yvonne Connolly, Pat Lardner and all the team at Irish Funds for the opportunity to speak here this morning.

Ireland is a well-established global financial services hub, and the funds and asset management industry is at its centre. Government’s commitment to developing the sector’s potential, through collaboration in Ireland and abroad remains steadfast.

This morning, I’m going to say a few words about the economic climate and risks, then I’ll spend a minute or two on Ireland for Finance – our Strategy, before focusing on the EU agenda, where I’d like to give you a sense of what I see coming down the tracks.

Context: Economy and risks

In terms of the macroeconomic outlook for Ireland, the Irish economy has performed well in recent years, addressing many of the issues caused by the downturn. However, legacy issues remain and the risks to the global economy are growing. Due to our highly open nature, we are vulnerable to external risks, such as a rise in protectionist policies and a more general slowdown in the global economy. We also face the challenges posed by climate change and obviously Brexit poses special uncertainties for Ireland.

In anticipation of the potential risks, our focus is on deepening the resilience of the Irish economy. The recent Budget was based on a forecast of an economy expanding by just 0.7 per cent next year. Growth of this order is considerably less than that experienced in recent years, but nonetheless it is still positive growth. Our labour market is currently close to full employment – so while that’s a positive factor, it brings its own challenges, especially in terms of keeping talent. Our budgetary situation is in broad balance and we are continuing to make our public debt position more sustainable into the medium term.

Yes, the impact of Brexit is, and will remain, a significant challenge, but a manageable one. In that context of Brexit, I’d like to highlight one specific Brexit issue that we are working on right now. As many of you know we have a very close relationship between the Dublin and London Stock Exchanges, but this relationship is now undergoing a significant change. From end-March 2021, the settlement of securities – equities and ETFs – will no longer be permissible on the CREST system.

In order to ensure an orderly migration of our market, the Irish Authorities have worked with market participants to minimise disruption. In that context, the Government this week has approved the publication of the legislation – the Migration of Participating Securities Bill. It is our intention to have this bespoke legislation taken through all stages of the Irish parliamentary process before the end of the year. This is a significant step forward in the unprecedented project of migrating an entire market to a new settlement system, but I wish to be clear that significant work remains to be undertaken by everyone in the market to meet the deadline of end March 2021.

Ireland for Finance Strategy

At this point, I would like to reflect on the Government’s strategy for the further development of the international financial services sector. The sector employs about 44,000 and about 16,000 work in Funds.

Our latest strategy, named Ireland for Finance, was launched earlier this year. The Strategy seeks to have Ireland as a top-tier location of choice for specialist international financial services and to enhance and protect our future competitiveness.

In terms of taking action, the Fintech Foresight Group has been established, and has been actively scoping the issues. Dovetailing with the strong tech sector that we have built up over recent decades, our Strategy seeks to combine our strengths as developments in technology create opportunities for application in financial services. In terms of Fintech, the challenge for us, and for the EU more generally, will be to achieve the appropriate balance between regulation and fostering innovation.

Underpinning that and other changes in the sector will be a need for talent. To that end, a significant number of actions under the strategy seek to ensure that we reskill and upskill people to take advantage of new growth areas and new skill needs, not just in technological areas, but also in law and regulation and emerging issues such as climate finance.

The push for greater diversity of talent in the sector is a key priority and discussions on the Women in Finance Charter are focussed on the publication of this Charter and how firms in the financial services sector will engage with it.

The European Financial Forum (EFF) has become a key event in the annual calendar and heightens Ireland’s visibility on the global financial services map. The 2020 EFF will take place on 12th February in Dublin Castle – a date for your diary.

Finally, in the context of the Ireland for Finance strategy I would like to mention a significant piece of legislation that we have been working on for some time with the Funds Industry.

The Investment Limited Partnership (Amendment) Bill 2019 was published in June and completed Second Stage in September of this year.

This Bill will modernise the Investment Limited Partnership (ILP) Act. The aim of the Bill is to make Ireland a more attractive domicile for private equity funds. This, in turn should broaden the offering of Ireland’s investment funds sector, and give further support to Ireland’s offering as a top-tier global location of choice for financial services investments.

I’d like to acknowledge the extensive engagement that my Division has had with Industry on this Bill. I have also been personally engaged on a number of occasions with various interested parties.

This has been a long and technical process, and I share the frustrations of many in terms of getting this done. With that in mind, I can confirm to you that this Bill is a priority for Government and I believe that, notwithstanding the very tight timelines, we plan to have the Bill advanced in the coming weeks.

EU financial services’ agenda

Now, I would like to turn my attention to the EU Financial Services’ agenda. As we are a significant financial services centre within the EU we must use our experience to shape the future of financial services within the EU.

We were active in the European Supervisory Authorities (ESAs’) Review. This Review will guide the future architecture for the supervision of financial markets.

It is vital that the ESAs – EBA, EIOPA and ESMA – move ahead to implement the agreed changes, which in turn will help ensure that rules applying to financial services remain consistent across Member States. Consistency is an important objective, as the consistent application of rules and ensuring that a high standard of supervision and regulation applies to financial firms in all Member States helps enhance and protect the Single Market.

The new European Commission’s President, Ursula von der Leyen, has already laid out the priorities for financial services – completion of Banking Union, speeding up work towards a Capital Markets Union to diversify sources of finance for companies, tackling the barriers to the flow of capital, making cross-border investments easier and strengthening the EU’s AML framework.

Regarding Capital Markets Union, Finance Ministers will agree conclusions on the next steps at their December Ecofin meeting.

In preparing for the next phase of CMU, our view is that there should be a greater focus on non-legislative policy measures to further develop Union markets. Where legislation is deemed necessary, we believe that it should be precise, targeted, leverage off best practice having due consideration for any administrative and regulatory burdens being imposed on the market, while at the same time reflecting on the importance of maintaining appropriate levels of consumer protection.

For European markets to prosper, our markets must be open, globally competitive and be able to attract outside capital and expertise. Given the likely impact of Brexit, it is important that in the next phase of CMU there is a focus on building pools of funds that can be invested in our capital markets. There has to be a greater focus on making investment in capital markets, including SMEs, more attractive to investors.

In terms of some more concrete items. We believe that increasing participation by retail investors in our capital markets should be a focus. We need to consider what targeted changes may be beneficial in the area of MiFID and other legislation that can make it easier for retail investors to access capital markets. In doing this, we must ensure appropriate protections remain in place for investors. In order to increase retail investor participation in financial markets, it is key that we continue the work to improve investor education.

The funding of our SMEs must also be a priority. This must be done in the context of considering the range of changes targeted at SMEs that have been made over the last five years to see if they are sufficient to support SME growth. These include the introduction of SME Growth Markets, and changes to the Prospectus and Market Abuse frameworks related to SMEs.

In order for our financial markets to be competitive it is important that we have the appropriate level of transparency for investors when trading on our markets. To achieve this, it is important that we make progress on a European Consolidated Tape, which we believe will make our markets more efficient and in turn reduce costs for end investors.

CMU must also build on the work already done in the area of Sustainable Finance. Europe is leading on this important project, which is essential and to the benefit of all.

The conclusions on Climate Finance adopted by ECOFIN earlier this month stress the unprecedented urgency which is needed to step up global efforts to avoid the dangerous effects of climate change.

In recognition of a need for greater connectivity between the financial sector and the sustainability agenda at the European level we are taking steps to align financial flows with low carbon and climate-resilient development, including through the EU Action Plan on Financing Sustainable Growth.

The Government’s Climate Action Plan sets out an ambitious course of action to gain Ireland a ‘more sustainable future’. Ireland was among the first to make Green Finance a strategic priority. Our Strategy strives to position Ireland as a leader in the area of sustainable finance.

As part of the recent Climate Finance Week Ireland 2019, the Sustainable and Responsible Investment Forum launched its second annual report which demonstrates the shift of Environmental, Social and Governance (ESG) from niche to mainstream among Irish asset managers.

Another key milestone of Climate Week, was the signing by Ireland’s leading industry associations, including Irish Funds, of a sustainable finance statement of intent. This is a demonstration of leadership, and a recognition of the opportunity that the green agenda can bring to capital markets.

Before concluding on EU policy matters, another issue that is high on the agenda is anti-money laundering (AML). Ministers will agree Conclusions on an Action Plan at their December Council meeting. We are committed to the efforts to strengthen the EU framework, while also legislating domestically for 5AMLD.

EU Engagement

Finally a word on EU engagement – for our part we will continue to work hard to forge international alliances, to build relationships and develop our own insights, so as to influence EU policy-making.

Industry also needs to continue to engage, early, vocally and consistently, with EU and international partners to ensure that your voice is heard and the needs of Industry are taken account of in the formulation of forthcoming reforms or new initiatives.

Policymakers, in Ireland and beyond, are better informed and better able to develop policy perspectives through such engagements. For our part we will continue to actively engage on priority issues and look forward to your ongoing cooperation as we seek to promote Ireland’s views and protect Ireland’s interests at the EU table.

Conclusion

So in conclusion, I’d say that there is little room for complacency in our international engagement.

Ireland’s reputation as a well-regulated, prudent and competitive location founded on the values of consumer protection and innovation has been well established. We must continue to ensure that Ireland can build on its positions as one of the world’s leading financial services centres for investment funds and management companies.

In that goal, I look forward to continued engagement with the sector as we rise to meet the challenges that lie ahead.

Thank you for the opportunity to speak to you this morning and I look forward to the days’ discussions.

ENDS