Speech
Speech by Minister Michael McGrath to the Financial Services Ireland Annual Dinner
By: Minister for Finance;
Published on
Last updated on
By: Minister for Finance;
Published on
Last updated on
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It is my great pleasure to be with you here this evening at the Financial Services Ireland Annual Dinner.
Let me begin by thanking Patricia Callan, Director and Joe Heneghan, Chair of FSI for the kind invitation to speak to you. I want to pay tribute to the work of FSI as the primary advocacy body representing the full suite of financial services companies in Ireland.
At the outset I want to congratulate the IFS Apprenticeship graduates who received their awards this evening and pay tribute to Gina Quin, President of the National College of Ireland who are the education partner and manager of the IFS Apprenticeships Programme.
Apprenticeship programmes prepare people for a career, not just a job. The government has led a journey of reform through the Action Plan for Apprenticeship 2021-2025.
There are now 73 apprenticeship programmes available, 48 of which have been developed since 2016, so there has been a huge expansion in terms of choice for learners.
Overall we are about a year ahead of our target in getting 10,000 new apprentices registered each year by 2025 and I know the financial services sector will continue to be at the forefront of enhancing our apprenticeship offering.
Last month, I delivered my first budget in my current role as Minister for Finance. It was formulated against the continuing backdrop of elevated inflation levels and global uncertainty.
In the decade before the pandemic, the average rate of inflation was half a per cent per year. Last year, it was over 8 percent. Thankfully, we now appear to have turned a corner as headline inflation eased significantly in October due to much lower energy prices, and we can expect inflation to continue to moderate in the months ahead.
Nevertheless, people and businesses across the country are feeling the effects of this significant change in inflation. For that reason, the budget continued a programme of providing support to families, to individuals and to businesses.
The recent data indicates a mixed picture for the Irish economy. On the one hand, the domestic economy has proven to be remarkably solid, evidenced by a labour market operating close to full employment. In October, the unemployment rate stood at just 4.8 per cent, a low rate by historic standards, albeit slightly higher than a year ago.
On the other hand, higher-frequency data suggests some softening in activity more recently, as businesses and households grapple with the burden of rising interest rate payments and a deterioration in the external environment.
We do expect that significant investments in the IT, pharma and medical technology sectors will positively impact on exports and GDP next year and beyond.
I am taking what I believe is a very prudent approach to the windfall corporation tax receipts we are currently experiencing. On Budget Day I announced I am setting up two new funds, the larger of which will be the Future Ireland Fund.
We will put aside 0.8% of our annual GDP in the Fund until 2035. This will be invested across a range of assets and along with the investment returns we expect to generate gives the potential for a Fund of up to €100 billion to be accumulated.
It is important to emphasise this is not a rainy day fund, it is being established to meet costs we know are ahead of us in terms of pensions, social care, climate and digital transition. Other countries have successfully undertaken similar actions using tax receipts from natural resources. We are in a different situation. Our budget surpluses are not as a result of oil, gas or other mineral resources. They are as a result of decades’ long hard work, led by the IDA, in building up our multinational sector.
We fully expect to retain and expand employment across a range of sectors from ICT to pharma and Financial Services. However the associated profitability of these firms’ Irish operations may not persist at current levels and it is appropriate that we use our current strong position to secure our future wellbeing. This is something that will benefit us all, current and future generations.
The second plank of our strategy to secure Ireland’s long term future is the Infrastructure, Climate and Nature Fund. On too many occasions when we have experienced an economic downturn the policy response has been to reduce capital expenditure to try and stabilise the public finances. This is counter intuitive as it is precisely during a slowdown that we should be investing in capital projects to support employment and improve the capacity of the economy and to build more schools and hospitals when tender prices may be more favourable.
I am determined that we would never make this policy mistake again. That is why I am setting up a new Infrastructure, Climate and Nature Fund. It will allow us to cushion the effect of a slowdown by providing the resources to maintain our investment plans. It also provides an important new source of funding to meet our Climate Change targets.
I want to speak for a few moments about the financial services sector and its significance in our economy and society. Access to money and the effective and correct processing and transfer of it are essential for normal life in a modern, functioning state. That means that your industry is vital, not just to our economy but also to the well-being of our society.
Whether it is in making loans, advising on investments, holding savings or processing payments between vendors and buyers, your industry is at the nexus of so much that is essential in all of our lives. It is an enormous obligation, and a complex one.
It is also an attractive industry that has seen new entrants with very different business models to those the established banks, insurance companies, or investment firms have been using. This is reflected in the interest in fintechs. That term can be misleading at times as the established firms in financial services also develop and apply financial technology for the benefit of their customers.
There is no doubt that the current generation of fintech developments presents both new opportunities and new challenges. Traditionally, regulation of the financial services sector had a handful of purposes. These included maintaining the soundness of the financial system and ensuring firms in the industry remained solvent. Preventing money laundering and financing terrorism are also goals of regulation, though the laws on these extend well beyond the financial services sector. And we also regulate to protect consumers and investors.
The increased use of digital technology in finance raises questions about data privacy. The Bank of International Settlements flags that it can also raise questions about competition policy. When we think about market power we will probably still need to ask about the volume of assets or share of a market. But we may need to also ask about the volume and nature of the data a firm controls or has access to.
Changes in the technology we use in financial services require us to balance the benefits and the risks. That balance is one of the issues that the Central Bank of Ireland put front and centre in the consultation paper they published last week on how they engage with innovation in the sector stating that “Innovation in financial services has the capacity to bring many benefits to consumers, businesses and society”.
The consultation paper reflects a substantial update to the Central Bank’s approach to innovation in the financial services industry. It builds on the work of the Innovation Subgroup to the Central Bank’s Financial Industry Forum and I welcome the announcement in the Consultation Paper that the Central Bank will establish an Innovation Sandbox Programme.
In relation to our climate ambitions, and as we prepare for COP28 in a few weeks, it is imperative that the financial services sector, help guide the necessary investments to decarbonise the economy, and drive energy efficiency, and renewable options. We also need you to help support the mainstreaming of sustainable practises across our entire economy and society. This transition to a climate neutral economy has significant potential to create sustainable employment and enterprise opportunities and in turn a more productive, stable and resilient, economy.
I know across the broad spectrum of the membership of FSI from the banking sector, to international financial services, insurance and investment firms there is an eagerness to meet the demand for sustainable products and investments. In so doing you will help ensure that the common ambition of a net zero transformation can be met and ultimately a better future for us all.
Within my own department, there are some big areas of work that I know are of interest to you.
Last Friday we submitted Ireland’s application to host the new EU Anti-Money Laundering Authority, AMLA. Ireland is one of nine member states who have submitted an application to the European Commission to host the new authority. It will be a significant EU institution, tasked with supervision of compliance with anti-money laundering and countering financing of terrorism rules and standards. AMLA will supervise entities in the financial services sector in the first instance, but eventually also in the non-financial sector.
As a committed member of the European Union, it is important for Ireland that the location of pan-European institutions are distributed evenly across Member States. It is my view that locating AMLA in Ireland would make a powerful statement of the capacity for all Member States to participate fully in creating the future of the Union.
The robust systems of governance and administration we have developed, alongside a highly skilled workforce make us an ideal location to host AMLA and along with my government colleagues I look forward to engaging with Member States and with the European Parliament over the coming weeks as this process evolves.
I want to acknowledge the work of my colleague the Minster of State for Financial Services at the Department of Finance, Jennifer Carroll MacNeill who is responsible for the hugely important Ireland for Finance strategy, which is our whole of government programme for the development of the International Finance Services sector in Ireland.
We are currently undertaking a comprehensive review of the Funds sector. The funds review team issued a public consultation in June. Over 190 submissions were received, highlighting significant interest in the review from both industry and from over 140 retail investors. The impact of technological change and innovation on the funds industry was a theme in many of the consultation responses. Several respondents also referred specifically to the application of Artificial Intelligence technology to compliance, thereby reducing the administrative burden on market participants and ensuring adherence to regulatory requirements.
The review team will engage further with key stakeholders in order to fully understand how these changes may manifest and the impacts that they may have on the funds industry in Ireland.
Another major policy development in recent years was the review of retail banking. Work on implementing the recommendations of that review is well under way.
One of the issues identified by the Review was access to banking services, particularly the ability to withdraw and deposit cash. A dedicated team is in place and currently developing legislation and preparing heads of a bill to be ready by the end of the year.
The Review also called on my department to prepare Heads of a Bill in 2023 to require ATM operators to be authorised and supervised by the Central Bank and to provide the Central Bank with responsibility and powers to protect the resilience of the cash system, including the authorisation and supervision of cash-in-transit firms in respect of their cash handling activities and related financial services.
Work is now well underway with the objective of publishing Heads of Bill by the end of the year, following government approval. It is intended that one piece of legislation will be drafted for all recommendations on access to cash.
Another recommendation in the review was that providers of credit to SMEs be authorised and supervised by the Central Bank. My officials have begun the work and are consulting the Central Bank to prepare legislation. The Central Bank is working with my officials on a National Payments Strategy and supporting this work by allocating resources and providing ongoing technical advice.
While not directly under the remit of my department, the issue of advancing Auto Enrolment is one that I am personally committed. Work is advancing on legislation which from both an economic and social prospective is much needed.
Finally, I want to finish by saying a few words about a relatively low key but significant development on the EU stage.
Just short of a month ago the European Union and the UK held the first meeting of the Joint EU-UK Financial Regulatory Forum. The establishment of that Joint Regulatory Forum is a result of Brexit.
The meeting was at official level, not political. The joint chairs were the Director General for Financial Services in the Treasury in London, and Director General of FISMA in the European Commission. The European Central Bank and the Bank of England, as well as the UK’s Financial Conduct Authority and the EU’s counterparts in the three European supervisory authorities also participated.
There is no earth-shattering news to report from it, no headlines. But that is the point. After many setbacks and delays after the UK voted to leave the European Union, both parties have established the Forum that will allow us to exchange views on regulatory cooperation, to discuss financial stability risks and tools used to address cross-border issues, and to share information on efforts to prevent and combat money laundering and terrorist financing.
At that meeting in October, the EU and the UK participants shared views on crypto-assets, stable-coins, and retail central bank digital currencies. They discussed how best to progress multilateral efforts to support an orderly transition to net zero, including participation in the G20 Sustainable Finance Working Group. They noted progress on taxonomy implementation and provided an update on developments on ESG ratings and standards for sustainability disclosure requirements. I am pleased that the Forum has met and that we are establishing structures to enable the key officials in the European Union and the UK to meet and share views and information on the key policy issues in financial services.
As a final word, I want to thank Financial Services Ireland and particularly its director Patricia Callan for acting as industry secretariat on the Ireland for Finance Joint Committee.
The industry secretariat will rotate now to Irish Funds but Financial Services Ireland will continue to be an extremely important stakeholder involved in ensuring the strategy is a success. The development of the Action Plan for 2024 is underway and thanks to everyone who made submissions. It will be circulated shortly to the Joint Committee before going to Government in January.
May I conclude, Joe, by thanking you for your hospitality this evening and to wish you and your members continued success.