Speech by Minister Micheál Martin at the IFSC Annual Lunch

Speech by the Minister for Enterprise, Trade and Employment, Mr Micheál Martin, T.D. at the IFSC Annual Lunch in Dublin Castle on Friday 9 December, 2005 at 1.00 p.m.

Ladies and Gentlemen,

I am delighted to be here in Dublin Castle today, at the request of the Taoiseach, to wish you the compliments of the season and my own good wishes on another successful year for the international financial services industry.

I know that this annual event is one to which the Taoiseach looks forward to attending every year and he very much regrets the fact that he cannot be with you today.

The role which the international financial services industry has played in the economic success of this country has been enormous. High quality and sustainable employment, a top quality business environment, and a well regulated industry have all contributed to the success of the sector since the opening of the IFSC in 1987.

According to a recent Finance Dublin survey, employment in the international financial services sector now stands in the region of 21,000. As such the sector continues to show signs of strong growth and will, I believe, continue to develop while operating under the general corporate tax code. The sector contributed €663m in corporation tax to the Exchequer in 2004.

2005 marks the end of the special tax regime that has been in place since the inception of the IFSC. These special tax breaks served the industry well in establishing Ireland as a centre of excellence for the provision of international financial services. Much work has been done over recent years to ensure that the right policy environment and benefits are in place to meet the needs of the international financial services sector, while at the same time being appropriate for the overall economy.

The absorption of the IFSC into the general tax regime should be seen as a new challenge in how to ensure the continuing success of the sector, maintaining this level of high value-added employment and the other economic benefits arising from it.  

The decisions of the Minister for Finance in his Budget statement this year, to abolish Companies Capital Duty and to make adjustments for what is known as the 'ring-fence' for leasing companies, is evidence of a Government system that is prepared to listen to the international financial services sector.

As Minister for Enterprise Trade and Employment, I am committed to enhancing the competitiveness of the financial services industry in Ireland. Today is an opportunity for me to share some thoughts on initiatives in the area of financial services being undertaken by my Department and its agencies.

Ireland has developed an enviable position in this industry over the years and more specifically Dublin has developed into a world-class centre for a wide range of internationally traded financial services. The success of the International Financial Services Centre, established by the Government in 1987, is testament to that. As I have said, with the expiry of the IFSC tax regime fast approaching, your work on the strategy for the future of the international financial services sector, as members of the Clearing House Group with Dermot McCarthy, Secretary General to the Government, and the other Working Groups and Task Forces, together with other public sector agencies and my own Department, is key to ensuring continued success.

National Competitiveness Council

I am happy that in this year's Annual Report of the National Competitiveness Council, financial services was identified as a high performing business sector of the Irish economy. The Competitiveness Challenge from the NCC makes an important contribution to policy making and thinking on strategic national development issues. The document identifies a vision for the future of the country as a dynamic, flexible economy.

Our skills and training initiatives, the new Employment Permit system including the Green Card Scheme, investment in R&D and in infrastructure through Transport 21 and the considerable steps taken by Government at large to strengthen competition, provide the essential building blocks for the dynamic, flexible economy called for by the NCC.

Business Regulatory Forum

At the beginning of last month, I announced the establishment of the Business Regulation Forum. The establishment of this Body is a key element in implementing our commitment to better regulation and addressing administrative burdens which can genuinely be identified as disproportionate. My intention is that the Forum will advise me and I, in turn, will advise the Government, on regulatory issues as they impact on business and competitiveness.

Director’s Compliance Statements

I am already pleased to note one positive outcome of industry/government dialogue which I believe foreshadows the stakeholder engagement to be formalised in the Better Regulation Forum. The review of the Directors’ Compliance Statement undertaken by the Company Law Review Group (CLRG) was instituted due to unhappiness in the business sector at the degree and extent of obligations imposed by the directors’ compliance statement obligations set out in Section 45 of the Companies [Auditing and Accounting] Act 2003 (45/2003). The Government has now agreed to progress into law the proposed new model for the Directors’ Compliance Statement as proposed by the CLRG on foot of its intensive review of the proportionality, efficacy and appropriateness of 45/2003. This means that Section 45 of the 2003 Act will never be commenced. The new model of the Directors’ Compliance Statement which will replace it differs from existing 45/2003 in restricting and clarifying the obligations on which directors must report, in being less prescriptive about the methods a company uses to review its compliance procedures, and in not requiring review of the compliance statement by an external auditor. Thus we should help embed good corporate governance without increasing costs.

Funds Legislation

The Investment Funds, Companies and Miscellaneous Provisions Act 2005, enacted earlier this year, introduced a new investment vehicle – the non-UCITS Common Contractual Fund (CCF), which complements the existing portfolio of investment vehicles available to investors in Ireland. The Investment Funds Act, which is the responsibility of my colleague, Michael Ahern, Minister of State at my Department, also introduced segregated liability and cross investment for investment funds facilitating the ring fencing of liability at sub-fund level and allowing for cross investment between sub-funds in an umbrella structure. The Act also facilitated the implementation of the EU Market Abuse and Prospectus legislation. This new legislation makes Ireland a more attractive location for the establishment of investment funds, thereby increasing our competitiveness in the area.  It also provides the industry with improved marketing opportunities, making Ireland a jurisdiction of choice for investment funds

Skillnets

Skillnets is a programme funded by my Department from which the financial services industry can and has benefited. It is an initiative, which leads to the up-skilling, and re-skilling of staff across all industry sectors. Education will play a key role for the financial services industry in the future. The recent approval by Skillnets to co-fund two skills development initiatives for the financial services industry is further evidence of Government support to the sector in which you all operate. These initiatives will provide an opportunity to further enhance the current skills base in the securitisation and international life assurance areas of the financial services industry. I know that there is a debate currently underway on the topic of education and the skill levels available to the industry and I can assure you that through my Department and its agencies, we will assist in anyway we can in the effort to improve the situation.

IDA Ireland

The international financial services industry has enjoyed another year of growth and success. A number of new names have been added to the prestigious list of companies in Ireland. These companies operated not only in Dublin and the IFSC but increasingly are appreciating the benefits to be derived from regional locations as proven by announcements from AXA, BISYS, PFPC, HBOS and IFS. IDA Ireland is demonstrably committed to regional development as a core part of their strategy and I wish them continued success in their work.

The success of the IFSC to-date has been largely centred on transaction processing. These activities need to be maintained and developed. However, Ireland also needs to target and win sophisticated operations in areas like securitisation, CCF structured financing and asset management.

It is extremely encouraging to see Citigroup establish an R&D centre in Ireland. It is not just a first for Ireland’s international financial services sector but also a first for Citigroup worldwide. This investment hopefully will be the catalyst for further investments in product development.

Financial Regulator

The role of the Financial Regulator is crucial to the industry. The Financial Regulator is particularly conscious of the need to balance an efficient and effective regulatory regime while, at the same time, encouraging a competitive and expanding market of high reputation. I know that it is also very conscious of the need to avoid being over-prescriptive to the extent of stifling legitimate innovation and development. This, indeed, is the core of its principles-based approach to regulation.

Increasingly, the regulatory regime is determined at international and, particularly, EU level. Within the EU, the Lamfalussy process provides for increased cooperation and accountability among Member States. Apart from this, over the past year, the Financial Regulator has taken a number of initiatives designed to increase efficiencies and effectiveness while not compromising high regulatory standards. These have included establishing a number of dedicated specialised units dealing with authorisations, accounting and anti-money laundering. The authorisation process itself has been streamlined, specialist staff have been recruited and new avenues of dialogue between the Financial Regulator and the industry have been established.

The coming year will be another busy one for the Financial Regulator. New regulatory capital requirements for banks and asset management companies will be introduced, as will a supervisory regime for reinsurance companies. Preparations will continue to be made for the implementation of changes to the regulation of securities and funds under the Markets in Financial Instruments, Transparency and UCITS III Directives.

The Financial Regulator’s vision for its engagement with industry is to provide a cost effective and responsive regulatory system that facilitates innovation, competitiveness and growth.

Conclusion

Despite all these efforts and new initiatives in the area of international financial services, we must not become complacent regarding our competitive standing. Ireland is now a modern, highly globalised, credibly regulated, competitive economy. We need to ensure we retain our attractiveness as a place to do financial services business and as a location for foreign direct investment vis-à-vis competitor jurisdictions.

We will achieve this objective by committing ourselves to fostering the conditions which support enterprise and in meeting the challenges and opportunities of an increasingly knowledge-based, regulated, globalised and environmentally sustainable economy.

The major work currently underway to map out a future strategy for the industry is welcomed and I wish you well in your deliberations. I know that the Taoiseach has a keen interest in the outcome of your work.

I would like to take this opportunity to thank all the members of Working Groups and Task Forces for their time throughout the year in support of the industry.

And finally, to thank in particular, Walter Brazil, David Dillon, John Larkin, Gavin Caldwell and Pat Wall, in the roles you carry out as Chairpersons of the various Working Groups and Task Forces.

Thank you.

ENDS

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