“We anticipate that there will be a need for certain companies to relocate in order to be able to access the single market.”
At a time when there is a lot of talk about the dangers to the Irish economy from a hard Brexit, one industry which may in fact benefit is FinTech. We recently sat down with Minister of State for Financial Services Eoghan Murphy to talk about the government’s financial services strategy IFS2020, as well as a host of other topics including Brexit, taxation and trade missions.
One of the centrepieces of your job as minister of state for financial services is the IFS2020 strategy document. For people not familiar with that, can you give us an overview of that strategy paper and what it is trying to achieve for Ireland and the financial services sector?
The vision behind IFS2020 is to make Ireland the global location of choice when it comes to specialisation or innovation in financial services. How we hope to achieve that is through a five-year strategy which contains annual action plans with specific measures that speak to particular parts of the industry. This will help us to make those gains and really position us internationally as a place to set up and avail of a suite of innovative and cutting edge financial services products.
How we measure progress around that is through job creation. So at the beginning of the plan, there were 36,000 jobs in international financial services in Ireland and we want to grow that by 10,000 over the five years of the strategy. One-third of those jobs are located outside of Dublin, which I think is really interesting. We want to make sure that as we grow financial services in Ireland, we are growing it nationwide and it’s not just something that is happening in Dublin.
The IFS2020 strategy paper includes the requirements for yearly action plans which are comprised of specific measures. Measure 31 for 2016 was the development of a ‘joint strategy paper outlining proposals on further developing and enhancing Ireland’s status as a leading global location of FinTech’… in other words a ‘FinTech Strategy Paper’. For those of us working in FinTech, this is potentially a very positive and exciting development. Can you give us an update on when you think that will be released and also perhaps a preview of what we should expect to see within it?
So we have a really kickass FinTech paper which was just finalised in the last few weeks and it really is a great piece of work that has been done by a really dedicated group of people. Because there are some sensitivities around publishing the paper in full, what we have agreed to do is to circulate it to some members of industry who have been directly involved in the IFS2020 joint committee. We will then publish a summary of it along side our payments strategy paper to give people an idea of where we are going.
The real meat of this is within our action plan for 2017. FinTech and Payments make up ten of the action points and almost a third of our dedicated actions for this year involve speaking to FinTech and Payment companies. Personally, I want it to be a core pillar of our strategy for the 2017 and onwards.
Last year you began a public consultation on taxation of share-based remuneration for which you received many submissions, one of which was from the FPAI (Fintech Payments Association of Ireland). Can you tell us a little bit more about that and what leeway the government has in that area?
Well, it certainly is something that we are looking at and are continuing to look at in terms of how share-based remuneration could be treated and how it could be used in a way to benefit companies. But also how it could help companies to hire new employees where there might be constraints around salaries and things like that. So it’s something we are keeping under review to see what we can do this year.
During 2016 the government ran a public consultation on tax and entrepreneurship. Several suggestions were made such as scaling dividend and reduced Capital Gains Tax (CGT) for entrepreneurs. Some of this was implemented and very much welcomed by the tech sector. What do you now feel is the political appetite for further entrepreneur and investment tax reform given budget constraints and public sentiment regarding reduced taxation rates for businesses and business owners?
It’s a really good question in terms of how much further we can go, and certainly when it comes to the taxes that self-employed person pays versus those that a PRSI worker pays. We are going to continue this year to equalise that earned income tax credit so that there is no discrepancy just because you are self-employed. I think that is going to be a big help.
Generally speaking around taxation, we feel that there is a need to continue to reduce the overall burden of taxation on all people. We don’t think anyone should be giving more than half their salary during a working week. We are going to try and continue to move in that direction. As a result of the changes in the last budget, everyone earning up to 70k in a year are paying an effective rate of just below 49% which is great, but we need to continue to do that work and that is something that we are looking at.
There was also the changes to CGT that you referenced and you know I feel that is a very positive change. People do make comparisons with us in terms of the market in the UK and we are aware of that. However, it’s not so easy for those companies that are setting up here to simply jump abroad. The Brexit decision changes perhaps the attractiveness of the UK regardless of the tax benefits that might be there but it’s something that we will continue to keep looking at to make sure that we have a healthy environment for investment in start-up companies.
We also have things like SARP which incentivises companies to place high-level executives in Ireland with a view to either creating or retaining jobs. What we have actually found from the companies that have done this, is that the effective rate of those employees is actually lower than in the UK. So there are a lot of things happening but we will always be looking at it to make sure we are always as competitive as we can be.
Staying on that topic of taxation for a moment; in broad terms, what do you feel a best in class tax regime would look like for Ireland in terms of FinTech and the wider tech community?
It’s kind of a complicated question because there are a few different levers that you would have to look at. The government is looking at the different levers that we can use from a policy point of view to make sure we are giving these companies the best opportunities. When you look at the FinTech side in particular, you can look at measures that we made last year like EI’s (Eterprise Ireland) Competitive Start Fund, which is exclusively for FinTech companies. We finished that in November and both Ulster Bank and Dogpatch Labs were heavily involved. EI also did a huge amount of work with those companies in addition to the funding they provided. We are hoping to hear very positive and exciting news coming from some of the start-ups that took part in that program very shortly, both in terms of funding and growing their business.
So we can help using policy levers like tax, but we can also help by using agencies like EI to support and mentor new businesses.
You were recently on a trip to the Far East which included Singapore, Shanghai and Tokyo. Can you tell us what was the objective of that trip and were there many positive outcomes?
So this is another way in which the government can use its position to help the FinTech ecosystem. We brought 12 Irish FinTech companies with us on that trip to basically open the doors for them to different business interests, either where they have an existing client and they want to expand that business or whether they are looking for new business.
It’s difficult to understand the importance of that, and I wouldn’t have known that until I had actually done it. But in some countries, having the government with you helps you meet other businesses at the right level. It also acts as a seal of approval for that business with the other government and their businesses. On that trip we were able to bring those 12 FinTech companies into investment banks, the Singapore and Tokyo stock exchanges, as well as making intros to one or two other contacts that we thought might be helpful for them.
Some countries are establishing very direct links between each other in the forms of FinTech bridges. For instance, the UK’s FCA recently signed a cooperation agreement with China as the underpinning of a FinTech bridge. This allows closer ties between the countries and strengthens regulatory cooperation and also boosts market access for FinTech startups. Is that something Ireland is, should, or could be looking at, or was that trip part of that in terms of sealing something for the long run?
Well, it definitely wasn’t a once off trip. I am going back to Beijing and Hong Kong very shortly and also hopefully Japan in May. Part of the work we did when we were over there was to meet with the equivalent of the Central Bank in Singapore and talk about exactly what they are doing in this space. They have recently done something with Switzerland and we wanted to see what potential there was for us. The Central Bank is, of course, independent, but it’s important for us in the Department of Finance because we have that link into the Central Bank which keeps us informed of the potential that might be out there.
So one of the things we will be speaking about in the action plan when it comes out is the establishment of a trialogue between the Central Bank, the Dept of Finance and the FPAI (Fintech and Payments Association of Ireland). This is going to be a forum where we will discuss how best to ensure we are doing everything we can in the regulatory space for FinTech and payments companies.
I don’t think the Central Bank are going to be jumping into the sandbox space immediately, but the purpose of the trialogue is to make sure we are not seen from the regulatory point of view as a jurisdiction that isn’t interested in having a strong ecosystem. So it will be a way of looking at those things while also maintaining the independence of the Central Bank and what the Governor wants to achieve.
One of the most dramatic political developments of 2016 was obviously the decision by the UK to leave the E.U. How much has the overall strategy of IFS2020 had to change since Brexit?
The great thing about the strategy and having this rolling action plan year by year is that it’s flexible enough to accommodate a big event like Brexit. It hadn’t been developed in the thinking that Brexit might happen, but when it did happen we were able to retool the plan quite quickly to take advantage of Brexit where we could.
So for example, on the various trips we took last year, to Asia, New York and Washington and a couple more, we basically retooled our messaging to make sure we were making the right points as far as Brexit was concerned. When we went over to Asia, the goal was always to launch the new IFS Ireland brand and also talk about the associated strategy for financial services in Ireland. However, once Brexit happened, we were then talking about it in the context of the UK leaving the EU. What we were basically saying is this, “if you want a gateway into the European market in financial services, Ireland is the perfect gateway”. We are English speaking, we are a common law jurisdiction, we have huge connectivity with London in terms of the number of flights, and of course the labour relations law is more attractive in Ireland vis-á-vis other European countries. All this makes Dublin and Ireland a great choice when thinking about relocating a business out of London.
So we basically retooled the messaging to take advantage of Brexit to sell even more opportunities. The strategy was always to increase jobs in IFS regardless of Brexit. Brexit just gives us an opportunity to make an even better sales pitch.
In the immediate aftermath of Brexit, I convened a special meeting of the government side of IFS2020 to make sure that we knew exactly what we wanted to do in response to Brexit. One of the great things about the framework is the constant flow of information between industry and government, and that only increased after the Brexit vote. We also made a presentation to the members of the Brexit cabinet sub-committee which includes the Taoiseach about the risks and opportunities we had identified in financial services for Ireland as a result of the vote to leave.
So we found flexibility within IFS2020 to adapt to Brexit and when we look at the action plan for this year, the first section contains a contextual piece about Brexit. There is a clear Brexit theme running right through the document including about 5 or 6 specific Brexit points.
A couple of weeks ago you were quoted as saying that Dublin has already been approached by financial firms in London and some had already held “pre-application” discussions for licenses with the Central Bank. Pat Gunne, the Green REIT chief executive also said that they were getting lots of solid inquiries about office space from London-based firms wishing to move to Dublin. Can you expand a little bit more on that and tell us how many of these are pre-app discussions and how many if any formal applications have been lodged?
I can’t really because that falls to the Central Bank and we have to be always aware of the commercial decisions that are going to be made here and that these companies have responsibilities to their staff, shareholders and customers. What I can say is that we have had a lot of interest around this and we have seen some companies over here doing due diligence and meeting the relevant people. Companies have been in pre-application discussions with the Central Bank and applications have been made but I really can’t say more than that.
If large financial firms and FinTech startups are to move to Ireland, especially Dublin, there are obviously some very critical infrastructure issues such as office space and housing. What has been happening in that space and what developments should we expect to see in 2017?
This is really interesting because we get a lot of the foreign media talking about Ireland in terms of various capacity issues and Brexit. We actually see this as a competitive play from other jurisdictions in order to talk us down. We, however, have realised that we could be doing more to talk about the positives in terms of certain capacity questions that are being raised by other people. When you look at office space there is 3.5 million square feet currently under construction, there is another 1m square feet under refurb and another 5 million square feet with planning approval where construction has not started. So precisely around the time that a firm will be making the move and might need a significant floor space, that office space will be coming online.
We have just opened up a new rail link into Kildare that will help commuter times for people coming in from the commuter belt. We are also looking to increase the frequency of the DART line and are of course also joining up the LUAS lines which will be completed at the end of this year. There is already discussions about a second runway at Dublin airport, so when it comes to transport and office space, there is a huge amount being done. We have a dedicated Minister for Housing, he has a housing plan and we are expecting to see significant gains this year in terms of new supply coming online. I think all the indicators are pointing that way as well.
So at the point in time at which there might be a call upon our infrastructure because of Brexit, we actually think that those pinch points that currently exist at the moment will be resolved. In terms of large companies moving operations over here, a couple of beachheads might be coming across in 2017 but if something substantive is happening we are really talking about mid to late 2018. And all those things I’ve mentioned will be online by then so we really don’t think it’s going to be an issue.
Of course, we are also not looking to make Dublin the single receptacle for IFS businesses that might be coming our way as a result of Brexit. I have had discussions with companies and they are not actually looking at Dublin, they are looking elsewhere. There are huge opportunities for places like Cork to stand up and say ‘Yes, come here because we already have a great infrastructure and great companies doing great work’. You also have Galway and Limerick who are trying to get into this space and absolutely, why not?
It was also reported recently that Ireland has signalled to several large investment banks that it would be reluctant to host large trading operations due to the potential for systemic risk. Obviously, that is ultimately a matter for the Central Bank, but could you comment on what you see as the potential opportunity and potential risks that housing these operations could have?
Good businesses and good companies want a good regulator. No-one wants to work in a weak regulatory environment where there could be a risk as a result of who else was in the ecosystem with you. We have an excellent regulator, an excellent Central Bank and an excellent Governor with an excellent reputation and they will make the decisions in terms of what risks they think they are willing to take on. I think it’s only appropriate and common sense that a Central Bank will only take on the risk that it thinks is appropriate.
Insofar as we have a role in the Department of Finance in terms of strategy and everything else, the important thing that we are hearing from the Central Bank is that they have the resources that they need. And where they don’t feel they have the resources, they will hire in those resources. They have already said they are looking to hire new people into new areas of the bank and they are going to be increasing their person power to 1800 people over the course of this year. And they have the funding to do that. The governor has also said that where he needs to, he will draw down resources from the ECB under the Single Supervisory Mechanism (SSM).
We anticipate that there will be a need for certain companies to relocate in order to be able to access the single market and we are talking to people at every point in the value chain and in every aspect and part of the financial services industry about the potential to move here both big and small players. We will continue to have those conversations to make sure they are aware of the benefits of relocating here and the risk element will be for the Central Bank to handle. However, in terms of the engagement that I have had with companies who have been engaging with the Central Bank, what they have been very appreciative of is the responsiveness and professionalism of the Central Bank and also the clarity they have been able to give. They fully respect the mandate of the Central Bank, they want a regulator who is on top of exactly what it is they do and we have only heard positive things in that regard.
Another positive initiative that was born from IFS2020 was the inaugural European Financial Forum that took place in January 2016. How successful was that event and what do you hope to be achieved from this year’s event which takes place this month?
It was very successful in 2016. It was the first time we had done something like that and over 600 people came from around the world to talk about the future and to talk about financial services in Europe. Doing that in Dublin was obviously a chance to showcase what Ireland has to offer. This year’s event takes place in Dublin Castle on Jan 24th.
If you look at the lineup of speakers, it’s a very impressive lineup and I think it’s going to be a very exciting forum this time especially as it’s coming at a very important time in terms of the Brexit process. We are seeing a huge amount of interest from abroad. This year there is going to be a particular Asia focus and a particular FinTech focus as well. It’s going to be a bigger event this year where we are going to have people and companies showcasing throughout the event. For instance, Deloitte will be there to showcase their blockchain lab, there will be lots of other stuff happening at the edges of the event and EI will be organising two specific FinTech events on the day before. So it’s going to be bigger, it’s going to be more exciting and it’s going to be more relevant.
While the Government and the Financial Regulator clearly wield a lot of power, the full responsibility for helping Ireland to become a FinTech hub should not rest solely with them, what do you feel are the wider steps we need to take as individuals, as companies and as organisations to ensure Dublin and Ireland continues to grow as a FinTech hub?
We have great engagement with the industry and with the FPAI through the IFS2020 strategy and the structures that manage that. So the industry is certainly already helping and we really appreciate that. People just talking about what is going on is incredibly helpful and making sure people know about the European Financial Forum so that they come here and see what we are doing in the FinTech space but also for the potential to create relationships that benefit them and us in the future. So you know, you guys taking the initiative and coming in here and interviewing me and spreading that out through your networks is really great. It helps us get the word out there about Dublin and Ireland in terms of what a great place it is to start and grow a FinTech business.
The marketing role for Ireland has never fallen just to the government and we continually see that even to this day. We saw that with FDI (Foreign Direct Investment) throughout other sectors in terms of bringing business into Ireland. We also saw it with the program that was launched during the crises in terms of reaching out to the diaspora. That networking with friends and business associates within other markets is incredibly important for Ireland as a whole.
They can also help in terms of promoting the IFS Ireland brand, you know not everyone will know what EI means or IDA means. So what we are trying to achieve is that when people see IFS Ireland they will know what it means in terms of innovation in financial services and all the cutting edge things we are hoping to do through the rolling out of the action plan as well as different parts that are in the FinTech strategy paper that will be rolled out soon.
Looking forward to 2017 and beyond, how positive are you about Dublin and Ireland as a FinTech hub and what are the main objectives which you personally wish to achieve in your role between now and the next election?
For me, as I came into politics, I had already developed an interest in technology. Not necessarily on the FinTech side but more in terms of how we can use technology to rebalance the power relationship between the citizen and the state. Things like the provision of information, greater transparency, giving people a more efficient way to interact with the State and giving them more ownership of the State. Since I have come into this portfolio, I have had a new opportunity to look for the first time at an area that I didn’t necessarily have a grasp of before. I see the possibilities for FinTech to not just help us modernise our financial system in terms of protecting the individual from things that have happened previously, but also empowering individuals in terms of their own finances or their ability to start up their own company.
We already have a great story in tech and also in finance, so when we look at the Dublin perspective in terms of bringing tech and finance together, it just makes a lot of sense. We already have a great history in terms of MedTech and Pharma. And in terms of US companies operating in the single market, it just seems like it should be a no-brainer that we are able to do that. Not only for US companies but also for the Asian economies. Being their gateway into Europe when it comes to financial services and particularly FinTech is something we will excel at.
So how we will do that and how I will be able to say I think we did a good job?
Well, we measure it informally all the time just through general awareness from people about the grunt work that we are doing. We are also demonstrating that FinTech is a policy priority for our office and our ability to make introductions for Irish companies into foreign markets and help them grow and prosper is getting better all the time. The more tangible measure, of course, is through the action points in the action plan. Through this plan, we meet on a quarterly basis to ensure we have our traffic light implementation that is all green. All green means we are hitting our FinTech targets, our payments targets and our wider financial services targets.