Opening address – Implications for Financial Services
Royal Irish Academy, Dawson Street, Dublin 2
Introduction
The Honorary Mr Justice Max Barrett, the Honorary Mr Justice John Cooke, distinguished guests, ladies and gentlemen. I’m delighted to have the honour of opening what is the first in a series of Brexit-themed events that the Irish Centre for European Law will run in 2017. And my thanks to Anne (Fitzpatrick) for organising today’s event.
Looking at this morning’s list of speakers I note a line-up aiming to thoroughly interrogate Banking Union and the legal challenges and opportunities emerging from the disruptive ripple effect of the UK Referendum.
Today’s discussions aim to improve our understanding of the waves of uncertainty that have been hitting our shores with increasing frequency since that fateful day in June. Today is, in a phrase, about getting to grips with the law of unintended consequences.
Last week in London Tony Blair struck a chord in his controversial intervention in the Brexit debate. Amongst other things he spoke of the fluid narrative that has characterised the public discourse in the run in to the start of the Article 50 negotiations.
He described how first a soft Brexit with full access to the single market was mooted – that’s gone – then access to customs union was moved – that’s gone – the focus then switched to how ‘hard’ a Brexit – and indeed that’s gone since Prime Minister May laid out her stall last month. Now Blair considers it to be a question of ‘Brexit at any cost’ for the UK.
Against such a revolving backdrop, for this jurisdiction it is thus a question of continually reassessing the implications of a moving and ill-defined target. I will return to the import and implications of a ‘Brexit at any cost’ later.
With the expectation that Prime Minister May will trigger Article in the coming weeks, the Government has clearly established our headline priorities:
1. Minimising impact on trade and the economy
2. Protecting the Northern Ireland Peace Process
3. Maintaining the Common Travel Area
4. Influencing the future of the European Union.
I will briefly touch on those two priorities most relevant to the area of financial services.
The first concerns adapting to the new economic realities and trade relations that will define our relationship with the UK and within the European Union.
The second is our responsibility, given the size, sophistication and global reach of our International Financial Services sector, to provide leadership in shaping future EU financial services policy.
Our preparation to date includes extensive contingency work done before the UK referendum coupled with intensified analysis and enhanced scenario planning carried out across all key sectors since, and extensive stakeholder consultation and engagement.
The overarching approach being to address challenges and opportunities by hoping for the best outcome, but prudently anticipating the worst. This applies to financial services for two reasons.
First, our successful development of a large financial services sector –measuring twice the size of the European average and employing over 90,000 people in domestic and international financial services – is built in large part on access to the European Single Market.
Evidence of this is found in the large and well-established international funds sector, a world-class aviation finance sector, a strong international insurance sector, and our rising reputation as a European fintech and payments hub.
Similarly it is reflected in the extent of our domestic banking sector’s operations in Northern Ireland and in mainland UK.
Second, our proximity to, and similarities with the UK, will ensure that Ireland’s offering as a specialist financial services centre will continue to complement London as a preeminent international financial centre.
We will continue to work closely and successfully with the City of London in the new and changed environment – a relationship on a different level which will mutually support both jurisdictions and, most importantly, the companies conducting businesses in both locations.
Protecting and leveraging these strengths and advantages are central to repurposing the Government’s International Financial Services strategy – IFS2020.
Launched in March 2015 – in what now seems a lifetime before the UK Referendum – the Strategy is designed to adapt to market and regulatory developments as they occur, whereby such inbuilt flexibility lends itself to the highly contingent demands of Brexit.
The Strategy is reviewed and updated annually. Where our 2017 Action Plan was launched at last month’s European Financial Forum in Dublin Castle.
This iteration places a strong emphasis on Brexit and is fully integrated into the wider cross-Government Brexit contingency planning. Brexit both underpins the Action Plan 2017 and features in many of its 40 specific measures to be actioned in 2017.
The Strategy is a living document capable of evolving over time to ensure that we remain flexible and agile to deal with any emerging opportunities and challenges.
An example of which, from a domestic policy perspective, is work on Investment Limited Partnership legislation, as reflecting the need to update and renew our legislative framework to enhance Ireland’s offering internationally.
While, in terms of supporting implementation structures, the rotating membership of the Industry Advisory Committee reflects the changing nature and composition of Ireland’s International Financial Services landscape.
More widely, and perhaps more relevant to today’s discussions is the Government’s headline priority to ‘influence the future of the European Union’.
As Professor Tridimas will acknowledge, Ireland as a core member of the EU and the Eurozone, played a very significant role during our 2013 Presidency of the European Union in building consensus around Banking Union as an essential pillar of economic and monetary union. This comprised stronger capital rules, rules for bank wind downs and the creation of a Single Supervisor.
On this last point, as Sharon Donnery of the Central Bank will no doubt touch on, Banking Union’s supervisory aim is to protect against cross-border capital flows generating significant sovereign and private sector imbalances throughout the EU, thus inflating asset price bubbles in a number of Member States including our own.
This remains a recent and sobering reminder of the importance of our membership of the European Union, and of our ability to inform and influence the policy direction of travel.
It illustrates why Ireland must continue to be a leading voice in the shaping of financial services policy and legislation at EU level.
No longer having the UK at the EU table presents a significant challenge to Ireland in the future development of financial regulation. We must now turn to the future and build new and different alliances within the EU to advance our legislative priorities and highlight our concerns.
No easy task but one we must work with all stakeholders to advance.
I’ll now return to the earlier point of what Tony Blair terms ‘Brexit at any cost’, and what this may mean for Ireland and the EU in the fast approaching Article 50 negotiations.
And while not wishing to rehash well-worn arguments as to what drove the UK electorate to vote to leave the EU, much commentary has attributed it to the wider global narrative of distrust in independent sources of authority and a repudiation of objective fact.
In this light 2016 can be viewed as the year when the UK posed the question – what does the decision to leave the EU mean for the UK, and can be considered to have answered it with a response of “to exit for exit’s sake.”
On this basis this year, 2017, will be the year when the EU must ask itself the question – what does the UK’s decision to leave mean for us?
Our answer must not be to retreat from the principles of the European community, but to renew them. Our approach must seek mutually beneficial outcomes and not adopt a “zero-sum” attitude.
The Brexit decision is disruptive to the European Union. For Ireland in particular, it now challenges what were once closely held certainties.
This wasn’t our choice, but we can’t escape the decision. And we shouldn’t try to. Not in Ireland, or in the UK, or in Europe. We have to meet the challenges head-on and navigate them in the best interests of our people.
For Ireland, we seek to position ourselves as a pillar of sense in the Article 50 process – seeking a positive outcome for both sides, while naturally protecting our own unique interests.
And while we might not be able to achieve certainty now, we must place a very high value on order. Particularly where a ‘Brexit at any cost’ approach to negotiations heightens the risk of an early and very disorderly breakdown in discussions.
We must ensure an orderly process to the Article 50 negotiations. That should be the very least that our people expect from us across the Union. To ignore all the noise and to manage the task at hand.
Most urgent is the task of agreeing an initial transitional arrangement, in particular so that we maintain the security and integrity of our international financial services throughout this process. The financial infrastructure on the continent may change, but we must not risk weakening it.
A transitional arrangement will secure us the time, the understanding and the order needed to conclude the Article 50 process and any subsequent negotiations in a calm and rational manner.
A transitional arrangement avoids the brinkmanship of a cliff edge that could play out at any point of disagreement in the negotiations, or as the end of the process comes in to view in 2019.
I am hopeful that the European Union, as the most advanced and successful embodiment of multilateralism, and guarantor of peace in Europe for 60 years, will navigate such a course.
To quote from Javiar Solana’s recent speech at the Munich Security Conference – addressing a different type of uncertainty in the form of global insecurity – who noted how the EU, as embodying “inclusion, cooperation, and democratic values [has, despite its flaws] proved time and again how differences can be resolved peacefully and constructively.”
Sense, prudence, pragmatism must guide us – not populism, or posturing that ultimately might damage what we seek to protect.
I wish you well with your discussions and I look forward to receiving a read out of today’s proceeding.