Ireland has warned some of the large investment banks about its unwillingness to host trading. Despite that, Dublin still aims at drawing British financial sector even after the country exits the EU.
Host trading is considered one of the riskiest operations for any bank. So after Ireland’s 2008 banking crash that was followed by many unpleasant consequences, it decided to stay away from such operations.
The Central Bank of the country stated that it will be extremely hard to get the government approval for such procedures. The reason is the huge sums of money involved that are much bigger than the country’s economy can afford. The information was given by the banks representatives to Reuters.
One of the investment banks said that Ireland aims at being totally realistic about its desires and abilities. If any other country has gone through what Ireland has, it wouldn’t want to take risks again for sure.
The US, British and Swiss investment banks are seeking to secure access to EU markets after Britain leaves the bloc. The main issue is where they will trade and clear European securities, euros and other market activities controlled by EU regulation.
Such trading carries high risks and large balance sheets, meaning regulators must supervise the banks’ trading models closely. This, along with the scale of the business, has prompted the cautious response from Dublin, the sources said.
A spokeswoman for the Central Bank said there was no blanket policy of turning certain types of business away. “The central bank is open to engagement with any firm wishing to obtain an authorisation,” she said.
However, another banking source said Dublin had specific types of financial business in mind. “Yes, Ireland wants insurers, asset managers, back-office functions . . . but they don’t want big balance-sheet risk. They just don’t want to take on that kind of risk and feel that they don’t have the regulatory bandwidth to do that,” the source said.
Reuters asked the five largest US investment banks — JP Morgan, Goldman Sachs, Bank of America, Morgan Stanley and Citigroup — as well as Barclays and Credit Suisse, who have some operations in Ireland, whether they were still considering Dublin. All of the banks declined to comment.
Global banks have traditionally based their European markets businesses in London, which is by far the EU’s largest financial centre.
However, when Britain leaves the EU companies based there are likely to lose the “passporting” rights which allow them to operate across the union but under the supervision of only one member state’s regulators.
This has prompted cities such as Dublin, Paris, Amsterdam, Luxembourg and Frankfurt to try to attract banks, insurers and fund managers. Ireland is presenting itself as the only English-speaking country that offers a base in the eurozone and a future in the EU.
Kieran Donoghue of IDA Ireland has described Brexit as a “historic opportunity” for the Irish financial sector.
Ireland is already one of the world’s largest centres for back-office banking functions such as settling transactions and has a growing financial technology sector.
Philip Lane, the governor of the Central Bank, told Reuters in October that his office had seen a jump in inquiries from financial services companies since Britain voted to leave the EU in June. However, he said he doubted that activity would cluster in a single eurozone city because none offered a substitute to London.
Central bank officials have also said that the authorisation process for companies wanting to set up in Ireland cannot be short-circuited and that board and management positions would need to be located in the country.
“A lack of specialised supervisors and the risk of sophisticated investment banking to the state makes Irish regulators reluctant to host such banks in Dublin,” said a person familiar with the Central Bank’s thinking.
“It has been a worry for a while. It is difficult to find enough regulators. A growth in highly sophisticated financial services companies would be a real worry.”
Under EU “bail-in” rules introduced since the global crisis, investors and uninsured depositors rather than governments will have to fund any future bank rescues.
Nevertheless, the source said that the risk to the taxpayer was also a reason for concern.
This year Credit Suisse became the first global investment bank to set up a trading floor in Dublin with about 100 staff, about 40 of which are trading positions.
The approval process for that very specific and narrow trading licence took between three and four years from the initial planning stage to final approval, a source said.
Banks would want to be able to move other, larger types of trading operations much more quickly as Britain is expected to leave the EU in 2019.
Citigroup has denied a report that it was planning to move up to 900 jobs from London to Dublin as a result of Brexit, although it already has a large Dublin unit providing some banking services. It would need to host large trading operations in a separate entity known as a broker-dealer under US regulations.