Despite increasing costs and some staffing issues, many companies are still looking to relocate to Dublin. This month's roundtable looks at the reasons behind the jurisdiction's continued growth
For the past 10 years Dublin has been transforming itself as an international finance jurisdiction to become a major centre for the cross-border distribution of products.
This month's International Investment Power Hour looks at the reasons behind this growth and the problems the country still faces. On the panel were David Healy, managing director of Scottish Equitable International, Kevin Hynes, business development manager of the Irish Investment and Development Agency (IDA), Dermot Butler, chairman of Custom House and Jennifer Walshe, head of legal and compliance at Norwich Union International. Chairing the discussion was Tanya Bird, former editor of International Investment.
What has been the main driver of growth in the Irish financial sector?
David Healy (DH): Scottish Equitable International initially set up in Luxembourg 11 years ago because Dublin was not developed enough to sell products across Europe. However, we found the regulatory environment in Luxembourg restrictive in terms of the types of assets we could hold within a portfolio bond.
We decided to move to Dublin five years ago when it began developing as a finance centre. The laws were similar to that of the UK and, back then, the centre had a low tax rate and had the necessary legal and accounting infrastructure in place to be able to set up the products, compared to other jurisdictions such as the Isle of Man. However, this situation is starting to change. Dublin's operating costs have increased and it is now considered just as expensive as London.
Kevin Hynes (KH): Despite the higher costs, there has been a movement towards service providers moving into Dublin. In the past 12 months, the industry has grown by 11% and around 20,000 jobs have been created.
What about in five years time?
KH: We see growth continuing, but there has been a trend towards businesses starting to relocate outside of Dublin to help reduce costs.
What about in the hedge funds?
Dermot Butler (DB): There has also been growth in the Dublin hedge fund industry. However, costs as well as finding educated staff are issues. Foreign institutions that wish to establish a base in Ireland are setting up in Cork and Galway because Dublin has become too expensive.
Although there has been some difficulties in finding staff this has been eased by hiring Eastern European workers who have come to Ireland to study. As we have many clients in different areas around the world, it is useful to employ staff that have language skills in these areas.
What do you think of the regulation in the country?
Jennifer Walshe (JW): The regulation in Dublin is very good and the regulator is very pragmatic. Being part of the EU means Dublin is subject to all the European directives (covering such areas as solvency margins), which provide investors with a level of comfort in relation to how companies are being managed.
To date, there has not been a failure in the Irish insurance market and the regulator works on the basis of prevention. Also, should an Irish company be unable to meet its liabilities, there is the added advantage that certain UK investors who buy Dublin-based life products will be covered under the existing UK compensation scheme.
Norwich Union International decided to operate out of Dublin because it is part of the EU and permits us to distribute within Europe, although the UK is our main market. We did not consider the Isle of Man because it is outside the EU and could not be used as a base to distribute into Europe. Other places, such as Gibraltar, did not have the necessary workforce and infrastructure in place to be able to operate from effectively.
Culturally, who is likely to buy Irish-domiciled products?
DH: UK-based high net worth individuals who are seeking tax planning opportunities. There are also some niche opportunities to sell into Europe.
What are the negative elements in Ireland?
DH: The cost of the labour force has risen a lot over the past few years. Furthermore, it can be difficult to recruit people such as actuaries, fund accountants and IT staff. To find people in these fields can be a challenge, but we believe it would be more difficult to do this from the Isle of Man.
Are you recruiting locally or abroad?
DH: We have recruited locally, but also have some Australian and New Zealand staff. Scottish Equitable International is not looking for language skills because the company only sells back into the UK.
JW: Although it has been difficult to get compliance staff, Ireland has the infrastructure in place to train people. For example, the Association of Compliance Officers in Ireland has introduced exams so people can obtain qualifications.
KH: Banks have also been liaising with education institutions to explain about career paths. These groups have highlighted compliance as a career choice.
What are the benefits of operating outside of Dublin?
KH: There are lower operating costs outside of Dublin. Ireland is only a small country, so it is quite acceptable for staff to travel outside the city for work because it only takes three hours to drive across. In addition, a lot of people can work in Dublin but be based outside and travel in. With the high costs of property more people are looking to relocate outside of Dublin.
What are the tax benefits in Ireland?
KH: For companies, tax on profits is quite competitive. Corporations are taxed at 12.5% on profits, which is quite an attractive rate. Personal tax is the standard 20% with the higher rate tax being 42%.
Do you think the fund industry is equipped to deal with much more growth?
DH: A lot of universities are gearing up to create qualifications for people who want to work in the finance industry. Dublin is reacting to change so it can continue to grow.
DB: In the hedge fund industry there is a real need for smaller independent hedge fund administrators because bigger institutions only handle bigger clients. Around 70% of hedge funds are less than $100m in size, but bigger institutions only deal with $200m so the demand is tremendous.
KH: At the IDA we have seen continual interest from fund companies wanting to move to Dublin. We have been in talks with two or three companies that have indicated they want to establish a base in Dublin because it provides access to Europe.
DH: On the life side, I know of a number of big US companies that are close to getting approval. Another UK competitor has made the decision to set up in Ireland. Companies are attracted to the jurisdiction because it is bigger than the Isle of Man and Luxembourg and they like the infrastructure support the country can provide.
DB: However, there are some issues with hiring staff from other countries who are studying for qualifications. If they fail their accountancy exams they can face problems in remaining in the country. A foreign student must complete their exams within three years or they may have to leave the country.
KH: The industry is trying to lobby for a green card system so they can bring in their family to make it easier for companies to find educated workers. Work permit schemes exist for people from Canada, US and Australia, but anyone who is resident in Europe can come to work in Ireland.
DH: There have also been problems in taxation remittance for foreign workers making it more expensive for companies to bring out senior management. For example, an executive in the US who comes to work in Ireland can still get taxed on US money and face a double tax charge. This may have an impact on companies deciding to set up here if they can not bring in their senior people. key points
Dublin has transformed itself as a financial centre in the past decade
Life and fund companies attracted to the jurisdiction because of favourable regulatory environment and cross-border distribution to Europe
Costs of living in Dublin and finding educated staff is causing some problems for the industry
Achievements, charity work and other happy snippets
Laughable excuses for persisting
Spent 56 years at Schroders
Warns on profits