Central Bank governor Philip Lane said that it is essential that, even if firms with significant exposure to Brexit are hoping for a “soft type” of UK exit from the EU, they are prepared for downside risks.
“While many firms are moving forward with Brexit preparation plans, the final impact on Ireland as a host for international trade in financial services will depend on the outcome of the EU27-UK negotiations, with the nature of the duration of the transition arrangements an important factor in determining the speed of adjustment,” Prof Lane told the European Financial Forum conference in Dublin on Wednesday.
He said that, as the negotiations move forward in the coming months, the Central Bank and wider European financial supervisory system will be “agile” in responding to the regulatory implications of a new trading relationship between the UK and EU.
The Central Bank governor reiterated that his institution’s view that Brexit will have a long-term negative effect on the Irish economy as it leads to “trading frictions” between the UK and remaining EU states as well as affects the UK’s long-term economic performance.
Taoiseach Leo Varadkar told the third annual such gathering in Dublin of international and Irish bankers and insurance and asset management executives that the Government “is very keen to do whatever we can” to win more financial services as a result of Brexit.
While banks such as JP Morgan and Bank of America, insurers like Beazley and asset managers including Legal & General have announced plans to move activities to Dublin, there is a view in financial circles that Ireland is trailing cities like Frankfurt and Paris in the race head of the UK departing the EU in March next year.
Gerry Cross, director of policy and risk at the Central Bank, told the conference that while there was “significant concern” that supervisory arbitrage would “break out” among European countries competed for Brexit-related activities.
Addressing concerns that European regulators’ insistence that firms moving activities from London to maintain access to the single market would have to duplicate systems and operations to ensure that they placed substantive operations in the new units, Mr Cross said it’s about getting the right balance.
He said authorities such as the Central Bank of Ireland need to make sure there is “appropriate substance” in regulated business for supervisors to do their work. “Having said that it is very important that we don’t go further than that,” he said.