Ireland defends its asset management and fund servicing industry
Ireland’s banking system and its wider economy has attracted a lot of bad press, raising questions about how its recently thriving asset management and fund servicing industry will be affected.
In the space of 72 hours on 18, 19 and 20 April, Ireland suffered three body blows to the reputation of its banking industry. The country’s five major banks were downgraded to junk status, Moody’s dropped its sovereign bond rating one notch, and Finnish banking expert Peter Nyberg issued a damning report on the banking sector in Ireland.
The report collectively blamed Ireland’s regulators and politicians, as well as domestic and overseas investors, the public and the media for the speculative hype that ultimately brought the country’s banking system to its knees.
The report said it was “almost unbelievable that intelligent professionals in the banking sector appear not to have been aware of the size of the risks they were taking”.
And those moves were only a fragment of the negative press the country’s financial services industry has had to endure since December 2010.
But its asset management and fund servicing industry can emerge unscathed, argue representatives from both the Irish Funds Industry Association (IFIA) and Dillon Eustace, the country’s number one funds law firm. They say these sectors are even in a position to capitalise on the deleveraging of assets and reallocation of resources now needed by its banking sector.
“Notwithstanding what’s going, the asset management industry is significantly separate and discrete from other business and activity economic considerations in Ireland,” says IFIA chief executive Gary Palmer. “There is neither a correlation nor any touchpoints between that industry and the wider economy.”
Irish funds are promoted and managed by international managers, while the assets themselves are non-Irish and they are held by international custodians, he says.
“Their life cycle in Ireland is as a legal entity, and for the servicing of the investment fund.”
In the past, tax efficiency for that structuring has been Ireland’s selling point, drawing the investment industry to use the jurisdiction to service its funds. But Ireland’s favourable 12.5% corporate tax regime is one of the biggest criticisms being made about the jurisdiction, especially in the context of its ailing economic fortunes and its bailout by the European Central Bank (ECB).
Of all member states in the EU, Ireland holds the largest share of ECB funding. According to statistics issued by the ECB in February 2011, Ireland needed €116.9bn, or a quarter of all the funding it supplies, higher even than Greece.
Worse still, Ireland has admitted it needs more funding. On 31 March, it emerged Ireland’s five main banks – AIB, Bank of Ireland, EBS, Anglo Irish and Irish Nationwide Building Society – collectively needed an additional €24bn. A presentation given by representatives from Ireland’s financial services industry on 15 April revealed how much more dire the situation has become.
Once emergency liquidity assistance to the tune of €70bn is factored in, and an additional €40bn for non-Irish banks in Ireland, the overall figure it requires from the ECB is €140bn, rather than €116.9bn.
Within that context, it has become harder for the country to justify its corporation tax. But, says Palmer: “There is no sense of it changing it all. The industry and the government are aware of the significant importance of having an appropriate tax framework.”