IFSC Strategy 2011

Strategy for theInternational Financial Services Industry

in Ireland 2011-2016

Department of the TaoiseachRoinn an Taoisigh

1Foreword

The Programme for Government statesthat the Government supports the future development of the IFSC as a source offuture employment growth, subject toappropriate regulation and commits to thedevelopment of the financial services sector to maximise employmentopportunities, not least for staff leavingemployment as a result of downsizing inthe domestic banking sector.

The Clearing House Group, which bringstogether representatives of all aspects ofthe international financial services sectorin Ireland, together with representatives ofGovernment departments and public bodies concerned with the sector, sharesthe conviction that there is scope for development and employment growth ona significant scale. It has prepared a strategy that has been framed on the basisof an objective to create more than 10,000net new jobs, to protect existing employ-ment and business and to consolidate thesector as a key driver of the Irish economyover the next five years.

This strategy has been developed on thebasis of extensive analysis and consultation carried out across the fullrange of international financial services. Itreflects market trends and the businessopportunities to which they give rise, aswell as the established strengths andcapacities for development in the industry,its advisory and supporting networks, andin the broader labour force available inIreland.

It is a strategy which recognises and fullysupports the critical importance of a credible, responsible and proportionateregulatory system whose own capacity andreputation provides, in itself, a source ofcompetitive advantage for this jurisdiction,attracting reputable, responsible and sustainable financial services activity.

It is a strategy which also calls for the continuation of the consistent, responsiveand well-informed policy framework within which business generally, andfinancial services in particular, can bestdevelop. It recognises and sets out the contribution to be made by all of those,across the public and private sectors, whohave a contribution to make to theachievement of the targets at the heart ofthis strategy.

These targets are challenging butattainable. They will require a clear senseof vision, a determination and pace ofimplementation, a focus on the specificoutcomes which are articulated in thestrategy, and an implementation processwhich is flexible and attuned todevelopments in the operating environment, internationally as well asdomestically.

The strategy has been developed as aresult of co-operation and engagementbetween the industry and the variousstrands of the public service representedon the Clearing House Group and its individual Working Groups. This strategy isadopted by the Government having beendeveloped by the Clearing House Group.

With a renewed mandate from theGovernment to drive the implementationof this strategy, to monitor its progress andto adapt it to changing circumstances, theClearing House Group can continue to actas an effective forum to drive the achievement of the targets set out in thestrategy and achieve the potential of theIFSC over the next 5 years.

Enda Kenny T.D.Taoiseach

n impact of the decline in the sovereign ratingn reputational damage suffered as a result of domestic issuesn risk of disproportionate or inappropriate regulationn impact of high personal tax rates on the ability to attract and retain highly skilledmobile personneln pressure on the supply of skilled workers in specific areas

New forces and increased international competition are driving the development ofestablished and emerging financial centres.Fundamental aspects of the Irish value proposition for international financial servicesmust be addressed to reflect these changes.For the IFSC to continue growing, the decisionto locate business in Ireland must meet theexpectations of investors, customers and governments.

The reputation of jurisdictions has assumedan increased prominence in firms investmentdecisions and the competitiveness of financialcentres.

Across all international centres, an increasedemphasis will be placed on the adoption of anappropriate regulatory approach, reflectingthe profound impact the crisis has had on thereal economy, and the need to maintain goodgovernance and the potential for businessdevelopment.

Irelands position as a financial centre hasbeen built on full engagement with its international partners and the fulfilment ofits international obligations. Irelands future isas a member of the EU and the euro, andnotwithstanding the challenges faced in itsdomestic economy, can and will continue todevelop the IFSC as an engine for growth andrecovery.

Ireland has succeeded in building an international financial services industry that isdiverse in the activities carried out, and enjoysa world-leading reputation in several sectors.While the past three years have represented asevere stress test for all financial centres, IFSCfirms have shown resilience and flexibility.Employing 33,000 directly, and many moreindirectly, the IFSC remains critical both as anemployer and as a centre of economic activity.

The goals for the coming years are to protectjobs and economic activity and to ensure thatthe sector continues to grow and prosper. Thiscan only be achieved by providing an internationally competitive environment forthe development of sustainable, responsible,enduring and profitable business. While thefoundations of success remain in place, theenvironment and the marketplace are very difficult and continual improvement is essential to protect and create jobs.

While there is potential for job creation, if noaction is taken, existing jobs will certainly belost. Yet an opportunity exists to positionIreland to take advantage of a period of global change to significantly increaseemployment and activity, and for the IFSC tocontribute substantially to economic recovery.

As part of this review, a comprehensive examination was undertaken of the relativestrengths and weaknesses of Irelands financial services sector. The conditions thatled to Irelands growth during the first phaseof the IFSCs expansion have changed.

During that period, the greatest challengewas the control of costs. While domestic economic developments have nowsignificantly improved cost competitiveness,other factors now need to be addressed,including the:

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STRATEGY FOR THE INTERNATIONAL FINANCIAL SERVICES INDUSTRY IN IRELAND 2011-2016

Environment for Growth

The strategy sets a single, credible target: create morethan 10,000 net new jobs, protecting existing employment and business, over the next 5 years, builton sustainable and responsible foundations.

31. Transparent and competitive direct and indirect tax framework

2. Credible, responsible and proportionate regulatory regime

3. Development of new business lines

4. Coordinated international engagement and marketing

5. Integrated support for investment and growth

6. Targeted development of appropriate skills

7. Sustained control of business costs

The achievement of this goal is dependent on the following key drivers:

Personal tax rates are critical in attractingkey, highly skilled personnel to work inIreland. These personnel create significantnumbers of additional jobs and are essential to generate new business anddevelop indigenous skills. Internationalcompetition is intense, and other jurisdictions aggressively incentivise theattraction of these skills, through remittance bases and other measures. Inlight of this competition, changes to thecurrent incentive regime will be consideredin order to ensure Irelands attractiveness.

The tax environment will remain responsive to changes in the financial services industry. The Department ofFinance and the Revenue Commissionerswill fully engage and consult with industryto enhance the tax framework, includingthrough the annual Finance Bill process, inparticular to facilitate areas where Irelandcan gain first-mover advantage in developing sustainable business lines.

Ireland has built a streamlined and efficient tax administration system andwill continue to improve processes to keepbusiness overheads as low as possiblethrough the effective use of technology.

A simple, competitive and transparent taxenvironment has been central to fiscal policy for successive governments sincethe 1960s and is the cornerstone of Irisheconomic success.

Ireland is absolutely committed to maintaining its 12.5% corporation tax rate.This commitment is protected in an EUcontext by the principle of unanimity intaxation matters, and is accepted as partof the EU/IMF Memorandum ofUnderstanding.

Irelands reputation as a responsible on-shore tax jurisdiction is essential to ourfuture success; the credibility of our taxregime is a key selling point and will beprotected.

Ireland has consistently practiced goodgovernance in tax matters and fully supports international efforts to promotetransparency and effective exchange ofinformation on tax matters and to addressharmful tax practices.

Ireland has now signed comprehensiveDouble Taxation Conventions with 62countries and the expansion of the network will be a continuing priority.

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Tax framework

1 The Central Bank of Ireland Strategy 2010-2012 is available at www.centralbank.ie

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Regulation: Credible, responsible and proportionate

Irelands future as an international financial centre depends on having a credible, responsible and internationallyrespected regulatory regime 1. As regulatorysystems have been challenged across theworld by the financial crisis, Ireland hasresponded decisively with structuralreforms.

Further development and the building ofincreased capacity will be undertaken toensure that it continues to have theresources to deal with the most complexinternational institutions and the increasing volume of EU and internationalrequirements.

In adopting an approach based on impactand risk, the Central Bank will be balancedand proportionate. This approach allows forthe allocation of appropriate supervisoryresources to those firms whose failurewould have the greatest impact on theeconomy and consumers.

Where both the impact of failure and therisks associated with firms are relativelylow, the approach will be to have an effective reporting framework, a rapid reaction capability and credible enforcement.

The Central Bank will maintain the higheststandards of oversight and will engageconstructively with firms to secure fulfilment of regulatory and supervisoryrequirements. While firms can expectchallenge, they can also expectprofessionalism, cost-effectiveness andspeed. The Central Bank will ensure that asit expands it maintains this approach at alllevels of interaction with firms.

Ireland will align itself with internationalbest practice. The regulatory environmentwill continue to keep pace with otherrespected financial services centres in itscapacity to approve new business proposals efficiently and effectively.

Consistent and timely implementation ofinternational standards is essential for effective regulation and Ireland has a strategic interest in the development of high-quality international regulatory policy.Industry will work constructively with thepublic sector to ensure that Ireland plays amore active role in European and international policymaking.

The development and implementation ofnew requirements will be subject to full consultation and, where appropriate, impactanalysis. Sufficient notice periods will begiven to allow firms to comply where this iswithin the control of the regulatory authorities.

The Central Bank and relevant Governmentdepartments will consider and consult withindustry, other stakeholders and one anotherin respect of the effects of new regulation onthe financial sector and the broader economyand any potential overlap between newmeasures and related existing requirements.

The Clearing House Group will review andmonitor the cumulative effects of regulationand their broader impact.

Government departments are committed toengaging with other Member States andinternational stakeholders to avoid restricting economic growth, and aim totranspose EU Directives in advance of theirofficial deadlines to ensure that financialservices providers have as much time as possible to implement new requirements.

Institutional expertise and skilled staff willform the foundation of effective regulation.The Central Bank is placing greater emphasison fully understanding business models.

The crisis has demonstrated the importanceof finding innovative solutions to problems,and ensuring that financial innovationremains responsible and addressed towardslong-term success, sustainability and stability. Proportionate and appropriate regulation should not stifle responsible innovation.

Ireland has served as the long-standinggateway to the EU for North Americanfirms. As shifts in global capital flowsincrease the importance of emerging markets, there is now a critical opportunityto attract investment from Asia and theFar East, and in particular from China. Theskills and enabling environment to supportIslamic finance will also be further developed.

Ireland will be developed as a centre ofexcellence in green finance and carbon management, through the creation of anenabling, coordinated and supportive environment. This will be achieved throughthe Green IFSC initiative built on anenabling tax, legislative, regulatory andcompliance framework. This will result inthe expansion of many of the existing IFSCsectors and the creation of new areas ofopportunity including carbon manage-ment, IP commercialisation, private equityinvestment and Green Tech fund management.

International payment services has beenone of the key growth segments for financial services over the last decade. Dueto significant advances in technology,security and regulatory initiatives such asthe EU Payment Services Directive and theElectronic Money Directives, the numberand value of payments that are carried outelectronically has risen significantly. Irelandhas a competitive advantage in the areawith strong regulatory and other infrastructure in place, including earlytransposition of the Second ElectronicMoney Directive, and will prioritise capturing a significantly larger share ofthis market.

The development of new business linesand innovative approaches to service delivery is essential to protect and improveIrelands position as a financial centre.Global deleveraging means that activitybeyond traditional balance sheet businesswill be increasingly important for theachievement of growth in the mediumterm. This activity is already growing rapidly, and both firms and the generalbusiness environment must remain agileto take advantage of this growth in theface of aggressive international competition.

Ireland will prioritise its growth as a global provider of vital shared services for international firms. Across areas includingtechnical, legal, accounting, advisory,administration and real estate manage-ment functions, firms can build on thedepth of existing expertise in the servicingof both external clients and parent groupsto promote Ireland as a centre of excellence in this arena.

As a international leader in ICT, and hometo many of the worlds leading technologyfirms, Ireland is ideally positioned as a location where ICT and financial servicesactivities converge, in particular throughthe provision of shared services includingRD&I. This convergence will be supportedby the establishment of a hub for innovative services for finance, includingfraud and AML detection technology.

The strengthening of links between industry, educational institutions and thepublic sector will be prioritised, both toimprove the availability of skills andexpertise, and to position Ireland as aninternational provider of educational services and a centre for advanced study infinance.

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Development of new business lines

7Coordinated international engagement and marketing

The attraction of international business toIreland requires effective engagement withother jurisdictions. The reputation ofIreland as a financial centre has suffereddue to the economic crisis and in theshort-term it is essential that industry andthe public sector engage internationally tomitigate this damage, and to ensure thatan accurate message is conveyed.

Responsibility for the long-term marketingand development of IFSC business lies withboth the industry and the public sector,and spans financial services firms them-selves, professional advisers, Governmentdepartments, Enterprise Ireland, IDAIreland, and the industry associations.Cooperation and coordination between allthese stakeholders is essential to promotea positive image of Ireland.

IDA Ireland will play the lead public sectorrole in the promotion of Ireland through marketing and business developmentactivity, as well as through bilateralengagement with existing firms andpotential new entrants.

Industry has made a significant invest-ment in the promotion and developmentof the IFSC with the establishment of IFSCIreland and the appointment of JohnBruton as President to serve as an interna-tional ambassador for the industry. Thetrade associations will remain activelyinvolved in the organisation of overseasmarketing events, meeting potentialinvestors on visits to Ireland, and profilingthe industry in foreign and domesticmedia.

The Department of Foreign Affairs will playa key role in the dissemination of informa-tion through the embassy network, andother stakeholders will ensure thatinformation is provided in a timely manner.The public sector will engage with theindustry associations to support theacceptance by rating agencies and foreigngovernments and regulators of the fundamental difference between thedomestic economic situation and the stability and security of IFSC firms.

Effective international relationships andengagement are vital in areas includingthe development of tax treaties,Memoranda of Understanding and otherregulatory communications. A list of priority jurisdictions will be agreed in consultation with industry to assist in theprioritisation of work in this area.

Mutually beneficial initiatives on a North/South basis will be explored, in particularto ensure access to as large a financialservices skills pool as possible. This willbuild on the arrangements in respect ofundergraduate training that already exist.Enhanced engagement between industryand educational institutions will includethe appropriate authorities and institutions in Northern Ireland, and common North/ South initiatives will bepursued where possible.

The business and regulatory environmentfaced by firms in Ireland is increasinglydriven by EU developments. The newlyestablished European SupervisoryAuthorities (ESAs) will further influenceboth the operation of the Central Bank andthe firms established here. As a leadingprovider of cross-border financial servicesin the internal market, the impact of EUmeasures may differ in Ireland from inother Member States where firms service aprimarily domestic market. Ireland willmaintain an effective voice to ensure thatthe functioning of the EU internal marketin financial services is not undermined.

Greater engagement between firms,Government departments, the CentralBank and industry associations on EUissues will ensure that those involved indeveloping any EU measures are aware oftheir potential impact on the Irish financialservices industry. Industry associations andfirms will also increase and improve theirengagement with EU bodies and the ESAs,particularly via contributions to consultations and open hearings.

IDA IrelandIDA Ireland is fully committed to the further development of the internationalfinancial services industry, and over thepast two years has invested heavily inIrelands ability to attract and developfinancial services firms. The IDA willemploy its full suite of service and productofferings to encourage further inwardinvestment into the sector and to supportthe continued development of existingclients.

The IDA evaluates its performance and prioritises resources based not only on the quantity of jobs immediately created, butalso by reference to long-term strategic importance of projects to the developmentof the IFSC, the quality of employment,potential tax contribution and protectionand growth of existing business.

IDA Irelands high-level strategy for thesector emphasises the following objectives:

n Further develop Ireland as a globally recognised centre for international financial services;n Win high-quality investments from both existing companies and new entrants;n Promote job creation, innovation and balanced regional development;n Establish leadership positions in key areas of opportunity including Funds,Asset Servicing, Insurance, eBanking,Aircraft Leasing, Financial Technology,Electronic Trading, Payments and Green Finance;n Pursue collaborative and innovative approaches to the business, both internally and externally, as reflected in the partnership with IFSC Ireland and the recent joint venture initiative with the Irish Funds Industry Association;n Undertake high-visibility marketing and communications as part of the sectoral development agenda.

Strong collaboration between industry,Government departments, educational institutions and public agencies will provide seamless support for firms seekinga location in which to invest.

Irelands ability to identify potential obstacles to the development of the sector,to anticipate changes in the internationalenvironment, and to adopt suitable policyresponses has been driven by the coordinating role of the Department of theTaoiseach and the operation of the IFSCClearing House Group and its relatedstructures. The public sector is committedto retaining strong formal engagementwith industry, and will fully engage with allstakeholders at the highest levels of decision-making.

Despite Irelands difficult fiscal position,the Government remains committed to maintaining an ambitious investmentprogramme for critical productive infra-structure, research, development and innovation. This remains crucial to Irelandsrecovery and will underpin further competitiveness gains and support thedevelopment of a high-technology andinnovative economy.

Suitable, high-quality and affordable officespace and associated infrastructure is essential if firms are to expand and clusters of activity promote collaborationand growth. While IFSC firms now operatenationwide, the Dublin Docklands remainsa critical centre for financial services activities, and an efficient and responsiveplanning regime will be maintained for it.

The Department of Jobs, Enterprise andInnovation plays a vital policy, oversightand coordination role and in establishingand implementing Government policy willconsider the promotion of IFSC growth asa key priority.

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Integrated support for investment and growth

9Enterprise IrelandEnterprise Ireland provides support for theinternational growth of indigenous firms,and has established the following focusareas in financial services for the comingyears:

n Increase exports and employment in the Asset Management, FundAdministration, Insurance, Payments,Security and Compliance, and SpecialistFinance sectors;n Maximising the number of financial services High Potential Start-Up (HPSU) businesses from both Irish and overseasentrepreneurs;n Leveraging the existing strengths and scale of IFSC operations to supportindigenous firms competing in international markets;n Increase penetration in high-growth markets, including Brazil, Russia, India and China and the Gulf States;n Increase the level of innovation and R&D in indigenous firms;n Development of a Governance, Risk and Compliance competence centre;n Provide support to Irish third-level colleges to develop relevant commercialprojects in financial services;n Develop closer working relationships between third/fourth level education and the financial services sectors.

EI will use a range of different measures toassist the growth of international sales ofIrish companies including trade missions,business accelerators, inward buyers and market research together with focusedclient development work in-market.Research, Development and Innovationactivity at both company and industry levelis a core area of EI support for the sector.

Enterprise Ireland and the IDA recognisethat services innovation forms an increasingly important element of RD&Iactivities, and within the constraintsimposed by EU rules, are committed toensuring that firms may access support forthe development of innovative services aswell as innovative products.

In an environment where many entities arerelatively small, collaboration betweenfirms is often an essential element in thegeneration of valuable intellectual property. Significant cost savings can bemade when developing new products orentering new markets by increasing thelevel of information that is available in thepublic domain.

Industry-led research networks will be supported on medium-term 'shared agenda' research activity among groups ofcompanies that could not afford to fundsuch research on their own, to ensure thatthe risks and benefits associated with largeresearch projects are shared, as are theskills and knowledge built up throughworking with academic researchers.

Stronger links will be forged between educational institutions and industry, andindustry will engage with educationalinstitutions and the HEA to improve thetargeting and suitability of undergraduateprogrammes within existing resources.

The development of a hub of educationalexcellence will be pursued alongsidegreater collaboration between researchand educational bodies in Ireland andaround the world.

It is a priority for Government and industryto continue to improve the quality andinternational reputation of Irelands highereducation institutions.

Ireland has a long-established reputationfor having a high-quality financial education system. International studentsare potentially the future business leadersin many developing countries and providegoodwill links for Irish financial servicesbusinesses in growth markets. Accordingly,in addition to the significant direct valueadded by international students attendingIrish institutions, the sector is also strategically important. Enterprise Ireland,as part of its International EducationServices Sector strategy, assists institutionsin attracting international students to ourleading financial services programmes.

Long-term investment in education andtraining has made Irelands English-speaking workforce a key resource for business. The harnessing of emergingopportunities in knowledge-intensive sectors, and in particular in internationalfinancial services, will be essential inrestoring labour market activity.

Domestic developments have significantlyreduced pressure on the supply of labourin the economy as a whole. Nonetheless,potential shortages remain in some areasand need to be addressed, as demand forfinancial skills such as accounting,quantitative finance and risk and compliance management has increased,driven by changes in the regulatory environment, product innovation andindustry consolidation.

The development of world-class financialservices education and training programmes in higher education institutions will remain a key priority forgovernment and industry, alongside continued development of morespecialised training for existing and potential employees.

As the domestic banks get smaller, theavailable pool of professional financialexpertise will increase in some areas, butappropriate training and development willbe necessary to facilitate employment inthe international sector. Industry will workwith the appropriate public sector agencies to promote the integration of thisexpertise into international firms.

The Finuas programme has promoted skillsdevelopment, and through increasedcoordination and scale has facilitated newtraining offerings. The programme continues to be supported as a cost-effective way of improving capabilities,encouraging additional higher-value activities to be based in Ireland, and protecting jobs.

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Targeted development of appropriate skills

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Control of business costs

Ireland will build on the significantadvances it has already made in reducingbusiness costs and will act to ensure thatlong-term competitiveness is sustained.

The Irish economy has demonstratedexceptional flexibility in dealing with thechallenges it has faced. Relative to the EUaverage, unit labour costs have fallen 13%since 2008 and the cost of commercialproperty and business-to-business serviceshas also decreased. Large falls in houseprices (up to 50%) and rents (25%) havealso significantly improved Irelands attractiveness as a destination for young,mobile workers.

These improvements will be protected andbuilt upon to ensure long-term competitiveness and will be monitoredagainst competitor jurisdictions. Thereduced costs in the labour market will bemaintained through effective educationprovision and a facilitative visa system toensure that necessary supply exists.

The Government is committed to containing the business input costs underits control and it will endeavour to ensurethat reductions in public expenditure donot result in higher charges for servicesbeing passed on to private enterprise,especially where this would go against theGovernments core objective of fosteringemployment and innovation.

Public service and general labour marketreforms will act to increase flexibility andreduce benchmark labour costs. TheProgramme for Government has committed to the abolition of upward-onlyrent reviews.

While maintaining the highest standards,the Central Bank will rigorously and continuously evaluate its own efficiencyand cost-effectiveness.

In assessing the potential to further develop Irelands insurance sector, a number of specific opportunities havebeen identified, as outlined below.

Pan-European Hub LocationsUnder the terms of the Solvency IIDirective there is a clear advantage forpan-European re/insurance operations tocentralise their organisational structure ina single head office located within the EU.This involves replacing a multi-subsidiarystructure and replacing it with a singlehead office which branches intoEurope/third countries, and serves to optimise capital and generate other risk,cost and administrative efficiencies.

Following Irelands implementation of theReinsurance Directive, several reinsurerstook this step, and more recently generalinsurers have established significant huboperations in Ireland. A number of largegroups conducting business in multiple EUmarkets are currently assessing a groupheadquarters location, and this representsa major ongoing opportunity. Thesenotable recent developments may be builtupon to provide momentum for the attraction of further business.

The Solvency II Directive has significantpotential consequences for the global marketplace due to equivalence, whichwill encourage standardisation for non-EUMember States. This is forcing re/insurersestablished in third countries to assess redomiciling their global operations into aEuropean centre. A research note issued byStandard & Poors (September 2010) statedthat Ireland and Switzerland are emergingas the most sought-after European domiciles for re/insurers looking toredomicile from centres such as Bermuda.

INSURANCE

The ability to provide insurance and reinsurance on an international basis has beena key driver of IFSC growth. The initial factorsfor this success included the fiscal environment(including the availability of gross roll-up for lifefunds), the European standard regulatoryregime and relatively low cost base. Many ofthese original factors are still in place, and arenow complemented by a critical mass of inter-national businesses located in Ireland, and astrong business infrastructure directed specifically at international re/insurance,including professional services and third-party administration, and supported by third-levelcourses developed for the sector.

The implementation of the Solvency IIDirective, which will harmonise European regulation of the re/insurance sector andimplement a fully risk-based approach to theindustry, is driving structural change within thesector as noted below.

Within a European context, Ireland competesstrongly with the UK, Luxembourg andSwitzerland for international business. After aperiod of relative weakness over the past 10years, the UK is now seeking to improve itscompetitiveness, in particular from a fiscal perspective, while Switzerland andLuxembourg remain competitive and business-friendly.

The international life insurance sector employsapproximately 2,800 people and contributes anestimated 110m per annum in corporationtax. The majority of life business is investment-driven with relatively limited mortality cover.While employment is lower in the non-life sector in purely numeric terms, internationalre/insurance operations are typically characterised by a highly skilled employee baseand substantial capital, and are significantconsumers of professional services. The non-lifeIFSC market directly employs approximately1,000 permanent staff, and contributes approximately 200m in corporation tax,representing 200,000 per employee,demonstrating the high-value nature of theemployment.

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Opportunities for Growth

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Ireland now has the critical mass of pan-European hub operations to be recognisedas a centre for these structures. To cementthat position, it is necessary to promotethe expertise and professional aspects ofthe marketplace to ensure that the fullspectrum of the business and infra-structure is understood and acknowledgedin the global environment. The clear andopen communication between there/insurance industry and public bodiessuch as Government departments and theCentral Bank will be supported and developed, with a view to clarifying andstrengthening the thought-leadership roleIreland should play on the global stage.

It is essential for Ireland to be a key contributor to the shape of regulation forthis area in the future, including throughEIOPA and the International Association ofInsurance Supervisors. As outlined in thefirst part of this document, an appropriateand responsive regulatory system is vital,and regulatory responses should beinformed and efficient.

n The development of an appropriate framework for firms to branch out of Ireland will be considered by industry and the relevant Governmentdepartments.n In the absence of clear public interestgrounds, imposition of gold-plated standards beyond international bestpractice should be avoided.

Expansion of existing cross-border lifeinsurance operationsMany of the existing cross-border lifeinsurers were established in Ireland to provide specific products into specific jurisdictions. Although some of these havematured into more diverse operations,many of them remain focused on a narrowrange of products and business lines. Thereis clear potential to assist these firms todiversify their operations.

Capital Protected ProductsVariable life insurance policies aredesigned to offer policyholders the benefitof growth potential combined with a guaranteed minimum return on theirinvestment. A long-established product inthe US, they have become more commonin Europe over the last number of years asinvestors seek tax-efficient and prudentpension planning solutions.

A presentation delivered to the IFSCInsurance Group by international consultants Oliver Wyman in June 2010showed that Ireland has already emergedas one of the leading jurisdictions for thedevelopment and distribution of thesetypes of products with leading insurersbasing their variable annuity operations inIreland. The nature of these products ischanging and there is an opportunity forIreland to participate in the next wave ofdevelopment.

Head OfficeArising from the attractive fiscal environment, and in particular due to theextensive Double Tax Treaty network,Ireland is an attractive location for the ultimate parents of global re/insuranceorganisations. Major international groupshave recently established their ultimateholding company in Ireland. Such operations bring significant benefit to theIrish economy via employment,professional fees, travel, hotel and relatedexpenditure in addition to corporation tax.

FUNDS

Over the last 20 years, Ireland has developed a world-leading position as ajurisdiction for the administration anddomiciling of internationally distributedinvestment funds. With more than 10,000people employed in the administration,custody and servicing of funds togetherwith in excess of 2,000 employed in theprofessional advisory firms, this area of theIFSC remains the single largest sector byemployment.

With a reputation as a centre of excellence,Ireland has built a strong base in the administration, custody and servicing ofinvestment funds, with the assets administered by the industry in Irelandincreasing by over 30% during 2010.Notwithstanding the success the industryhas enjoyed through the development ofthe legal, regulatory and fiscal environ-ment, there is significant potential for further industry growth and a solidgrounding to broaden industry activity andposition Ireland as an asset managementhub.

Domiciling and Administration of Investment FundsThe largest proportion of industry activityis the domiciling and administration of internationally distributed funds. While theinternational industry has always been competitive, further recent challenges havepresented significant issues for the industry, including product competitive-ness, Irelands international economicstanding and the impact of domestic considerations on international business.The funds industry has highlighted severalareas where the legal, regulatory, tax andoperating environment may be improved.

n Introduce a legal framework for a corporate fund structure which is not a public limited company.n Examine the tax framework to explore options to provide for a fund that can invest and hold asset in classes such as green investments, private equity investments, infrastructural investments,distressed debt investments and emergingmarket in a way which ensures that thereis no double taxation (an Alternative Investment Company).n Industry will review the fiscal and regulatory framework to explore potential efficiencies in existing investment fund legislation and make recommendations thereon.

Business Development and Transposition of EU DirectivesRecent EU legislation dealing withAlternative Investment Funds and therecently introduced UCITS IV Directive present both opportunities and threats.Both the industry and regulatory authorities must demonstrate leadership,in their respective capacities, in the ongoing debates regarding the AlternativeInvestment Fund Managers Directive(AIFMD), and UCITS. Emerging Europeanregulatory standards may create a risk of excluding business from EU markets, butalso creates an opportunity where global players seek to use a European base fortheir international business. Timely andeffective transposition and implementa-tion of EU Directives is critical. When transposing, consideration should be givento possible product and marketopportunities.

n Prepare the Qualifying Investor Fund inanticipation of the AIFMD.

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Marketing/Promotion A structured, sustained and focused promotion and profiling campaign focusedon the source of business activity, whichfor the funds industry is the attraction offunds to be domiciled and administered inIreland will be supported. The promotionand profiling of the opportunities,solutions and efficiencies that Ireland as afund jurisdiction can provide will bestrengthened through the coordinationand cooperation of all of those with a marketing and/or promotional brief toensure the profiling and promotion agenda becomes more collaborative andactive.

External Engagement and RelationshipsAttracting internationally distributed fundsto Ireland requires effective engagementwith other jurisdictions, throughMemoranda of Understanding, a broad TaxTreaty Network and other regulatory communications.

n Extend the Central Banks network of Memoranda of Understanding with appropriate authorities.

Wider Industry ActivityFunds activity has been predominantlyfocused around administration and advisory activities; a greater focus is nowneeded on attracting a wider base ofcompanies, including managementcompanies and clearing systems.

n Widen the industry footprint by actively targeting managementcompanies, technology firms, and clearing systems to locate in Ireland.

ASSET MANAGEMENT

The Government remains committed tothe development of Ireland as a global andEuropean asset management centre. Theinvestment management industry is in aperiod of restructuring on a global basis.Business models are changing, new products are being developed and there isboth consolidation and an increase in thenumber of boutique firms. There are newapproaches to product distribution and theuse of technology is becoming increasinglycentral. Ireland is well placed to benefitfrom these changes.

Ireland has already established a leadingposition in the authorisation and servicingof funds in the newly emerging EuropeanExchange Traded Fund market, where success relies on technology and high-value processing functions.

Asset management business modelsinvolve an increasing level of outsourcing,particularly of middle-office functions, andour expertise in the funds sector providesIreland with a competitive advantage.

Irelands tax offering has been built ontransparency rather than secrecy, and withan increasing trend towards on-shore locations, Irelands high-quality tax environment is particularly attractive.

The industry supports the Central Banksregulatory strategy of expanding anddeepening its expertise and resources, andensuring high standards of oversight andsuperior levels of engagement with assetmanagement players.

The key objectives for the development ofthe asset management sector are:

n Leverage our existing technical expertise to attract a greater proportion ofExchange Traded Funds.n Promote Irelands tax transparentplatform, the Common Contractual Fund (CCF) and support efforts to clarify tax treaty benefits for the wide variety of asset management platformsavailable.n Target the growth of private wealth management in emerging markets and the BRIC countries as an opportunity for Irish-domiciled asset managementprojects.n Promote Ireland as an intellectual property jurisdiction for the investment management industry.n Attract group investment managers to Ireland by examining proposals to enhance the taxation regime for investment managers.n Incentivise asset managers to locate RD&I in Ireland.n Promote Ireland as a centre for the management of product distribution activities.n Develop an early-stage investmentmanager seed fund in order to stimulatemore start-up investment managementprojects.n Promote Dublin as a location for hedgefund industry conferences and events.

With a culture of open and constructiveengagement between industry and regulators, Ireland already services 40% ofglobal alternative investment funds (byassets). This experience provides expertisein servicing complex alternative instruments and is a clear competitiveadvantage. Firms can be assured that theirasset management activities will achieveinternational approval in an environmentwhere innovation is facilitated.

Areas identified as potential growth areasas part of this review include:

n Institutional asset managers with an Irish platform or other presence movinggreater substance into Ireland to benefitfrom high-quality regulatory and fiscalenvironment and low cost-base;n New and existing ETF operations,benefitting from Irish skills and resources and the rapid growth of the Irish base of operations;n Product developers and promoters,benefitting from changing investor needs in areas including regulation and tax reporting and redomiciliation of platforms;n Alternative Investment Fund players who need to move to an internationally credible tax and regulatory environment;n Asset managers with multiple EU-regulated entities (UCITS IV);n Asset managers (particularly in Asia and the Middle East) who are looking to establish a European footprint;n Specialist debt restructuringoperations for international markets;n Investment performance measurementservices (GIPS compliant).

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BANKING

International banking remains at the heartof the IFSC. Since its establishment in 1987,more than 50 international banks haveestablished either branches or subsidiariesin Ireland. The range of operations carriedout by these institutions is diverse rangingfrom full-service offerings from majorinternational players to specialised nichefunctions. Many institutions have operatedin Ireland since the inception of the IFSC,and have continuously transformed theiroperations since their establishment.

International developments have affectedinstitutions in every financial sector, with business models being re-examined andfierce competition existing between financial centres to attract and maintainbusiness. Two general objectives have beenhighlighted as priorities:

n Assist firms in renewing business models and promoting investment fromparent groups into Irish operations.n Target growth in applications for banking licences from outside of the EU and US, in particular Asian and MiddleEastern institutions.

Aircraft LeasingIreland is a world-leading centre for aircraftleasing, with activities performed across abroad spectrum and including sales,remarking and lease placement, financing operations, acquisition and management,transaction negotiation, execution anddeal structuring and technical servicesincluding Irish aircraft registration. Thechanges to allow aircraft to be held bySPVs in the 2011 Finance Act further facilitated this business, and ensuring thata facilitative legal and tax environmentexists will remain a priority. The ability toattract relevant highly skilled professionalswill also be facilitated by a supportivepersonal tax regime.

Payment ServicesInternational payment services has been a keygrowth segment for financial services over thelast decade. Due to significant advances intechnology, security, and regulatory initiativessuch as the EU Payment Services Directive(PSD) and the Electronic Money Directives(EMD), the number and value of payments carried out electronically has risen dramatically.

The PSD and EMD allow firms to base in oneMember State and passport their servicesthroughout the EU. This has the resulted in thedesignation of major international companiesas electronic money issuers, while numerousothers operate under the PSD. Indigenous firmshave also grown significantly. Payment servicescompanies employ at least 3,000 people inIreland, in a low-risk and labour-intensive sector of the financial services industry.

Research conducted by the recently established Electronic Money PaymentsAssociation (EMPA) has shown that with strongcompetitive advantages in the area, Ireland hasthe potential to capture a significantly largershare of this market. At present the UK has aleading position in this sector, but Ireland cancompete effectively, with strong regulatory andother infrastructure in place.

n EMPA will work with the relevantauthorities to ensure appropriate payments-specific AML/CTF sector guidelines are adopted.n EMPA will work with IDA and EI to promoteIreland as a location of choice for paymentinstitutions, targeting an increase to 25 regulated entities and the capture of a majority share of incoming payment-sector FDIwithin the EU.n IFSC Banking and Treasury group to liaisewith the EMPA to monitor progress and identify any additional public policy measuresin a timely fashion.n Harness Irish technological and domain expertise for the developmentof mobile, contactless, near field communications (NCF) and person-to-personpayment projects.

n A marketing and business plan including the proposed establishmentof a Government-supported carbon markets initiative is being prepared for approval by Government.n A Carbon Finance module will commence in the DCU Business School in September and it is also planned to establish a chair in Carbon Management.

Intellectual Property CommercialisationIntellectual Property (IP) amounts to a significant part of the value of many firmsand firms are increasingly seeking to protect and manage these assets from acentral location. Enterprise Ireland isexploring the potential of this area with aview to positioning Ireland to take advantage of its growth, and theFederation of International Banks in Ireland(FIBI) and Financial Services Ireland (FSI)have been working with their members todevelop Ireland as a centre for the locationand commercialisation of IP.

Market activity around the financing and trading of IP is growing in areasincluding auctioning, bonds backed bycash flows, insurance, equity IPOs, use ofsecuritisation, derivatives and venturefunds. Ireland is well placed to benefitfrom this increased activity.

Green Financial ServicesThe potential of Green financial servicesemerged from a 2009 Clearing HouseGroup workshop on the future of the IFSC.The core concept involves positioning theIFSC to take advantage of growth in theglobal green economy and green financesectors. The Green IFSC concept was high-lighted for further consideration in theHigh-Level Action Group on GreenEnterprise report.

A feasibility study was carried out underthe auspices of the Clearing House Groupin 2010. The goal of the feasibility studywas to determine the scale and shape ofthe green finance opportunity and to determine whether the concept has sufficient potential and substance to belaunched as an initiative within the overallframework of the Smart/Green Economy.

The study found that an opportunity doesexist for Ireland and its financial servicesindustry to play a role in the further development of a vibrant domestic andinternational green economy sector. Themost promising opportunities involve thedevelopment of Ireland as a centre ofexcellence in Green Finance, a centre ofexcellence in the Management of Carbonand finally the creation of an enabling,coordinated and supportive eco-system tofacilitate this development.

Activity elements include Banking, ProjectFinance, Treasury, Asset Management, FundServices, Insurance/Reinsurance, CarbonMarkets Management, Venture Capital,Private Equity, Regional HQ activitiesincluding financing and holding companyactivities, Intellectual Property, third-leveleducation and R&D activities.

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As a separate and related initiative, a newconcept around the creation of anInternational Content Services Centre isbeing pursued by the recently establishedInternational Content Industry Association.This project seeks to position Ireland as theideal legislative, regulatory and fiscal envi-ronment for the global entertainment andmedia market, which is believed to have atotal revenue base in excess of $1.4 trillion.

The development of the ICSC propositionin Ireland in many ways mirrors the establishment of the IFSC itself and willhave many overlapping and synergisticactivities. The Department of Jobs,Enterprise and Innovation, in conjunctionwith the appropriate State agencies, isexploring the potential of this area. Linkswill be established between the IFSCClearing House Group structures and theICSC to ensure that areas of mutual interest are vigorously pursued.

The stakeholders involved with the initiatives will coordinate through the IDA,EI, and the industry associations to ensureefficient use of resources.

n Create an IP project team to review therelated initiatives within public and private sectors, examine the funding of a proof-of-concept study, create an action plan, identify necessary fiscal and regulatory measures, and promote the proposition.n Establish appropriate structure to promote ICSC and IFSC initiatives in a cohesive manner.

Islamic FinanceThe last ten years have seen the rapidgrowth in the political and economicimportance of the Middle East and Asia,with a significant impact on the globalfinancial system. To benefit from thesedevelopments, Ireland must be a crediblebusiness partner for investors from theMiddle East investing in Europe. Potentialactivity areas include fund administration,distribution of UCITS funds, aircraftleasing, location of family offices, dual debtlistings, issuance of sukuk and corporatetreasury.

Private Equity & Venture CapitalThe attraction of venture capital and private equity firms is a further opportunity for growth in the IFSC.Location of such firms in the IFSC wouldcomplement other existing initiatives (e.g.green financial services, intellectual property) and diversify the portfolio ofactivities and employment in the IFSC.Attracting such operations would provide abasis to attract further high-value aspectsof the industry. These firms would also provide a broader benefit to the domesticIrish economy, with greater access to capital for high-potential firms.

n A sub-group of the Banking and Treasury Group will be established to identify steps to promote venture capital/private equity, coordinating its activities with Innovation Fund Ireland.

CROSS-BORDER PENSIONS

One of the stated objectives of the EUPensions Directive is to enable pensions tobe set up across borders. European pensionfunds have some 4 trillion in assetswhich is set to double over the nextdecade, and the European pensions industry is estimated to employ between60,000 and 100,000 people. Despite a relatively slow take-up there are nowstrong signals that the cross-border pensions market is set for rapid growth.

By comparison with other EU countries,Ireland has a well-developed pensionsindustry, with service capabilities acrossconsulting, accounting, actuarial, legal,compliance, administration, risk manage-ment, fund management and assetpooling, which serve as a base for expansion into cross-border pensions.

The development of a cross-border pensionsector will position Ireland as a prime location for these activities and createanother significant stream of economicactivity in the IFSC complementing existing activities.

Work commissioned by the IFSC PensionsGroup to map the social and labour lawrequirements in key EU jurisdictions is animportant contribution towards the development of cross-border pensions. Thisproject is an illustration of how industryand the public sector were able to jointlyfund the creation of important intellectualproperty.

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Dermot McCarthy (Chair) Department of the TaoiseachMichael Sludds (Secretary) Department of the TaoiseachBarry OLeary IDA IrelandBreda Power Department of Jobs, Enterprise and InnovationBrendan Bruen Financial Services IrelandBrian Daly KPMGDavid Fagan Legal and GeneralDeirdre Somers Irish Stock ExchangeEamonn ODea RevenueFergus Murphy Financial Services Ireland, EBSGary Palmer Irish Funds Industry AssociationGary Tobin Department of FinanceJim Byrne RevenueJohn Feely AttainJulie Sinnamon Enterprise IrelandKevin Cardiff Department of FinanceKieran Donoghue IDA IrelandMatthew Elderfield Central Bank of IrelandPadraig Rushe Bank of IrelandPat Farrell Irish Banking FederationPat Wall PWCPatrick Brady Central Bank of IrelandPaul McGowan Chair of Funds Working GroupPeter Keegan Bank of America Merrill LynchRobert Richardson Pioneer InvestmentsSean Gorman Department of Jobs, Enterprise and InnovationTim Hennessy Axis CapitalTom Young BNY MellonTony Golden CitiWilliam Beausang Department of FinanceWillie Slattery State Street

Membership of the IFSC Clearing House Group

Documents

IFSC Strategy 2011