Tuesday, 20 April 2010
Ceisteanna - Questions
International Financial Services Centre.
Question 1: To ask the Taoiseach the way he will fully support the creation of the proposed green IFSC; the details of the plan; the role his Department will take in conducting a feasibility study; the timeframe for same; and if he will make a statement on the matter. [3427/10]
Question 2: To ask the Taoiseach the role his Department is playing in overseeing the International Financial Services Centre; and if he will make a statement on the matter. [4599/10]
I propose to take Questions Nos. 1 to 4, inclusive, together.
As I stated in the House on 1 December last, my Department has supported the international financial services industry in Ireland since the establishment of the IFSC in 1987 by providing a forum for the exchange of views and the co-ordination of effort through the mechanism of the IFSC Clearing House Group, supported by working groups in the areas of banking and treasury, funds, insurance, pensions and a task force on asset management. The Clearing House Group identifies and considers issues of major concern to the long-term development of the international financial services industry in Ireland. These issues include the strategic development of new business areas and opportunities as well as the progress of relevant legislation, and it identifies, from time to time, the need for responsibility to be assigned for overseeing and reporting to the Government on any appropriate initiatives in this area.
Since its establishment in 1993, the Clearing House Group has been chaired by the Secretary General of my Department and its membership includes representatives of industry associations and of prominent figures from the international financial services industry. There are also representatives from my Department, the Department of Finance, the Department of Enterprise, Trade and Employment, the Financial Regulator, IDA Ireland, Enterprise Ireland, the Revenue Commissioners and the Stock Exchange.
The spread of membership of the IFSC Clearing House Group and the IFSC working groups enables issues to be discussed in an open way which reflects a wide range of experience and expertise so that opportunities to develop sustainable business and employment in the various sectors of the international financial services industry can be achieved. It is estimated the industry employs 25,000 people directly and an additional 2,500 indirectly, while contributing €642 million in tax revenue to the Exchequer in 2009. This figure for tax revenue refers only to companies who were within the original IFSC tax regime and does not cover international financial services companies that commenced trading after 2002.
The Clearing House Group does not deal with issues relating to individual enterprises or institutions, and it does not supervise or oversee the industry - that is a matter for the Financial Regulator exercising his independent functions. In the context of its role in identifying development opportunities, the Clearing House Group has responded to the report of the high level group on green enterprise, which was published in November 2009 and identified the significant contribution that the development of the green economy can make to restoring our economy. The report stated that potential exists to develop a green IFSC cluster and brand incorporating green investment vehicles, the administration of funds managed under green principles and carbon trading and associated professional services.
The IFSC banking and treasury group, which operates under the aegis of my Department, has begun a feasibility study into the launching of a green finance initiative within the IFSC. The concept of a green IFSC would incorporate a centre of excellence specialising in the provision of financial, professional and administrative services to the global climate change sector. It is hoped that this study, which is receiving support from the various industry associations, professional firms, IDA Ireland and Enterprise Ireland, will be completed by the end of June of this year, when its recommendations will be presented to the IFSC Clearing House Group for consideration of future action.
I want to ask the Taoiseach specifically about the proposal for a green IFSC, to which he referred, which was contained in the report of the high level action group on green enterprise which was published last December. Launching that report, both the Taoiseach and the Minister for Communications, Energy and Natural Resources said that of the order of 20,000 jobs could be created over the five to ten years from the establishment of a green IFSC, which would be very welcome.
The Minister, Deputy Eamon Ryan, when launching the report, said that a project team would be established early in the new year to progress the idea of the green IFSC. He also said the green IFSC project would be rolled out over the middle to the end of 2010. Has the project team been established, who is on it, when will it report and is it still the intention that the green IFSC project will be rolled out from the middle to the end of the year?
As I have explained, the first issue is to undertake a feasibility study to work up this project and to then come in June with the recommendations which will be presented to the IFSC Clearing House Group. That is in place at present and the study, which is receiving support from the various industry associations, IDA Ireland and Enterprise Ireland, will be completed by the end of June, which is the first phase in coming forward and making this a reality.
That is a lot more ambiguous and long term than the statements about this made by the Minister for Communications, Energy and Natural Resources and the Taoiseach himself in December. The Taoiseach is now saying a feasibility study is being done. I would have thought the study would already have been done if it was in the report of the high level action group on green enterprise when it was announced. It appeared much firmer then compared to what the Taoiseach is now saying. Is he now saying that the idea of a green IFSC is still at the conceptual stage and that its feasibility is still subject to examination?
The Minister for Communications, Energy and Natural Resources was clear about this. He said it was planned to create a project team to develop the initiative early in the new year. There was no mention of feasibility; this was to progress it and a project team was to be set up early in 2010 and the project would be rolled out over the middle to end of next year. From what the Taoiseach is saying now, there is no project and all that is happening is that a group in the Department of the Taoiseach is looking at the feasibility of the idea and it will in turn report back to the clearing house for the IFSC.
The Deputy is engaging in semantics. The IFSC banking and treasury group has begun work on bringing this about. We are talking about a report that examines the potential that exists to develop a green IFSC cluster and brand, incorporating green investment vehicles, with the administration of funds managed under green principles, and carbon trading and associated professional services. Launching a green finance initiative within the IFSC is now the job being undertaken by this group. It is not within my Department; there are many professionals involved from the banking and treasury sections of the clearing house mechanism, along with the IDA and Enterprise Ireland. The fact that we will have it by June of this year indicates the priority we have given to it.
When the group reports to the Clearing House Group for consideration about the future action that will take place as a result. The work must be done. The potential for this initiative was outlined in the report the Deputy mentioned. Work for future action is now being prepared and put in place and those involved are going about it in a systematic and professional way.
Around 25,000 people are employed directly in the IFSC. It has been a very important project that has been resilient, even in the context of the recession and the difficulties in financial services. Employment has been maintained at that level, which is testimony to its resilience and the diverse nature of the work that goes on there.
The idea of a green IFSC within the context of what we already have was the subject of a report that has been brought forward by the group, chaired by Mr. Harford, and one of the subcommittees of the Clearing House Group is now examining how the idea could be developed in the context of developing a cluster and brand incorporating green investment vehicles, with the administration of funds managed under green principles, and carbon trading and associated professional services. It is seen to be an area for potential that must be explored and exploited.
The Taoiseach rightly speaks of the 25,000 employed there, the resilience of the sector and the difficulties in the financial services area. When the Taoiseach was Minister for Finance he oversaw the light touch regulation structure which applies in this country. Last year we had some difficulties with the United States in so far as the categorisation of Ireland was concerned. Some people considered the terms laid out for Ireland's being a centre for international financial services meant that in the eyes of certain people it was deemed to be a tax haven. The Government rightly did some work to get the matter cleared up and to establish that this country was never deemed to be a tax haven. However, it was and is a country where light regulation applied - until now.
In that regard, given what is now unfolding, does the Taoiseach consider that the pay-off of close to €1 million to the former regulator, Mr. Patrick Neary, was justified?
This is in accordance with the principles set out for the IFSC, where efficiency, proportionality and all such matters were mentioned by Government. The question deals with oversight of the banking sector. The internationally traded financial services centre is very important for Ireland. If Ireland is to be seen to be in pristine condition from a financial services point of view internationally, this matter must be addressed, clearly and with decisiveness, by strong government. It is a question concerning which I would like to know the views of the Taoiseach.
I am here to reply to questions laid down that relate to the International Financial Services Centre. If the Deputy has any other questions to table regarding any other matters he is entitled to do so.
The Financial Regulator has always operated within the framework of EU and domestic law in approving relevant enterprises and products in the IFSC and regulating their operation. Robust financial regulation is an essential element in maintaining the competitiveness of the economy and it contributes to the sustainability of the financial services centre. The regulator must evaluate innovations in the industry, in terms of both products and entities, effectively and efficiently with regard to timeliness, cost and clarity.
Over the years, the clearing house group has provided a forum in which financial regulation, in its broad sense of supporting a credible and reputable international financial services centre, has been affirmed repeatedly. The significance of regulation for international financial services has long been recognised. It is important to point out that the IFSC operates under the same regulation as other financial services centres in Europe, under European directives, etc. There is no difference. We are not different in any way. The supervisory regime that applies to practically all IFSC activities is based, ultimately, on EU regulatory directives. The same regulatory regime that applies to the financial sector elsewhere throughout the EU applies equally to the IFSC in this respect. These directives cover the full range of supervisory tools, including the authorisation of financial institutions, the application of regulatory rules and responses, enforcement, etc.
The Taoiseach said the regulator has always operated within EU directives and according to domestic law. If that is the case, how can he stand over a situation where the regulator oversaw a €2.8 billion loss in the Irish Nationwide Building Society last year alone? That was bigger than the accumulated profits of the entire-----
Go raibh maith agat. If it is the case that the regulator operated within Irish law, then the Taoiseach when he was Minister for Finance and his predecessor as Taoiseach oversaw a situation where there was no regulation. For that level of incompetence a pay-off of almost €1 million was paid to the regulator when he left. Is that justified? How can we say that we are operating within proper Irish law if, for example, the Irish Nationwide Building Society accumulated losses of €2.8 billion last year alone?
If we are serious about this - and Deputy Cowen in his capacity as Taoiseach will want to be seen in a position where the country is run properly - there is no reason for our having a confined inquiry into the banking sector. The material that is emerging now is truly appalling. It all happened under light touch regulation. The Taoiseach and his predecessor were Ministers for Finance for part of this time.
Does the Taoiseach consider that the supervisory role of the previous regulator under Irish law was simply non-existent and has resulted in an appalling economic catastrophe for hundreds of thousands of people? In that context, if this Government is serious about its business it should sort out the issue once and for all. There should be an open-ended inquiry into what went wrong in the banking sector and the people should know what happened. The Taoiseach should have no fear about doing this in the interests of our people and country. The banking and financial services regime should be seen to be above reproach in order to continue to employ strong numbers and grow in integrity both at home and abroad.
The purpose of our action is to ensure a regulatory system that will in future seek to guarantee what happened in the past will not occur again. The independent regulatory system passed here by statute did not meet the requirements of the issue and there are now two reports - one from the Central Bank Governor and one from two eminent persons - which will come before the House in June this year. They will be debated by the Oireachtas and arising from that will be the terms of reference for whatever further inquiries will be necessary arising from that objective assessment. That is how the process should be dealt with.
Does the Taoiseach consider that the pay-off for the previous regulator was justified? In the interests of following on those reports about the inadequacies of the regulatory system, does the Taoiseach believe that in everybody's interest it would be good for the Government to indicate there will be an open-ended inquiry beyond the September 2008 date?
I have set out the position on how the issue will be dealt with. In its first stage there will be two reports, which have already been commissioned. Arising from that and a debate in the House we can see what further steps need to be taken regarding a commission of investigation, etc. That is the Government's position and it is the best way to deal with the matter.
The regulator was employed by the board of the Irish Financial Services Regulatory Authority and in its wisdom it decided to finalise the arrangements with the regulator in that respect. That is how the issue stands.
The Taoiseach spoke at the official opening of the city research centre on North Wall Quay last September and stated that in planning to establish a green international services centre, the idea was to build on the existing Irish Financial Services Centre infrastructure to attract companies specialising in financial and support services to the growing international green technology, carbon and renewable energy industries.
In the course of the rest of his address, the Taoiseach indicated that the intention was to have such development located in tandem with the existing IFSC in the Dublin docklands area. Has the Government given any consideration to the possibility of locating such a green IFSC at any one of the number of other credible locations across the country, given the numbers of university and institutes of technology centres around the State? There is an unquestionably sufficient case to be made for Ireland to be to the fore in the development of a green IFSC international image rather than just Dublin.
The Taoiseach should indicate in his response whether he has given consideration to this proposition and, if not, whether he will do so. One proposal that Sinn Féin put forward in its Getting Ireland Back to Work paper was the establishment of dedicated business and science parks, to be linked to institutes of technology and universities in different locations that would offer on-site agency, financial, banking and enterprise support. Does the Taoiseach agree that the enterprise agency's view of the concept of a financial services or science park often is equal to or reflective of the relationship between a landlord and tenant, that is, it is a plot of ground on which it can accommodate certain business interests? Does the Taoiseach not agree this is a particular field that would allow for a more holistic development of the potential of a green IFSC and that this would have application in a number of sites nationwide? Has the Taoiseach given consideration to this matter or is it simply assumed that the existing IFSC is the logical co-location for such a proposition? If he has not done so, would he be prepared to consider this proposal because many other centres are crying out for such investment and the opportunity to show their real worth in this regard?
Green financial services already is a growth area in the IFSC at present. The presence in Dublin of international green operations already acts as a catalyst for the indigenous green economy. It is a question of building on what already exists and is about encouraging more of these activities and building clusters of expertise and high-value jobs. It is important that indigenous green enterprise should be vibrant. In general, Ireland continually seeks new areas of opportunity within the financial services industry, both through reinvestments from existing clients and first-time investments for new entrants. At present, the areas being explored comprise financial services technology, e-finance and electronic trading, debt capture and predictive analytics, risk management, service innovation and collaborative research and development and pensions and green finance. These are complementary to existing opportunities being pursued across the IDA's three main business lines of banking, insurance and investment management.
This sector is developing all the time and I made the point that the tax revenue figures I provided refer only to companies that were active within the original IFSC tax regime. It does not cover international financial service companies that commenced trading after 2002, not all of which necessarily are located within the Dublin docklands. While there has been an attempt to accommodate the activity as distinct from the geographic location, in respect of the green initiative the Government is trying to build on existing advances that are being made at present within the IFSC area.
I understand the Taoiseach's response and where he is coming from on it and can only hope to try to encourage some new thinking in this regard. While I can understand building on what exists at present, surely there are centres at different locations around the State that would cry out for the opportunity to demonstrate their potential to succeed across the entire renewable energies sector. As for the encouragement of job creation, the expertise and acumen that has been developed out of the existing IFSC undoubtedly is transferable. It is not a case of individuals coming in off the street because they are trading globally and location is not an absolute requirement in respect of the Dublin docklands site. I put the proposition to the Taoiseach that there are areas of the country for which such an investment would make a huge and substantial difference to such a location such as, for example, anywhere across the institute of technology and university sites in cities and large towns. I put that proposition to the Taoiseach and ask him not to scotch or dismiss it. It is worth investigating. Is it not feasible to consider more than one location? In this, we might open the door for another set of heads and locations to present and show what they can do in this area.
There have been and are instances throughout the country in which financial companies, perhaps having started in the Dublin area, have moved outside for a whole range of reasons, including the location of expertise elsewhere in the country, but also for good business reasons in terms of costs, property costs, etc. There have been instances where this has happened. The whole idea is to have a growing and expanding industry. It has maintained high levels of employment despite the obvious problems of recent years in the financial services.
Even in the Northern Ireland context, there have been opportunities to co-operate with the Northern Executive. When the present First Minister was its Minister for Finance and I had that position, we had an initiative in respect of the North-South development of financial services where certain activities in that industry could be competitively done there as against here while there are issues here that we can do that they cannot do. One makes the cake bigger and ensures one can co-locate jobs, not just within the Republic of Ireland, but North of the Border as well. So there have been instances.
We are all open to trying to identify opportunities in every part of the country for this type of well-remunerated employment. It is not in any way dismissive of it. It is a question of building, as the Deputy says, on what is there, but that does not preclude businesses where they see an opportunity from locating anywhere within the jurisdiction while at the same time taking the benefits that the IFSC provides in terms of the fiscal regimes, etc. This has been the case for some time now.