Many financial services companies and international banks are considering a move from London to Dublin in light of Brexit. Here’s what they need to know about the financial regulatory landscape, and why flexible legal services could be invaluable.
Making the move
For centuries, London has been one of the most important command centres for the global economy, dominated by some of the world’s leading financial services companies. This is likely to be the case for years to come, even in light of Brexit.
However, Brexit has sent shudders through the financial services sector in London, prompting some big names to relocate some of their operations to Dublin.
The relocation of Goldman Sachs, JP Morgan, and Bank of America represents a response to the very real prospect that UK domiciled banks will have limited or possibly no access to the common market currently enjoyed by EU states once Brexit is formally completed. The IDA has indicated that more groups will announce their plans to relocate to Dublin in the months to come, when discussions with various regulatory bodies in the UK, the EU and the US are concluded.
CBOI vs FCA
In Ireland, the Central Bank (CBOI) oversees regulatory oversight of all financial companies, including insurance and banking institutions. Overall, it is responsible for regulating over 10,000 entities. Meanwhile, the Financial Conduct Authority (FCA) is the main behavioural watchdog in the UK, with oversight of 56,000 entities. The Prudential Regulation Authority (PRA) also regulates stability of financial services firms, but can impose fines under narrower circumstances.
The exodus of banks from the UK has been significantly less than what was originally anticipated (at one stage, it was suggested that over 100,000 jobs could be relocated). Nonetheless, the Central bank’s remit will dramatically increase in the months to come. It will be interesting to see whether the CBOI takes a more hardliner approach to the regulating of the new boys in town.
Up until now, the FCA seems to take a more aggressive approach to enforcements. In 2017, the FCA has already meted out a fine of over £163 million to Deutsche Bank for anti-money laundering failures. This is the largest fine in the FCA’s history, and significantly higher than the amount of fines meted out last year (circa £17 million).
While still lower than the previous years of 2015 and 2014, which totalled £1.5 billion and £906 million respectively, there will likely be more fines imposed by the years’ end.
In contrast, the CBOI has only imposed circa €5.8 million in 2017 to date (compared to circa €11 million in 2016). The lion’s share of fines meted out by the CBOI this year went to the Bank of Ireland and AIB for anti-money laundering failures.
It’s not surprising that the amount of fines imposed by the CBOI is significantly less than that of the FCA, given the size of the UK market compared to the Irish one. What is interesting, however, is that Ireland is not too far behind the FCA in terms of the number of fines it has imposed this year (four compared to five imposed by the FCA so far in 2017).
There are some similarities though
Reputational damage can be just as damaging to banks as financial penalties. Comparatively speaking, it appears the CBOI and FCA take very strong positions against anti-money laundering failures, as the biggest fines imposed by both regulatory bodies over the last few years have been for infractions in this area.
The implementation of MIFID II directive this year also introduces EU legislation that regulates firms who provide services to clients linked to ‘financial instruments.’ As a result, there is likely to be more harmonisation between the CBOI and FCA, despite them being two distinct regulatory bodies.
It remains to be seen whether imposed fines in Ireland will increase with the arrival of new players. However, new financial services companies relocating to Dublin in light of Brexit should not expect a light touch by the CBOI. Flexible legal services could prove to be vital for organisations in need of support in a new regulatory landscape.
Here's where we come in
Johnson Hana International (JHI) helps clients both in Ireland and in the UK with their regulatory compliance obligations, assisting financial companies with internal investigative obligations, contracts review and regulatory mapping.
We provide transparent legal services and technological solutions to financial organisations, helping clients to improve process efficiency, resolve regulatory issues more speedily and radically reduce associated legal costs.
If your organisation needs assistance in tackling its regulatory concerns, or simply outsourcing legal services to reduce costs, please don’t hesitate to get in touch.