Will Dublin Become Europe's Regulatory Technology Hub After Brexit?
Dublin is now ranked as one of the top 30 global financial centers according to a 2017 study by the Z/Yen Group
When asked to think of the city of Dublin, Regulatory Technology is a concept that probably wouldn’t come to mind. Most people would associate the Irish capital with the emerald green gardens of St Stephens, infectious folk music or even the milky taste of their first Guinness. However, Dublin has emerged as a leading global financial hub and in no sector does this ring truer than that of ‘RegTech’.
Regulatory Technology, or ‘RegTech’ as it is known, refers to a range of solutions that use innovative technology to ensure corporates adhere to regulatory requirements across a range of different industries. Its importance cannot be underestimated with Deloitte recently going as far as to describe ‘RegTech’ as the new ‘FinTech’ – no small praise indeed.
The growing significance of RegTech can be best understood through the implementation of the European Parliament’s MiFID II legislation in January 2018. Designed to harmonize regulation for the investment services of 31 member states of the European Economic Area (EEA), the published legislation was judged to be too lengthy and complex for any compliance team to ensure it was correctly implemented. “It took 30,000 pages and 1.5 million paragraphs to describe the rules in MiFID II,” wrote the London-based RegTech Council, “and the problem is only going to get more complicated. Over 50,000 regulations were published across the G20 between 2009 and 2012.”
To deal with this, RegTech software can be used to create a ‘common language’, whereby machines can also understand and interpret new regulation. The innovative software then allows the machine to not only read and understand the new MiFID II rules but also highlight which of a firm’s activities fall foul of the updated legislation. Investment in RegTech firms that address MiFID II totaled a whopping $378.5 million between 2013 and 2017, according to research from FinTech Global. This amount is perhaps not surprising given the increasingly complex requirements investment firms in Europe must now follow since MiFID II, and the fines they risk incurring if they are not up to date.
There are both serious cost-saving and time-saving benefits to RegTech. Firms across the continent are believed to currently spend $750 million annually to ensure they remain in line with MiFID II compliance alone. Yet, it is believed that effective RegTech software could enable firms to reduce these compliance costs by 5% by going digital.
A recent study conducted by JWG found that on the buy-side of the European financial industry nearly half of firms were attempting to implement MiFID II with a team of fewer than five people. Using RegTech software allowed such firms to dramatically cut the amount of time needed to implement the changes in response to the new legislation and release their employees to focus their efforts elsewhere. JWG discovered that one such firm was able to update their internal controls in response to MiFID II in just two weeks using RegTech software and believed that without it the process could have taken approximately three months.
So, Why Dublin?
Dublin continues to emerge as a financial center with international gravitas. According to the Global Financial Centres Index 22 – a ranking of the competitiveness of financial centers across the globe by the commercial think-tank Z/Yen Group – Dublin rose to 30th place, ahead of more familiar names including Amsterdam, Munich, Milan, Moscow and Brussels. The city was also selected, alongside Shanghai, Singapore and Frankfurt, as one of 15 centers tipped ‘to become more significant’ in the future.
“Ireland is internationally recognized as both a technology hub and a financial center of Europe,” said Claus Christensen, the CEO of Know Your Customer, an automative RegTech firm. “This combination has fostered a good FinTech environment, attracting attention and investment and helping the RegTech space flourish much faster than in other parts of the world. At the same time, customers have come to know and trust Irish standards for customer service and technology in this space, which is a great reputational advantage to have. “Finally, it makes a lot of sense for us to have an office in Dublin as it gives us good access to both the UK and the EU markets.”
Certainly, the decision by many major blue-chip tech and financial firms to open their European headquarters in Dublin has acted as a catalyst for RegTech companies to follow suit. Google GOOGL -1.69% and Facebook FB -2.6%operate out of the ‘Silicon Docks’ area of the city, while LinkedIn LNKD +0%,PayPal PYPL +0.86%, Microsoft MSFT -0.55% and eBay EBAY +0.53% are just several of the other global enterprises with bases in Dublin. For these firms the attraction of the city can allegedly be grounded in the Republic of Ireland’s low corporate tax rate of 12.5% - the current UK level is 28% for example. However, for a RegTech firm, the nearby presence of such corporate giants allows incomparable access to expertise and knowledge that cannot be replicated in many other European cities.
Microsoft's office at South County Business Park in Leopardstown, South Dublin. (Photo by Niall Carson/PA Images via Getty Images)
Furthermore, RegTech firms in Dublin benefit from tremendous support from the Republic of Ireland’s economic development agency, Enterprise Ireland. “Not only have they invested in our business, but they have been extremely good at promoting us and introducing us to relevant stakeholders both in Europe and Asia,” explains Christensen. “They even included us in a recent white paper analyzing the current state of the RegTech industry, and we were also featured as one of their ‘success stories’ on their website.”
Enterprise Ireland works alongside Irish businesses, providing them with tailored advice on how to expand, innovate and win business globally. An associated body, IDA Ireland, then provides the same service for overseas firms operating out of the country. Enterprise Ireland has, for example, published a white paper in June of this year aiming to better understand the RegTech industry in Dublin and also offered an $872,000 fund for fintech firms that have the ‘capacity to succeed in global markets’ but lack the capital.
Moreover, both bodies also have a reputation for strict adherence to financial legislation, meaning that firms are attracted to operating out of Ireland given the strong associated regulatory reputation. “Dublin constantly ranks at or near the top on the growth charts for listing and administering funds by assets under management (AUM), with it also among the best-regulated markets in the world,” explains Frank Carr, the Chief Marketing Officer at Financial Risk Solutions, a fund admin software firm.
RegTech In A Post-Brexit World
However, it is impossible to write about Dublin’s RegTech industry without considering the forthcoming effect of Brexit. In 2017, the city was judged to possess six of the top 100 RegTech firms in the world - according to the global RegTech 100 list compiled by FinTech Global - the aforementioned Know Your Customer, Gecko Governance, Fenergo, Corlytics, BlxLaw and AQMetrics.
While it cannot be denied that the Republic of Ireland’s economic prosperity post-Brexit is somewhat tied to that of the United Kingdom given that around 17% of its exports go to its neighbor, Dublin has already clearly expressed an unabashed interest in securing fintech firms looking at leaving London. “In the future, I would expect that US companies who feel a need to have a base within the European Union would see Ireland as a more attractive option because Britain may be less attractive on account of Brexit,” the Irish Ambassador to the US, Daniel Mulhall, recently said.
Fundamentally, its position as an English-speaking financial hub within the European Union - yet with strong cultural ties to the United Kingdom - puts it at the front of the queue in terms of attracting RegTech clients keen to leave London. Unlike moving to other cities that have expressed a clear interest in attracting business from London, such as Luxembourg City and Paris, firms can maintain English as their operative language but still enjoy the passporting benefits that London once delivered.
The Dublin-London air route is also Europe’s most popular and with a short travel time of 1 hour and 25 minutes, employees of firms currently based in London could, realistically, commute to Dublin on a daily basis without uprooting their families. “I do expect more firms to choose Dublin over London in the near future,” says Christensen. “The city is growing fast and tech companies can find a very favorable environment here thanks to a strong pool of talent and corporate incentives. Additionally, in Ireland today there is an optimism and a spirit of entrepreneurship which is positive for business and might not necessarily be true for the UK at the moment.”
Certainly, Christensen’s views do not come from speculation. IDA Ireland recently revealed that they have secured deals with more than 12 London-based banks and finance houses to move their operations to Dublin in the wake of Brexit. The organization and many in Ireland are confident that numerous new RegTech firms will follow.
“Post-Brexit, we will be the only English-speaking common law country in the whole of the EU and when countries worldwide from all across Asia, the Middle East and the US want to establish a presence for the very first time in the EU- where it’s very straight-forward and very easy to do business- we’re hoping they’ll choose Ireland as that platform to launch themselves into a market for 500 million people,” said Ciaran Cannon, the Irish Minister of State at the Department of Foreign Affairs and Trade. “(It’s) a market that we’re fully committed to and a market where we’ve already established very strong trading relations.”
I am a Contributor for Forbes Europe, specializing in the fintech industry across the continent. I also currently cover European and African current affairs for a range of publications, including the Independent and Al Jazeera.