The Funds Working Group have reflected on the changing landscape of the Irish Funds Industry in Ireland over the past 30 years since the concept of Undertakings in Transferable Securities (UCITS) was first introduced in Europe in 1985 and the inception of the Irish Financial Services Centre (IFSC) following the Finance Act in 1986. The 1986 Act introduced financial incentives to encourage private sector investment in the urban renewal of the Dublin Docklands area and launched the IFSC.
The IFSC was developed in two phases: the first in 1988 with the building of the International Centre, IFSC House and La Touché House, this first phase created 1.3 million square feet of office space and the second phase in 2000 added a further 2 million square feet.
The Single European Market was launched in 1993 which provided the single banking licence and passporting entered into force. It enabled banks authorised in one Member State to establish branches or to provide services in another Member State, without the need for any additional licences. Regulatory harmonisation was only beginning with home country control.
The European Commission launched its update of the UCITS fund vehicle with UCITS III replacing the abandoned UCITS II updated in 1998.
Two new directives were finally adopted in January 2002, widening the investment possibilities for UCITS users, and signalling the start of much-increased investor interest in UCITS funds. In 2003 there were almost 2,000 Irish-domiciled funds but 286 were UCITS funds. The emergence of the fund passport, however, was a pivotal development in the growth of Ireland’s fund industry as a cross-border centre. The early 2000s ended however on a very low ebb with the worst financial crisis in nearly eight decades engulfing the financial system. Headlines including the seizure by the US Government of Fannie Mae and Freddie Mac, two of the biggest home lenders, and the collapse of Lehman Brothers marking the largest bankruptcy in US history.
This collapse was followed by a period of heavy regulation in an attempt to prevent such an event from happening again. The Alternative Investment Fund Manager Directive (AIFMD) was implemented to better regulate alternative investments that were left largely unchecked prior to the global financial crisis. Consumer protection and corporate governance became a key focus of regulators as they strived to regulate the conduct of financial services firms, focusing on their activity in the financial market and their relationship with clients. The largest single body of regulation to affect the investment management industry, Markets in Financial Instruments Directive (MiFID), set a challenge to create a harmonised and consistent approach to the application of the regulatory regimes within and across jurisdictions.
Technology and extensive regulation have changed the landscape over this period. The fund industry in particular comprises of huge quantities of data, much of which is reported by entities under extensive regulations that have evolved over the period. The role of the compliance professional has also evolved, and the Compliance Institute has stood alongside those responsible for their firm’s compliance and provided a network of compliance professionals and a framework for upskilling this emerging discipline. During this period we faced the Covid-19 pandemic which saw the industry evoke a full business continuity planning (BCP) and the majority of staff working from home to the evolution of the hybrid working model.
The regulatory landscape sets to shift yet again with the introduction of Sustainable Finance Disclosure Regulation (SFDR) and Taxonomy Regulation (TR). Both measures aim to direct capital to sustainable investments which help to meet the EU’s target of climate neutrality by 2050.
The Irish Funds industry will adapt to this challenge yet again to help build a better future for all. It has a unique position of market access and a broad talent base, competitive tax infrastructure, regulatory framework combined with the ability to passport financial services from Ireland throughout the EU. Ireland is also seen as being well placed as the global Fintech hub in Europe and is a key player in the evolution of Fintech, Regtech and Suptech.