Remarks by Gerry Cross, Director of Policy and Risk, at Brexit and Asia: Implications for Financial Services in Ireland Event

23 January 2017 Speech

Hosted by Nikkei Asian Review, Financial Services Ireland and Asia Matters


Good afternoon, ladies and gentlemen. It’s a pleasure to be able to speak with you today. I would like to thank Alan Dukes, Nikkei Asian Review, Financial Services Ireland and Asian Matters for their kind invitation to this event.

Today I will set out our regulatory and supervisory approach to engaging with and potentially authorising and supervising financial firms who are approaching us to discuss their group structural and geographical arrangements in a post-Brexit world. As Governor Lane has indicated[1], we are committed to providing transparency, consistency and predictability with regard to our regulatory and supervisory responsibilities to mitigate some of the uncertainties facing financial institutions.

Before I speak in more detail about this topic, let me just say a few words about the broader and continually developing links between the Asian and Irish financial systems.

Cooperation and linkages

The continued rise of Asia, and the Asian finance sector, is sure to be one of the key trends of the coming decade. We have seen the continued advance of Asian financial centres[2], while amongst the FSB’s list of 30 Globally Systemically Important Banks, seven are from Asia.[3]

As Asian economies continue to expand and its financial centres and institutions continue to grow, then the links between Ireland’s financial system and Asian economies and financial systems will also develop[4]. This in turn will lead to a further increase in engagement and cooperation between regulators and supervisors.

In the immediate aftermath of the financial crisis, at their April 2009 London Summit, G-20 leaders established the Financial Stability Board to promote greater international cooperation by making national laws and regulations more consistent and encouraging regulators to enhance their coordination and cooperation across all segments of financial markets across borders. At the Central Bank, we have seen enhanced international coordination play out in a number of areas of our work. A recent example is the FSB’s shadow banking monitoring exercise.

The People’s Bank of China decision in December to allocate a quota for Ireland of 50 billion yuan under the Renminbi Qualified Foreign Institutional Investors (RQFII) scheme, represents an increase in the financial linkages between Asia and Ireland.  The quota will allow Irish-domiciled financial institutions to invest in China’s domestic bond and equity markets using China’s own currency, the Renminbi.

Preparing for Brexit

Turning now to Brexit, I said at an event early last week that I believed that uncertainty around the future of passporting and access to the single market for UK authorised financial services firms seemed likely to continue for some time.

The day after that, Prime Minister May made her important speech at Lancaster House. As has been widely commented this provided important clarifications as to a number of aspects of the UK’s negotiating stance.

Amongst the things Mrs May said were that the UK would not be seeking to remain a Member of the Single Market. She also said that it would be seeking a new, comprehensive free trade agreement which would seek the greatest possible access to that market. This she said “may take in elements of current Single Market arrangements in certain areas – on the export of cars and lorries for example, or the freedom to provide financial services across national borders”.

I don’t think that I would have to revise my earlier comments just yet. It looks like a long road of negotiations still to come.

Authorisation process

I have mentioned already that the Central Bank of Ireland is committed to providing transparency, consistency and predictability as to its approach.  To this end we have made publicly available a good deal of information on our thinking about and approach to Brexit-related authorisation. You can find this on our website. Where, by the way, you can also find the dedicated webpage that we have set up for firms interested in seeking authorisation in Ireland.

On the website you will find for example, a speech by Deputy Governor Roux at the IIEA on the 1st December. You will also find an article that I penned for the January edition of Finance Dublin.

In fulfilling its statutory role, the Central Bank adopts a structured, robust and risk based process that seeks to ensure that only those firms that demonstrate compliance with EU and Irish authorisation requirements are authorised.  We interpret our mandate as requiring us to carry out our tasks effectively, efficiently, and on the basis of high quality outcomes[5]. 

Our approach is deeply embedded in the European context, whether as part of the SSM or as part of the European System of Financial Supervisors. This is significant because it means that regulatory differences should not be a driver of where firms, which are considering some restructuring, might choose to locate new entities or business activities.

Banks operating in Ireland, particularly large banks, are in effect Eurozone banks that happen to be located in Ireland.  They are subject to the same requirements and approach as any bank in any other Eurozone country.  The European Central Bank, through the Single Supervisory Mechanism, has ultimate responsibility for all bank authorisations across the Eurozone.  This is not to say that the Central Bank has no role to play in the authorisation and supervision of banks operating in Ireland, when it clearly has a very material role.  It is to emphasise that the authorisation and supervision of banks is consistent across the Eurozone and equivalent across the European Union.

Firms seeking authorisation in Ireland will find the Central Bank to be engaged, efficient, open and rigorous. We have considerable experience in dealing with authorisations. They will find what they would expect to find from an authority which is committed to high quality outcomes while keeping costs well-controlled. The Central Bank regulates approximately 10,000 financial services providers and continues to undertake a large number of new authorisations each year.

Supervisory Expectations

At the Central Bank we have seen a material number of enquiries that are Brexit related. To date most of these engagements have been preliminary. As part of their forming a view as to Ireland as a potential location, firms have been interested in getting to know the Central Bank as a regulator. How we approach things. How we see regulation and supervision. The nature and organisation of the authorisation process. Potential timeframes. Things we worry particularly about. Our role and engagement in the European and International processes etc.

We have been seeing a number of these enquiries begin to advance further. In certain cases, we have a sense that firms are moving from a long list of potential locations to a short list; with a number of these focusing specifically on Ireland.

Substantive presence

This is an important question. Where we are asked to consider the authorisation of a firm in Ireland, we will want to be satisfied that we are authorising a business or line of business that will be run from Ireland and which we will be effectively supervising. We will expect there to be substantive presence here.

In general, we would expect that the Board and the management of the entity are located in Ireland such that that the business is run from here. We will want to be satisfied that the mind and management of the entity are located here and decisions are taken here.

One way of thinking about this is that we would expect the risks associated with the business to be governed, remunerated, managed and mitigated in and by the entity. This flows through to the staffing that one would expect to see.

That of course is not to say that the entity cannot or should not be well embedded and integrated into its overall group structure. This can of course be a source of significant strength and resilience. But it is to say that this must not come at the cost of the business that is authorised here being effectively run from here.


The Central Bank does not have any per se difficulty with outsourcing and/or insourcing up to an appropriate point. Such approaches form a part of many business models. They should not be considered problematic in themselves.

It must also be said however that outsourcing and insourcing can also be the source of material risks. So our focus in this regard will be on ensuring that they are done well and in line with sound practices. In particular, we will be focused closely on the principle that while an activity may be outsourced, responsibility for it may not. We will always want to see that there is the level of expertise and seniority within the entity to effectively oversee and manage such outsourcing.

Importantly, a firm may not outsource to the extent that it is effectively hollowing out an important part of the regulated activity.

Group integrated approaches

Some of the questions that we get asked, relate to our approach to and views on the potential for applicants to implement group-integrated approaches for the entities that might be set up here. This might relate, for example, to participation in group-wide approaches to exposure management or to risk mitigation. It might relate to the use of group risk models etc.

While the answer in each case will depend on the specific details, in general terms: you can expect to find us both rigorous in our approach to this aspect and also solution-oriented.

Rigorous in that we will want to have a clear understanding of how risks are accepted, distributed, managed and mitigated within the group. We will want to understand how the local entity fits into all of this, and in particular how group solutions are well-adapted and suited for local application. They must be well-understood, appropriately-tailored, and effectively managed and applied locally.

At the same time, firms will find us solution-oriented. Our approach is designed to be a constructive one.

Take the example of models approvals. It would of course be our responsibility to be satisfied that any relevant risk model meets the appropriate criteria and can be relied upon for capital calculation and risk management purposes.

At the same time, we recognise, the practical constraints that firms are facing. Particularly around some of the timing issues. We are alive to the logistical and practical challenges in doing a number of things in what may be a relatively short timeframe: for example, setting up business in Ireland, getting authorisation and thinking about approval of models currently approved by the UK authorities. We are open to thinking constructively about how this practical sequencing challenge might be addressed, how things might be arranged so that the various objectives can be met, without of course undermining our commitment to our responsibilities in this regard. The Central Bank of Ireland's strong relationship with the UK and other authorities means that we will be in a good position to work through the issues effectively and efficiently.

Business models 

In an open market economy, it is important that participants are able to take up new businesses, and engage in new activities. The system is enhanced by well-run new entrants.

Financial firms are regulated for a reason. Their failure can put deposits, client assets, claims, premiums or members’ funds at risk. Some business models are riskier than others and require more safeguards.

For any authorisation process we are focused on the firm's understanding of the risks, and how they are managed and mitigated. We also seek to ensure that the customers interests are central to the business proposition, from the suitability of products to the treatment of claims. This is the role of a regulatory authority.

We have made clear that the Central Bank has not ruled out, and is not planning to rule out, any particular business model on financial stability grounds.

For any authorisation process we will be focused on understanding the risks, and how they are managed and mitigated. This applies both in respect of the ongoing state of the firm and in the event that the firm was to get into difficulties and fail.

Proper business models, with convincing risk identification and management, appropriate focus on customer needs, suitable products, sound finances, strong boards and executives, can be expected to be approved, whether or not such business models already exist in Ireland.


We are also asked whether the Central Bank is in a position to cope with a large volume of applications over what might be a relatively short period of time. And then to carry out the oversight activities that will be required.

The Central Bank is committed to meeting these challenges. Our workforce and recruitment planning for next year reflects the additional resources needed to deal with applications that will come our way. This will take the form both of an increase in staff, that is additional staff recruited to the Central Bank, in areas where we already know that we will need additional numbers and contingency numbers for those areas where we think they might be needed but it is not yet clear that they will be.

Where further resources are necessary, due to an expanding universe of regulated firms, the Central Bank will increase staff numbers as necessary.


Let me finish here.

Few would doubt that the decisions made in the coming months by UK and EU politicians will have major implications for the financial services landscape. My key message is that the Central Bank stands ready to meet the challenges that may arise. We will do so on the basis of an active, open and constructive engagement. Our approach is a pragmatic and constructive one, but always in line with our mandate to safeguard financial stability and protect consumers and to do so consistently with EU rules and our published processes.  


[2] London Finance, Global Financial Centres Index 20, September 2016

[3] FSB, 2016 list of global systemically important banks,

[4] M. Kose, C. Otrok and E. Prasad , How Much Decoupling? How Much Converging? L.S. Ritter and G.F. Udell, Principles of Money, Banking, & Financial Markets, 2004,

[5] See our six monthly Regulatory Service Standards Performance Report which sets out both the standards to which we are committed in terms of dealing with authorisation applications in the different sectors and our performance against those standards.