International Financial Services Centre, Dublin

Famine sculpture in front of the IFSC

The International Financial Services Centre (IFSC) started in 1987 as a special economic zone situated on a derelict 11 acre site in the centre of Dublin City with EU approval to apply a 10% corporate tax rate for designated financial services activities on the site. On the expiry of this EU approval in 2000, the Irish Government effectively turned the entire country into an IFSC by reducing the overall Irish corporate tax rate to 12.5%. The legal requirement for an IFSC area was thus removed, and the term International Financial Services ("IFS") sector is now used.

The original IFSC site has gone through several major expansions and is now a major European financial centre and central business district in its own right. It covers the office areas on the North Wall and East Wall (both north of the river Liffey), as well as the Grand Canal Basin (south of the Liffey) in Dublin, Ireland. It has also begun to merge with Dublin's Silicon Docks technology area (home of Google and Facebook in Ireland).

Because of the combination of the original IFSC with the entire country in 2000, and the subsequent blurring of the definition of what is the IFSC (or IFS sector) and what is more domestic financial services activity (i.e. Irish banks and insurance companies) it is difficult to get consistent statistics. However, the Irish Government's own IFS 2020 Strategy Paper lists the IFS sector as comprising over 400 companies, employing over 35,000 people (one third outside Dublin), with over €3.2trn in funds under administration.

Location

The IFSC comprises the area between Memorial Road, Amiens Street, Lower Sheriff Street (including part of Crinan Strand), Guild Street, and the River Liffey along North Wall Quay and Custom House Quay. Adjacent districts include East Wall to the north and Spencer Dock to the east; the Custom House, Busáras and the city centre lie to the west along Store Street and Abbey Street. Within the IFSC, the original development area lies west of Commons Street.

East of Commons Street is the later IFSC II area, along North Wall Quay and Lower Mayor Street. It is an integrated development located in the centre of the city which incorporates office accommodation, educational institutions, housing, restaurants and shopping facilities.

East of Guild Street and down as far as the Point Depot is the most recent IFSC III area containing the Central Bank of Ireland, the NTMA as well the offices of PwC and numerous Fintech companies including Yahoo, Fenergo and Voxpro.

Activities

The main sectors of activity in the IFSC are outlined below:

Fund Administration

The original proposal for the IFSC was that it would become a location for high-margin investment management and securities trading activity given the low tax rate and proximity to the major centres of London and Paris. For various reasons the IFSC attracted few such operations with Pioneer Investments being the only real example. Whenever material employment is listed in investment management in the IFSC it is from the domestic Irish fund management firms (i.e. Irish Life Assurance plc) or mis-classified IFSC fund administration business.

Fund Administration (covering fund accounting, fund administration, fund custody and transfer agency) is the largest employer in IFSC making up almost a third of identified IFSC jobs and totaling almost 9,274 jobs at the last reliable study. The four largest global fund administration and custody providers all have major offices in the IFSC State Street, Bank of New York Mellon, Citibank and Northern Trust, as well as internal fund administration departments from major global investment banks such as JPMorgan, Goldman Sachs and Bank of America.

The trade body for the IFSC Fund Administration sector is the Irish Funds (Industry) Association (previously the Dublin Funds Industry Association).

Securitisation

The introduction of the Irish Section 110 SPV in 1997, described by PriceWaterhouseCoopers as the "heart of the Irish structured finance regime", enabled the IFSC become the largest provider of SPVs in the EU securitisation market, and has made Ireland the 4th largest shadow banking centre in the world. While Irish securitisation SPVs pay no effective Irish corporate taxes (SPVs are deliberately structured in this way), they are estimated to contribute over €100m annually to the Irish Economy from fees paid to local Irish professional services firms (mainly legal, but also accounting and corporate services providers) who create and administer the SPVs.

Note that sometimes the Securitisation Sector is merged with the Fund Administration Sector when "total funds administered" data is quoted for the IFSC.

The trade body for the IFSC Securitisation sector is the Irish Debt Securities Association (IDSA).

Banking & Insurance

Some of the world's largest banks have offices in the IFSC. Their focus is mainly on administration support for Securitisation and Structured Finance activities, the IFSC Aircraft Leasing sector, or conducting in-house Corporate Treasury and Fund Administration functions for their own parent. There are no examples yet of major foreign banks conducting higher margin Investment Banking, Securities Trading or Corporate Banking or Corporate Finance directly from their IFSC platform (these activities are still mostly done from bases in London, Paris or Frankfurt in Europe).

The main insurance activities cover Life Insurance (mostly niche investment products from niche firms), General Insurance (also niche risk products from niche firms), Reinsurance (Solvency II consolidation wrappers from major offshore players) and Captive Insurance (in-house self-insurers of major multi-nationals). There is little insurance risk originated or underwritten in the IFSC (London is the base for such activities), however the IFSC provides a platform and legal / taxation wrapper for niche insurance products sold on a pan-EU basis through the parent's main channels.

Aircraft Leasing

The IFSC is one of the largest aircraft leasing hubs in the world with 14 of the top 15 aircraft lessors headquartered in Ireland (including Aercap, GECAS, RBS, SMBC and Avalon) and circa 50% of the world’s fleet of leased aircraft is managed through IFSC companies. Unlike most other IFSC sectors, the Aircraft Leasing sector includes high margin activities (including origination and financing). While the sector employs under 1,000 people (versus Fund Administration at almost 10,000 jobs), and pays less than €40m in Irish corporate tax it is estimated to provide over €500m annually to the Irish Economy (from salaries and fees) making it one of the most valuable sectors in the IFSC.

The closest related trade body for the IFSC Aircraft Leasing sector is the Irish Aviation Authority (IAA) (not exclusively IFSC focused).

Corporate Treasury

The Corporate Treasury sector primarily consists of small IFSC subsidiaries of large non-financial multi-national services organisations (e.g. Pfizer, Xerox), which serve as a hub for in-house treasury functions (i.e. cash pooling, fx hedging), for their global parent and sometimes serving as shared services centres serving multiple locations and functions (providing administration and bookeeping functions). While it is roughly estimated that between only 200-300 people are directly employed in the Corporate Treasury sector, the level of Irish corporation tax paid by these hubs is close to €200m per annum, making it more valuable to the Irish Economy then the higher profile IFSC Securitisation sector.

The closest related trade body for the IFSC Aircraft Leasing sector is the Irish Association of Corporate Treasurers (IACT) (not exclusively IFSC focused).

Payments Processing

This is a more diverse sector that covers classic payments companies (US credit card processing companies like VISA and Mastercard), internet and fintech payments companies (i.e. PayPal, Stripe), and other niche payment processors (i.e. FEXCO, Taxback, Realex Payments). The attraction is the Ireland's beneficial tax regime (especially for contract manufacturing, previously developed for the pharmaceutical sector in Ireland) which makes Ireland a low / zero tax centre for handling payments.

The trade body for the IFSC Payments sector is the Fintech Payments Association of Ireland (FPAI).

Other Activities

The National College of Ireland is situated within the IFSC.

The new Central Bank of Ireland headquarters is situated within the IFSC.

History

The IFSC was the brainchild of financier Dermot Desmond, whose NCB financed a study by Price Waterhouse on the feasibilities of an 'IFSC'. Desmond then approached Fianna Fáil leader Charles Haughey, then in opposition, who made it the centrepiece of his economic manifesto when he came back into power.

The Finance Act, 1987 (Section 30) allowed for the designation of an area exempt from normal taxation laws (akin to a special economic zone), which would carry a special reduced 10% Irish corporate taxation rate. The construction of three major offices (The International Centre, IFSC House and La Touche House) became the first physical manifestation of the IFSC. To operate in the IFSC (and access the 10% tax rate) companies had to be approved by the Certification Advisory Committee (CAC) comprising of representatives from the Irish Development Authority, the Department of Finance, the Department of Enterprise and Employment and the Central Bank of Ireland.

In effect, Ireland became an IFSC under a new 12.5% corporation tax rate. By 2006, the legal requirement for an IFSC special economic zone was over and all Irish corporations were on the 12.5% rate.

After the crisis

The response of the regulator which followed the Irish financial crisis led many financial institutions to move operations elsewhere and caused Dublin's ranking as a financial services centre to drop for a time from 10th in 2009 to 70th in 2014. IFSC institutions cited the timeliness of decisions by the Central Bank of Ireland as having a significant impact on their operations. Since 2014 Dublin has rapidly recovered developing a broader base of service offerings and rising to 33 in the GCFI rankings as of March 2017

Notable participants in the IFSC

• JP Morgan
• Wells Fargo
• Citibank
• The Bank of New York Mellon
• Credit Suisse
• AIG
• BNP Paribas
• Bank of Ireland

See also

• Irish Section 110 SPVs

External links

• IFSC Site