Ireland is steadily coming out of recession. Business
activity is reaching levels approaching those before the crash.
The financing of property development (always a reliable
bellwether for the Irish economy) is becoming very active
again. At least for the moment, the economic signs are
positive. What, if any, role should the Irish financial
regulator – the Central Bank of Ireland (CBI)
– play in this dynamic?
There is of course a school of thought that claims that
light-touch regulation contributed to the crash in Ireland and
further afield. Whether this is correct or not, it seems beyond
doubt that regulation affects economic activity and behaviour
by market participants. A regulator cannot become a passive
participant in the markets. This means that the regulator must
make policy choices which will have an impact on economic
Ireland seems well placed to grow still further as a
financial services centre. Just as the economy seems about to
surge to a new level, there are also opportunities for change
on the horizon. Some of these could be positive for Ireland.
Politically, Ireland is relatively stable; it is a member of
the eurozone; it is a common law jurisdiction and it has an
established financial services industry with the expertise
(including legal practitioners) to go with it.
For every opportunity for positive change there is equally a
chance to scupper progress. The alternative lending market in
Ireland has become very significant, with private equity,
regulated funds and crowd-funders plugging gaps left by a
capital challenged banking system. Alternative lending now
plays a major role in the development of Irish businesses.
However, CBI has developed something of a fixation on the
systemic importance of the alternative lending market. This has
manifested itself in scrutiny of special purpose vehicles. The
Irish government has also introduced regulation for holders and
servicers of loan books which include consumer and (in certain
circumstances) SME debt.
Over-regulation of the alternative lending sector (whether
driven by the CBI or at EU level) will stifle economic growth.
Aside from consumer transactions, regulation plays no useful
role in the lending markets.
Ireland is at a crossroads. There are opportunities for
positive change – but this could ultimately be elusive
unless the right policy choices are made by the CBI and the
Irish government. Although there are numerous technical legal
issues which need to be addressed, at a macro level the
following is required: (i) commitment not to regulate the
alternative lending markets; (ii) the radical scaling back of
regulatory oversight of financial services provided to
non-consumers; (iii) the enhancement of incentives for the
location of discrete financial services such as prime
brokerage, reinsurance and ship finance in Ireland (the latter
to build on the activities of the Irish Maritime Development
Office); and (iv) a government commitment to facilitate major
financial service providers who wish to locate to, or enhance
their presence in, Ireland and for this to be reflected in CBI