Dublin's International Financial Services Centre (IFSC) employs over 38,000 people and is home to some of the world's leading financial institutions; industry stalwarts such as Merrill Lynch, ABN Amro, JP Morgan.
But in recent years, this area of Dublin has ushered in a slew of technology companies, many of them exciting start-ups specialising in financial technology. Alongside the likes of Google, Twitter, LinkedIn and Airbnb, all of whom have their European headquarters located here, a number of interesting start-ups have sprouted up, causing some to dub this area `Silicon Docks'.
Firms such as Propertygate and Certus (portfolio management), CR2, Acquirer Systems, CurrencyFair, FINCAD and FundCalcs service all parts of the financial services domain. This reflects the commitment that Ireland has to `FinTech' and is very much at the heart of the Irish Government, as is evidenced by its IFS2020 strategy for International Financial Services, which aims to create 10,000 new jobs in the IFS sector (largely through supporting FinTech) by 2020.
Within FinTech, one clear trend in Dublin is the emergence of technology companies that aim to address the regulatory and compliance challenge facing all parties in financial services. These `RegTech' companies are being established by silver foxes; people with many years' experience in the industry and a deep understanding of the operational challenges.
"There are at least 10 such companies in Dublin with strong capabilities. For example: Silverfinch, FundApps, FundRecs and TradeFlow," says Cillian Leonowicz, Senior Manager Consulting and Deloitte Ireland FinTech Lead.
Silverfinch creates connectivity between asset managers and insurers through a fund data utility, FundRecs offers reconciliation software while TradeFlow provides data tracking and risk alert technology capabilities.
"Based on recent research we did around FinTech, what we found is that there is a niche core of companies in Ireland focusing on RegTech. The bottom line is if you talk to any of our clients and ask them what their pain points are, regulation is going to be in the top three. For our clients, it is a real pain that they are looking to overcome," notes Lory Kehoe, Director Consulting and Deloitte EMEA Blockchain Lab Lead.
The requirement for stronger data management in terms of having a central pool of data that one can slice and dice is becoming critical because global regulators are increasing the regulatory burden and changing the requirements. This is not about to reverse any time soon.
One particular solution that could well end up becoming the primary container for data to do the slicing and dicing is Blockchain.
Deloitte has just selected Dublin as the base for the creation of an EMEA Financial Services Blockchain Lab as part of its FinTech initiative `The Grid'. A 50-person team will focus on developing strategic blockchain capabilities and proof-of-concepts into functioning prototypes to create `ready to integrate' solutions for financial services clients.
"One of the best uses of this technology is being able to change the back-end reporting requirement when it is in the core blockchain; once it is changed, it is changed for the entire industry. We are currently exploring how blockchain can be used as a container for data which can then be sliced and diced for current and future regulatory requirements," says Kehoe.
Moreover, the information being logged in the blockchain is immutable. It can't be changed and this therefore has the potential to drastically improve transparency.
The drive for transparency continues apace within the hedge fund industry, which just recently saw the US billion dollar manager Platinum Partners face allegations of fraud.
"There was a reliance on third party pricing, which wasn't properly investigated, the brokerage reports weren't investigated. Mr Trump is talking about having a lighter touch regulation to promote the US financial services industry but that simply isn't plausible if they want to properly regulate the industry," says John Bohan, Managing Director – Europe, Apex Fund Services, who says that managers want to use their fund administrator as more of a one-stop shop.
"If they've got a number of hedge funds, private equity funds domiciled in various jurisdictions with a mixture of US and non-US investors they need to be able to extract relevant data to perform K1 calculations on tax, risk reporting for internal purposes and for external client purposes, etc. That automatically becomes a high demand for an administrator unless they've got the technology to meet that demand," observes Bohan.
"We've over 1,400 funds across the Apex group globally. We know that 18 per cent of those funds are PE and RE funds. We also know from our opportunity pipeline using Salesforce that the next six to nine months shows a much higher percentage of PERE funds so we can see what investment strategies are proving popular with investors right now and what might be coming around the corner.
"Based on this level of information we can develop stickier client relationship and generate fees from regulated as well as unregulated funds," he adds.
Asked how important it is for asset servicers to have access to a thriving fintech/regtech ecosystem in Dublin, Bohan asserts that it is "essential" that service providers utilise innovative fintech brands "as new technologies continue to drive industry progression and in turn influence client expectations".
He thinks that Ireland has the capacity to become Europe's leading RegTech jurisdiction given that has already established itself as the largest centre for fund administration globally with over 43 per cent of the world's hedge funds administered there.
"The growth of the `Super Management Company' has fuelled greater demand for risk and/or OMS/PMS technology as well as the back office end. With so much new business, on both the client and service provider sides, invariably the environment becomes a rich financial services centre with multiple fintech businesses feeding and fuelling that growth," says Bohan.
Another service provider paying close attention to Ireland's RegTech revolution and the opportunities that could arise to enhance their operating model is Quintillion, a subsidiary of US Bancorp Fund Services. Ken Somerville, Head of Business Development at Quintillion, says that by virtue of AIFMD and other global regulation, managers have been faced with a slew of reporting requirements, such that it has become operationally onerous; it has taken on a life of itself.
"As each of the reporting agencies have dictated or defined their reporting criteria, managers have put in a lot of effort to construct solutions and get themselves in a position where they are equipped to understand the content of those reports. It has been a rationalisation process, which has led to a shift from manager-led responsibility to more of a collaborative responsibility," says Somerville.
The inference here is that as managers increasingly outsource regulatory and compliance tasks, it is the fund administrator rather than their own fund management companies that end up becoming the licensees of software providers.
"The solution that fund administrators need to offer to the marketplace should be flexible enough to allow for the manager's own risk appetite. Some managers want complete outsourcing of regulatory reporting but for others it is a hybrid approach where they ask us to do a lot of the data preparation before they make the filing(s)," says Linda Gorman, CEO of Quintillion.
One of Dublin's leading RegTech companies is AQMetrics. The firm's CEO, Geraldine Gibson, served on the management team of the risk and compliance software company Norkom before it was acquired by BAE Systems in 2011. Before AQMetrics was established in 2012, Gibson served as Head of Professional Services at BAE Systems.
Discussing Ireland's RegTech ecosystem, Gibson has a slightly more established viewpoint. She points out that 10 years ago, people didn't refer to software companies that provided regulatory risk and compliance solutions as `RegTech' companies, though that is exactly what they were.
Given the Brexit decision last June, Gibson thinks this is causing people in Ireland to look at how Ireland is positioned as a financial services jurisdiction to service the globe. "For RegTech companies, there probably are more opportunities for them. In the end, there will be more regulation. It is not going to disappear. Everybody is looking for automation, everybody is looking for efficiency and that in itself brings opportunities for RegTech," she adds.
To that end, one of the most challenging pieces of regulation set to impact market participants is MiFID II (Markets in Financial Instruments Directive II), set to be introduced in January 2018.
This January, AQMetrics announced that it had made new enhancements to its end-to-end risk and compliance solution, which sits on the AQMetrics cloud-based platform. These enhancements will help both buy-side and sell-side firms better prepare for MiFID II and include the following:
- An updated Supervisory Control Portal and Risk Register to provide client classification and product appropriateness factors and scoring;
- Additional Risk Monitoring analytics to cater to Best Execution and Transaction Cost Analysis (TCA)
- A new regulatory reporting solution whereby AQMetrics is authorised as an ARM (Approved Reporting Mechanism) under MiFID II. AQMetrics is currently reviewing several MDP (Market Data Processor) specifications from National Competent Authorities to enable passporting of MiFID II regulatory reporting into all European Regulators.
Claire Savage, COO of AQMetrics, notes: "Where we resonate – based on my discussions with prospective clients – is we aren't just selling an interface into a reporting system. We have a lot of deep regulatory knowledge and this is all built into the platform. We can talk about MiFID II as a whole to the client and ask, for example, how they manage the process when a client changes from retail to professional. We listen to their manual processes, understand what their challenges are, and then explain to them how it can be automated, controlled and audited to bring them in line with regulation."
In this regard, technology is just the enabler. It shows a client how it could slot into their business and improve things.
Going forward, the challenge for Ireland's RegTech community is going to be how they develop effective partnerships with the traditional asset servicer names listed at the start of this editorial.
"How will a global asset servicer embrace the different culture of working with start-ups and partner with them on a level that doesn't come across as the big boy bullying the small guy? The reality is, the FinTech companies operating in Ireland, in many instances, have more value to offer the asset servicers than vice-versa because they have, or are developing, specific solutions to the regulatory and operational challenges that fund administrators, etc, are looking to solve. The trick is finding the balance and parity of esteem between the two for problem solving and value creation that sticks.
"It's an interesting dynamic in Ireland right now," concludes Leonowicz