‘The culture and expectations of a fintech and the regulator are very different’

The high bar to getting fintechs regulated in Ireland

This article was first published in the Irish Times, 24 June 2022.

Ireland’s fintech sector is going from strength to strength, says Shane Kelleher, partner and head of the financial regulation unit, William Fry. “Our success in fintechs is built on the strength of our financial services sector and our technology sector, with global players like Apple, Microsoft, Google and Meta establishing operations here.

“The Industrial Development Authority (IDA) has been central to our success in attracting regulated fintechs looking for a new base for servicing their EU customers post-Brexit.

“In only a few years we have gone from single-digit regulated fintechs to over 40 electronic money institutions and payment institutions authorised in Ireland including international fintech leaders such as Stripe, Facebook Payments, Google Payments, Western Union and Coinbase.”

Joe Beashel, partner in the Financial Institutions Group and head of the regulatory risk management and compliance team at Matheson, agrees. “A feature we saw before Covid-19, but which has been reinforced by the pandemic, is the increasing spread of the Fintech sector across the country — outside Dublin to regional centres such as Cork, Limerick and Galway but even into rural Ireland as working from home has become the norm for the knowledge-based workers in the fintech sector.

“Despite general economic uncertainty, the future for this sector looks very bright with the most significant constraint on growth being the capacity of the labour pool.”

However, he acknowledges a licence from a regulator is difficult to get and, as such, is both a barrier to entry for competitors and in many cases an essential foundation for international expansion. “I often observe that the culture and expectations of a fintech and the regulator are very different but the firms which try hardest to understand the regulator and bridge that gap find the authorisation process easier.
“I see the fintech industry working incredibly hard to understand their customers’ needs and expectations and they build their offering around them — applying some of that passion to understanding the regulator makes for a much easier process for both fintech and regulator.”

Choosing Ireland

There are many reasons why a company would choose Ireland to set up its fintech business, says Christopher Martin, Of Counsel, A&L Goodbody. “Ireland has an attractive corporate tax rate of 12.5 per cent in respect of trading profits (although this is to be increased to 15 per cent for large corporates with global turnover in excess of €750 million following engagement with the OECD).”

He says significant support is also offered by Enterprise Ireland, through its Competitive Start Fund and the Innovative High Potential Start-Up Fund. “For multinational companies wanting to establish or expand their activities in Ireland, the IDA can offer grant assistance as well as providing logistical and practical support.

“There are also several government-backed schemes such as the Ireland Strategic Investment Fund, Disruptive Technologies Innovation Fund, Startup Refunds for Entrepreneurs and the Employment and Investment Incentive Scheme.”

Ireland has many key attributes for being the HQ of any new fintech business, agrees Richard Morrissey, head of corporate sales at Moneycorp Ireland. “There is a strong compliance and regulatory environment with the well-respected Irish Central Bank to the forefront of the European market, a strong multinational presence in the financial services industry with many international companies having their EMEA HQ here, and a talented workforce emerging from our education system and key workers honing their early skills within the multinational community.”

Other reasons include the “benign tax system that suits new companies coming to Ireland and a pro-business legal system” as well as the country’s proximity to the UK.

Benefits of being regulated in Ireland

Beashel says for regulated services, having a licence from the Central Bank of Ireland gives you an all-important licence which you can “passport” across Europe. “Having said that, I describe Europe as “nearly” working. It’s great to have a “passport” but it is still important to check out local rules and market practices. Clients usually focus on key markets and due diligence to discover and adapt to local variations and preferences.

“In the regulated space, where a fine for getting it wrong is a real possibility, it is certainly better to check and ask permission rather than rush ahead and look for forgiveness.”

Getting started

For those companies interested in setting up a fintech business in Ireland, the regulations are seen as somewhat onerous. In fact, says Kian Caulwell, partner, head of financial services consulting at Mazars, these delays meant “some high-profile firms that have decided to withdraw from the process”. He says the other challenge that firms moving into Ireland face — when a company is regulated elsewhere — is that Ireland is a leader in its regulatory environment, particularly in consumer protection, and “there is a higher bar or standard of documentation that firms need to produce or have in the background”.

Regulatory requirements

“Depending on the products and services offered, regulatory requirements vary,” says Reno Mathews, chief compliance officer at Trulioo. “From a compliance perspective, it is critical to understand customer and regulatory expectations when entering any new market. For any financial services, along with market opportunity, an enterprise risk assessment should be conducted, particularly in the areas of anti-money laundering/counter-terrorist financing.”

Kelleher says some key tips for obtaining a licensing application efficiently include “getting advice from experienced advisors to ensure the first version of the application submitted to the Central Bank anticipates the expectations and questions of the Central Bank to reduce the overall timescale of the application, avoiding making material changes to the application after it is submitted as this risks severe delays and anticipating and prioritising those workstreams which are most likely to delay the grant of authorisation including the hiring of key staff”.

Morrissey advises companies to hire professional services firms that have strong experience in the field and “be realistic about the journey to breakeven for each market”.

Caulwell says that the Central Bank is incredibly transparent in the application process and that companies should work with the Central Bank — not feel they’re working against them.

Date published: 27 June 2022