If you are:

• a regulatory adviser in Ireland, including a consultant, a law firm, an accounting firm,
• an aspiring CEO/CFO/CCO etc looking to join a fintech seeking authorisation,
• especially a founder looking to get his/her fintech (#emoney institution, #payments institution or #crypto asset institution),
• company formation firms (i.e. TCSPs), or
• a recruiter in the fintech arena,

be very careful with what can only be described as middle-men sharks / charlatans operating in the industry claiming that they are based in Eastern Europe (inside and outside of the EU depending upon your questioning), that they have clients requiring authorisations in Ireland and that they need assistance from you with the business set-up and authorisation paperwork.

These sharks/charlatans mislead and lie about their credentials and their experience. It seems that Ireland has become the go to jurisdiction for firms wanting credible supervision and regulation and the sharks are trying to exploit this. However these middle-men/sharks have no idea of the regulatory regime in Europe, let alone Ireland, and a few pointed questions catch them out. Then the fun begins as you watch them squirm in their seats.

It is clear that these are the "fintech advisers" which have and continue to fail to get their clients authorised elsewhere (or are perhaps just a scam from the outset). With Ireland's reputation riding high, these sharks are bombarding me (and others) with poorly thought-out offers/plans. I think I receive at least four approaches a week from these bad actors.

Unusually, I took a call from one of these firms today. It was an advisory firm with a name I did not recognise. When the video feed went live it was the same person who approached me last year under a different corporate name. When he saw my face, the stuttering began. His lead generators had clearly let him down.

These firms try to hire/appoint people in Ireland and increase the amount of any fees guided upon and add a margin to 'their clients'. I asked if they disclose this margin to the underlying client? Together with that question, and a few other due diligence questions, they quickly got the message that Ireland doesn't welcome their type of business nor that of their clients.

I am pretty sure that no one in Ireland wants dodgy companies and UBOs accesses and thereby diminishing the value of Ireland's hard fought high levels of regulatory reputation, prudential soundness, conduct risk, consumer protection and anti-financial crime standards.

I am pretty sure that my peers in other EU Member States feel the same way.

An MEP representing Ireland in the European Parliament, Mairead McGuinness, has been appointed as EU Commissioner for Financial Services, Financial Stability and the Capital Markets Union – which includes spearheading Europe’s new AML drive.

Ms McGuinness was appointed to the influential role following the resignation of Phil Hogan (a previous nominee of the Irish government) who served as Commissioner for trade.  Mr Hogan resigned his Commissioner role following a scandal involving an Oireachtas (Irish Parliament) Golf Society event at which a number of other people attended - including senior members of financial services and banking representatives - alleged to be in breach of Ireland's coronavirus guidelines last month.

When all is said and done, has to be viewed that Ireland, particularly its ever-growing fintech & financial services industry, should be very happy with Mairead McGuinness -  a current First Vice President of the European Parliament - being appointed as European Commission's new Commissioner for Financial Stability, Financial Services & Capital Markets Union.  Her new role will encompass banking, insurance, fintech  (payments & emoney), insurtech and financial crime including anti-money laundering.

It is important to bear in mind that Ms McGuiness is not appointed to fly the green flag nor wear the green jersey for Ireland.  Just as Mr Hogan was 'not Ireland's man in Brussels' which so many people who should know better said when his role at the EC was being questioned.  The role of an European Commissioner is to serve Europe first, not do deals to put Ireland's (or any Member State's) interest above the EU.  If that happens with respect to any such appointment, then there is at least one word to describe that - "corruption".  See further reading below.

Announcing Ms McGuinness' appointment Ursula Von der Leyen, European Commission President, described McGuinness as having “significant political experience on EU issues” as an MEP since 2004. She added that her previous experience was “crucial in carrying forward the EU’s financial policy agenda” and “ensuring it supports and strengthens the Commission’s key priority”.

McGuinness will oversee the upcoming sixth money laundering directive, which is due to be implemented by December 2020.  Which is rather interesting since Ireland was fined €2 million by Europe's highest court on foot of a complaint from the European Commission for Ireland's failure to implement the 5th AML Directive on time.  Goes to show that when it comes to Ireland, the European Commission acts in a very independent manner! In fairness, important to add that Ireland was not the only naughty school child - Romania was fined €3m for the same breach.

Some other observations, #1 and 2 captured above:

1. Ms McGuiness is not appointed to fly the green flag nor wear the green jersey for Ireland.
2. Ms McGuiness is to oversee the upcoming 6th AMLD due to be implemented by December 2020. Interesting since Ireland was fined €2 million for failure to implement 5th AML Directive on time.
3. Ms McGuiness's Director-General for Financial Stability, Financial Services and Capital Markets Union is an equally capable person, who also happens to be Irish: the Director-General John Berrigan (see org chart below).
4. Another Irish person with a senior influential role in Europe is Ireland's Minister for Finance, Paschal Donohoe, elected head of eurozone finance ministers back in July https://www.rte.ie/news/2020/0709/1152184-eurogroup-president-election/.  What is it with Irish professionals and EU finance and financial services?

Further reading:

"When Ursula Von der Leyen makes her selection, von der Leyen should ignore lobbying for specific posts from Dublin and every other member state and political grouping. It’s her right to assign portfolios as she sees fit, based on her assessment of the skills and experience of her commissioners and the overall composition she believes she needs to implement her agenda. The challenges facing the European Union, and the European Commission as its policy engine-room, are far too great to allow the effectiveness of the institutions to be compromised by the states’ all-too-narrow conception of their own influence."  Irish Times 7 September 2020. 

Thanks NewsTalk for radio interview this morning on Brexit & "Regulatory Arbitrage" and the fintech opportunities for Ireland. LISTEN TO AUDIO HERE

Background to this piece, thanks to Donal O'Donovan, is Irish and international media over the past few weeks reporting claims that Ireland is becoming a victim of 'regulatory arbitrage' and 'dangerous competition' for 'Brexit Spoils'.  The Irish Minister for State (Financial Services), Eoghan Murphy has been moved to raise concerns with Valdis Dombrovskis, the EU financial services commissioner.  Murphy informed Reuters that “We are hearing from various sources that companies are being offered certain incentives, that they are offering a back door to the single market, without the requirement to have capital to back up their entities in the European Union.”   In a sign that there may be more to come, the Financial Times reported that "against the background of the risk to stability in the European financial system. The heads of Esma and EIOPA, two key EU financial regulatory agencies, are believed to have raised similar concerns [to those of Eoghan Murphy] in recent days." [source FT, 14/03/2017 - Irish complain about rivals in Brexit race for London’s business].  

This post is also carried at LinkedIN - https://www.linkedin.com/hp/update/6249557917670862848 

PDF format here  

Conor McMahon, Reporter at Fora talks to Peter Oakes, Founder of Fintech Ireland about how automated financial advice is expected to shake up the wealth management sector

SO-CALLED ‘ROBO-ADVISORS’ already manage billions of dollars in the US, but they have yet to make their way to these shores.

Traditional wealth management has been largely untouched by the march of digital on this side of the Atlantic, and the sector is still overwhelmingly burdened by paper and admin work.

But not for much longer. Automated financial advice is already making waves in the UK, and Ireland could see a surge of robo-advice firms setting up shop in a bid to access investors in Europe.

Fora spoke to fintech expert Peter Oakes, founder of Fintech Ireland and a former director at the Central Bank, to get the lowdown on what exactly robo-advisors do and how they might shake things up in 2017.

What are robo-advisors?

Robo-advisors are basically online money managers or “investment intermediaries”, Oakes says. They offer financial advice based on an algorithm.

Users supply them with financial and personal information that they use to make recommendations on where to invest. In a nutshell, they offer low-cost financial advice.

“We all know that the biggest expense of a portfolio is all the administration,” Oakes explains. ”The thinking behind a robo-advisor is that there must be a large portion of people out there that actually just need very simple advice.”

Independent financial advisors take a big bite out of returns on investments in fees. Robo-advisors basically do away with that money trail.

What kind of advice do they give?

The user fills out an online form and the robo-advisor firm feeds that data into their technology. The robot uses that information to create an automated series of investment recommendations based on the user’s appetite for risk.

For instance, somebody close to retirement would be categorised as having a low-risk appetite, Oakes explains.

Based on the details furnished to the robo-advisor, it would most likely recommend that a user invests in money markets and avoids property ”because you really want your funds to be liquid because you’re coming up close to retirement. The same should apply in the case of equities, as there is greater risk there – and that’s want you probably wish to avoid when you are about to get the golden watch.”

Will they do away with humans?

The answer is no, but they still pose a potential threat to traditional wealth management firms and financial advisors.

Much like any industry that robotics and automation have affected – car manufacturing, media, customer service to name but a few – the humans won’t be completely wiped out, but their functions change.

“There still will always be a need for a human intervention from time to time,” Oakes says.

“Because it’s a regulated service, you’ll still have human interaction, especially if you’re lodging a complaint – maybe (the robo-advisor) has moved your money into the wrong fund even though you have proof of confirmation.”

It’s worth noting that the some users might be nervous about a complete lack of face-to-face interaction. A wholly automated experience might spook them from putting their trust in an algorithm.

“It may just be that the robo-advisor actually just gives advice and then leaves it to the individual to execute how they get that investment exposure,” Oakes suggests.

The benefits

The pros of robo-advisors outweigh the cons – on paper at least.

“If you look at your investment portfolio and you have a pension fund for example, even when you’re returning 5% a year, after the financial advisor starts taking out charges at the current rate, you’re probably only getting a 1.5% return on your money,” Oakes says.

“This is an opportunity to increase that 1.5% to maybe 3%, so you’re doubling your return.”


Who will they appeal to?

Oakes thinks robo-advisors will be targeted at people who are already involved in passive investments, like exchange-traded funds (ETFs), as these kinds of investment porfolios are easier for individuals to invest in without the need for financial advisors.

A robo-advisor would suit those types of investments because an algorithm can easily identify trends.

“There are tracker funds out there and they’re doing very well,” Oakes says. “You could set up a robo-advisor that predominantly puts people into tracker funds or recommends tracker funds.”

Robo-advisors will also appeal to anyone who is used to doing their banking online.

When will they come to Ireland?

It’s hard to say for certain, but robo-advisors are tipped to enter the market in 2017.

One of the possible motivations for coming to Ireland is access to the European Union’s investment management licence, MiFID, short for the Markets in Financial Instruments Directive. It’s the regulatory licence that non-banks use for investment management services. 

A robo-advisor firm that wants access to EU member-state markets might look to set up shop here and avail of the MiFID directive.

“If you were an Irish investment adviser or wealth manager, there are threats and opportunities here – in equal amounts,” Oakes says.

What does it mean for the heavyweights?

A recent PwC report suggested that traditional wealth fund managers are asleep at the wheel when it comes to robo-advisors.

It described the global wealth management industry as “one of the least tech-literate sectors of the financial services industry” and warned that it was falling behind non-financial services industry.

“Client expectations is sharply at odds with what’s currently being provided,” it said.

According to the report, what is currently on offer in the wealth-management industry is sharply at odds with what their clients, high net worth individuals (HNWIs), expect.

In her commentary on the report, PwC’s Olwyn Alexander said that the “sector is now acutely vulnerable to digital innovation from fin-tech newcomers, including robo-advice services” – and that firms that didn’t respond wouldn’t survive in the medium- to long-term.

Thanks to John Gilligan and Joe Singer of NovitasFTCL for sharing with Fintech Ireland this research on Growth, Profits and Valuations of Fintech Companies with us.  

By analysing the historical financial performance of 819 fintech companies, the research provides guidance to owners and managers of Fintech companies on their relative performance, enabling them to see how others in the sector are doing in terms of growth and profitability

It examines the relationship between financial performance and valuations by considering the correlations:

• between share price movement and underlying performance for public companies,
• between the valuations achieved for private companies and their underlying performance prior to exit  
  

Complimentary copies of the research can be downloaded from www.novitasftcl.com

I think that the research will be well received by owners and managers of, and investors in, Fintech companies on their relative performance, enabling them to see how others in the sector are doing in terms of growth and profitability.  It should also prove useful to regulators trying to understand the burgeoning fintech industry.  The Report covers 22 topics, see below:

• Private Fintech Financial Overview
• Private Fintech by Company Age
• The Performance Of Publicly Listed Fintech
• The Performance Of Public Vs Private Fintech: Revenue Growth
• The Performance Of Public Vs Private Fintech: Profitability
• What about the Performance of Individual Companies?
• Software Including Banking & Liquidity, Capital Markets And Wealth & FundsTech
• Data & Analytics
• Payments: Including Cross Border Payments
• Services & Other: Including BPO & Consultancy
• Does Performance Vary By Company Size?
• Does Performance Vary By Company Age?
• And What About By Ownership?
• Growth of Small Fintech
• Individual Performance Of Small Fintech Vs Established Fintech
• Individual Performance Of Small Fintech
• Individual Performance Of Small Fintech By Ownership
• How is New Fintech Doing
• Individual Performance Of Small Fintech Vs Established Fintech Vs New Fintech
• Correlation Between Growth In EBITDA And Share Price is strong
• Financial Performance Drives Valuation Multiples
• Performance Of Acquired Private Fintech

Complimentary copies of the research can be downloaded from www.novitasftcl.com

 NovitasFTCL - has been advising the shareholders of European financial technology companies for over a decade and we hope you will find the information in our research interesting and informative.  NovatisFTCL is Authorised and Regulated by the Financial Conduct Authority.