The nature of wholesale finance continues to adapt. London’s share of global assets under management has grown from 11% to 13% over the past eight years. These and other shifts have benefitted Dublin too, and are redefining onshore and offshore. Michael will explore these shifts in the context of Z/Yen’s Global Financial and Smart Centres Indices.

[Text of a talk given to the 11 Annual UK Irish Funds Symposium on Thursday, 21 November in London]

Chairman, our compere Emma Hendrick, Ladies and Gentlemen - Good morning. Welcome to the 11th Annual UK Irish Funds Symposium.

The Wide Accounting Seas

There is a lot of muddled thinking about onshore and offshore finance, with funds frequently in the middle of this. Monty Python had a bit of a laugh about onshore and offshore in their Accountancy Shanty from their 1983 short film entitled “The Crimson Permanent Assurance”. I’d ask you to sing along, but I don’t want to use both of my singing notes in the same ditty this morning:

"It’s fun to charter an accountant

And sail the wide accountancy,

To find, explore the funds offshore,

And skirt the shoals of bankruptcy."

["Accountancy Shanty", Monty Python, "The Crimson Permanent Assurance" (1983)]

But let’s start by sharing a few home truths worth telling about London, particularly post-2016, post-Brexit.

Fact 1 – jobs in the City of London grew, from 525,000 to 678,000 on our most recent audit this month. In fact just over 10% in the last year, from 615,000 to 678,000. Our job audits are rather accurate because City workers are City voters. That’s growth of a net 153,000 jobs in eight years.

Fact 2 – and for the cynics out there, no, these jobs are not all in compliance. Global assets under management in the City of London grew from 11% to 13%, and 2% of global assets under management is a very big number in eight years.

What is driving this? I have two opinions:

Opinion 1 – London’s success is built on others’ failures, most notably not understanding the importance of The Rule of Law in its very widest sense.

Opinion 2 – very few people understand wholesale global financial centres and how they cooperate as well as compete.

Rule Of Law

Let me expand a bit on Rule of Law. Too often Rule of Law is seen as just an independent judiciary. In truth, Rule of Law is an entire way of life for commercial dealings. From the outside in, Rule of Law can be summarised as ‘Treating All Comers Fairly’. This starts with a general ethos towards commercial arrangements embodied in the City of London motto, Dictum Meum Pactum - My Word Is My Bond.

At its most basic level the Rule Of Law is the concept that both the government and citizens know the law and obey it. “…most of the content of the Rule Of Law can be summed up in two points:

(1) that the people (including, one should add, the government) should be ruled by the law and obey it and

(2) that the law should be such that people will be able (and, one should add, willing) to be guided by it.”

– Geoffrey de Q. Walker, The Rule Of Law: foundation of constitutional democracy, (1st Ed., 1988). In sum, Rule Of Law is a durable system of laws, institutions, and community commitment that delivers four universal principles:

• Accountability - The government as well as private actors are accountable under the law.
• Just Laws - The laws are clear, publicized, and stable; are applied evenly; and protect fundamental rights, including the security of persons and contract, property, and human rights.
• Open Government - The processes by which the laws are enacted, administered, and enforced are accessible, fair, and efficient.
• Accessible & Impartial Dispute Resolution - Justice is delivered in timely fashion by competent, ethical, and independent representatives and neutrals who are accessible, have adequate resources, and reflect the makeup of the communities they serve.

There are two competing Rule of Law systems, common law versus civil codes. Common law wins hands down in the commercial sphere. It’s enormous flexibility and evolutionary capacity was apparent in work the Master of the Rolls, Sir Geoffrey Vos, has undertaken on smart contracts with LawtechUK. Our common law system requires no adjustments to accommodate digital assets. The fact that the Electronic Trade Documents Act is only five pages long - seven if you count the cover and contents pages - is proof itself of how adaptable our common law is. Unusual proof, as lawyers are the only professionals who can prepare a 10,000 word document and call it a “brief”!

Rule Of Law is crucial to trade. People trading with a nation look at Rule Of Law in the round, not picking out great arbitration as offsetting poor prisons. Rule Of Law is also ‘of’ trade. People want legal certainty and contract enforcement. The UK gains enormously from being a centre of legal excellence and a venue in which contract disputes are regularly conducted.

Wholesale Versus Retail

Let me expand a bit on Wholesale versus Retail. Inter-dealer broking, reinsurance, unlisted investments, parametric insurance, sovereign bonds, protected cell captives, private equity, venture capital, protection & indemnity mutuals. Wholesale markets are much more complex than retail. Complexity, and the rewards it brings, attracts a highly-skilled workforce. It is complexity, not the size of the retail hinterland, that grows a global centre.

In truth, London competes with Hong Kong, Singapore, Dubai, and Abu Dhabi – not New York, Tokyo, Beijing or Paris, Frankfurt, Amsterdam. It is only in London, Hong Kong, Singapore, Dubai, and Abu Dhabi that you see internationals deals being made with no local domestic component. These are true global centres.

Lead The Money

There’s an old joke about a government tax auditor helping someone understand the real situation. She explains to the citizen – “The trick is to stop thinking of it as ‘your’ money”. So to paraphrase the 1970s Senate Judiciary Committee – in London we don’t follow the money, we lead the money, other people’s money.

London is hard to displace as a global legal centre. London is hard to displace as a global talent pool. London is a great switching house for people restructuring their balance sheets, not for raising capital. Restructuring is using the markets for structuring equity, insurance for risk, quite a bit for volatility reduction, and many things for distribution, diversification, or rebalancing.

London & Dublin Cooperation

In Z/Yen’s Global Financial Centres Index 36 London was number 2, Dublin number 14, significantly up from a decade ago. But equally, Jersey, Guernsey, and the Isle of Man gained

nine rank places or more in comparison with GFCI 35.

London needs Dublin. Dublin is the only common law system within the EU. Just as Hong Kong provides a window on China and China’s window on the financial world, so too does Dublin provide a window on the EU and the EU’s window on the financial world.

There are a number of areas crying out for cooperation:

Open regulation, regulatory corridors or sandboxes for international cooperation with multiple jurisdictions, Mutual Authentication & Verification Exchanges for AML and identity, X-Road software infrastructure for middleware, exploring how we can build new energy markets across northern Europe in Hydrogen, methane, ammonia, and electricity, taking advantage of Ireland’s rapidly growing wind potential.

I might point out the importance of completing the Capital Markets Union. London supported the CMU when in the EU, and we support it while outside. Why? Who doesn’t want a big, easy-to-invest, attractive market full of good returns in their neighbourhood?

So what should we be doing as Irish and European funds? What should we discuss today over coffee? May I suggest two things?

First - The Liberal World Order

Three traditional ethical liberal values are individual rights, freedom of speech, and protection of property. To those three add three practical liberal values of limited government, free markets, and free trade.

The three practical values rely on what Adam Smith described as the most basic form of regulation: competition. As Screaming Lord Sutch once asked, "Why is there only one Monopolies Commission?"

Paschal Donohoe, President of the Eurogroup, and ever a uniter of Dublin and London, gave an influential speech at the Guildhall in September. He said:

“… we need to do more. Europe and the United Kingdom need to double down on our shared democratic values and priorities.

“Democracies and economies need to change, and how our capital markets change is part of that in order to address the societal transformations underway. They need to change to address the big issues we face – our investment needs for climate change, digital transformation, defence spending and ageing.”

In other words, we need to sell liberal democracy to our stakeholders in the widest sense, by proving that liberal democracy and markets provide the best solutions to the world’s biggest problems, from pension provision to peace of mind to climate change.

Second - British Isles products

London and Dublin have a wonderful symbiosis. From the view of most clients, they come to London not for London, English, or UK products, they come for the best advice and expertise in delivery. A multi-billion $/£/€ client often comes to London needing Dublin for funds, particularly EU, Jersey for trusts, Guernsey for protected cell captives, the Isle of Man for insurance, or yet another jurisdiction for patent boxes.

Whether we like it or not, and I like it, we sell multi-jurisdictional products. So my suggestion might well be that we add above Financial Services Ireland or CityUK or Jersey Finance, etc., a British Isles Finance lobby group.

In closing, Charles Edward Carryl in 1885 wrote another fun ditty –

"A capital ship for an ocean trip, was the Walloping Window-Blind;

No wind that blew dismayed her crew or troubled the captain’s mind."

Working together, Dublin and London do make capital ships that help our clients weather bad weather. Together, we do it better and give them peace of mind.

Thank you.