Supplements » FundTech Spring 2020

Country focus: Green shoots of innovation

Ifsc_DublinFundTech talks to Dáire Lawlor, a member of the Irish Funds FinTech Working Group, about the country’s growing fundtech market.

Ireland has fully established itself as a primary centre for the international funds market, rivalling Luxembourg as the number-one destination for cross-border funds servicing. And in recent years it has looked to ramp up its fintech scene.

The Central Bank of Ireland launched its Innovation Hub in early 2018 and has had more than 150 engagements with regulated firms and unregulated start-ups. Meanwhile Irish Funds, the asset management trade body, has established a working group and in January 2020 launched the Irish Funds FinTech Factor, which offers start-ups the opportunity to present to the association’s members at its monthly working group events.

Dáire Lawlor is a current member and the former chair of the Irish Funds FinTech Working Group (it is now chaired by Citi senior vice president Ciaran Fennessy) and he spoke to FundTech about the state of Ireland’s fintech scene, the reasons for its strength in regtech and the challenges and opportunities presented by both Brexit and Covid-19.

Which areas within the funds world is Ireland particularly strong in terms of tech start-ups?
The Irish fintech ecosystem is proving to be very fertile, both in terms of firms securing funding to scale up and early-stage ‘green shoots’ emerging. Regtech and payments are particularly active but there are also technology-driven clusters exploring the opportunities afforded by emerging technologies such as distributed ledger technology (DLT) and data analytics. 

The highly visible global success stories of Irish fintech leaders such as Fenergo (client lifecycle management), Fexco (foreign exchange) and Stripe (payment processing) have served to nurture talent while creating an environment where entrepreneurial flair is valued. The challenge for indigenous players is in protecting the product offering while raising funding and achieving sufficient scale to attract business from large players.

Up to now the regtech sector has been very strong. Why is this?
There are a number of drivers for this. In the first instance, regulatory obligations, both in terms of compliance and oversight, and in the demand for data provision through reporting have correctly increased exponentially over the last ten years or so. In this light, regulation technology is no longer a nice-to-have but rather a core pillar of a firm’s risk-management strategy. 

This rigour results in increased operational demand for investment managers, administrators, management companies and their delegates, which in turn presents the innovative firms with opportunities to devise and present solutions with supporting return-on-investment propositions to the business community.  

Secondly, the Central Bank has proven to be a supportive catalyst through the establishment of its Innovation Hub, which offers fintechs a channel to engage with them outside of existing formal regulator/firm engagement processes.

Lastly, because of the large Irish funds industry footprint, with more than 16,000 skilled workers deployed, there is a huge depth of risk management and regulatory compliance expertise and experience which firms can draw upon here to contribute to developing and marketing best-of-breed regtech solutions. 

Is a cooperative regulator vital to growing the fundtech scene?
A collaborative regulator is a significant contributor in the development of a healthy fintech environment. The Central Bank has been supportive through their Innovation Hub and approachable via  engagement with the community, both informally and through outreach and roundtable events. 

Deputy governor, prudential regulation, Ed Sibley, highlighted this when he recently gave the keynote address at FintechNext, the collaborative research programme between University College Cork and Fexco. (See www.centralbank.ie/news/article/speech-innovation-in-financial-services-ed-sibley-29-november-2019)

The Innovation Hub has had over 150 engagements since its inception with the main sectors regtech, payments and markets and exchanges reflecting overall market trends. Blockchain, crypto assets and algorithmic trading formed some 70% of technology deployment queries and 21 firms had enquiries regarding artificial technology, but none for customer-facing solutions leveraging that technology.

Is there still a role for the large service providers such as global custodians when it comes to fundtech?
Yes. Increased costs in meeting regulatory obligations combined with fee pressure means that the appetite to explore and exploit emerging technologies and innovative approaches to compliantly meeting client demand mean that it is incumbent on the large service providers to actively engage with the fintech community.

The challenge for emerging indigenous fintech start-ups is to grow to a scale where they can meaningfully engage with the corporate procurement and due diligence processes of the global providers. 

The big firms’ country offices have been energetic in their support of local companies through mentorship and a variety of practical supports but head office has tended to look towards bigger, more established players or consortia to meet their strategic requirements. The Irish Funds FinTech Working Group is active in working with the main players to explore how barriers to tangible commercial engagement can be enhanced. 

On the other side of the coin, large, established firms have significant investments in research and development here in Ireland, which serve both to foster an innovative entrepreneurial fintech environment and to develop skillsets for leverage across the board.   

Are we seeing any partnerships between incumbents and start-ups develop?
It is early days in the funds space, but there are lots of conversations happening. 

Have things like Brexit and Covid-19 been obstacles for Ireland’s fundtech scene or have there been any positive developments that have arisen from these events?

We can see that there has been a huge growth in opportunities for emerging technologies and fintech firms over the past 12 years since the 2008 financial crisis. While Brexit and Covid-19 present significant challenges, there is no reason to think that the paradigm shifts impacting the business will not also yield opportunity. 

For example, the appetite of previously conservative firms to support distributed teams or offsite workers collaborating remotely as a consequence of the social distancing requirements are already seeing upticks in business for companies offering collaboration tools and cyber-security solutions. 

As the ‘new normal’ emerges, it is to be expected that innovative solutions to help companies develop more efficient or attractive products and services to their clients, or to further disrupt incumbents, will attract attention and business.

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