Outsourcing is one of a variety of facilities on offer to international companies operating in Dublin.
One of the attractions which distinguishes Dublin from other financial centres is the option of outsourcing front and back office financial functions to a group of experienced professional providers in Dublin.
This ‘outsourcing' or third party administration can take a variety of forms, including:
When the International Financial Services Centre (IFSC) was established in 1987, it became apparent that the centre's financial attractions would be greatly enhanced by allowing international companies to outsource a number of key functions such as treasury risk management/administration, accounting and regulatory reporting to qualified service providers.
As a result, the Irish regulatory authorities and the existing IFSC licence holders agreed that multinational companies would be permitted to establish Irish-registered companies with an IFSC licence without the need of those sponsoring multinationals to have a direct presence in terms of employees and premises in Dublin. This meant, for example, that reinsurance captives could then be administered by a local captive manager, and multinationals could avail themselves of quick access to the benefits of the IFSC while managing operational costs.
Once the changes were approved, not only did the number of captives in Dublin grow, but third party administration of treasury companies boomed. Multinational corporates quickly established international treasury companies in Dublin, managed on an agency basis by major international banking groups and the large domestic banks. The ability to outsource treasury activities of IFSC-approved insurance groups was not, however, permitted by the authorities, and this is still the situation.
Nowadays there are approximately 300 treasury companies based in Dublin managed on an agency basis by their banking partners. Over the years the activities performed through these companies have grown and today include intercompany funding, loan administration, cross-border cash management, liquidity and money market dealing, administration of funding programs including electronic commerce processing (ECP), manufacturing and technology management (MTM) and bonds, securitisation vehicles, foreign exchange management and related dealing. Also on offer are ancillary services such as accounting, treasury and regulatory reporting, and administration and corporate governance functions are provided by many of the banking partners to the treasury companies.
Treasury outsourcing in Dublin has continued to develop at a fast pace. By recruiting specialised staff, with treasury, accounting and language skills, as well as investing in technology to enable the Dublin-based company consolidate its results with those of the foreign parent, Dublin has been able to enhance its outsourcing offering. In addition, the availability of a number of systems which interface with a variety of client treasury and accounting platforms has proven a draw, as has the provision of customised office space for clients wanting some limited direct representation in Dublin.
From January 2000, however, the position changed; it is now no longer necessary to obtain an IFSC licence to use outsourced services. Treasury companies for both corporates and for insurance groups may be established by multinational groups and take advantage of the new 12.5% corporate rate from 2003, as well as the extensive double taxation treaty network. Furthermore, under the new fiscal regime banks and other service providers in Dublin may now offer outsourcing facilities/third party administration to non-Irish registered companies. This change is likely to see additional business, particularly from some of the offshore centres which have constraints in growth due to experienced labour availability, tax treaty availability and other administration costs. Already treasury companies established as a Dutch BV and a Hungarian Overseas Company (HOC) are outsourcing to Dublin providers.
From the re/insurer's perspective, overseas insurance groups can now establish a treasury operation in Ireland's attractive fiscal environment without the need to establish infrastructure in the country. Treasury companies can be established by major insurance groups with treasury functions outsourced under a non-discretion mandate to international banks.
There are a variety of reasons why an insurance group may wish to outsource its treasury back office. Although the Dublin labour market has hardened over the past few years, there remains a large pool of school and college leavers graduating each year, as well as significant numbers of returning emigrants. Dublin continues to compare favourably in terms of labour availability with other financial centres.
In addition, more and more multinational organisations are regarding their treasury functions as a small unit of professional advisers or execution specialists focused on implementing value-added structures solutions to issues. These companies do not want a unit composed of junior managers spending time and money on a daily basis investing limited amounts of short-term funds, dealing routine foreign exchange transactions, issuing confirmations and the suchlike. Instead, all of this daily routine administration may be outsourced, resulting in significant cost savings to the treasury group, particularly where using global electronic cash platforms is part of the outsourcing solution.
Service providers can provide additional resources or expertise rather than the treasury group maintaining the capability in-house, and the service provider has the responsibility of ensuring this type of capability is kept up to date, for example it is FAS 133 compliant. The service provider will also be aware of the business provided to other clients and while respecting confidentiality may be able to suggest other initiatives which a particular client may implement, based upon the activities of others. At the same time, given the expertise of the provider, clients find the opportunity to hand over certain operational risks and contingency planning to the third party provider attractive.
Providing treasury front and back office administration to corporate treasury companies has been a big element in the growth of Dublin as a financial centre. In addition, the provision of accounting and regulatory reporting services for vehicles being established in Ireland continues to expand.
Future growth remains on the cards, since now, for the first time, insurance groups registered in Ireland can take advantage of the attractive fiscal environment and outsourcing services. Non-Irish registered companies, both corporates and insurers, are finding the cost savings of Dublin's well-established outsourcing services enticing, while the number of services providers – thus competition – continues to grow.