Push for new regulation on special purpose vehicles in IFSC

Ireland’s debt securities industry will seek to boost the corporate governance of hundreds of secretive, unregulated financial vehicles with up to €900 billion of assets, in order to protect the reputation of the business amid growing scrutiny of its activities.

Dublin has emerged as a leading European destination for financial firms to set up special purpose vehicles (SPVs) and financial vehicle corporations (FVCs) to bundle assets ranging from distressed debt to greenhouse gas credits.

These are structured with the help of law and accountancy firms to allow the vehicles to sell debt, minimise tax payments and keep assets off the balance sheets of the firms behind them.

The International Monetary Fund recommended last month that Ireland "continue to step up oversight" of SPVs in the International Financial Services Centre.

SPVs set up

The Revenue Commissioners has received 1,362 notification of SPVs seeking to set up under favourable tax rules in the past six years, according to the Minister for Finance,

Michael Noonan

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Said Gary Palmer, chief executive of of the Irish Debt Securities Association: "We have commenced consideration of an appropriate framework for SPVs, called an I-SPV, with the ambition to have the best-in-class legal and governance structure to support the next stage of SPVs and securitisation financial instruments."

The Central Bank of Ireland last year ordered SPVs to begin filing data on their assets and liabilities so that it can assess potential risks to the financial system in this darkest area of so-called shadow banking, a world of finance that takes place outside of banks.

Filing data

FVCs, which are involved in the securitisation industry, have been obliged to file data since 2009 because of the role the industry played in the global financial crisis.

Other areas of Ireland’s €2.3 trillion, non-bank financial world, such as investment funds and money market funds, are heavily regulated and supervised.

In the coming months, economists in the Central Bank will present to the institutions’ financial stability committees findings of their trawl through the world of SPVs.

The rising focus on SPVs come as the Financial Stability Board in Washington leads an international effort to strengthen the oversight of regulation of the shadow banking system. Ireland participated in the board’s annual shadow banking review for the first time last year.

Some other jurisdictions that are big players in this area, such as Luxembourg, have yet to take part in the exercise.