Investments  

Breaking up isn’t easy

With the potential for such a major change on the horizon, it might surprise those coming to this issue for the first time to learn that, before the vote takes place, some of the most important questions about its consequences cannot be answered.

This is because many important aspects of how a hypothetical independent Scotland would function depend on the outcome of negotiations with the UK, the EU and other authorities. These negotiations, on matters such as the continued use of sterling as a currency, the terms of EU membership and the division of the national debt, can only begin after a ‘yes’ vote.

Moreover, the decisions of a newly independent Scottish polity cannot be foreseen at this stage. We cannot know now who would be in government in an independent Scotland and we cannot know the policy context in which it would be seeking voter approval for its policies. Indeed, we cannot know now what the constitution of an independent Scotland would be – the proof of the independence pudding will not only be in the eating but also in the selection and mixing of the ingredients.

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That is not to say we know nothing – there are some things about becoming a nation state that are necessary and simply part and parcel of being one. But where there is political choice and discretion, knowledge and certainty will elude us until the decision to become independent has been taken and, indeed, for some time afterwards.

The Scottish government has published extensively on independence and explained how things might function under the flag of independence, across a wide range of areas. But they cannot, for the reasons outlined above, provide definitive guidance.

We can know some things about how authorities and frameworks outside Scotland will continue, and what that means for the provision of financial services in an independent Scotland. For example, we know what the FCA rules are on the authorisation of operations of foreign companies in the UK and there are no reasons to think Scottish companies, if Scotland becomes a separate country, would be treated any differently from, say, Irish or French ones; and we know what the EU rules are on investor protection schemes. This gives us some guide to the predictable consequences of independence for our industry and its customers, since we can see how other ‘foreign’ companies comply with FCA rules and we can see what sort of investor protection scheme would be required in an independent Scotland.

We have identified five principal issues for the industry:

1. EU membership

Most commentators accept that an offer of EU membership seems highly likely, albeit unlikely with the same opt-outs as those currently held by the UK. Therefore, ahead of the referendum, the terms of membership and, indeed, whether the Scottish people would support EU membership on any terms, must remain unknown. Key areas of negotiation for the financial services industry include currency and central bank arrangements; compatibility of intra-UK arrangements with EU single market rules; and how to comply with regulatory and customer protection requirements.