Financial Practicalities

Following on from the previous post on Scotland’s Currency I would like to consider some of the practical implications for Scotland going independent.

Banking / Financial Services sector.

Scotland currently has a significant financial services industry, encompassing not only the well known banks, but also significant fund management companies based in Scotland. The choice of currency that Scotland will operate under will have a significant impact on those companies. A lot of funds which are invested in by individuals, pension funds and corporate investments are made with those companies based in Scotland. From a practical basis there is currently no difference where one’s money is invested as we all utilise the same currency. But if Scotland chooses to go independent, then this will have an impact on those funds.

Investors will rightly question should be asking a number of questions, again not complete but hopefully will open up for discussion:

  • What currency will my investments be denominated in the future
  • What taxation regime will be applicable
  • What will be the effect on repatriating the funds back to the Rest of the UK (rUK)

What effect will be for the Scottish Financial Services being outside of the United Kingdom and the European Union?

  • Scotland will have to renegotiate membership of the bank clearing system for the UK – after all payments in different currencies adds to the complications or probability have to establish a new clearing system
  • Cheque Clearing will have to change for any cross border transactions/payments
  • Banks on either side of the border will probably have to create new subsidiaries to deal with managing in 2 countries

According to the EU and also the Bank of England it appears that the control of both Royal Bank of Scotland and Lloyds Banking Group would have to relocate their country of residence – so will they become Royal Bank of UK. This might also explain why Scotland is so desperate to have a currency union with the rest of the UK – they get to “keep” their banks without the responsibility…..

The Scottish banking industry will have to apply for membership of a number of organisations / schemes including SWIFT / SEPA. This takes time to organise and implement – it is not going to be an instantaneous function. There are a lot of sign offs required from a lot of parties – never quick or simple.

Scotland will have to introduce its own central bank and associated banking regulations, including all the money laundering rules and regulations.

Other industries

All companies / organisations within Scotland who do any business outside of Scotland and also those outside of Scotland doing business with Scotland will have to conduct a complete review of all their contracts and financial arrangements/obligations and the potential impacts on their bottom lines if Scotland has to use a different currency than the Pound Sterling. This will affect the transactions which are conducted via ecommerce. Sites like Amazon will have to review all of their pricing and delivery mechanism. It might also mean that a number of warehouses will have to relocate so as to not suffer any financial risks.

All Scottish companies which are listed on the London Stock exchange will have to determine which currency they are going to denominate their accounts. That may be subject to any laws/regulations that are enacted by a future Scottish parliament.

Any company on either side of the border which has financial relationship with a bank on the other will have to review the relationship and the terms of any loan agreement to deal with the probability of managing a new currency exchange necessity.

Additional Costs

Whilst it is probably not “politically correct” to raise the issue of costs, but an independent Scotland will by its creation result in increased costs within the island of Britain. Why you might ask, well the creation of a new country will almost inevitably result in the imposition of “Import” duties which have been historically been absent in dealings within the United Kingdom. This is something which the proponents of Scottish Independents are loathed to discuss.

Mortgage Costs

For people and companies that have mortgages in a different part of the UK, will need to review their mortgage terms and also ability to pay the debt.

All the costs relating to the ability of the Scottish government to raise money in the financial markets will be affected by the currency it will use. As the possibility of the Pound Sterling has been kicked into touch, Scotland will not be able to benefit from the current UK credit rating. Thus the banks in Scotland will also be affected by the cost of borrowing. These increased costs will inevitably be passed on to the end consumer.

Scotland’s Credit Rating

There have been a number of articles which have indicated that an Independent Scotland would have a “lower” initial credit rating than the rest of the UK. If this is the case then an Independent Scotland would find that their cost of borrowing would be higher than anticipated by the SNP.


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