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Scottish financial firms should put customers first and tell us their independence contingency plans

September 8, 2014

Should financial institutions domiciled in Scotland come clean now on what their intentions are should the independence referendum next week signal the end of the Union?

Scottish finance has a proud history

Scottish finance has a proud history

Many will say that all institutions have contingency plans should this happen but that sharing them could make it look as if they are taking sides, upset the markets and cause unnecessary concern among customers. Well the markets are already upset and most customers, if they have any sense, should be concerned. That leaves “taking sides” and this can only be a worry because presumably most – if not all – major financial institutions in Scotland would be heading south pretty quickly and they feel that to say so publicly at this stage could be seen as strong backing for the No campaign and its warnings of financial chaos.

They owe it to their customers to set aside such political sensitivities and explain what they will be doing on Friday week if the vote goes in favour of creating an independent Scotland.

There is a very long list of sound reasons why banks, insurers companies and fund managers would be unwise to remain in Scotland if the vote is Yes next week. The major banks, as many commentators have already pointed out, are too big to be offered any sort of guarantee by the Scottish government or whatever lender of last resort Alex Salmond has sketched out on the back of an envelope somewhere. Collapse of a major bank is something of a doomsday scenario but we have been very close to that particular cliff-edge in the last decade so it is an issue that has to be taken seriously and, as far as I can see, the pro-independence lobby doesn’t come anywhere near having an answer.

But the problems are far wider and likely to touch on every financial firm in Scotland and should seriously worry their customers.

Just how likely is it in the crazy 18 months there will be between the vote and the severing of the ties with the United Kingdom that any sort of adequate system of financial regulation and consumer protection will be put in place? Consumers of financial services products in the United Kingdom now enjoy a very high level of protection and access to compensation should the products they have bought turn out to be inadequate, they are victims of fraud or the institutions looking after their money collapse – and even these fall painfully short from time-to-time. Would an independent Scotland be able to match that within 18 months?

Add to that doubt the substantial currency risk that hangs over an independent Scotland and the serious doubts about the speed with which it might be admitted to the European Union (Spain would be a major objector as it would not want to do anything to encourage its own Catalonian independence movement) and you would have to have a very robust attitude to financial risk if you live in England, Wales or Northern Ireland and wanted to keep your money in Scotland. It would effectively be an offshore domicile, beyond the reach of British or EU regulators – just imagine trying to get your money out if something goes wrong.

This is why we should be hearing from those financial firms that currently manage and invest money for people all over the United Kingdom: it is called putting customers first.

My pension fund is managed by a Scottish-based institution and I can tell you it won’t be for much longer if the Yes campaign wins and the company in question doesn’t come south pretty quickly. I imagine most other sensible investors will do the same. Whether we move our money or the institutions move it will be a terrible blow for the Scottish economy and a very sad final chapter in the proud history of Scottish finance.

From → Politics

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