The Scottish independence referendum is just 10 days away, which means it might be worth considering what it will mean for the many asset managers based in what may soon become the world’s newest independent nation.
Scotland is well known for its beautiful countryside, fine whiskies and a surprisingly large asset management community. This community has likely been bolstered by the role of London as the financial hub of Europe, but with the ‘Yes’ campaign gaining ground in recent weeks, could we see an end to the Scottish trading desk?
A senior trader based in Scotland has suggested that, right now, there is very little difference in hosting a trading desk in Scotland compared to London, but independence could change things considerably.
One major insurer and asset manager, Standard Life, has already declared it would relocate south of the border in the event of independence, while others, such as Aberdeen Asset Management, have already moved their headquarters.
Whether or not more firms look to move out of an independent Scotland will depend on a number of factors, many of which remain unclear.
One that has been endlessly debated in the campaign so far is currency, but little has been decided. While the UK government has rejected a proposal for a currency union, joining the euro is also far from guaranteed as the EU has yet to indicate whether Scotland would have an easy ride joining the European block. In the short-term at least, it seems likely Sterling would continue to be used, or potentially a Scottish pound pegged to Sterling, but until the picture becomes clearer, Scottish asset managers will need to consider how this could impact their settlement processes.
Taxation, trade deals and regulation could also influence Scottish asset managers’ decision to stay or go in the event of independence. If Scotland ends up a non-EU member, then it might be freed from some onerous regulation stemming from Europe, however it would still be constrained when trading with European counterparts, perhaps even more so in some cases.
Furthermore, with the UK government proposing a referendum on EU membership, the future could see the bizarre situation where Scotland is an EU member and the rest of the UK is not, raising questions over what this could mean for Scottish firms trading in stocks from south of the border.
There’s also a question of where Scots would naturally look to trade shares. Most large Scottish businesses would likely continue to be listed in London, but might Edinburgh or Glasgow look to set up their own exchanges, which firms would list there, and in the post-MiFID world does it even make sense to create a new national exchange?
Next week’s referendum will prove to be a decisive moment in not only Scottish history, but that of the entire UK, and will have widespread repercussions for both sides. With polls currently on a knife-edge, it could be prudent for the British buy-side to start making contingency plans.