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Scottish funds face multi-million pound bill for independence

by William Robins on Feb 04, 2014 at 08:01

Scottish funds face multi-million pound bill for independence

Scottish fund managers would have to pay millions for a new regulator if independence from the UK goes ahead.

Owen Kelly, chief executive of Scottish Financial Enterprise said an independent Scotland would require a whole new legal and regulatory frame work, which would create difficulty for Scots-based funds, the Financial Times reports.

‘A Yes vote would require an additional financial regulator with hundreds of staff,’ said Kelly. 'The cost would run into millions and have to be paid for by the industry in Scotland.’

He said fund managers would need to tailor products for a new tax regime and construct a brand new consumer protection and regulatory regime.

‘Some changes will be necessary if fund managers cease to be in the same legal jurisdiction as the City of London, and 90% of their customers.'

Scottish fund groups account for 4,000 jobs and £520 billion of assets. Around 25% of assets managed by UK firms are by Scottish funds groups.

On 18 September, voters in Scotland will be asked: 'Should Scotland be an independent country?'

21 comments so far. Why not have your say?

David Botterill-Scott

Feb 04, 2014 at 09:17

...and don't forget that a new Scottish regulator would require a new building (which would just have to be the tallest in Europe) to work in...

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Stratfield

Feb 04, 2014 at 09:39

....and don't forget the flowers.... oh, the flowers....... of Scotland......when will we see, er, blimey where did that come from ?

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Jimmyvet

Feb 04, 2014 at 09:41

The reality is David that most of these fund groups will relocate to London as 90% of their clients are English and Scotland will lose a huge number of jobs and wealth................sad just to satisfy a few political ego's!

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James Hurdman

Feb 04, 2014 at 09:50

I must admit to feeling a bit sorry for the Scots. How are they supposed to vote for or against independence if many major issues such as this one are not tied down? People could unwittingly vote for the loss of their own livelihoods.

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Philip Wise

Feb 04, 2014 at 10:08

Or they could set up a sensible regulatory regime, and we could all passport over the border...

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Jimmyvet

Feb 04, 2014 at 10:13

But Philip why would you do that when you could relocate south where the majority of your clients are and when have you ever come across a 'sensible' regulatory regime that is value for money?....The other issue for clients would be dealing with a foreign country, many mature individuals with money are currently very patriotic themselves, look at the rise of UKIP and would not want their money invested with 'Foreign' Scottish fund groups when there are comparable British alternatives......

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Brian Brown

Feb 04, 2014 at 10:13

Given that most of the fund owners will be based in England I expect Scottish investment companies to relocate south of the border, before their customers move their investments.

Passporting is all very well, but many customers will be nervous of having their investments managed in a different tax regime - and if the Scots don't get to keep Sterling and go down the Euro route there will be a massive flight to safety.

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Brian Brown

Feb 04, 2014 at 10:23

Jimmy - there is another issue. A Scots government might take a very close interest in the very large amounts of money being held on behalf of English customers, and decide that it would quite like a share of that money.

When Czechoslovakia split there was a huge flight of capital from Slovakia to the Czech Republic as customers decided where best to keep their money safe. This resulting in severe restrictions on capital movement between the countries which were in place for years. I would expect that in the event of a Yes vote lots of English customers will want to get their money out of Scotland ASAP "just in case", because the SNP is unpredictable when it comes to taxing the English.

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alan mcintosh

Feb 04, 2014 at 10:48

Stratfield

Flower of Scotland or Flur-na h alba ,was a song written in the 1960s by The Corries and it referes to the victory of the Scots led by Robert the Bruce over Englands Edward II at the Battle of Bannockburn in stirling 1314.

End of history lesson!

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Jimmyvet

Feb 04, 2014 at 10:59

Agree Brian and from an Advising perspective why add an additional layer of risk to your client it would not make sense...............

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Brian Brown

Feb 04, 2014 at 11:08

I agree Jimmy - in particular if Scotland is forced down the Euro route no advisor in England would think it a good idea to inject currency exposure into their clients' investments, so the correct course of action would be to repatriate their clients' funds as quickly as possible. This would force all of those Edinburgh based investment houses to relocate to London at once, or face losing huge chunks of their customer base.

Even without the currency exposure there is still risk inherent in having two governments involved. In particular with things like pensions you might have an English government taxing your initial investment (i.e. deciding how much tax relief you are allowed), and a Scottish government taxing any investment returns (deciding how much dividends to take off you). Both regimes would have their own regulators and rules (and therefore costs). Just too much complexity and risk for many customers and advisors to have to worry about.

I did write to both my (Scottish) pension providers to ask what preparations they were making for independence. Their answers in essence said "it might not happen, but if it does we're very big, so don't worry your pretty little head about it".

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rogueslr

Feb 04, 2014 at 11:53

Whilst the SNP appear united, underpinning Scottish politics is a more left wing agenda. Some commentators have suggested that the SNP would fracture and Labour could be the dominant political force at the next elections. Uncertainty as to the political leanings of future governments would add to the flight of money south.

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casinojim

Feb 04, 2014 at 13:31

What people need to bear in mind is that nothing can be changed before a yes vote. One big issue that nobody is asking is what will the Scottish Government look like. After a yes vote there will surely have to be a change.

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Man in Black

Feb 04, 2014 at 15:10

Scotland is certainly on course to becoming a Banana Republic if it votes for independence, and the Fund Groups are almost certain to flee south rather than face the prospect of funding Scotland's new Space Programme.

Mind you, David Cameron still believes in taxpayers giving huge amounts of aid to countries with inefficient and bloated regimes, so I imagine we will all be picking up the tab for the "independent" Scotland one way or another.

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Man in Black

Feb 04, 2014 at 15:27

@Alan Mcintosh

If 'Flower of Scotland' was a financial promotion, it would surely fall foul of the clear, fair and not misleading rule.

From memory, there were other Kings of England around this time, such as the imaginatively named Edward I and Edward III, and other battles e.g. Falkirk, Halidon Hill.

The balance of advantage of these battles was clearly in England's favour. This was summed up by Edward I's confiscation of the Stone of Scone which not withstanding Bruce's efforts subsequently resided in England for centuries, thus depriving Scotland of its principle technology - stone.

"Edwardus Primus Scottorum Malleus hic est, 1308. Pactum Serva"

That is surely the history lesson here?

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Brian Brown

Feb 04, 2014 at 15:47

@Man in Black

What history really teaches us is that a load of poor people ended up getting killed by another load of poor people (and vice versa), so that one king of French/Scots descent could live in a big castle with lots or servants, while another king of French/English descent could live in a big castle with lots of servants too, and they could both brag to their mates about how rich and important they were.

Surprisingly little seems to have changed in the last 8 centuries, IMO.

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alan mcintosh

Feb 04, 2014 at 16:17

Man in black

Off course you fail to mention the the stone was in fact stolen from Scone Abbey circa 1296 by the English King I,but subsequently returned on St Andrews day 1996. It can off course be borrowed for any future coronation at westminister

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Man in Black

Feb 04, 2014 at 16:25

@Brian

Yes it has - most European Royalty is primarily of German decent now, and in the 20th century at least, the Wars led to the killing of rather many more poor people than before.

@Alan

Pretty sure I did mention that: "Edward I's confiscation of the Stone..."? Hardly implies he entered into a mutually agreed lease.

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Brian Brown

Feb 04, 2014 at 16:25

I doubt Mr S will allow the Stone to go back to England when we need to crown Charles or William.

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Brian Brown

Feb 04, 2014 at 16:32

@MiB - you're right. Most of the French royalty had their contracts terminated, as did the Russians, leaving only the German royal family as the ones of significance.

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Stratfield

Feb 04, 2014 at 16:48

I think a game of rugby is needed........

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