Scottish Independence Presentation

14 October 2013, Edinburgh

Rod MacLeod

Key issues & risks for the Financial Services Sector in Scotland and the UK

Stability of the Financial System

Pros and Cons of Currency Union

Issues Affecting Financial Institutions if Currency Union Agreed

Issues Affecting Financial Institutions if Currency Union Rejected

Issues if EU Membership Delayed

Stability of the Financial System

• Dependent on key factors:

• Currency

• Regime for financial regulation and financial crisis resolution

• Neither guaranteed 100%

• Subject to negotiation post-referendum

• Position on EU membership unclear – double whammy

• Uncertainty

Pros and Cons of Currency Union

• Central plank of Yes Campaign (or is it?)

• Benefits:

• Single Market

• Reduces the cost of cross-border trade intra-UK

• Integrated financial system & economies

• Alternative options unattractive

• Downsides:

• Loss of fiscal autonomy

• Big Brother Bully

• Practical difficulties sharing a Central Bank

Issues Affecting Financial Institutions if Currency Union Agreed

• Financial Crisis Resolution:• Scotland’s ability to act as fiscal back-stop• Size of the Scottish banks

• Financial regulation• Role of the Bank of England in question• EU Banking Consolidation Directive (Directive 2006/48/EC)• Regulatory Divergence• Timescales & Costs

• Funding Costs & Capital Adequacy Requirements• Restructuring of Banks

• Optional – funding costs, tax breaks etc.• Mandatory – EU “HQ Rules”• Timescales & Costs• Views?

Issues Affecting Financial Institutions if Currency Union Rejected

• Similar currency union issues still apply

• Alternative options unattractive (anyone for the euro?)

• Scottish currency

• Barriers to trade

• Big picture / small picture view

• Bank Payment Infrastructure

• Scottish Central Bank & Scottish Regulator

• Expertise & funding, timescales, market confidence

• Redenomination of contracts in Scotland

• Capital Flight

Issues if EU Membership Delayed

• Scotland outside the EU – reciprocal arrangements required

• EU Banking Consolidation Directive

• Bank licences, legacy & passport arrangements

• Importance of having a capable and credible regulator in place ASAP

“In Scotland, there is no such thing as bad weather - only the wrong clothes”

(Billy Connelly)

For more information on the impact of independence:

http://thinkandtalkwithtods.com/category/independence/