Does Scotland currently have a separate financial services regulatory regime?

At present there is a single regulatory framework operating in the whole of the United Kingdom. This framework is governed by the Financial Services and Markets Act 2000 (FSMA) which extends to England, Wales, Scotland and, to a certain extent, Northern Ireland. Financial services firms that are regulated under FSMA are supervised by the Financial Conduct Authority (FCA) and, in certain circumstances, the Prudential Regulation Authority (PRA).

If Scotland became independent, FSMA would not apply in its jurisdiction. In addition, it would have to create its own financial services regulator(s). It is possible that an independent Scotland could simply replicate FSMA in its own legislation and create a Scottish version of the FCA and PRA. Alternatively it may be possible for FSMA to continue to apply to an independent Scotland and for the UK to agree to share its regulators. However, exactly how this could operate is unclear.

What are the financial services implications of an independent Scotland?

If an independent Scotland became a member of the EU it would be required to comply with EU legislation. In the financial services sector it has become more common for EU financial services legislation to be in the form of Regulations which have direct effect in Member States. Notwithstanding this there are still key pieces of EU financial services legislation that are in the form of Directives that require transposition by Member States. Such legislation includes the Markets in Financial Instruments Directive (MiFID), the Capital Requirements Directive IV and the Transparency Directive.

The UK has gold plated certain requirements in EU Directives. For example the FSA (the predecessor of the FCA) imposed additional requirements on the client assets rules under MiFID. An independent Scotland may not wish to gold plate the same Directives that the FSA/FCA has done which could create divergent regulatory regimes and possibly create barriers to trade that do not currently exist.

In addition, the current UK financial services regime has certain rules that can only be found in that jurisdiction. For example, the Retail Distribution Review (RDR) is a key part of the FCA’s consumer protection strategy and its rules, especially in relation to adviser charging, are particular to the UK. An independent Scotland may not implement equivalent RDR rules which could have an impact on the competitiveness of financial advisors south of the border.

How could financial services firms established in an independent Scotland provide services in England and Wales?

If Scotland were to become a member of the EU and sign up to EU financial services legislation then like other financial services firms in the EU Scottish financial services firms could passport into England and Wales. Such firms would either provide services directly into England and Wales under one of the single market Directives or provide services through a branch. It seems likely that there would be costs implications for Scottish firms in the sense of getting authorised in Scotland and then taking the necessary steps to passport into England and Wales.