On 18 September 2014, Scotland is holding a referendum on independence from the UK. Voters will be asked “Should Scotland be an independent country?”
How much do you know about the referendum and should your business be taking steps to deal with the outcome now?
There are a myriad of issues should the referendum result in a vote for an independent Scotland. Of particular relevance at the moment are questions of currency and of regulation.
The Scottish Government wishes to retain sterling in a formal currency union with the rest of the UK. However, a currency union would require the agreement of the UK government and recent indications from Westminster are that that would not be forthcoming. There remains the possibility of Scotland adopting its own currency.
A new Scottish currency raises questions about what would happen to pre-existing sterling denominated contracts and moreover, the provisions of contracts to be concluded between now and independence.
Introducing a Scottish currency could bring a foreign exchange risk into existing contracts and businesses will be keen to avoid the risk of a currency “mismatch” between obligations and revenues.
Contracting parties may therefore wish to take steps now to make it clear in the drafting of contracts that the contract should remain denominated in sterling (or vice versa) in the event of a Scottish currency.
The proposals for prudential regulation are linked to the currency decisions. Under the Scottish Government’s preferred sterling zone currency union, the Bank of England would retain responsibility for financial stability. Prudential regulation would be undertaken either by a single shared authority or the regulatory arm of a Scottish Monetary Institute working closely with a UK counterpart.
In contrast, conduct regulation would be carried out by a separate Scottish regulator and not by the existing Financial Conduct Authority. This could have important implications for financial services businesses with links to Scotland. Standard Life has announced that it is looking at alternatives should Scotland vote for independence. We are beginning to see the start of a wider review by those businesses with links to Scotland and will be monitoring this closely.