Major banks may be forced to relocate south into England or some other part of the remaining UK if Scottish independence goes ahead, thanks to a 20-year-old EU law. The Lloyds Banking Group and Royal Bank of Scotland said on Wednesday that they may have little choice but to move their registered headquarters from Edinburgh to London.
The consequences of a “Yes” vote in the forthcoming September referendum is centering on how many major companies will decide to or have to relocate south of the border. The Royal Bank of Scotland and Lloyds Group are the two largest Scottish-based companies in the UK by assets.
Until yesterday, the two major banks have kept quiet about what might happen if Scotland breaks off from the UK. Yes and No campaigners have been gingerly trying to find out what their plans might be.
Barclays bank has also warned that a “Yes” vote for Scottish independence might “affect the group’s risk profile by having the potential to destabilize financial markets.”
Barclays wrote:
“The referenda on Scottish independence in September 2014 and on UK membership of the European Union may affect the Group’s risk profile through introducing potentially significant new uncertainties and instability in financial markets.(The vote could bring uncertainty) both ahead of the respective dates for these referenda and, depending on the outcomes, after the event”.
Barclays’ mention of “both dates” refers to the Scottish independence referendum and the UK’s EU membership referendum in 2017.
European Union law may force relocation
Yesterday, Lloyds said its legal team was checking a European Union (EU) law that could force it to move its legal domicile from Edinburgh to London in the event of a Scottish independence majority vote.
Lloyds emphasized that the EU law has not been properly tested and that it does not yet know what it might have to do. In its annual report, published on Wednesday March 5th, it warned “The impact of a ‘yes’ vote in favour of Scottish independence is uncertain. The outcome could have a material impact on compliance costs, the tax position, and cost of funding for the Group.”
The legislation came into force after the collapse of BCCI over twenty years ago. BCCI was founded by a Pakistani company, its head offices were in London and Karachi, but it was registered in Luxembourg. When it collapsed in 1991 it was accused of money-laundering and fraud.
The EU law states that a country’s banking regulator should prevent a bank from opting “for the legal system of one member state for the purpose of evading the stricter standards in force in another member state within whose territory it carries on or intends to carry on the greater part of its activities”.
As the Royal Bank of Scotland and Lloyds Group have most of their activities in the rest of the UK, i.e. Northern Ireland, Wales and England, they might have to move their domiciles out of a newly independent Scotland. According to EU law, a Member State must have its registered office within its own borders.
RBS (Royal Bank of Scotland) has 12,000 employees in Scotland.
Oil and gas giant, Royal Dutch Shell, which has massive operations in the North Sea, has come out with mixed messages. Its CEO, Ben van Beurden, said he would like to see Scotland remain as part of the UK.
However, Chairman of Shell UK, Ed Daniels said last week that the independence debate is “a matter for the Scottish people” and that Shell should not intervene.
Scotland might lose the pound sterling
According to George Osborne, the Chancellor of the Exchequer, an independent Scotland would lose its currency union with the pound sterling.
José Manuel Barroso doubts an independent Scotland would be able to get into the European Union. He believes its application would be vetoed by Spain, which is dealing with similar independence demands from Catalan and Basque separatists.
All that is needed is for one EU Member State to veto a country’s application for entry to shut that country out. Barroso gave the example of Kosovo, which had applied to join the EU but failed because of vetoes from Spain, Cyprus, Greece, Romania and Slovakia.
Barroso said “Of course it will be extremely difficult to get the approval of all the other member states. We have seen Spain has been opposing even the recognition of Kosovo, for instance.”