Financial services companies in Scotland have indicated growing concerns about their status if there is a ‘yes’ vote for independence later this year, with suggestions that they may be forced to move their registered offices to an address in England under existing EU law say Harris & Co accountants Northampton
Banks such as Royal Bank of Scotland and Lloyds Banking Group could be affected as they are headquartered in Scotland. EU rules state that a bank should be headquartered in the country where its largest customer base is located.
In its annual report published yesterday, Lloyds Banking Group reported:
‘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.’
Barclays, meanwhile, warned that the independence vote could affect its risk profile by ‘introducing potentially significant new uncertainties and instability in financial markets’.
Lloyds, along with RBS, is said to be looking at the issue of whether it would be forced to move its legal domicile to London if Scotland becomes independent because of an EU directive passed in June 1995, according to a report by the BBC’s business editor Robert Peston.
Council Directive 95/26/EC was passed in the wake of the collapse of BCCI amid allegations of fraud and money laundering in 1991. It is designed to ensure banks are regulated in the country where they have most of their operations. BCCI was founded by a Pakistani financier with head offices in London and Karachi, but was registered in Luxembourg.
The directive has not been tested in a legal case, but does require a bank to have its head office ‘in the same member state as its registered office’. It also implies that the registered and head offices should be located where a group has most of its activities.
The directive states that a regulator should prohibit a bank from operating where the ‘geographical distribution of the activities actually carried on indicate clearly that a financial undertaking has opted 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’.
In the case of RBS and Lloyds Banking Group, this could mean they would need to ensure their legal base is in England, since the larger part of their activity is south of the Scottish border.
Lloyds already has its head office in London, separate from its Scotland registered office while RBS has two head offices, one in London, one in Scotland, but both are likely to consider moving staff and functions to London in the event of Scottish independence, according to Peston’s report.