Scottish banking and finance

• As a proportion of GDP, the assets of Scottish banks are significantly larger than the UK's.
• The finance and insurance sector was responsible for 7.9% of Scotland's economic production in 2011, and for 3.3.% of jobs in March 2013.
• Lloyds Banking Group and RBS have said their contingency plans include moving their company addresses for legal purposes to England if Scotland becomes independent, but neither expect this to significantly impact on their business or services. The nature of relocation or restructure of banks in Scotland depends on a number of key factors, including the currency adopted, the tax regime, the regulatory framework, and the performance of the wider economy.
• Protections for consumers of financial products in an independent Scotland would be handled by a new Scottish consumer ombudsman, and a new Scottish regulator. The way the regulator will work and the protections it gives Scottish consumers will depend on whether or not there continues to be a unified market for financial services across the separate countries.

Opponents of Scottish independence have argued that it would cause financial sector firms to relocate some or all of their operations. The potential impact of that decision to the wider Scottish economy is significantly different depending on your measure of financial sector activity. On the one hand, the assets of Scottish banks are significantly larger than the UK's when taken as a proportion of GDP. But on the other, the financial sector makes up a smaller share of Scotland's production than that of the UK as a whole.

And the likelihood of a move is uncertain, as it depends on a number of factors that have yet to be finalised.

The economic importance of Scotland's financial sector - different measures

The Treasury estimates that the assets of the Scottish banking sector were worth £1,900 billion in 2011. That was over 12 times as large as Scottish GDP, where production of north sea oil and gas is assigned to Scotland on a geographical basis. For the UK as a whole, banking assets were £7,100 billion, just under 5 times as large as GDP.

The estimate counts banks as Scottish if they either mainly operate in Scotland or have their headquarters there. That method doesn't apply to entire groups — for example, Natwest wasn't counted as Scottish even though its parent company RBS group is headquartered in Edinburgh.

The extent of assets held by Scottish banks doesn't necessarily tell us that much about what they contribute to the economy. For that we need to look at the Gross Value Added (GVA) of the Scottish financial and insurance sector, a measure of how much it produces. Some firms that aren't banks, such as pensions and insurance providers, are counted in the measure. That means it shouldn't be taken as a measure of banking activity.

The latest data is from 2011. By then productivity had fallen quite markedly from 2009 levels due to the financial crisis. It's not clear that either the 2009 or 2011 figures are an accurate indicator of the sector's future contribution. In Scotland, financial and insurance activities made up 7.1% of total onshore production in 2011, compared to a high of 10% in 2009. In the UK as a whole the sector was responsible for 8.7% of production in 2011, compared to 10.9% in 2009.

These figures measure people's productivity based on their workplace, rather than their place of residence. They exclude production that can't be assigned to regions such as offshore oil and gas extraction, something that will tend to overstate the contribution of the sector to Scottish GDP.

We have more recent figures for the number of jobs in the region; between March 2011 and March 2013 the number of jobs in the financial sector fell from 97,000 to 85,000. In March 2013 that represented 3.3% of jobs in Scotland.

The amount of economic activity and the number of jobs linked to the sector will be bigger than these figures suggest, because many firms from other sectors will provide services to the financial sector.

Uncertainties for Scottish banks

Major banks with headquarters in Scotland include Lloyds Bank, the Royal Bank of Scotland (RBS), and Standard Life.

Standard Life has said that as a "precautionary measure" it has "started work to establish additional registered companies to operate outside Scotland, into which we could transfer parts of our operations if it was necessary to do so". The Royal Bank of Scotland Group has said that it "believes that it would be necessary to re-domicile the Bank's holding company and its primary rated operating entity ... to England", but that "the decision to re-domicile should have no impact on everyday banking services used by our customers throughout the British Isles".

Lloyds Banking Group - which includes Halifax and the Bank of Scotland -  has said its contingency plans "include the establishment of new principal legal entities in England", but that "this is a legal procedure and there would be no immediate changes or issues which could affect our business or our customers".

Both Lloyds and RBS have also said a yes vote could significantly raise their costs. The size of the potential rise in costs is uncertain, as several aspects of independence which are important to the banks' business interests have yet to be finalised:

• Currency; as we've covered in our piece on currency under independence, if Scotland adopts a different currency to the rest of the UK — be it the euro or some new Scottish currency - cross border trade would have to involve currency exchange. This would introduce administrative costs.
• Tax; the Scottish government says it plans to cut corporation tax by up to 3% to make Scotland a more attractive base for businesses. Other relevant aspects of the tax system are not known — we don't know how the banks' profits or their employees' bonuses will be taxed, for example.
• Regulation; the Scottish government says it will set up its own regulator, with responsibility for ensuring the markets for financial products work well and that consumers are protected. It also says the separate aim of ensuring financial stability — in other words avoiding a crash that damages the wider economy - will either continue to be met by the Bank of England or will come from the Bank in tandem with the Scottish regulator. It's a plan that relies on a shared currency, which is something the UK government has ruled out.
• The wider economy; independence will either boost or damage the Scottish economy, depending on who you listen to. Clearly this has an impact on the demand for the services of Scottish banks — you'd expect more mortgages to be provided during a boom, for example. Uncertainty over the performance of the economy could make the process of securing funds more expensive for the banks, for example as lenders raise interest rates to reflect the increased risk of a default.

There is reportedly a legal case for moving in the event of independence, which may have factored into RBS and Lloyds' announcements of re-locating. The BBC's Robert Peston has said he was told by "a senior banker" that his organisation was taking legal advice on whether the European Directive 95/26/EC means it will have to move its headquarters to London. The directive arguably suggests that a bank's registered or head offices should be in the same European member state as the bulk of its business activities, but this has never been tested in a court of law.

If the regulation did require banks to move their offices to the rest of the UK — which probably means London — it's not clear how much economic activity and how many jobs would actually be affected.

Consumer protections under independence - plenty of details to be ironed out

Protection for consumers of financial services can come in two forms; investigating and dealing with complaints about specific instances of wrongdoing, and system-wide actions such as banning the sale of certain products.

Currently, when someone has a complaint about the way they've been treated by a bank or other financial firm, they can bring it to the Financial Ombudsman Service. The Scottish government has said that under independence these complaints could be dealt with by a general Scottish consumer ombudsman which would, with respect to consumers in Scotland, take on the responsibilities currently held in the UK by 90 different services.

On the system side, at the moment companies selling products in the UK are regulated by the Financial Conduct Authority (FCA). Firms and individuals must be authorised by the FCA before providing financial services in the UK. It aims to intervene when firms treat consumers unfairly or risk the integrity of the markets they operate in, for instance arranging compensation for customers. And it also conducts regular assessment of the firms under its jurisdiction, and their products.

The Scottish government has said it will create a new regulator which will take over the FCA's responsibilities in Scotland. It says that the body's regulations would remain aligned to that of the FCA because there would be a combined market for Scottish financial products across a "sterling area". But not everyone agrees that the markets will be integrated. In a report on independence, membership organisation Scottish Financial Enterprise said that after independence Scotland and the rest of the UK would "eventually also become separate markets for financial services, to a greater or lesser extent depending on how the currency question is resolved."

Separate markets won't necessarily prevent consumers in Scotland from banking in the rest of the UK, depending on how regulation is set up. For instance, deposits with banks that are authorised to operate in the UK are currently protected by the Financial Services Compensation Scheme, even if they are headquartered abroad. So if the Scottish regulator followed that model, depositers in London-based bank accounts would be given the same protections as if they were banking with a Scottish bank.