HM Treasury
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Scotland analysis: Financial services and banking

In September 2014 people in Scotland will take one of the most important decisions in the history of Scotland and the whole of the United Kingdom (UK) – whether to stay in the UK, or leave it and become an independent state. In advance of the referendum the UK Government will ensure, through the Scotland analysis programme, that the debate is properly informed and that the facts that are crucial to considering Scotland’s future are set out.

As explained in the first Scotland analysis paper, Devolution and the implications of Scottish independence, in the event of a yes vote, in the eyes of the world and in law, Scotland would become an entirely new state, separate to the rest of the UK. The UK Parliament would remain sovereign in the continuing UK. So the UK’s key national institutions, for example the Bank of England, would operate on behalf of the continuing UK as before.

The second Scotland analysis paper, Currency and monetary policy, explained that the currency and macroeconomic framework that operates across the UK would not be able to continue between two separate states. Of direct relevance to financial services, it raised the question of how and whether lender of last resort facilities could work in an independent Scotland. And how and why a central bank from one state, such as the Bank of England, could step in to provide financial support to the banks or financial sector of another state. For this and other reasons, the paper explained that the economic rationale for the UK to agree to enter a formal sterling union with a separate state is not clear.

In the event of a vote for independence, there would be further consequences for the financial sector and for its customers – all individuals and businesses – which are analysed in this paper. The most profound implication is that independence would create two separate financial jurisdictions: the continuing UK and a new, independent Scotland, which would require its own legal and regulatory framework.

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