10.3 Major Financial Institutions

What would happen to the large banks and financial firms with a significant presence in Scotland?

Decisions about legal domicile, headquarters location and group structure would be commercial decisions for the institutions themselves. Scotland would aim to remain an attractive location for financial services activity through political stability, sterling continuity, a skilled workforce and a proportionate regulatory regime. Some activities and legal entities may restructure across the new border; policy priorities would be to protect employment, tax revenue and customer service continuity in Scotland. Systemically important institutions would be subject to enhanced supervision and resolution planning regardless of ultimate ownership.

Large banks and financial firms decide where to domicile legal entities, where to locate headquarters and decision centres, and how to structure their groups according to their own commercial, regulatory and strategic assessments. Independence does not give the Scottish Government the power — or the practical ability — to dictate those choices. The framework therefore treats domicile and structure as matters for firms, and focuses public policy on making Scotland a location firms choose to remain in and invest in.

The main design choice is competition on stability, skills and regulatory quality rather than compulsion over headquarters or legal form. The main constraints are firms' commercial freedom to restructure, the prevalence of UK-wide groups, the need for cross-border supervisory cooperation, and the risk that uncertainty itself drives defensive location decisions. Policy prioritises the substance of activity, employment and customer continuity in Scotland over the formal address of the top company.

Large banks and financial firms decide where to domicile legal entities, where to locate headquarters and decision centres, and how to structure their groups according to their own commercial, regulatory and strategic assessments. Independence does not give the Scottish Government the power — or the practical ability — to dictate those choices. Attempting to compel headquarters or legal domicile would be ineffective and counterproductive. Firms respond to enforceable regulation, tax rules and market access; they do not permanently locate systemically important functions based on political instruction alone. Competing on stability, skills, infrastructure and regulatory quality is the realistic route.

This section sets out the position. Decisions about legal domicile, headquarters location and group structure would remain commercial decisions for the institutions themselves. Scotland would aim to remain an attractive location for financial services activity through political and economic stability — supported by fiscal rules, an independent fiscal institution and a clear medium-term fiscal plan; sterling continuity — removing immediate currency conversion and monetary uncertainty for domestic activity; a skilled workforce — drawing on existing financial services employment, universities and professional expertise; and a proportionate regulatory regime — robust on prudential standards and consumer protection, without unnecessary complexity or unpredictability. Some restructuring across the new border is to be expected. Policy would prioritise protecting employment, tax revenue, and customer service continuity in Scotland. Systemically important institutions would face enhanced supervision and resolution planning under the Scottish regime regardless of ultimate ownership. Systemic importance is defined by the consequences of failure for depositors, payment systems and the wider Scottish economy — not by the nationality of the shareholders. The state sets the conditions and the rules; firms choose where to put their legal entities and headquarters. The objective is to make Scotland a place they choose to stay and to grow.

Current Position and Legal/Institutional Baseline

Major banks and financial firms with a significant presence in Scotland currently operate under UK company law, UK financial regulation and UK-wide group structures. Many are part of groups whose ultimate parent or primary regulatory relationship sits elsewhere in the UK or internationally. Headquarters functions, booking entities and decision centres are distributed according to commercial and regulatory logic within a single jurisdiction. Scotland hosts substantial employment, customer-facing activity and specialist expertise in financial services, but does not control the full regulatory perimeter or the resolution regime for systemically important institutions.

Independence would create a new regulatory and resolution perimeter in Scotland and a new border for group structures that currently operate as UK-wide. The institutional baseline includes experienced financial services employment, existing customer relationships, and a sector already integrated with the rest of the UK through free movement of people, sterling and common professional and market practice. The task is to establish a Scottish regulatory and resolution framework that applies to entities operating in Scotland, to designate systemically important institutions by local impact regardless of ownership, to put in place cooperation arrangements for cross-border groups, and to compete for the substance of activity — jobs, tax base and customer service — rather than to attempt to freeze pre-independence corporate maps. International experience of jurisdictional splits and of host-state supervision of foreign-owned systemically important entities confirms that substance and local impact are the operable policy targets; compulsion over domicile is not.

Mechanism and Delivery

Firms operate under company law, financial regulation and tax law. Scottish legislation would define the regulatory perimeter, the resolution regime and the tax treatment of activity in Scotland. Domicile and headquarters location remain matters of corporate choice within that legal frame. Scottish regulatory law would designate systemically important institutions based on local systemic impact—the consequences of failure for depositors, payment systems, and the wider Scottish economy—triggering enhanced supervisory and resolution-planning requirements regardless of group nationality. Cross-border cooperation agreements would provide the legal gateways for supervisory colleges and joint resolution planning, consistent with the bank regulation and resolution framework already set out.

Scotland would seek to retain and attract financial services activity by delivering the underlying conditions that firms weigh in location decisions: political and economic stability, supported by the fiscal rules and the independent fiscal institution; sterling continuity, so that domestic activity does not face immediate currency conversion or monetary uncertainty; a skilled workforce, sustained by existing employment, universities and professional expertise; a proportionate regulatory regime that is robust on prudential standards and consumer protection without unnecessary complexity or unpredictability; and quality of life and operational conditions that support the retention of skilled staff. These elements align with the wider business environment and investment-attraction strategy. The offer is only as strong as the delivery of those underlying positions; inconsistency between fiscal rhetoric and fiscal rules, or between regulatory promises and supervisory practice, would undermine it.

Some restructuring is to be expected. Firms that currently operate on a UK-wide basis may create or adjust separate legal entities for Scottish and rUK activity; reallocate certain booking or headquarters functions; and adapt governance and reporting lines to the new regulatory perimeters. Such changes are normal when a single jurisdiction splits. They need not mean a wholesale exit of activity from Scotland. Many functions — customer service, operations, specialist expertise and significant employment — can remain even if the ultimate parent or a particular legal entity is domiciled elsewhere. Policy would focus on the substance of activity and employment in Scotland rather than on the formal address of the top company alone. Measuring success by headquarters logos rather than jobs, tax base, and service continuity would misread the sector's economics.

In the face of commercial restructuring, the government’s priorities would be clear: employment — retaining and growing skilled financial services jobs in Scotland; tax revenue — ensuring that activity that takes place in Scotland contributes fairly to the Scottish tax base; and customer service continuity — so that personal and business customers in Scotland do not experience disruption to accounts, payments or access to services because of corporate reorganisation. These priorities would guide engagement with the industry during the transition and beyond. The state cannot force a firm to keep a headquarters in Edinburgh or Glasgow; it can work to ensure that the conditions for substantial, high-value activity remain strong and that customers are protected through the change. Customer continuity links directly to the deposit-protection and resolution frameworks: accounts and payments must keep working even when legal entities are reorganised.

During the transition, early and structured engagement with major firms would be used to understand planned restructuring and its implications for Scottish employment and customers; align regulatory and resolution expectations; minimise unnecessary service disruption; and identify opportunities to retain or expand activity in Scotland. Uncertainty is costly. Clear rules, timely guidance and open channels with the industry reduce the risk that firms make defensive location decisions purely because the framework is opaque. Engagement is not a substitute for the underlying offer; it is how the offer is made usable during a period of structural change.

Sequencing prioritises continuity of customer services and supervisory coverage: no gap in authorisation or supervision for entities operating in Scotland; clear transitional recognition of existing permissions where needed; and early publication of Scottish regulatory and resolution expectations so firms can plan restructuring against known rules rather than uncertainty. Tax and employment continuity for staff follow ordinary continuity-of-law and acquired-rights principles already used elsewhere in the framework.

Continuity Design

Continuity of customer service is a design requirement. Accounts, payments and access to services for personal and business customers in Scotland must keep working through any corporate reorganisation. Transitional recognition of existing authorisations, regulatory dialogue that embeds customer-continuity expectations, and the alignment of resolution and deposit-protection frameworks support that continuity. The same transitional arrangements already set out for bank regulation secure continuity of supervisory coverage: no gap in authorisation or supervision for entities operating in Scotland.

Continuity of employment and tax base is pursued through the quality of the location offer and through structured engagement, not through compulsion over domicile. Enhanced supervision and resolution planning for institutions that are systemically important to the Scottish system, regardless of ownership, secure continuity of systemic stability. The design therefore treats customer continuity and supervisory coverage as hard constraints and the substance of activity as the policy target. It treats formal headquarters addresses as commercial outcomes rather than as objects of state direction.

Constraints and Trade-offs

Legal constraints

Scottish legislation defines the regulatory perimeter, resolution regime and tax treatment of activity in Scotland. Domicile and headquarters remain matters of corporate choice. Scottish law determines systemic designation based on local impact. Cross-border cooperation agreements provide legal gateways for supervisory and resolution coordination; they cannot compel a firm to locate its parent or headquarters in Scotland. Transitional recognition of authorisations must be legally robust so that entities can continue to operate without a permissions gap. Legal design must separate the state’s power to regulate and resolve from any claim to direct corporate structure.

Fiscal constraints

The direct public cost of this stance is the cost of the regulatory and resolution system and of any transitional engagement capacity. The fiscal risk is loss of corporation tax, income tax and related revenues if activity leaves. The Scottish budget pays for that loss through a smaller tax base. The mitigation is the quality of the offer — stability, sterling, skills, proportionate regulation — not subsidies that breach the subsidy-control and fiscal rules. Under the opening fiscal position, open-ended location subsidies are neither affordable nor consistent with the fiscal framework. Attraction is not a licence for fiscal indiscipline.

Operational constraints

Group entities require supervisory and resolution cooperation with UK authorities. Transitional recognition of authorisations and early publication of Scottish expectations are required so that firms can plan against known rules. Engagement capacity must be sufficient to understand restructuring plans and to minimise customer disruption. Operational sequencing that prioritises supervisory coverage and customer continuity reduces the risk of service disruption or defensive exit driven by opacity. Underestimating the prevalence of UK-wide group structures would leave cooperation and resolution planning incomplete.

Political constraints

Political attention can fixate on headquarters addresses and brass plates. The framework prioritises employment, tax base and customer continuity instead. Compulsion or threats over location would accelerate exit and are rejected. Domestic political management must present commercial choice as the reality and competition on real location factors as the policy. It must measure success by jobs, activity and uninterrupted service rather than by organograms. Adversarial relations with UK regulators would complicate group supervision; they would not remove Scotland’s ability to regulate entities in its perimeter or to compete on factors under its control.

Time constraints

Transitional recognition of authorisations and early publication of regulatory and resolution expectations must be ready so that firms can plan restructuring against known rules. Supervisory cooperation arrangements should be advanced in the settlement or early implementing phase. Engagement with major firms should begin early enough to identify and mitigate customer and employment risks. Delays in clarity raise the probability of defensive location decisions driven by uncertainty rather than fundamentals. The build-out of full supervisory intensity follows the same sequenced path already set for bank regulation and resolution.

Consistency with the Wider Framework

The approach to major financial institutions sits alongside prudential regulation and resolution under a Scottish authority; the deposit protection scheme with industry funding and a fiscal backstop; sterlingisation and the limited lender-of-last-resort capacity of the Scottish Central Bank; the broader business environment and investment-attraction strategy; and free movement of people and light-touch goods arrangements with the rest of the UK, which support continued integration of financial and professional services activity. Together they define a stance that is open to commercial reality, focused on substance over symbolism, and organised around stability and continuity for customers and employees.

There is no tension with the fiscal rules: attraction is not a licence for open-ended subsidy. There is no tension with consumer protection: customer continuity is an explicit priority. The section aligns with the partnership model of UK relations through supervisory and resolution cooperation on cross-border groups. It aligns with the continuity-of-contract principle applied to sterling deposits and loans. In every case, the design subordinates symbolic contests over headquarters to the substance of activity, employment and customer service in Scotland.

Hardest Critiques and Direct Responses

Feasibility

Retaining substantial financial services activity is feasible where the stability and skills offer is real. Compelling headquarters location is not feasible. Enhanced supervision of systemically important entities is feasible under the regulatory framework already set out. Restructuring will occur; the feasible objective is to keep high-value activity and employment, not to freeze pre-independence corporate maps. Feasibility falls only if the stability package is weak or unclear, if supervisory cooperation for groups is left incomplete, or if political attention fixates on addresses while substance erodes.

Cost and fiscal burden

The direct public cost is the regulatory and resolution system and transitional engagement capacity. The fiscal risk is loss of tax base if activity leaves. The Scottish budget pays for that loss. The mitigation is the quality of the offer, not subsidies that breach fiscal and subsidy-control rules. The framework does not claim that all pre-independence activity will remain unchanged; it claims that competition on real location factors is the operable policy and that open-ended location subsidies are neither affordable nor consistent with the fiscal framework.

Dependence on agreement

Dependence on the United Kingdom is high for supervisory and resolution cooperation on cross-border groups. It is low for the domestic offer on sterling, fiscal rules and skills. Adversarial relations with UK regulators would complicate group supervision; they would not remove Scotland’s ability to regulate entities in its perimeter or to compete on location factors under its control. Contingency planning prioritises domestic standards, systemic designation by local impact and customer continuity while extending cooperation as far as agreement allows.

Transition risk

Service disruption during entity restructuring, staff uncertainty, and supervisory gaps if permissions and cooperation lag are material risks. Mitigation is transitional recognition of authorisations, customer-continuity expectations built into regulatory dialogue, published timelines for the Scottish regime, and early structured engagement with major firms. Residual commercial restructuring cannot be eliminated; it is managed by prioritising substance and continuity over formal organograms.

Alternatives (status quo and previous proposals)

Threatening firms that restructure would accelerate exit and is rejected. Offering large discretionary subsidies to pin headquarters in Scotland would conflict with fiscal rules and subsidy discipline and would not guarantee permanent substance; it is rejected. Ignoring systemic importance when the parent is foreign would leave depositors and payment systems exposed and is rejected. A coherent design balances commercial choice on domicile, competition on real location factors, and systemic supervision by local impact. Measuring success by headquarters logos rather than by jobs, tax base and service continuity is rejected as a misreading of the sector’s economics.

Political and public credibility

The claim most likely to be called unrealistic is that major institutions will simply stay as they are, or that Scotland can dictate headquarters outcomes. The precise answer is that some restructuring is expected and normal; the policy target is employment, tax base and customer continuity, not frozen organograms; and the state’s tools are stability, skills, regulation and tax design, not command. Credibility is measured by jobs and activity retained or grown, uninterrupted customer service, and resolution plans for systemically important entities — not the number of brass plates. Readers who prefer compulsion over location, large discretionary subsidies, or nationality-based supervision are invited to evaluate the framework on commercial reality and on the design of systemic supervision by local impact.

Position Summarised

Decisions about legal domicile, headquarters location and group structure would remain commercial decisions for the institutions themselves. Scotland would aim to remain an attractive location through political stability, sterling continuity, a skilled workforce and a proportionate regulatory regime. Some restructuring across the new border is likely; policy would prioritise protecting employment, tax revenue, and continuity of customer service in Scotland.

Systemically important institutions would face enhanced supervision and resolution planning regardless of ultimate ownership. The state sets the conditions and the rules; firms choose where to put their legal entities and headquarters. The objective is to make Scotland a place they choose to stay and to grow. Success is measured by jobs, tax base and uninterrupted customer service, not by formal addresses. Transitional recognition of authorisations and early clarity on the Scottish regime support continuity through the period of structural change.

Conclusion

What would happen to the large banks and financial firms with a significant presence in Scotland? They would decide their own domicile and structure. Scotland would compete for their activity with stability, sterling continuity, skills and proportionate regulation. Restructuring across the new border is expected; policy would focus on jobs, tax base and uninterrupted customer service. Systemically important institutions would be supervised and resolution-planned for their impact on the Scottish system, whatever their ownership.

The design meets the continuity test by prioritising customer service and supervisory coverage through the transition and by refusing symbolic battles over headquarters addresses. The limit of the claim is clear: the state cannot compel location; some activity may reorganise; and success depends on delivery of the wider stability package. The final section of this part turns to consumer financial protection.

Series Footer

This analysis forms part of People’s Future Scotland: The Independence Debate, a non-party framework examining the practical design of independence. Each section is written to withstand professional scrutiny and to prioritise mechanism, constraint and continuity over aspiration.