Pensions and regulatory changes associated with an independent Scotland would create hundreds of millions of pounds in duplicated costs and be a “nightmare” scenario for advisers, experts warn.
The Scottish government published a white paper this week setting out the implications of a “yes” vote on independence in September 2014.
It says it would ditch the FCA and set up its own conduct regulator, as well as its own Financial Ombudsman Service, Money Advice Service and Financial Services Compensation scheme.
It says an independent Scotland would look to retain sterling as a currency, with the Bank of England continuing to monitor the UK financial system as a whole.
A new Scottish financial conduct regulator would assume the key responsibilities of the FCA and would look to align its rules “to retain a broadly integrated market across the sterling area”.
The paper also sets out the Scottish government’s proposed pension policy under an independent Scotland.
The UK Government has proposed scrapping means-testing in favour of a new flat-rate state pension worth £144 a week for future retirees from April 2016. An independent Scotland would also introduce these reforms but with payment increased to £160 a week.
The triple-lock – which guarantees the state pension increases by the highest of earnings, prices or 2.5 per cent – would be retained for at least the first parliament.
The personal allowance and tax credits in an independent Scotland would increase in line with inflation in the short-term with a “clear and simple” tax system planned longer term.
A Scottish equivalent of Nest would also be established with an obligation to accept any employer wishing to use it.
An independent Scotland would look to set up a Scottish Pensions Regulator and suggests Scotland could either play its part in the Pension Protection Fund, or set up its own scheme.
EY Financial Services executive director Malcolm Kerr says overall the proposals “look like a nightmare”.
He says: “This would create more complexity, more cost and more uncertainty without any upside whatsoever.
“The details will not be worked out for some time and politicians will be looking at things strategically rather than focusing on the day-to-day issues that matter to intermediaries, asset managers and their clients.”
Independent financial consultant Richard Hobbs says: “Passporting arrangements would have to be established, but the issue of compensation costs would be complex.
“If there was a misselling scandal, could English customers of Scottish advisers seek compensation from a Scottish compensation scheme, and could it afford to pay them?”
Apfa director general Chris Hannant says it is “inevitable” that the rules of the Scottish regulator would diverge from those of the FCA in time, creating two different regulatory regimes.
Data firm Matrix Solutions says there are 817 adviser firms based in Scotland.
It estimates there are 2,251 registered individuals in Scotland, with 1,754 having CF30 permissions. RIs include protection and mortgage advisers, while CF30s is the count of customer-facing investment advisers only.
A spokesman for the Scottish government says it is unable to give details on the estimated costs or timescales of the proposals.
Hargreaves Lansdown head of pensions research Tom McPhail says: “I cannot see any discernible benefit in spending money replicating structures which already exist.
“We are talking about hundreds of millions of pounds in additional administration costs here, so it is not small change.
“I can envisage a world where financial services companies based in England have to operate dual systems and employers trying to comply with auto-enrolment legislation, for example, will have to satisfy the requirements of two different regulatory structures.
“This will create multiple layers of bureaucracy, which in turn will create extra costs which will be borne by English and Irish and Welsh taxpayers.”
Worldwide Financial Planning IFA Nick McBreen says: “Logistically this would be horrendous for any advisers who deal with clients across the border.
“Dealing with two regulators would be an absolute nightmare because there would be more work, more red tape, more cost and more confusion for clients.”
Glasgow-based Forty Two Wealth Management director Alan Dick says: “This scares the hell out of me. It would cost an absolute fortune to set up a new regulator, for no extra benefit.”