The Treasury has warned an independent Scotland would need a separate regulatory regime which could push up costs for firms and create an additional compliance burden.
The Treasury has today published a report into the impact an independent Scotland would have on financial services and banking, as part of a series of analysis papers on what would happen if Scotland separated from the rest of the UK.
In the paper the Treasury points out if Scotland became an independent state it would require a separate regulator accountable to the Government.
It says regardless of whether Scotland introduced a whole new regulatory system or separate conduct regulators, firms operating across the UK would have to pay two lots of regulatory costs, and passport between the two regulatory systems.
Scottish firms currently contribute around 18 per cent, or £83m, of the Financial Conduct Authority levy.
The Treasury also says a separate Scottish regulator would also mean more onerous authorisation requirements for firms and advisers working across both jurisdictions.
It says: “There would need to be separate regulatory regimes in Scotland and the UK, and it is inevitable over time there would be divergence.
“If such divergence took place, not only would firms operating across both jurisdictions need to be separately authorised, each approved person, such as an IFA, working for the firm would need the approval of both regulators; and would also need to comply with separate requirements imposed by each regulator.”
Different tax treatment could also prove problematic, as products such as cash Isas and investment trusts grant tax relief to UK residents. The Treasury says although Scotland and the UK may be able to come to an agreement to waive tax on certain products, this would create “significant additional complexity” for consumers and firms.
The Treasury also argues an independent Scotland would have difficulty in replicating the Financial Services Compensation Scheme, as its scheme would cover fewer firms. It would also be dominated by Royal Bank of Scotland and Lloyds Banking Group, and if one of those banks were to collapse the Treasury believes a scheme similar to the FSCS under an independent Scotland would struggle to compensate savers.