From a technical point of view, there are a number of existing legal structures within Scottish law that could well be used, such as a Scottish Limited Partnership, were the Scottish fund management industry to head out on its own. And, that is unlikely to change as the standard suite of Scottish vehicles available is fairly similar to the English equivalent.
But, while the fund structures may be the same, what is less certain is what the makeup of the framework around them would be.
According to David Williams, a partner at Simmons & Simmons, a key question to ask is, who would regulate a Scottish fund industry’s managers and regulated vehicles? Depending on separation negotiations, it may well be that Scottish entities cannot remain under the purview of the Financial Conduct Authority.
The second question to ask is, what reason would there be for fund houses to make use of a Scottish domiciled fund?
“There is a lack of competitive advantage. As far as the investment community is concerned, there are already well-trodden paths in terms of fund domiciles. Even without the vast political uncertainty that would accompany independence, it is very difficult to establish oneself as a new jurisdiction, especially when there are existing options that are regulated and are understood,” he said.
Access to the European markets will also be an issue. Currently, Scottish firms are able to passport products developed through the EU, were Scotland to come out of the union that would become a great deal harder.
As can be seen by the example of Malta, a country that has taken a long time to establish itself as a new financial jurisdiction, Williams explained: “It is hard, slow work to break into the fund domicile market. For Scotland to try and do so with the added handicap of unprecedented political uncertainty would be insane.”
From a business point of view, Williams added, people will take a view on the risks involved. “Commercially, uncertainty kills everything; people who manage institutional funds don’t want to spend their time explaining a fund structure – particularly where that structure is new or uncertain – when they are trying to sell a product,” he said.
“A ‘Yes’ vote is the start of a process, not the end. There will be 18 months plus of uncertainty and indecision, when a lot of decisions will need to be made by businesses. You can’t really press pause on a funds business for 18 months.”
