What is the future of Scotland's finance sector?
What does the future hold for Scotland’s financial services sector? That was the question addressed by an expert panel at an ICAS Insights event in Edinburgh – “The Future of Scotland’s Financial Sector” – on 29 November.
Setting their views on the challenges and opportunities for the sector were Merryn Somerset Webb, editor in chief, Money Week and a writer with the Financial Times; Kent Mackenzie, a director with Deloitte specialising in financial technology (fintech); and Jim Pettigrew CA, past ICAS President and chairman of industry body Scottish Financial Enterprise and CYBG plc, owner of Clydesdale Bank. ICAS Chief Executive Anton Colella chaired the event.
Merryn Somerset Webb opened the discussion with a view of the economic backdrop. This certainly appears to be challenging, with downbeat forecasts from the Office of Budget Responsibility among others, but as Merryn pointed out, all economic forecasts are intrinsically unreliable at a time of great uncertainty: “We have no idea what’s going to happen next in the UK economy.”
Merryn was optimistic that the negotiations around Brexit would, eventually, yield a positive result. As she put it: “The answer [to the Brexit question] will be something you don’t expect, it will be flexible and it will work for everybody; because contrary to what you’ve heard, the EU is a very flexible organisation.”
One element of the financial services sector that does look set to have its business model planned is asset management, Merryn added. The UK government appears to be targeting the high fees and perceived “super-profits” in asset management and – as with the abolition of tenants’ letting fees - even the Conservative administration has shown its willingness to intervene in a market when it is seen to be dysfunctional.
Kent Mackenzie is a director with Deloitte and has been working with Scottish Enterprise and Scottish Financial Enterprise on the creation of a fintech “hub” for Scotland.
As he explained, fintech has many strands, including (for example): asset management technology; digital identity; big data and advanced analytics; cognitive computing and artificial intelligence; “robo-advice”; blockchain technology; and the “Internet of things”.
Kent said that the talent and skills existing in the IT industry, financial services and the academic sector made Scotland a potential champion in this field. He concluded: “Scotland has the opportunity to become one of the world’s leading fintech hubs. Watch this space!”
Jim Pettigrew has been chairman of Scottish Financial Enterprise since August. He stressed that the importance of the financial services sector, which accounts for around nine per cent of Scotland’s GDP, should not be underestimated.
Jim said: “Scotland can be a great place to do business, and in 2015 we saw record levels of foreign direct investment.
“If we are to grasp these opportunities, we must resist the temptation to think inwardly; we must think globally. We must ensure that we have a good environment for economic growth; we must embrace technology; customers’ interests must be at the heart of what we do; and we must put something back into society.”
He added that SFE is taking action to help promote the FS sector with, for example, the creation of a fintech hub for Scotland, and the creation of networking opportunities for young professionals in the sector.
The panel also took part in a Q&A session, covering topics from the impact of government efforts to control the number of overseas students coming to the UK to whether the prospect of a second referendum on Scottish independence was affecting confidence.
The proposed government intervention on asset managers’ fees was also discussed. Jim Pettigrew said: “This is a tipping point; things are really changing. Very small changes in fees, compounded, have a big effect. It has to be said, however, that there are some really good fund managers.”
He added that he did not believe this would be the end for active fund management.
Merryn Somerset Webb said: “The asset management industry has been given chance after chance. I have been writing about high fees for the past 16 years!
“The government needs to find a way to shift wealth from corporates to individuals and this [controlling asset management fees] is one of the easiest ways to do that.”