International promotion, fintech and stronger relationships all key to future prosperity says enterprise body chief
In terms of economic uncertainty, 2024 has been a hard year to beat. The travails of the SNP government in Scotland, the rout of the ruling Conservatives in Westminster and the unpredicted scale of Donald Trump’s victory in the US presidential election are all set against a chaotic geopolitical backdrop that includes continuing war in Ukraine, unresolved conflict in the Middle East and increasingly menacing messages from China regarding Taiwan.
Scotland, of course, has been weathering domestic and global threats to its economy since the catastrophic Darien venture in the 1690s and has maintained a longstanding (though not untarnished in recent years by the global financial crisis) reputation for financial probity and reliability.
According to Scottish Financial Enterprise (SFE), the industry’s representative body, the finance sector is now worth £14.8bn to the country, up £500m (3 per cent) since last year, and now constitutes 10 per cent of the Scottish economy.
Scotland, it says, has continued to attract the highest number of financial services in foreign direct investment (FDI) projects in the UK outside London with nine FDI projects won in 2023, up from eight in the previous year.
Plus, the two main powerhouses have improved their respective positions in this year’s global financial centres index, with Edinburgh up to number 29 from 33 and Glasgow up to 37 from 51.
At last year’s SFE awards, the body launched its sector growth strategy, which set out the impact of financial services on Scotland’s society and economy and its ambition for growth for the next five years. It has, says chief executive Sandy Begbie, seen good progress in several areas.
The Standard Life Aberdeen veteran was appointed in 2020 and oversaw the initiation of the strategy in October 2023, in collaboration with City of London Corporation, TheCityUK, FinTech Scotland and the Global Ethical Finance Initiative, and supported by both the Scottish and UK governments. It aims to unlock £7bn gross value added (GVA) for the Scottish economy by 2028.
Just over a year later, how does Begbie observe the progress of these objectives?
“For a start, we are reliably informed we are one of the few industries that has consistently grown GVA year on year at 3 per cent a year and if we can get that up to 3.5 to 4 per cent a year that would put us well on track to reach between £17bn and £21bn in the next five years,” he says.
There remain daunting challenges – but he identifies some macro trends that are benefiting the economy.
“One of these is nearshoring, where people are looking at jobs currently being done in London and considering the commercial advantage of moving them elsewhere. Barclays has moved more jobs to Scotland as has BlackRock and JP Morgan, relocating jobs from London because of pressure on margin and profits.”
Secondly, he reports a consolidation into a smaller number of regional centres in the sector. “The UK benefits from its time zone, which seems a small point, but which for US firms and those operating globally, is quite an important one. Plus, there’s the access to talent in our universities and the lower cost of doing business here which are attractive parts of the proposition for locating in Scotland.”
There is also the requirement from global centres to increase capability in artificial intelligence (AI) and emerging technologies. “We have the quality of universities to support that and a very strong fintech cluster – all aspects of a successful financial services industry and all reasons why businesses would come to Scotland.”
These are areas though that can be dialled up further. “The University of Edinburgh is for example in the global top five regarding data and AI so we can definitely compete at that level, and I think we can do a better job in communicating that.”
Everyone of course is chasing this lucrative business, and Begbie says the international promotional work that SFE has done in the past year has proved insightful for the organisation.
“In April, we ran a roundtable in New York with asset managers and wealth managers with a presence in Scotland and that’s where some of the trends such as nearshoring were evident. Atlanta in Georgia was cited as an example of where firms were moving to out of New York.
Some of the messages from senior people around the table was the need for a strategy to talk up Scotland’ – says Sandy Begbie, head of SFE.
“And that’s an interesting case study because of its ability to combine its universities, its fintechs and inward investment into key areas of financial services. Some of the messages from senior people around the table was the need for a strategy to talk up Scotland as such a centre – so international promotion will be a significant part of what we do next year.”
Another partnership is with City of London Corporation, which is the governing body of the Square Mile in central London, home to the Bank of England and many of the world’s leading financial houses.
“We’ve been putting a lot of effort into strengthening our relationship with London and when recently talking to senior people in Brussels about Scotland’s financial services it was very much in the context of how we fit in with the overall UK industry.”
The deal that saw major Scottish employer Virgin Money – owner of the former Clydesdale Bank – acquired by Nationwide is a harbinger of sector consolidation that is predicted to continue. More than nine in 10 financial services firms are considering mergers and acquisitions as a means of growth, according to a Johnston Carmichael survey.
While Edinburgh has been a global hub for asset management with firms such as Baillie Gifford, Artemis, Royal London, Aegon and BlackRock, the world’s biggest fund manager, Glasgow’s International Financial Services District has seen the city’s reputation in the sector increase significantly, which Begbie says is a welcome indication of Scotland’s growing strength and international competitiveness in the industry.
“I’ve been in the industry for almost 40 years now and Glasgow was often labelled as just ‘back office’. That has undoubtedly changed, with Barclays’ and Morgan Stanley’s investments and JP Morgan’s hugely impressive new campus on Argyle Street which when complete will comprise almost 3,000 people.
“The city has moved up the rankings and is now seen very much as a centre for technical innovation and research so it’s now possible to talk about Scotland’s financial services as a whole even more than when I joined SFE four years ago,” says Begbie.
The organisation has also developed getinto.finance, a new digital skills hub to demystify careers in the sector and connect employers with diverse talent. The rapidly evolving digital landscape is high on the agenda, with Begbie in weekly contact with FinTech Scotland.
“We’re very aware that the Scottish fintech cluster is going to grow and develop,” he says. “Between us we do a lot to try to connect emerging fintechs with larger firms. Some of these SMEs represent a handful of people trying to gain access to multi-billion pound organisations – which can be incredibly difficult, looking at the number of hurdles that must be overcome even to get on to a potential supplier list.
“But both Nicola Anderson, FinTech Scotland’s CEO, and I are working together for results which will be important for both legacy players in the industry and fintechs,” he says.
“There are already successes in that area, and he now believes it is a case of achieving it at scale.”
Aside from asset management and high finance, Begbie is also committed to bringing the benefits of financial services to the ‘unbanked’ in the community as some 100,000 people in Scotland don’t enjoy the benefits of having even a basic bank account.
“There’s a cycle of not having a bank account linked to an address meaning not being able to get a job and we need to break into that. If we can reduce the number of the unbanked then we can help them secure the benefits that they are entitled to and then to gain secure and better paid work.
“When I joined SFE I wanted to take it into the space where we covered all elements of financial services – for example we now have credit unions as members – and if we represent the entire industry, we’re also representing a much broader societal base as a result.”