How do you optimise for today and build for tomorrow? How do you optimise for today and build for tomorrow?

By Sue Dawe

EY, Scotland, Head of Financial Services

Leads EY’s Financial Services practice for Scotland and is a member of the EY UK LLP Board. Also a member of the Scottish Financial Enterprise Board.

10 minute read 21 Oct 2020

EY’s report analyses the nature of Scotland’s financial services industry to reveal the key aspects responsible for driving its success.

In brief
  • EY conducted face-to-face interviews with 21 senior representatives of financial services companies in Scotland between August and October 2019. 
  • Detailed research into Scotland’s financial services sector was carried out by EY-Parthenon Financial Services in December 2019. 
  • When brought together, our analysis brings fresh understanding to the mix of characteristics that define Scotland’s financial services industry. 

Scotland’s international success as a financial services centre is rooted in over 350 years of world-leading expertise. It has been maintained through a tireless commitment to innovation, investing in the development of talented people, and resilience and adaptability in the face of change. In light of the COVID-19 pandemic, this is more important than ever.

The industry in Scotland has a unique and powerful blend of attributes. These are neatly knitted together to create an ecosystem of financial services that is internationally renowned for being much more than the sum of its parts. This report analyses the nature of the financial services industry in Scotland, both quantitatively and qualitatively, to reveal the key aspects responsible for driving its growth and success. It also identifies some of the industry’s current challenges and potential threats to Scotland as a world-leading financial services centre, with recommendations to mitigate against these.

Our research includes the views of a selection of 21 leading industry executives in Scotland, gathered via one-to-one interviews between August and October 2019. These interviews took place prior to the COVID-19 pandemic and the resulting lockdown and, whilst these events have clearly had an impact on the sector in Scotland, as elsewhere, the key messages remain as valid today as they did then. The areas considered in this report include: workforce talent and skills; future ambitions to grow and invest in Scotland; and considerations relating to the political landscape.

When overlaid with key socio-economic and industry data, the analysis brings fresh understanding to the mix of characteristics that define Scotland’s financial services industry. These characteristics can be broadly grouped into three areas: quality, skills and value. Each has demonstrable positive features for both the employer and the individuals who work in Scotland.

1. Quality

In the field of financial services, Scotland offers quality in two important senses. First, it is a world-renowned financial centre. The Global Financial Centres Index places Edinburgh in 13th position worldwide in terms of competitiveness, ahead of other European hubs including Frankfurt, Paris, Amsterdam, Stockholm, Brussels and Dublin.[1]

The attractiveness of Scotland is clear. At the time of interview, the majority of respondents (67%) planned to establish new operations in Scotland or expand existing ones, mostly within the next few years.

From a financial technology (FinTech) perspective, at the start of 2020 the sector gained formal accreditation as the UK’s first FinTech cluster of excellence.

Secondly, Scotland has also been shown to offer a greater quality of life compared with many other financial centres. In terms of measured life satisfaction ratings, it has scored higher than the UK average in every year measured since 2011.[2] In addition to this, Scotland was predicted to achieve the highest life satisfaction score across the main financial centres in Europe by 2021.[3] Remote working has become the ‘normal’ for many industries during the COVID-19 pandemic and it remains to be seen what impact this will have on ways of working in the future. In addition, a key consideration for where and how people work is likely to be quality of life.

2. Skills

Our research shows that access to a skilled workforce is the single most important factor for financial services firms when deciding to locate or invest in Scotland, with 81% of all respondents stating this as a reason for doing so.

In the five years prior to 2019, there was an increase in job creation, with 86% of respondents having grown their headcount during that period. Respondents in the survey also stated they were actively recruiting for new roles at the end of 2019, mostly sourcing talent (graduates as well as ‘experienced hires’) from within Scotland and other areas of the UK.

The skills available in Scotland have also evolved with both current demand as well as expected future needs. In our survey, 62% of respondents noted increased recruitment during 2019 in more highly skilled roles in the fields of technology, digital and data science.

3. Value

Value is another key area of consideration for firms, with 38% of respondents listing low set-up and operating costs as a significant factor that attracted them to Scotland. Our research shows that, in comparison to other major European financial centres, operational costs for firms are relatively low in Scotland, especially given the breadth and depth of workforce skills in (2) above. The fact that the UK has the second-lowest corporate tax rate in Europe helps to underpin this. Additionally, out of the leading European financial centres, Edinburgh and Glasgow offer the lowest cost for commercial rent per square metre.

The individual benefits from working in one of the best-paid sectors in Scotland, as well as enjoying a lower cost of living and greater purchasing power in comparison with other European hubs, including London, Amsterdam, Dublin, Frankfurt and Paris.[4]

As one respondent in the survey put it: “There is a large talent pool from universities and Scotland is a large financial centre. There is no real reason for so much to be done in London, given the relative cost difference.”

The last few years have seen an increase in job creation

86%

of respondents grew their headcount in the five years prior to 2019

Maintaining success

There is great cause to celebrate the strengths of the financial sector in Scotland. It is important, however, not to be complacent as the economy continues to deal with the impact of the COVID-19 pandemic. The challenge posed by the pandemic, and its impact on the economy and society, is significant, and only serves to underline the importance of the role the financial services sector has to play in supporting the recovery. It will be best placed to do so if we can address and ensure the following:

  • Skills availability
  • Investment in, and adoption of, digital technologies
  • Industry promotion: showcasing the industry’s positive impact on individuals and wider society

Scotland benefits from a highly integrated financial services ecosystem and a shared industry agenda of increased, cross-sector collaboration, led by the trade body Scottish Financial Enterprise (SFE). This ability to effectively collaborate with key industry stakeholders, the UK and Scottish Governments and their agencies, as well as academia, will be critical in ensuring a robust recovery for financial services in Scotland. We note that the Scottish Government, for example, has announced fresh investment in skills and digital transformation initiatives in order to help meet the challenges posed by the COVID-19 pandemic.

In an uncertain economic and business environment, nothing can be taken for granted, and there must be a relentless focus on innovation and growth. Creative and collaborative solutions are particularly important in an environment of constant change — whether political, social, regulatory or technological.

Read our press release

Summary

EY’s latest report reveals the key aspects responsible for driving the growth and success of Scotland’s financial services industry. It also identifies some of the sector’s current challenges and potential threats to Scotland as a world-leading financial services centre, with recommendations to mitigate against these. 

About this article

By Sue Dawe

EY, Scotland, Head of Financial Services

Leads EY’s Financial Services practice for Scotland and is a member of the EY UK LLP Board. Also a member of the Scottish Financial Enterprise Board.