EU law may force RBS and Lloyds to become English


Robert Peston on why banks could be forced to move their registered offices

If Scotland were to vote for independence, both Royal Bank of Scotland and Lloyds may be forced to move their registered offices or legal homes to London under European Union law, I have learned.

A senior banker has told me that his organisation is taking legal advice on the impact of the relevant directive, Council Directive 95/26/EC of 29 June 1995, because it has never been tested in the courts and there is no case law around it.

Regulators are also busy assessing its significance. Bankers and regulators both tell me it is likely to mean that RBS and Lloyds would be obliged to move their homes south of the border, if Scotland were to go it alone.

The directive says that banks must have their head offices "in the same member state as its registered office".

It also implies that those registered and head offices should be located where a group has the bulk of its activities - which, as you know, is England for Lloyds and RBS.

One relevant part of the directive says that a regulator should prohibit a bank from operating where the "geographical distribution of the activities actually carried on indicate clearly that a financial undertaking has opted for the legal system of one Member State for the purpose of evading the stricter standards in force in another Member State within whose territory it carries on or intends to carry on the greater part of its activities".

Now it is very unlikely that the Prudential Regulatory Authority and Financial Conduct Authority in London would accuse Lloyds and RBS of keeping their registered offices in Scotland to deliberately evade "stricter" oversight by them.

But that may not matter. Because, as I understand it, they think this directive broadly implies that a bank must have its legal home in the country where it carries out the bulk of its activities - which in this case (to state the obvious) is England (or rather the rest of the UK, excluding Scotland).

Here is where I labour the point.

Lloyds already has its head office in London, separate from its Scotland registered office.

And RBS has two head offices, one in London, one in Scotland - and, to repeat (yawn), Scotland is its legal home.

The big simple point is that neither RBS or Lloyds would probably choose to move their head offices and important risk control functions back to Scotland: even if the regulators thought this was a good idea, their owners would not; which means that, on the basis of Council Directive 95/26/EC of 29 June 1995, their registered offices, their homes, would be coming to the City.

Standard Life Standard Life has warned it could leave Scotland if it votes for independence

If you are still with me (many congratulations, by the way), you may be wondering why any of this matters.

Well for both sides in the battle over the future Scotland, the fact that two of the UK's biggest banks, Royal Bank of Scotland and Lloyds, have their registered offices or legal domiciles in Scotland has been a double edged sword.

On the one hand it appeared to be symbolically important for the Yes or pro-independence campaign that RBS and Lloyds have not followed the lead of the insurance company Standard Life, which recently suggested that it might have to move south of the border if Scotland voted to go it alone .

And maybe these banks' homes in Edinburgh speak to a vital future for Scotland's financial services industry and economy.

So to that extent no real news on their post-independence planning is implicitly good for Alex Salmond and those in favour of a separate Scotland.

However, the mainstream British political parties and the Better Together campaign have pointed out that banks occasionally run into financial difficulties (err, these two did, not that long ago, at a near-crippling cost to British taxpayers and the economy).

So Tories, Libdems and Labour, along with HM Treasury, have noisily pointed out that an autonomous Scotland would not on its own be able to bail out this pair of banks.

Here are the stats: Lloyds' and RBS's loans and investments are £1.9 trillion collectively, or between 13 and 15 times the value of Scotland's annual output or GDP (depending on how it's measured) - which suggests that Scotland would be bankrupted by the implied costs of rescuing these two banks and their depositors.

What matters is that the Treasury - and the cross party troika of George Osborne, Danny Alexander and Ed Balls - have cited these apparently unaffordable potential bail-out costs when explaining why they reject the demand of the Scottish government for a formal monetary union between an autonomous Scotland and the rest of the UK.

They say that it would be to trample on the interests of taxpayers in England, Wales and Northern Ireland to enter into a monetary pact with Scotland, which left these taxpayers implicitly exposed to the risks of rescuing two big banks, when regulators in London would not have been in a position to keep them prudent and healthy.

Lloyds cashpoints Both Lloyds and RBS do the majority of their business in England

And it is this refusal of the political establishment in London to countenance formal monetary union with Scotland which is seen by many to have dealt the greatest blow to Mr Salmond's separatist ambitions.

Or to put it another way, Lloyds' and RBS' home in Scotland can be seen as good and bad for both sides in the independence argument.

But if these homes would come to London more-or-less automatically in the event of a vote for separation, then it means that their future would no longer be part of the cut and thrust of the referendum battle.

And, on balance, it may be that the automatic nature of relocation to England would be worse for the pro-union campaign - because it means the financial risks of a monetary union with Scotland would reduced.

A banker said: "Salmond will never say this publicly, but he is bound to regard the depoliticisation of where we base ourselves as a good thing. He would no longer have the risk of picking up a big bill for us, if everything went belly up again".

All that said, it is no great surprise that neither side have been shouting that Scottish independence equals emigration to London of Lloyds and RBS.

But it does explain why neither Lloyds or RBS have felt compelled to say anything much about how they would respond to a popular decision in favour of separation - because their ability to choose their respective nationalities may be severely circumscribed, by EU law.

PS: If you are interested in the history of this tedious EU directive, which could have such a big impact on the referendum debate, it is commonly known as the post BCCI directive.

The directed was enacted to make sure that no bank could ever again be run along the lines of the criminal enterprise, BCCI, which had its registered office in Luxembourg, but most of its operations in London - and the Luxembourg regulator simply didn't have the resources to check what BCCI was up to, and the Bank of England felt it did not have the powers to do so.

Robert Peston Article written by Robert Peston Robert Peston Economics editor

Why no le Pen or Farage at Davos?

How threatened is the Davos elite by the surge in support for new populist and nationalist parties?

Read full article

More on This Story

More from Robert


This entry is now closed for comments

Jump to comments pagination
  • rate this

    Comment number 86.

    72. Dave The only chip on any shoulder will be you and your pals carrying back the nuclear weapons that we have been holding all these years.. I will this though attack Russia and china please i want to see that. You will get owned like the yanks did in Vietnam against rice hats and cap guns. Good luck with your Tory constant government by the way.

  • rate this

    Comment number 85.

    If the banks have to have their registered head office in London, will that not mean they have to pay all their taxes in rUK as well? Surely that will worry the gov. of a new independent Scotland more...

  • rate this

    Comment number 84.

    To put this another way - perhaps it would not be good news for anyone if Scotland were to end up with a banking industry massively out of proportion to the rest of the economy, like say, Iceland!

  • rate this

    Comment number 83.

    59. bkk_mike : THere's none so blind as those who will not see:

  • rate this

    Comment number 82.

    If the combined liability of both banks is 15 times Scotland's annual GDP, surely it's nearly twice England's?

  • rate this

    Comment number 81.

    Cue KIng Alex screaming 'Bullies' & denying any of this will actually happen because in his mind anything that does not fit in with his vision of an independent Scotland doesn't really exist.

  • rate this

    Comment number 80.

    So the Royal Bank of Scotland is actually English, who would have guessed.
    Does that mean that RBS will no longer have a license to print Scottish bank notes irrespective of a currency union or not?
    So what about the Bank of Scotland which is a Scottish brand of Lloyds Banking Group, is it Scottish or English?

  • rate this

    Comment number 79.

    What Scotland will lose is the jobs and the revenue these banks bring to the country. SNP / Yes are chasing business away from Scotland and has been since they got in. The second worst result for Scotland would be a Yes vote as we're be stuck in limbo for another couple of years. The worst if Salmond takes a No vote as an invitation to hold the country to ransom in another five years.

  • rate this

    Comment number 78.

    Crumbling NHS, congested traffic, major immigration problems, education system in tatters, ageing population, pension problems developing, and if you actually dig deeper, a country which is unhappy with its identity I think. Yes England does require the Scots to remain part of the UK to help fund these problems, and the best way to do this is spin some negative scaremongering on the way.

  • rate this

    Comment number 77.

    I can see a flaw in their cunning plan. They need to unwrap the RBS acronym & it becomes obvious.
    Im a NatWest customer & after a Yes vote I'd be happy to transfer my account to one south of the border. I don't want to interfere with the vote in anyway or try & influence the electorate
    Just take action following their decision - thats my democratic right, without being influenced by any egomaniac

  • rate this

    Comment number 76.

    Cheers Robert!
    More Zombie bank liability for rUK.

    I suggest rUK pulls the plug on RBS and flogs our share in Lloyds to avoid having to carry the can for these two banks.

    If the "Yes" happens, it's a big one off hit for rUK but let's face it, RBS at £8bn loss p.a. is never going to pull out of its death dive,

  • rate this

    Comment number 75.

    'And I'd have to wonder why the BBC only reports scare stories, and didn't report on BA's thinking independence would be good, on the basis that an independent Scotland would almost certainly scrap air passenger duty.'

    They did, not that you'd ever guess from the way comments go on about bias.

  • rate this

    Comment number 74.

    Scotlands two strongest industries, oil and finance. One will run out eventually and now the other looks like it could head south.

  • rate this

    Comment number 73.

    I believe Mr Salmond's rhetoric in recent televised interviews has diminished the credibility of his argument. He has also appeared hypocritical with certain accusations.

    The debate has moved forward. The SNP have not. It would have been far more credible to have an alternative to Sterling.

    The "I'm right, you're wrong" attitude does not add to the debate or provide confidence to the electorate.

  • rate this

    Comment number 72.

    re. 62. Freescotland

    I think any right-minded person reading your post would deduce that it's you with the sore point. Perhaps it's caused by that huge chip on your shoulder!

  • rate this

    Comment number 71.

    Lloyds' presence in Scotland is because, as the owners of Bank of Scotland, they have to be there to be legally allowed to print Bank of Scotland notes.

  • rate this

    Comment number 70.

    I thought RBS were being forced under EU rules to sell their English & Welsh customers off to a new bank anyway, which will be called Williams & Glynn. Once this happens, there won't actually be an RBS domestic banking service in England & Wales any more.

  • rate this

    Comment number 69.

    41.Mike from Brum

    Funny how the all of the news from the BBC never reports an unintended benefit if the Scots go independent


    the only one I know of is the departure of Scottish Labour MPs from Westminster, and it's considered bad form to mention that.

  • rate this

    Comment number 68.

    You can sense things are turning gainst Salmond , but he'll'' put a spin on defeat. It won't be his fault.

  • rate this

    Comment number 67.

    Without Scotland, the remainder of the UK would also be a smaller economic entity and thus less capable of supporting these (and other) banks.

    How about breaking up these excessively large liabilities? Not like it's a bad idea in any case, but more fuel to the bonfire and all that!


Page 76 of 80



Copyright © 2015 BBC. The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.