As Scottish Development International is happy to point out in its marketing literature, Scotland’s innovations include the first bank note, the overdraft, the cash machine, the decimal point and even, they go so far as to say, the very concept of capitalism (Adam Smith). It was a Scotsman who set up the Bank of England.

“It is easier to list the things Scotland didn’t invent,” jokes John Carmichael of Scottish Enterprise.

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In all seriousness, “the nature of Scots is to be a bit modest”, says Mike Rymaruk, senior marketing executive at Scottish Enterprise. “All we’re asking is, put us on your list.”

Scotland, it is safe to say, is on the short-list of a great many financial institutions. With traditional strengths in banking, insurance (life and pensions) and fund management, Scotland has long been a prominent European centre for asset servicing expertise.

US institutions such as JPMorgan, Citigroup and Morgan Stanley originally came to serve Scottish companies but are now servicing companies around the world from Scotland.

One in 10 of the Scottish working population is employed in financial services – more than 113,000 people directly, and more than 100,000 indirectly, in support services. The sector contributes £5bn, or 6.4% of Scottish GDP.

Financial expertise

Scotland’s financial expertise is heavily weighted towards banking (60%, according to research by Deloitte) and life and pensions (21%), followed by general insurance (10.5%) and asset management (8.5%). But there is an effort under way to reduce dependency on banking and life and pensions and to attract more asset management, asset servicing and general insurance companies.

Consolidation and growth of the sector around the world has been reflected in the Scottish financial services industry as well, says Andrew Milligan, head of global strategy for Edinburgh-based Standard Life Investments. But the composition has become more interesting.

“The types and mix of companies here now would not have been imaginable 10 years ago. Back then there were just five or six main companies and they knew the pecking order,” he says.

The local talent pool has also become more diverse thanks to various public-private training and skills initiatives ranging from efforts to entice more school- children to consider a future in financial services, to university-level courses in finance that address industry needs, to an immigration scheme that allows foreign graduates of Scottish universities to stay in Scotland and work for two years.

“We are improving the number of graduates coming through and building up quite an attractive cluster here,” says finance minister Tom McCabe. It is a cluster that has grown 37% since 2000, he says, and is “scoring quite a lot of successes”.

Amanda Harvie, chief executive of industry group Scottish Financial Enterprise, says the sector is “well established, with breadth and strength, and is powering ahead. But we’re not complacent.”

Challenges faced by the industry include a growing regulatory burden, increasing globalisation, trends towards outsourcing, consolidation of sub-scale operators, emergence of other competitive locations, increasing mobility of operations, and pressure on costs.

 

Size is important

“What hurts the financial services sector elsewhere hurts us even more because of the size and scale of the industry base here,” says Ms Harvie.

Although recruitment is forecast to slow slightly, Scotland’s main financial services companies are optimistic about business prospects and job retention in 2007, according to an annual study by recruitment specialists Joslin Rowe Scotland.

More than 70 financial services companies in Scotland contributed to research during November 2006, designed to gauge perceptions among some of the most influential employers in the sector.

The majority of firms (84%) described their company’s level of business confidence for 2007 as “optimistic” or “very optimistic”. The poll also found that 60% of organisations plan to run a graduate recruitment scheme this year, the highest number yet recorded.