Bill Magee

All the talk of a new Scots pound brings to mind Scotland’s traditional monetary values that, some would say, are perhaps rather old fashioned and ill-suited to a digital era. Not so. They’re needed more than ever.

Such principles have been around for some time, stretching back to the Enlightenment. Accountability, ethics, governance probity, a strong sense of proprietary. Oh, and trust. As well as Scotland being in the unique position of having its own legal system, the earliest preserved Scots Law code was believed to be recorded over 1,000 years ago.

It represents what is neatly expressed in Gaelic as luachan (not to be confused with sound-alike middle-English derived lucre but in this case relevant) coming to the fore in two quite widely distinct scenarios. The first involves winter approaching as we guard every penny, pondering whether to leave the immersion heater on or not and how to pay rising bills; as we try to make sense of political slogans that begin and end in ‘growth’ during what is in reality an unprecedented period of austerity in modern times. The other is a bit of much-needed good news.

Scotland appears to be escaping the catastrophic effects of a spike in multi-billion-pound – some say as much as a trillion – money laundering breaches hitting the UK financial sector. Britain has been recognised, according to The Economist, as a global leader in ‘fintech’, a portmanteau term for financial technology and a relatively new finance model springing to life following the 2008 global economic meltdown. So far so good.

Unfortunately, it has also become a global hub for money laundering and associated financial crime, with the City of London at the epicentre of an apparent free flow of illegal cash. We’re not talking about the odd hundred or thousand here. Just think of all those scores – more likely hundreds – of Russian oligarchs, seemingly enjoying a free ticket when it comes to moving their ill-gotten dirty dollars about without any comeback. Furthermore, ‘Londongrad’, as the place has become labelled, overreacting to the European Union tightening its data protection regulations and upping its probes into Square Mile double-dealing, has been cited as the real reason behind the rush job that was Brexit.

Not dissimilar governance values exist in London but seem to have become skewed and overlooked. The UK Financial Conduct Authority (FCA) estimates that, within specifically fintech operations, hundreds of millions of pounds is laundered. Scotland has a thriving fintech sector and although it’s hundreds of miles away from the action, potentially nefarious global online pursuits can be achieved at the click of a mouse or key. So how come we’ve managed to sidestep such eyewatering sums of online fraud?

In a stand-out move, a novel collaboration between the fintech community, the Law Society of Scotland, and IT trade body, ScotlandIS, was struck two years ago is enabling the country to stay ahead of the pack. The partnership is also meeting head-on challenges likely to affect the marketplace and wider economy.

Fintech as the financial way ahead is now taken for granted, covering everyday banking and numerous other finance activities. Back in 2008, banks had other things on their minds, especially large fines and regulatory issues. Enough has been written about the two Scottish banks’ role in said global financial calamity, so I won’t dwell on it here. Suffice to say the turmoil didn’t leave much time for innovation in a digital era and so computer programmers and creative types filled the void.

Fast forward and KPMG reports around 2,500 fintech companies are now established UK-wide. In the last few years and unlike other sectors seeking finance, venture capital and private equity funding rounds continued in fintech. UK fintech raised almost £8bn in the first half of this year. This compares with around £6.5bn during the same six months in 2021, itself a record, according to Investors Chronicle figures. However, this has now all changed. Several fintech ventures are reported to be planning a market listing but only if the right economic conditions are in place. Clearly, they’re not and investors have become hesitant.

Back here in Scotland, it should be remembered that fintech is backed up by a powerful financial services sector renowned for its strong sense of proprietary and general fair play. Back to those values… On 27 October, the Institute of Directors (Scotland) will stage a timely event on the country’s fintech ecosystem at Perth’s Murrayshall Country Estate, summed up in its title Talent, Tech and Collaboration.

Scotland’s umbrella representative body, Scottish Financial Enterprise (SFE), describes fintech as a ‘vital tool’ in terms of innovation and meeting challenges securely, especially online fraud. Financial services in Scotland dating back to the Enlightenment saw banking rapidly taking off in many European cities as traders and merchants looked to fund new ventures in the Americas and to benefit from this burgeoning realm of trade.

The insurance sector dates back to the 1700s when a rise in international trade required marine insurance for many Scottish export/import companies. Life insurance was invented by two Scots clergymen, Wallace and Webster, in 1748, with the Scottish Ministers Widows Fund. The birth of asset management also has roots in Scotland with Dundonian Robert Fleming an early pioneer.

Today, Scotland is a vibrant and diverse international financial centre. It is home to a huge variety of organisations and a linchpin of the country’s economy, representing the largest sectoral contributor at approximately £13.6bn or 9.2% of gross value added (GVA). It employs 160,000 people – around 9% of national employment. Total assets-under-management are £690bn. The financial centre represents a powerful back-up to Scotland’s still relatively new but burgeoning fintech, a sector with plans to add 20,000 jobs through research and innovation within a decade and £2.1bn to the economy by 2030.

Willie Watt, chairman of the board at Scottish National Investment Bank, is also on the advisory board of Scottish Equity Partners. He won’t mind me quoting him from a piece I wrote in 1997 halfway through a five-year stint covering Scotland for Reuters. The country’s total funds-under-management then a quarter of what they are now, his words serve as a powerful reminder of continuous financial development, progress and sustainability.

Former 3i Scottish director Willie is a firm believer in how enduring financial success is achieved ‘by encouraging a working environment of positivity, empowerment and accountability’. Those familiar values, once again. 

The near future? No filthy lucre, just lots of squeaky clean pound notes. By then, we’ll all be in a far better economic position. Hopefully, one where a priority doesn’t involve working out how to find the pennies to keep the lights on.

Former Reuters, Sunday Times, The Scotsman and Glasgow Herald business and finance correspondent, Bill Magee is a columnist writing tech-based articles for Daily Business, Institute of Directors, Edinburgh Chamber and occasionally The Times’ ‘Thunderer’