Regardless of where the Brexit process ends up, if it even happens at all, the fact is that it has already had a material and probably irreversible impact on the financial services sector in Scotland.

Major financial institutions never stand still, constantly reviewing and updating their strategies to react to changes in their customers needs, challenges from competitors and regulatory updates.

Global businesses are used to dealing with geopolitical uncertainty, and adapting to it.

Dublin has benefitted from the need for UK firms to set up offices in the EU ahead of Brexit (Picture: Chris Jackson/Getty)

That’s why despite the lack of detail around the Brexit withdrawal agreement, and no matter what the finalised deal looks like, many companies in Scotland’s financial services sector have already moved to prepare themselves for all eventualities.

Nearly every major Scottish financial services institution has set up new offices outside the UK, or have relocated staff historically based in the UK to existing offices elsewhere: Standard Life and Aviva to Ireland; RBS to Frankfurt; and Scottish Widows to Luxembourg are just a few examples of redeployment.

These moves are hugely intensive and provide a short-term boost for local workers and the economy. Such projects also develop the expertise and credibility of Scotland’s already impressive pool of financial services talent.

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However, that fact remains that much high-value work generated by exporting financial services to the EU is draining out of the Scottish economy permanently.

On the other hand, there are new opportunities emerging as a direct result of the Brexit effect – for example firms are bringing some foreign operations back to Britain.

Whilst the inward surge is not expected to match what is being lost, we are seeing a trend of UK and foreign firms relocating parts of their business to the UK to ensure they can continue to support their UK customer base. This includes many UK insurers who had previously set up offshore subsidiaries.

The driver for larger UK firms moving operations to the EU27 is to satisfy their European customers, who are seeking assurances that there will be no disruption to their services in the event that no withdrawal deal is reached.

However, some customers have raised concerns about whether they will get the same levels of consumer protection as offered in the UK – such as the protection of the Financial Services Compensation Scheme.

We are advising a range of organisations, including a number of high-growth, financial technology businesses, who are planning their international growth strategy with Brexit in mind.

We are seeing particularly high levels of activity in the payments industry. Many expanding fintech businesses in Scotland have an ambitious global outlook.

It would be much simpler for them to grow abroad if the EU wasn’t to suddenly become a ‘foreign’ jurisdiction. On the other hand, many of these firms already have processes in place to manage a truly international business. For those companies, the potential barriers to exporting financial services to EU27 are relatively simple to plan for.

International trade in financial services is particularly restricted by the requirement of firms to be authorised to undertake regulated activities.

This is why Brexit is a serious issue for the financial sector to contend with. Currently we are part of a common regulatory regime, so any firm authorised to provide financial services in one EU member state can effectively get permission to conduct business in any other member state, using a mechanism known as ‘passporting’.

When we are no longer in the EU, UK firms will lose their rights to passport their permissions to the EU27. UK firms will be subject to the same restrictions as other firms from elsewhere across the globe.

The UK will be eligible to apply for equivalence in a limited number of regulated activities, but this process is not automatic. It requires the approval of the European Commission, which could take considerable time and be subject to political obstacles.

If an equivalence is approved for the UK, there would be a requirement to maintain close alignment to the EU financial services regulations. The Commission has the discretion to withdraw their approval at any time, which would provide little certainty for UK firms.

On the flipside, any EU firm wanting to trade here will have to satisfy the UK’s own rules. Even though no deal has been agreed at the moment, the UK Government has thus far given assurances that regardless of what happens we’ll continue to give EU firms the opportunity to continue trading whilst applying for UK permissions up to March 2021.

They must notify the UK regulators in advance of Brexit to get the temporary permissions, but this gives more certainty to EU firms trading here than the other way around as it stands.

If we are looking for positives elsewhere there are some short-term benefits of a weaker pound, which helps keep inward investment into the UK on the radar as an appealing prospect, but there is a bigger foreign exchange risk for the future should our economy and currency value begin to diverge significantly from mainland Europe.

We have been helping our clients to review their businesses in order to better understand how Brexit will affect them. In some cases, depending on their set-up, it turns out after a thorough analysis that there are few specific risks.

However, the process has been useful as a prompt to look at their operations in detail to see where there could get more general business efficiencies and opportunities. That may be the one silver lining to emerge from the Brexit process, whether there are any more remains to be seen.

Stuart Murdoch is a solicitor advocate and partner at Burness Paull LLP

Brexit has a silver lining, but jobs are going overseas – Stuart Murdoch