Data and plumbing are key to Scotland's financial future - Jeremy Grant

Think of an image for Scotland’s financial sector and you might come up with the Neoclassical splendour of Dundas House, the former headquarters of Royal Bank of Scotland on Edinburgh’s St Andrew Square. Or the logos of the city’s big asset managers.

I’d like to suggest a new one. In 2025, US asset manager BlackRock will move from its current Edinburgh office to new premises near the Royal Botanic Garden that were once occupied by Standard Life, now part of asset manager abrdn.

The building also happens to be called Dundas House. But the more interesting thing is why BlackRock is occupying what was the largest existing office space outside London when the firm took out the lease last year. It’s expanding in the crucial middle- and back-office functions that make financial markets tick.

I’m talking about the plumbing of markets which includes — jargon alert! — portfolio management technology, trade confirmation and settlement, regulatory reporting and risk management.

Barclays’ state-of-the art campus on the banks of the Clyde will house 4,000 employees by the end of the year

BlackRock operates a platform called Aladdin that helps the firm and its clients oversee their whole portfolio and manage risks in it. The significance of Edinburgh is that, from a modest start involving 20 staff in 2000, the operation has grown to be BlackRock’s hub for Europe, the Middle and East and Africa. Its new office will eventually house about 1,400 staff.

This isn’t just an Edinburgh story. In Glasgow, Barclays last year opened a state-of-the art campus on the banks of the Clyde that’s home to various back-office functions. By year-end, it will have 4,000 employees — a 90 per cent increase on the bank’s Glasgow headcount four years ago.

Two of the largest US banks, JP Morgan and Morgan Stanley, are also expanding in this area. The former will soon combine its two Glasgow offices into one, which will become one of the bank’s global technology centres.

The latter employed six people in the city in 2000, a number that has since swollen to 2,400 working at an “operations division” supporting clients’ trading activity from Asia across to the US.

Jeremy Grant is a freelance writer and editor, and was a journalist at the Financial Times and Reuters for 25 years

This technological financial plumbing is unglamorous stuff. But the investments that such firms are making define a new image of Scotland as a financial centre and point to where its competitive advantage may lie in Europe.

This isn’t to downplay asset management, which remains the backbone of Edinburgh as the second largest financial centre after London, anchored around abrdn and Baillie Gifford.

But the reality is that plumbing is a key part of the puzzle. Moreover, it offers the prospect of huge growth potential if you add data and the explosive growth of artificial intelligence to the mix.

Edinburgh this week came top in a ranking of “AI-ready” cities in the UK by SAS, a software company. It found that the city is home to the highest number of courses that feature an AI element.

Collaboration between financial firms and universities to develop new technologies is surely the next big thing. Notably, BlackRock has an AI laboratory in Edinburgh — the firm’s only one outside the US.

Yesterday, a working group at Scottish Financial Enterprise, the member-funded industry body for the sector, held its first meeting to map out a new growth strategy for financial services in Scotland. Data and AI were on the agenda. Watch this space.

​Jeremy Grant is a freelance writer and editor, and was a journalist at the Financial Times and Reuters for 25 years