Scottish Independence: SEC Filing Risk Factors

With the Scottish referendum on independence taking place this Thursday, there has been a lot of talk about what the consequences might be – especially for the people of Scotland and the UK, of course, but also for various other parties.

Our friends over at Financial Executives International recently discussed three things U.S. executives should know about the possible independence of Scotland. Among the three were risk factors faced by US-listed companies either based in Scotland or doing significant business there, and we thought we’d add a bit to the discussion.

Using our databases, we identified a number of companies registered and filing with the SEC that are located in Scotland.

Scottish Companies

Source: Audit Opinion database

Next we performed some keyword searches to identify cases where these companies may have noted the referendum on independence in the Risk Factors sections of one of their financial statements or other public disclosures.

In its Form 20-F for fiscal year 2013, the Royal Bank of Scotland disclosed the following:

Political risks

  • The Group and the Royal Bank, its principal operating subsidiary, are both headquartered and incorporated in Scotland. The Scottish Government is holding a referendum in September 2014 on the question of Scottish independence from the UK. Although the outcome of such referendum is uncertain, subject to any mitigating factors, the uncertainties resulting from an affirmative vote in favour of independence would be likely to significantly impact the Group’s credit ratings and could also impact the fiscal, monetary, legal and regulatory landscape to which the Group is subject.
  • Were Scotland to become independent, it may also affect Scotland’s status in the EU.
  • The occurrence of any of the impacts above could significantly impact the Group’s costs and would have a material adverse effect on the Group’s business, financial condition, results of operations and prospects.

And just a few days ago, RBS issued a press release titled “Contingency planning for Scottish Independence Referendum”, in which it stated that it “believes that it would be necessary to re-domicile…to England” in the event the independence measure passes. Scotland’s status in the European Union is definitely one of the biggest open questions faced by the Scottish people, and as can be seen here, these legal ramifications are also of importance to the global companies located in Scotland.

Even companies that merely do business in Scotland have disclosed information about the potential effects of independence. Aegon NV, for example, which is headquartered in The Hague, noted the following:

The possibility of Scotland becoming independent from the remainder of the United Kingdom may affect Aegon UK’s results of operations in the future.

It is possible that following a referendum in September 2014, Scotland may vote to become independent from the remainder of the United Kingdom. Any actual changes would not take effect until after independence day, which based on Scottish Government indications would not be until March 2016 at the earliest. The details of any changes are impossible to predict with certainty at present, and will depend on post-referendum negotiations and agreements between the Scottish Government and other organizations at UK and EU level. Independence could result in inter alia changes in the monetary system, currency, taxation, regulatory and legal framework, and membership of the EU. Some possible outcomes of independence could have an adverse effect on Aegon UK’s business, financial condition and results of operations in the future.

Aegon may have provided less detail here than RBS did in the excerpt above, but the simple fact that they disclosed anything at all is interesting to note.

These major corporations may be disclosing potential risks associated with the referendum, but, on the other hand, over 200 business leaders recently voiced their support for independence. With all these considerations at hand, it’s no wonder that the Queen pleaded for people to “think carefully” about the issue –  whatever the results of the vote might be.