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Britain’s top banking watchdog has raised questions about whether an independent Scotland could easily share a financial supervisor with the rest of the UK.
Andrew Bailey, the head of the Bank of England’s Prudential Regulation Authority, said the Scottish National party’s plan would, in effect, involve contracting with the UK regulatory authority to carry out the supervision of Scottish institutions.
Mr Bailey argued that the two sides would need to be “very alive” to the possibility that there could be divergence between the two countries’ structures, which would make it difficult for one authority to supervise both financial sectors simultaneously.
He said it was difficult to find any examples of two countries sharing an overseer – with only Greenland and the Faroe Islands serving as precedents, and there on a far smaller scale.
Asked if the plans were a “pig that would fly”, Mr Bailey told members of the Scottish Affairs Committee: “It is a pig that I can’t observe flying in any other part of the world.”
Mr Bailey added, however, that he was not saying it could not be made to work, adding that there were many things in the world that “at one point were never done before”.
In January, Mark Carney, the BoE’s governor, raised a number of complications about the economic and financial consequences of Scottish independence.
He said London and Edinburgh would have to “consider carefully” how to set up a durable currency union in the event of Scottish independence, given the risks if the right foundations were not in place.
Since then, the three main parties in Westminster have said they were not willing to countenance plans for a formal currency union if Scotland votes Yes in this year’s referendum on independence, triggering calls for Alex Salmond, the SNP leader, to put forward an alternative plan.
Asked about the practicalities of Scotland setting up its own currency, Mr Bailey said there were ample precedents for such an exercise. But he added that it was a “very big job” and that it would be “frankly optimistic” to say such a thing could be achieved in the period set by Mr Salmond for separation following a Yes vote.