Chapter: 3
Key growth sector
deep dives

Key growth sector deep dives

Accelerated and strategic growth of Scotland’s financial sector is a shared ambition across industry, government and trade bodies alike. In 2024, SFE published the sector growth strategy, identifying three existing capabilities that offer the greatest opportunity to develop a globally-competitive financial hub; green and sustainable finance, asset management and FinTech. In this chapter, we explore the views of financial services leaders on the opportunities and challenges within these priority sectors.

3.1 Green and sustainable finance

3.2 Asset management

3.3 FinTech

3.1 Green and sustainable finance

Almost nine-tenths (89%) of survey respondents view Scotland’s attractiveness as a hub for green and sustainable finance as significant to the future growth of the wider financial services sector.

Source : EY survey, September 2024. Nets that appear out by 1% are due to rounding.

With nearly all (96%) regarding investment in R&D as key to strengthening the competitiveness of Scotland’s green and sustainable finance sector.

Source : EY survey, September 2024. Nets that appear out by 1% are due to rounding.

The Scottish Government shares this view and in September 2024 made it a priority to support investment in the global transition to net zero, announcing plans to drive an increase in R&D as part of its Green Industrial Strategy.^[1]

Partnerships between industry, government, regulators and industry bodies were also considered significant by 91% of survey respondents, while a further 91% view the role of collaboration between financial services and the energy sector in the creation of a leading renewables sector as significant.

Financial services leaders interviewed also highlighted the Government’s Green Industrial Strategy as a strategic opportunity for industry to collaborate with policymakers and drive the growth and international reputation of Scotland’s green and sustainable finance sector.

^[1] Green Industrial Strategy

Maintaining Scotland’s talent advantage to underpin growth of Scottish green and sustainable finance

More than nine-tenths (93%) of respondents view access to skilled talent as significant to both the competitiveness and future growth of Scotland’s green and sustainable finance sector.

Financial services leaders interviewed echoed this, highlighting the strength of Scotland’s existing talent pipeline for sustainable finance.

Scotland’s talent pipeline in green and sustainable finance is enabled by its higher and further education sector; with more than 25 graduate degree programmes focusing on climate or sustainability^[1] across 15 Scottish universities.

Financial services leaders interviewed also highlighted the opportunity to establish Scotland as a home for ESG ”centres of excellence”, leveraging Scotland’s lower cost of doing business to encourage companies to base their ESG or global sustainability teams in Scottish cities such as Edinburgh or Glasgow with a strong financial services presence.

^[1] Global Ethical Finance Initiative

We’ve got a high level of talent when looking at a global level; we’ve got great educational institutions. Edinburgh University has trained over 12,000 of NatWest’s staff on sustainable finance through their executive programme.

Omar Shaikh
Managing Director of the Global Ethical Finance Initiative

3.2 Asset management

Scotland has a strong heritage in asset management and while it is recognised that over the last ten years there has been a downward trend in assets under management (AUM) and the number of asset management firms, the fundamentals remain strong. 95% of respondents surveyed deem its attractiveness as a hub for asset management as significant to the competitiveness and growth of its financial services industry, highlighting an opportunity to build on those foundations and increase innovation across the sector.

The survey results indicate that while all of the factors have a high degree of importance, market’s macroeconomic fundamentals and policy was highlighted as the most critical factor to the future growth of the sector, closely followed by regulatory and legal frameworks.

More than two in five (82%) respondents view the prioritisation of asset management in the sector growth strategy as significant to the growth and competitiveness of Scotland’s asset management sector on the international stage. The strategy emphasised that, while AUM has been trending downward over the last 10 years, by leveraging data, AI and emerging technology assets there is a clear opportunity to reverse the trend.^[1]

^[1]SFE sector growth strategy

Source : EY survey, September 2024. Nets that appear out by 1% are due to rounding.

We should have an advantage in asset management, because we’ve got a long history there and there’s an international recognition that we have historically been good at it.

Andrew Telfer
Managing Partner at Baillie Gifford

More than two-fifths (82%) of respondents view the prioritisation of asset management in the sector growth strategy as significant to the growth and competitiveness of Scotland’s asset management sector on the international stage. The strategy emphasised that, while AUM has been trending downward over the last 10 years, by leveraging data, AI and emerging technology assets there is a clear opportunity to reverse the trend.^[1]

Financial services leaders interviewed echoed this sentiment, highlighting Scotland’s established credibility within the global asset management industry as an advantage for the future.

^[1]SFE sector growth strategy

Data and AI skills key to asset management growth

Asset management leaders in Scotland view the supply of talent as critical to the future growth and international competitiveness of the sector. With widespread recognition that AI will have a transformative impact on the sector, more than nine-tenths (91%) of survey respondents view the availability of data and AI skills as significant to the future growth and competitiveness of the asset management sector.

Seven of the 19 universities in Scotland offer degrees in AI at undergraduate and/or postgraduate level^[1] and, beyond the education sector, the Scottish Government has created the Scottish AI Alliance, in partnership with The Data Lab to deliver the nation’s ambition to become a global leader in artificial intelligence in an open, transparent and collaborative way.^[2]

FRIL is the result of answering an industry priority for innovation in financial regulation as set out in the R&I roadmap, which in turn influenced regional leaders to invest and support its development. Partnerships between academic institutions and the asset management sector are also already in progress, with an AI investment research tool developed by the University of Edinburgh and Aberdeen Group due to enter early testing in 2025, with a full prototype to follow in 2026.^[3]

All respondents view Scotland’s ability to attract top talent to the market’s front-office and executive roles as significant, and the same proportion deem the availability of asset management specific skills as very significant to the sector’s future trajectory.

^[1]Scotland’s Artificial Intelligence Strategy

^[2]Scottish AI Alliance

^[3] Edinburgh Futures Institute

Financial services leaders interviewed also echo this point, but raised concerns about the impact of Scotland’s comparatively high-income tax rates on its ability to attract talent from across the UK and further abroad.

Alongside talent and AI skills, attractive operating costs and the UK regulatory environment being non-prohibitive are also viewed as significant to the Scottish asset management sector’s international competitiveness and growth prospects by all respondents.

3.3 FinTech

A thriving community of FinTech covering payments, Open Finance, WealthTech and RegTech has developed in Scotland over the last 25 years. Supported by Scotland’s established financial services network and wider ecosystem, including education institutions, the market is now recognised as a global industrial Cluster.^[1]

Leaders across Scotland’s FinTech sector view the country’s demographics and labour supply as the most important factor for the creation of a leading financial services hub, followed closely by regulatory and legal frameworks.

^[1] Kalifa FinTech Review

Source : EY survey, September 2024. Nets that appear out by 1% are due to rounding.

Attracting and retaining a skilled labour supply will be crucial to FinTech sector growth

Almost nine-tenths (88%) of survey respondents view the availability of skills and experience to accelerate the export of Scottish FinTechs as significant to the growth and competitiveness of the sector. All FinTech respondents view the availability of skills and experience in technology broadly as significant.

Scotland has a strong talent pipeline in technology, with five different specialist FinTech Masters programmes at Scottish universities and 16 universities with informatics and computing science departments. However, several financial services leaders interviewed highlighted Scotland’s current visa guidelines as being a barrier to attracting and retaining entry-level talent, particularly those with skills in AI and data-science.^[1]

^[1] FinTech Scotland

Source : EY survey, September 2024. Nets that appear out by 1% are due to rounding.

A FinTech Cluster underpinned by collaboration is key

More than three quarters (76%) of FinTech leaders view collaboration on R&D and developing intellectual property (IP) as significant to the growth and competitiveness of the FinTech sector in Scotland.

Scotland demonstrates a strong pipeline for developing new technologies and bringing them to market. Two Scottish universities – Dundee and Edinburgh Napier – ranked within the UK’s top 10 for generating spin-out companies.^[1]

More than half of survey respondents (56%) cite Scotland’s favourable FinTech Cluster as the market’s primary tech-driven advantage relative to international peers.

Initiatives by the market’s universities, such as the AI Accelerator Programme and the Data Driven Innovation Programme, both at the University of Edinburgh, have helped to spur the development of skilled expertise and research activity in Scotland.^[2]

^[1]Gateways to Growth, Octopus Ventures

^[2]FinTech Scotland Research and Innovation Roadmap 2022-31

Scotland’s industry-wide innovation strategy for FinTech and financial services is set out in the FinTech Research and Innovation Roadmap enabling a comparative advantage. The resources and capabilities to deliver against that strategy are also quite significant. The University of Edinburgh, for example, has more AI expertise than anywhere else in Europe and has a history of AI expertise in other sectors.

Nicola Anderson
CEO of FinTech Scotland

Three quarters (75%) of respondents view access to funding as significant. In addition, half of leaders also regard the availability of public sector-supported funding as very significant.

Venture capital (VC) investment across Europe is skewed strongly towards London, with $16.3bn invested in VC deals in the UK in 2024, the third highest of any country in the world, and more than France and Germany combined. Of this, $11bn was invested in London. Scotland, by comparison, raised $661m, the fourth highest after South East England ($1.4bn) and the East of England ($1.5bn).

The concerns of Scottish FinTech leaders are focused on the “later stage funding gap” – in line with challenges largely experienced across the UK and Europe – which is seeing startup firms struggle to raise capital to scale. With investment disproportionately skewed towards the earliest stages of a firm’s development, many scaleups, including those in Scotland, often need to seek funding in the US and beyond as they scale.^[1]

^[1]VC funding continues to fall amid dearth of late-stage rounds, UKTN