Annual Financial Report

RNS Number : 0704T

London Stock Exchange Group PLC

22 March 2021

 

London Stock Exchange Group Plc Annual Report and Accounts, Notice of Annual General Meeting 2021, Corporate Sustainability Report, UK Gender Pay Gap Report and related documents.

The Annual Report and Accounts of London Stock Exchange Group plc (the "Group") for the year ended 31 December 2020 (the "Annual Report"), Notice of Annual General Meeting 2021 (the "AGM Notice") and related form of proxy for the Group's 2021 Annual General Meeting (the "AGM") are being mailed to shareholders today and, in accordance with paragraph 9.6.1 of the FCA Listing Rules, have been submitted to the National Storage Mechanism where they will shortly be available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism.   

London Stock Exchange Group has also published today its Corporate Sustainability Report 2020, which is available on https://www.lseg.com/investor-relations/sustainability and its UK Gender Pay Gap Report 2020, which is available on https://www.lseg.com/about-london-stock-exchange-group/corporate-sustainability.

London Stock Exchange Group plc	Paul Froud - Investor Relations	[phone]
	Lucie Holloway - Media	[phone]

In compliance with DTR 6.3.5, the following information is extracted from the Annual Report and should be read in conjunction with the Group's preliminary results announcement of 5 March 2021 (the "Preliminary Results"). The information reproduced below and the Preliminary Results together constitute the material required by DTR 6.3.5 to be communicated in full, unedited text through a regulatory information service. This is not a substitute for reading the full Annual Report.  Page numbers and cross references in the extracted information below refer to page numbers and cross-references in the Annual Report. The Annual Report, the Preliminary Results and the AGM Notice can be viewed and downloaded at http://www.lseg.com/investor-relations.

The Annual Report contains the following statements regarding important events that have occurred during the year on pages 2 to 3:

"Chairman's Statement

Overview

LSEG's role as a systemically important business was again demonstrated in 2020 as financial markets and the wider global economy faced the significant challenges of the Covid-19 pandemic and macro-economic uncertainty. Throughout, our businesses have focused on operational resilience, delivering continuity of service to our customers, maintaining orderly markets and managing market risk. The Group has continued to perform well with total income up 6% to £2.4billion and adjusted earnings per share up 5%.We maintain a strong financial position with good cash generation supporting investment and product development and have proposed a final dividend of 51.7 pence per share, representing a total dividend of 75.0 pence per share, up 7%.

Refinitiv

We successfully completed the acquisition of Refinitiv in January 2021. It is a transformational transaction, strategically and financially, and positions the Group for long-term sustainable growth. Refinitiv brings highly complementary capabilities in data, analytics and capital markets. We share a commitment to an Open Access philosophy, working in partnership with our customers, and this will remain a fundamental pillar of our business strategy. 

In October, shareholders approved the sale of the Borsa Italiana Group to Euronext, in order to facilitate regulatory approval of the Refinitiv transaction. Upon closing, in the first half of 2021, LSEG is expected to receive proceeds in cash (before deductions of applicable taxes and other transaction related costs) of €4.325 billion plus an additional amount reflecting cash generation to completion. It is LSEG's intention to use the net proceeds from the Transaction to repay indebtedness related to the Refinitiv Transaction and for general corporate purposes. The Borsa Italiana Group has played an important part in LSEG's development and we are confident that, under Euronext's ownership, it will continue to succeed and contribute to the Italian economy and to European capital markets.

Governance

The Board seeks to operate to high governance and ethical standards. Further detail is available in the Board's Governance report starting on page 76. In preparation for the proposed divestment of the Borsa Italiana Group to Euronext, Raffaele Jerusalmi and Andrea Sironi stepped down from the Board in November. Ruth Wandhöfer and Marshall Bailey also stepped down from the Board in March and September respectively, and David Warren retired as CFO in November. On behalf of the Board, I would like to thank them for the individual contributions they have made to the Group's success.

Following the completion of the Refinitiv transaction, Martin Brand, Erin Brown and Douglas Steenland have joined the LSEG plc Board as Non-Executive Directors. They have also been appointed to LSEG plc's Nomination Committee. In November, Anna Manz joined the Group as Chief Financial Officer and a member of the Board.

Culture

The Board, along with the Executive Committee, seeks to promote a culture of Group-wide collaboration and customer focus. LSEG has made good progress this year on these efforts, which you can read more about on page 57. The Board continues to engage directly with employees, with candid feedback provided to Directors through a series of informal meetings as well as more formal interaction. The Group has also strengthened its commitment to diversity and inclusion, initiating six dedicated workstreams, each headed by an Executive Committee member, focused on making LSEG a more inclusive and racially diverse organisation.

Sustainability

LSEG is committed to supporting the communities in which we operate around the world, partnering with global and local charitable organisations. Responding to the impact of Covid-19, LSEG and the LSEG Foundation donated £3.3 million in 2020 for emergency relief support and longerterm recovery efforts. In May, LSEG joined the National Business Response Network as a founding partner, making a £1 million investment. The National Business Response Network was launched in April by Business in the Community (BITC) and The Prince's Responsible Business Network. The work of BITC is closely aligned with the Group's longstanding commitment to supporting SMEs, which are critical to the UK economy.

In November, the LSEG Foundation celebrated its 10th anniversary. Since its launch in 2010, the Foundation has donated over £11 million to help empower people and enrich communities in the locations where we operate. The Group also encourages colleagues to support charitable initiatives, offering two paid volunteering days per year. Since the scheme launched in 2017, employees across our locations have donated over 7,000 hours and, despite the challenges of remote working, have continued to fundraise and support charities virtually in 2020.

As a global company, we take our responsibility to supporting the transition to a more sustainable economy seriously. The debate among issuers, investors, regulators, policy makers and wider society is quickly evolving and LSEG remains well positioned to engage on and lead this discussion. We estimate that the green economy is currently worth approximately US$4 trillion, representing 6% of the market capitalisation of all global listed companies. LSEG offers companies and investors a comprehensive green and sustainable product offering providing access to capital and worldclass data and analytics. In September, FTSE Russell launched its enhanced Green Revenues 2.0 Data Model, a powerful tool that investors can use to quantify a company's contribution to the green economy in a single percentage of revenue figure. A high degree of overlap with the incoming EU Taxonomy will also allow asset managers to demonstrate the proportion of a fund that contributes to the green economy.

As a listed company, LSEG is also carefully considering the climate risks and opportunities facing our own business. LSEG was one of the first companies in the financial services sector to commit to a long-term science-based carbon reduction target, committing to a 40% reduction in our carbon emissions by 2030. In 2020, our Environmental Management Group continued to make good progress against our sustainability targets to improve environmental efficiency year on year, resulting in a 9% reduction in total market-based emissions compared to 2019. Full details can be found later in this report on page 64.

Summary

Despite the challenges faced by the pandemic and macro-economic and political uncertainty, LSEG has delivered another good financial performance. LSEG holds a privileged position at the heart of financial markets and the successful completion of the Refinitiv transaction will enable the Group to further capitalise on the digital transformation of financial markets infrastructure. On behalf of the Board, I would like to thank our employees for their dedication and professionalism during what has been a very demanding and challenging year. I look forward to working with the Board and the Executive Committee to continue to develop our global business in partnership with our customers.

Don Robert

Chair

5 March 2021"

The Annual Report contains the following statements regarding principal risks and uncertainties facing the business, with respect to principal strategic, financial and operational risks, on pages 24 to 39, and, with respect to financial risk management, on pages 148 to 154:

"The management of risk is fundamental to the successful execution of our strategy, including integration of the Refinitiv businesses, and to the resilience of our operations. During 2020, the Group successfully adapted its systems, processes and controls, to maintain its operations, supporting a high degree of remote working, during the Covid-19 pandemic. The Group continued to support its key markets and deliver stable and resilient services that meet our customers' needs, whilst making preparations for integration with Refinitiv and for the divestment of Borsa Italiana Group, and for orderly transition to a post-Brexit environment.

As LSEG's risk culture, objectives, appetite, governance and operations are well established, these descriptions naturally do not significantly change from year to year. We have included a category of emerging risks which are new to the Group or which are difficult to quantify due to their remote or evolving nature. In most cases, the mitigation for such risks is to establish appropriate contingency plans and monitor the development of the risk until it can be quantified and removed or included as a principal risk.

For each principal risk, the Group has Executive leads with the Chief Risk Officer and Risk function providing a second line of oversight. Information describing the risk post the Refinitiv acquisition has been summarised together with mitigating actions. More detailed information related to the Refinitiv transaction can be found in the shareholder prospectus dated 9 December 2020. The risk trend indicator reflects the risk of the new Group.

FURTHER DETAIL

Our strategic risk objectives, current risk focus, a narrative description of our risk appetite, how LSEG's risk management framework operates, as well as an overview of the CCPs risk management and operations, are well established and are not described here.

Detailed information can be found in our risk management oversight supplement. Please visit: www.lseg.com/about-london-stock-exchangegroup/risk-management-oversight.

LSEG Risk Governance

OVERVIEW OF PRINCIPAL RISKS:

Strategic Risks Global economy Regulatory change Compliance Reputation/Brand/IP Transformation Divestment of Borsa Italiana Group

Financial Risks Credit risk Market risk Liquidity risk CCP - settlement and custodial risk Capital risk Model risk

Operational Risks Data governance Information and cyber security threats Technology Change management Resilience Third-party risk Employees and talent

Emerging Risks Geopolitical risk Emerging technology Climate-related risk

STRATEGIC RISKS

Risks related to our strategy (including the implementation of strategic initiatives and external threats to the achievement of our strategy). The category also includes risks associated with reputation or brand values.

Risk Description	Mitigation	Risk level
Global economy (Executive Lead: Chief Executive Officer, Executive Committee)   As a diversified markets infrastructure business and data and analytics service provider, we operate in a broad range of equity, fixed income and derivative markets servicing customers who increasingly seek global products and innovative solutions. If the global economy underperforms, or there is lower activity in our markets, it may lead to lower revenue. The Covid-19 pandemic has turned into a global pandemic since emerging as a risk to the global economy in early 2020. Emergency interest rate cuts, unprecedented fiscal measures, government schemes and central bank support frameworks have bolstered global economies and financial markets. The scale of the longer-term impact on the global economy is still uncertain but in the short term global growth remains subdued (with some economies in or emerging from recession). This is exacerbated by the uncertainty with respect to the UK's future relationship with the EU and other trading partners post transition period. Weaker economic data and low levels of inflation have dominated central bank official rate actions. The Federal Open Market Committee (FOMC) has left the Fed Funds target rate unchanged during 2020. The Bank of England's Monetary Policy Committee (MPC) has maintained the Bank rate at 0.1% since March 2020 Meanwhile the European Central Bank (ECB) has left rates unchanged at zero and has restarted its quantitative easing programme. Whilst well diversified, these global risks could have an adverse impact on the Group's businesses, operations, financial condition and cash flows. Refinitiv Transaction Since the acquisition of Refinitiv, the Group has increased its geographical footprint which further reduces its exposure to downturns in individual markets.	The footprint of the Group continues to broaden, further improving the geographical diversification of the Group's income streams which mitigates the risks of a localised economic downturn. Furthermore, income streams across the business divisions of the Group comprise annuity and fee based recurring revenues to balance against more cyclical and market driven activity. This diversification has been significantly enhanced (including enjoying an increasing proportion of recurring revenues) since the completion of the acquisition of Refinitiv that occurred on 29 January 2021. The Group performs regular analyses to monitor markets and the potential impacts of market price and volume movements on the business. Activities include Key Risk Indicator tracking, stress testing, and hedging. LSEG continues to actively monitor the ongoing developments following the UK's exit from the EU to ensure continuity of market function and customer service in the event of a divergence of regulation if no trade agreement is achieved. The Financial Risk Committee closely monitors and analyses multiple market stress scenarios and action plans in order to minimise any impacts stemming from a potential deterioration of the macro-economic environment. The stress scenarios are regularly reviewed and updated in response to changes in macro-economic conditions. LSEG monitors the potential impact of macro-economic and political events on our operating environment and business model and the Group is an active participant in international and domestic regulatory debates..	Increasing
For more information, see Market trends and our response on pages 16-23, and Note 2 to the accounts, Financial Risk Management on pages 148-154.
Regulatory change and compliance (Executive Lead: Chief Executive Office, Divisional Group Heads ) LSEG is a global business operating in multiple regulatory environments that reflect the diversity of products and the jurisdictions in which it operates. The Group is exposed to risks associated with the management of changes to these regulatory requirements, including Brexit - Following the UK's exit from the EU, there is a risk of regulatory bifurcation which could lead to liquidity fragmentation in European Capital Markets. MiFID II/MiFIR - Risk of potential impacts on the Group, particularly in the areas of trading transparency (e.g. double volume cap) and market data (fees transparency and potential introduction of consolidated tape) as a result of two reviews of the directive: • The European Commission proposed a targeted review of the directive on 24 July 2020, amending information requirements, product governance and positions limits to help the recovery from the Covid-19 pandemic. • In parallel, ESMA continued its targeted review of the Directive and Regulation, with the view of contributing to a broader review by the European Commission in 2021. Benchmark Regulation - Risk arising from the ongoing regulatory focus on the role of benchmarks in the market and regulation of benchmark providers continues to increase in several major jurisdictions around the world. In July 2020, the EU Commission proposed a focused EU BMR Review which has yet to conclude. Regulation Impacting CCPs - Risk due to regulatory initiatives with the potential to impact cleared derivatives markets and CCPs which continue through international standard setters and regulators in the EU and US and other major jurisdictions. Our primary focus remains on development of a coherent, cross-border regulatory framework for market access to global CCPs. Financial Transactions Tax (FTT) - Risk of adverse impacts to volumes in financial markets from possible introduction of a FTT, which is being discussed by a sub-set of EU members, under enhanced cooperation. Information and cyber security standards - Risk of conflicting or duplicative regulatory requirements emerging in the information and cyber security domain due to the, increasing legislative and regulatory focus on cyber security and data protection in many of our key regulatory jurisdictions which could impact our operations and compliance models. LSEG supports the regulatory efforts on these issues, as they increase the standards for customers, vendors and other third parties with whom we interact. Refinitiv Transaction Following the acquisition of Refinitiv, the increased breadth of our services and footprint of the Group into new jurisdictions, increases the risk of exposure to regulatory change globally.	Changes in the regulatory environment form a key input into our strategic planning, including the political impact on our growth strategies, both organic and inorganic. We monitor regulatory developments continually and engage directly with regulatory and governmental authorities at local, regional and national levels. The Group also had a structured Brexit programme which included regulatory specialists engaging at appropriate levels and on financial market infrastructure considerations. Risks are actively monitored and managed and the Group has implemented its contingency plans to maintain continuity of service to customers and orderly functioning of its markets, including the launch of new operations in the EU27 - see the sections on Geopolitical risks and Emerging risks on page 39. On 21 September 2020, the European Commission extended this equivalence decision for another 24 months confirming LCH Ltd's ability to continue to offer all clearing services for all products and services to all members and clients. The Group's European CCPs are allowed under the Bank of England Temporary Recognition Regime (TRR) to provide clearing services and activities in the UK until at least the end of 2023. LSEG's key objectives are to provide continuity of stable financial infrastructure services as part of our global remit. As the various regulatory initiatives progress, there will be greater certainty with regard to their likely final form. The Group continues to focus on remaining well positioned to respond to regulatory developments and further opportunities exist for the Group to deliver solutions to help the market address the changing regulatory environment including those linked with the departure of the UK from the EU.	Increasing
For more information on regulatory changes, see Market trends and our response on pages 16-23.
Compliance (Executive Lead: Group General Counsel, Group Chief Executive Officer)  There is a risk that one or more of the Group's entities may fail to comply with the laws and regulatory requirements to which it is, or becomes, subject. In this event, the entity in question may be subject to censures, fines and other regulatory or legal proceedings. Refinitiv Transaction Following the acquisition of Refinitiv, the increased breadth of our services, number of regulated entities and the substantially increased number of countries in which the Group operate, including high-risk countries, increases the Group's compliance risk.	The Group continues to maintain systems and controls to mitigate compliance risk. Compliance resources with specialised knowledge of each of the regulated services provided by the Group are aligned with the regulated entities operating within each business division and provide regulatory advice to the business, Corporate Functions and Boards to support them in ensuring that both day-today operations and business developments are undertaken in accordance with the relevant regulatory obligations. Compliance policies are reviewed regularly and employees across the Group are reminded of the requirements to which they are subject under these policies through the deployment of mandatory annual training, the completion of which is tracked. Refinitiv Transaction Refinitiv, prior to its acquisition by the Group had its own compliance framework. In preparation for the Refinitiv transaction a dedicated Compliance workstream has been established to ensure that, in developing the future state operating model for Compliance, the current level of focus on, and support to, the regulated entities within the combined group is maintained and that Compliance policies and training thereon is updated as necessary to meet the needs of the combined group. As owners of the Group Financial Crime Policy, Compliance are also engaged with relevant stakeholders in the design of the organisation and procedures that will enhance and support the application of effective AML and KYC controls in a global organisation. Since the close of the transaction, the Refinitiv business is now subject to the Group compliance standards as described above.	Increasing
Reputation/Brand/IP (Executive Lead: Chief Executive Officer, Executive Committee)  Several of the Group's businesses are iconic and trusted international brands. The strong reputation of the Group's businesses and their brand names are valuable for the Group and its business credibility with regulators and attractiveness to customers alike. Some events or actions could damage the reputation and brand of the Group, such as miscommunication on social media, misrepresentation, interruption of services or regulatory censure which could be consequence adversely impact the Group's business, financial condition and operating results. The Group has a portfolio of intellectual property including brands, products and services which are proprietary and protected by patent, trademark and copyright. Some of the Group's products and processes may not be subject to intellectual property protection, and competitors of the Group may also independently develop and patent, or otherwise protect products or processes, that are the same or similar to the products or processes of the Group. In either scenario, failure to protect the Group's intellectual property rights adequately could result in reputational damage and affect the Group's ability to compete. Additionally, any financial impact would be compounded by costs incurred to defend or enforce the Group's intellectual property rights. Refinitiv Transaction The acquisition of Refinitiv introduces additional iconic brands and intellectual property to the Group's portfolio. This increases the reputational and brand risks and enhances the need for effective mitigation strategies.	LSEG has policies and procedures in place which are designed to ensure the appropriate use of the Group's brands and to maintain the integrity of the Group's reputation. LSEG actively monitors the use of its brands including monitoring for internet brand impersonation and social media sentiment, and other intellectual property in order to prevent, or identify and address, any infringements. The Group protects its intellectual property by relying upon a combination of trademark laws, copyright laws, patent laws, design laws, trade secret protection, database rights, confidentiality agreements and other contractual arrangements with its employees, affiliates, customers, suppliers, strategic partners and others. Refinitiv Transaction The Refinitiv business is now subject to the Group Risk Framework since the completion of the Refinitiv transaction. Group policies have been updated and approved for the expanded Group, and policy embedding and compliance is tracked by Group Risk.	Increasing
Transformation (Executive Lead: Chief Executive Officer, Chief Operating Officer) The Group is exposed to risk of loss or failure resulting from transformation or integration as it continues to grow rapidly both organically and inorganically. Acquisitions may, in some cases, be complex or necessitate change to operating models, business models, technology and people. This is particularly likely for the current integration of Refinitiv. The combined business' success will have a high dependency on its ability to integrate the businesses of LSEG and Refinitiv and to address the challenges associated with the delivery of synergies. The benefits or business performance expected as a result of the transaction may not be achieved as anticipated or at all, and the costs to achieve the synergies and benefits may be higher than anticipated. A failure to align the businesses of the Group successfully may lead to an increased cost base without a commensurate increase in revenue; a failure to capture future product and market opportunities; and risks in respect of capital requirements, regulatory relationships and management time. In particular, some of the key integration challenges associated with combining LSEG and Refinitiv include: coordinating and consolidating services and operations, particularly across different countries, regulatory regimes (including in relation to different business lines) and cultures, consolidating infrastructure, procedures, systems, facilities, accounting functions and policies, and managing a significant increase in the number of employees across geographically dispersed locations (from approximately 5,551 to approximately 25,118, with a material increase in the number of employees in certain locations including India, the Philippines and Poland), which may have challenges for compensation structures and other employee policies, oversight and management of employees and corporate culture. These challenges may be accentuated as a result of widespread remote working arrangements due to measures adopted in response to the Covid-19 pandemic. Challenges may also include operating and integrating a large number of different technology platforms and systems, including maintaining the operational resilience and security of legacy platforms, and consolidating services, or developing new services, where underlying assets used to provide those services are subject to contractual commitments with third parties. The newly combined company will face significant competition in each of its main business areas, including Data & Analytics (indices data, risk and analytics); Capital Markets (primary and secondary capital markets trading) and Post Trade (clearing, settlement, central securities depository services and risk management services). The market segments for the Group's data, information, software, services and products are highly competitive and are subject to rapid technological changes and evolving customer demands and needs. As a result of the EC conditional approval of the Refinitiv acquisition on 13 January 2021, LSEG has committed to divest the Borsa Italiana Group to Euronext N.V.. The Borsa Italiana Group will be held separate from the wider group until closing of the divestment. The separation of the Borsa Italiana Group creates further complexities and demands on key resources supporting the integration of Refinitiv. There are also existing risks to LSEG that will be impacted by the acquisition of Refinitiv Transaction and new risks to LSEG as a result of the transaction which are each described in the shareholder prospectus related to the transaction dated 9 December 2020. The additional effort related to M&A, especially the post-transaction alignment activities for the Refinitiv transaction, could have an adverse impact on the Group's day-to-day performance and/or key strategic initiatives which could damage the Group's reputation and financial performance. The size and complexity of recent acquisition targets as well as those acquired in the past five years, have increased the Group's transformation risks. However, the acquisition's aim is to increase the Group's opportunities to compete on a global scale and diversify its revenue footprint by industry, geography and customer base.	The Group's exposure to transformation risk is mitigated through the application of the Group's Enterprise Risk Management Framework to deploy consistent, appropriate Risk Management across the Group, both during and post-acquisition. The governance of the Group following a merger or acquisition is aligned and strengthened as appropriate. The Integration Management Office, reporting to the Executive Committee, has been established to oversee the integration of LSEG and Refinitiv. Oversight during transformation is provided by a Steering Group comprising Integration Leaders representing Executive Committee members with regular reports to the Executive Committee, Board Risk Committee and the Board. The Group Transformation Forum, reporting to the Executive Committee, has been established and is responsible for the successful delivery of the Group Strategic Programmes and providing oversight across the Group's change Portfolio. This is a programme execution forum comprising senior Business Leaders responsible for significant operational and delivery issues, risks and dependencies impacting the Group Investment Portfolio. The Group has an effective track record of integrating acquisitions and delivering tangible synergies, supported by robust governance and programme management structures through the Group's Change Framework to mitigate change-related risks. The new Group will continue to work hard to address these changing customer needs in an evolving regulatory and technological landscape.	Increasing
Divestment of Borsa Italiana Group (Executive Lead: Chief Executive Officer, Executive Committee, Group Board) As part of LSEG's commitments to the EC in connection with conditional approval of the Refinitiv acquisition, LSEG has agreed to divest the Borsa Italiana Group to Euronext N.V.. Alcis Advisers GmbH, the monitoring trustee, will oversee LSEG's compliance with the commitments on behalf of the EC. The divestment remains subject to a number of conditions, including additional regulatory approvals. If such conditions are not satisfied (or, where possible, waived), this could delay or prevent completion of the Borsa Italiana Group divestment. The Borsa Italiana Group will need to be managed separately from the wider Group until closing of the divestment. There are existing risks to LSEG that will be mitigated by the divestment and new risks to LSEG as a result of the divestment. The separation of Borsa Italiana Group creates complexities and demands on key resources supporting the integration of Refinitiv. These challenges may be accentuated as a result of widespread remote working arrangements due to measures adopted in response to the Covid-19 pandemic. Challenges may also include operating and separating a large number of different technology platforms and systems, including maintaining the operational resilience and security of those platforms and services. Provisions of such platforms and services have been documented and agreed by both Borsa Italiana Group and LSEG under a Separation Framework Agreement.	A Separation Management Office for the Divestment (the SMO) has been established, headed by David Shalders, Chief Integration Officer and Group COO. The SMO is responsible for managing the overall separation delivery process and will be responsible for ensuring that the activities expected to result from the divestment are properly monitored, reported and delivered. The SMO comprises senior leaders from across the business. LSEG has also engaged a leading global external consulting firm, which is a specialist in planning and delivering largescale and complex business separation projects for global institutions, to support the divestment. Separation activities continue to be managed with close oversight from senior executives, with individual members of the Executive Committee accountable for the delivery of separation activities within their own divisions or functions and the SMO responsible for the coordination of activities particularly where they lie across multiple areas of accountability. The SMO will report to the Board on a regular basis. Given the overlap between the separation activities of Borsa Italiana Group and those as part of the Integration of LSEG and Refinitiv, resources, systems, and activities within the SMO are also within the Integration Management Office (IMO) oversight	New

FINANCIAL RISKS

The risk of financial failure, loss of earnings and/or capital as a result of investment activity, lack of liquidity, funding or capital, and/or the inappropriate recording, reporting and disclosure of financial results, taxation or regulatory information.

Risk Description	Mitigation	Risk level
Credit risk (Credit risk Executive Lead: Chief Financial Officer, Group Head of Post Trade) Clearing CCPs in the Group are exposed to credit risk as a result of their clearing activities. A default by a CCP clearing member that could not be managed within the resources of the defaulted clearing member, could adversely affect that CCP's reputation. LSEG CCPs are required to make a proportion of their regulatory capital available to cover default losses after the defaulter's resources have been exhausted and prior to allocation of losses to non-defaulters and so, in extreme circumstances, a default could lead to a call on the Group CCPs' own capital 'skin-in-the-game'. CCPs may also be exposed to credit exposure to providers of infrastructure services such as Central Securities Depositaries (CSDs) and commercial banks providing investment and operational services. In addition, certain CCPs within the Group have interoperability margin arrangements with other CCPs requiring collateral to be exchanged in proportion to the value of the underlying transactions. The relevant clearing provider entities within the Group are therefore exposed to the risk of a default of other CCPs under such arrangements. Non-Clearing CCPs and other parts of the Group are also exposed to credit risk as a result of placing money with investment counterparties on both a secured and an unsecured basis. Losses may occur due to the default of either the investment counterparty or of the issuer of bonds bought outright or received as collateral. The Group's credit risk also relates to its customers and counterparties being unable to meet their obligations to the Group either in part or in full. There is an enormous focus on the impacts of climate change on credit risks, although methodologies are still being developed, we do not believe this will give rise to significant increased risks in the short term, and will monitor market development, in particular the proposed climate stress tests as part of the UK Prudential Regulation Authority Biennial Exploratory Scenario (BES) in 2021. Refinitiv Transaction Refinitiv is exposed to credit risk that might materialise as a result of customer late payment or default on obligations to Refinitiv. There is further credit risk in the use of Treasury investment and derivative counterparties on an unsecured basis. In addition, Refinitiv has counterparty credit exposure through its trading venues that offer the guaranteed settlement principle.	Clearing As CCP members continue to work towards strengthening of their balance sheets, the risk to LSEG CCPs of a member default reduces, although continuing geopolitical uncertainty continues, and the banking sectors of some countries remain stressed. The financial risks associated with clearing operations are further mitigated by: • Strict CCP membership rules including supervisory capital, financial strength and operational capability • The maintenance of prudent levels of margin and default funds to cover exposures to participants. Members deposit margin computed at least daily, to cover the expected costs which the clearing service would incur in closing out open positions in a volatile market in the event of the member's default. A default fund sized to cover the default of at least the two members with the largest exposures in each service using a suite of extreme but plausible stress tests mutualises losses in excess of margin amongst the clearing members • Regular 'Fire Drills' are carried out to test the operational soundness of the CCPs' default management processes. The CCPs of the Group successfully completed the fire drill requested by ESMA to be completed while working from home • Infrastructure providers are regularly assessed in line with policy • During the Covid-19 crisis, CCPs have constantly monitored their Clearing Members/Counterparties credit quality. No significant creditworthiness deterioration or delay in due payments was observed Non-Clearing Policies are in place to ensure that investment counterparties are of good credit quality, and at least 95% of CCP commercial bank deposits are secured. CCP and non-CCP counterparty concentration risk is consolidated and monitored daily at the Group level and reported to the Executive Committee and to the Board Risk Committee, including limits and status rating. Group companies make a judgement on the credit quality of their customers based upon the customer's financial position, the recurring nature of billing and collection arrangements and, historically, a low incidence of default. During the Covid-19 crisis, the Group's treasury function has constantly monitored their Counterparties' credit quality. No significant creditworthiness deterioration or delay in due payments was observed. Refinitiv Transaction Since the completion of the Refinitiv transaction, an alignment of capture and treatment of the Group's credit risks, governed by applicable, appropriate and consistent policies is being embedded.	Static
For more information on this risk see Note 2 to the accounts, Financial Risk Management on pages 148-154.
Market risk (Executive Lead: Chief Financial Officer, Group Head of Post Trade) Clearing The Group's CCPs assume the counterparty risk for all transactions that are cleared through their markets. In the event of default of their clearing members, therefore, credit risk will manifest itself as market risk. As this market risk is only present in the event of default this is referred to as 'latent market risk'. The latent market risk includes interest rate risk, foreign exchange risk, equity risk and commodity price risk as well as country risk, issuer risk and concentration risk. This risk is greater if market conditions are unfavourable at the time of the default. Non-Clearing The Group is exposed to foreign exchange risk as a result of its broadening geographical footprint. There are, however, also benefits of global diversification including reduced exposure to local events such as the UK Brexit vote and certain geopolitical tensions. The Group is exposed to interest rate risk through its borrowing activities (including to support M&A objectives) and treasury investments. Further changes in interest rates may increase the Group's exposure to these risks. Similar to credit risks, regulators are also considering the impacts of climate change on market (systemic) risks, and whilst we do not foresee any short-term material risks, we will also keep this under review. Refinitiv Transaction Following the acquisition of Refinitiv, the Group exposure to foreign exchange risk has increased substantially as a result of its global footprint. Additionally, financing activities and treasury investments increase the exposure to interest rate risks. In addition, Refinitiv trading venues that offer the guaranteed settlement principle can expose the Group to further latent market risk.	Clearing The margins and default funds referred to previously are sized to protect against latent market risk. The adequacy of these resources is evaluated daily by subjecting member and customer positions to 'extreme but plausible' stress scenarios encapsulating not only historical crises, but theoretical forward-looking scenarios and decorrelation events. All our CCPs are compliant with the appropriate regulatory requirements regarding margin calculations, capital and default rules. Latent market risk is monitored and managed on a day-to-day basis by the risk teams within the clearing services. Committees overseeing market risks meet on a regular basis. All CCPs within the Group have proven their resiliency during periods of increased market volatility as observed at the start of the Covid-19 pandemic. Non-Clearing FX risk is monitored closely and translation risk is managed by matching the currency of the Group's debt to its earnings to protect key ratios and partially hedge currency net assets. FX derivatives including cross-currency swaps are used - under a control framework governed by LSEG Board approved Treasury Policy. The split between floating and fixed debt is managed to support the Group's target of maintaining an interest coverage ratio that underpins a good investment grade credit rating. Authorised derivatives can be used to: · transform fixed rate bond debt, to supplement a mix of short dated commercial paper and floating rate loan borrowings, to achieve the Group's policy objective, and / or · hedge prospective FX and interest rates ahead of the completion of a planned M&A transaction to protect the financial position of the Group. Refinitiv Transaction The new Group plans central co-ordination and management of Treasury operations. This extends to alignment of Treasury teams' objectives, working under a revised policy framework consistent with the Group's existing approach, and includes the planned refinancing of Refinitiv's debt on significantly improved terms.	Increasing
For more information on this risk, see Note 2 to the accounts, Financial Risk Management on pages 148-154.
Liquidity risk (Executive Lead: Chief Financial Officer, Group Head of Post Trade)  Clearing There are two distinct types of risk to which the Group's CCPs are exposed to that are commonly referred to as liquidity risk - market liquidity risk and funding liquidity risk. The former is the risk that it may be difficult or expensive to liquidate a large or concentrated position and is addressed under market risk. The latter is the risk that the CCP may not have enough cash to pay variation margin to non-defaulters or to physically settle securities delivered by a non-defaulter that cannot be on-sold to a defaulter. The Group's CCPs collect clearing members' margin and default funds contributions in cash and/or in highly liquid securities. To maintain sufficient ongoing liquidity and immediate access to funds, the Group's CCPs deposit the cash received in highly liquid and secure investments, such as sovereign bonds and reverse repos, as mandated under EMIR; securities deposited by clearing members are therefore held in dedicated accounts with Central Securities Depositories (CSDs) and/or International Central Securities Depositaries (ICSDs). The Group's CCPs also hold a small proportion of their investments in unsecured bank and money market deposits subject to the limitations imposed by EMIR. The successful operation of these investment activities is contingent on general market conditions and there is no guarantee that such investments may be exempt from market losses. Non-Clearing & Refinitiv Liquidity risk in a non-clearing context is the risk that the firm may be unable to make payments as they fall due. Their risks could impact the financial position of the Group.	Clearing The Group's CCPs have put in place regulatory compliant liquidity plans for day-to-day liquidity management, including contingencies for stressed conditions. The Group's CCPs have multiple layers of defence against liquidity shortfalls including intraday margin calls, minimum cash balances, access to contingent liquidity arrangements, and, for certain CCPs, access to central bank liquidity. Under the Enterprise Risk Management Framework (ERMF), CCP investments must be made in compliance with the Group CCP Financial Risk Policy (as well as the policies of the CCPs themselves). These policies stipulate a number of Risk Management standards including investment limits (secured and unsecured) and liquidity coverage ratios. Committees overseeing CCP investment risk meet regularly. Each CCP monitors its liquidity needs daily under stressed and unstressed assumptions and reports to the Group Financial Risk Committee each month. Non-Clearing Requirements for liquidity including headroom requirements are set out in the Group's Board approved Treasury Policy. The Group maintains appropriately sized liquidity facilities for business as usual and, from time to time, may increase resources to find large scale acquisitions. The Group monitors its requirements on an ongoing basis. Stressed facility headroom is assessed regularly and on a one-off basis for working capital reviews associated with large scale acquisitions using plausible downside business projections. Group Treasury activities are managed within the constraints of a Board approved policy by the Group Treasury team that is overseen by the Treasury Committee (a sub-Committee of the Financial Risk Committee, both chaired by the CFO). An update on Group Treasury risks and actions is provided monthly to the Financial Risk Committee and to each meeting of the Board Risk Committee. Refinitiv Transaction The Group has arranged new, committed bank facilities to provide comfortable liquidity headroom to the new Group following completion of the acquisition of Refinitiv by LSEG. Headroom modelling prudency including stress testing will be maintained.	Static
For more information on this risk, see Note 2 to the accounts, Financial Risk Management on pages 148-154.
CCP - settlement and custodial risks (Executive Lead: Group Head of Post Trade) The Group's CCPs are exposed to operational risks associated with clearing transactions and the management of collateral, particularly where there are manual processes and controls. While the Group's CCPs have in place procedures and controls to prevent failures of these processes, and to mitigate the impact of any such failures, any operational error could have a material adverse effect on the Group's reputation, business, financial condition and operating results. The Group provides routing, netting and settlement to ensure that securities are settled in a timely and secure manner. There are operational risks associated with such services, particularly where processes are not fully automated. Refinitiv Transaction The newly acquired Refinitiv business does not operate a CCP but is exposed to settlement risk through trading venues that offer the guaranteed settlement principle. Settlement failure within the context of the guaranteed settlement principles implies counterparty credit risk exposure. This is addressed in the 'Credit Risk' section of this report.	Operational risk related to settlement is minimised via highly automated processes reducing administrative activities while formalising procedures for all services. The operations of the settlement service are outsourced to the European Central Bank (TARGET2-Securities). Our Business Continuity Plans cover all the critical operational processes and related activities.  Refinitiv Transaction Following the close of the Refinitiv transaction, an alignment of capture and treatment of the new Group's settlement risks, governed by applicable policies is being embedded.	Static
Capital risk (Executive Lead: Chief Financial Officer) Principal risks to managing the Group's capital are: • In respect of regulated entities, capital adequacy compliance risk (the risk that regulated entities do not maintain and report sufficient qualifying capital to meet regulatory requirements) and capital reporting compliance risk (the risk that regulated entities fail to comply with capital reporting and regulatory obligations). If a regulated entity in the Group fails to ensure that sufficient capital resources are maintained to meet regulatory requirements, this could lead to loss of regulatory approvals and/or financial sanctions • In respect of regulated and unregulated entities, commercial capital adequacy and quality risk (the risk that Group and solo entities do not maintain both sufficient quantity and quality of capital to meet commercial requirements) and investment return risk (the risk that capital is held in subsidiaries or invested in projects that generate a return that is below the Group's cost of capital) • Availability of debt or equity capital (whether specific to the Group or driven by general financial market conditions) Refinitiv Transaction Refinitiv has both regulated and non-regulated entities. Capital adequacy compliance risk, commercial capital adequacy and quality risk and the risk of non-availability of debt or equity capital are all applicable to this newly acquired business.	The Group's Capital Management Policy provides a framework to ensure the Group maintains suitable capital levels (both at Group and solo entity levels), and effectively manages the risks thereof. The Group's Treasury Policy recognises the need to observe regulatory requirements in the management of the Group's resources. The Risk Appetite approved by the Board includes components related to the Group's leverage ratios and capital risks; Key Risk Indicators are monitored regularly. The Group maintains an ongoing review of the capital positions of its regulated entities to ensure that they operate within capital limits which are overseen by the Financial Risk Committee, the Executive Committee and the Board. The Group can manage its capital structure by varying returns to shareholders, issuing new shares or increasing or reducing borrowings. The Board reviews dividend policy and funding capacity on a regular basis and the Group maintains comfortable levels of debt facility headroom. The Group regularly assesses debt and equity markets to maintain access to new capital at reasonable cost. The Group is mindful of potential impacts on its key metrics when considering changes to its capital structure. Refinitiv Transaction Following the close of the Refinitiv transaction, an alignment of capture and treatment of the new Group's capital risks, governed by applicable policies is being embedded.	Increasing
For more information on this risk, see Note 2 to the accounts, Financial Risk Management on pages 148-154.
Model risk (Executive Lead: Group Head of Post Trade, Group Head of Data & Analytics, Chief Risk Officer) The Group defines model risk as the potential loss an institution may incur, as a consequence of decisions that could be principally based on the output of models, due to errors in the development, implementation or use of such models. The key existing model risks are in CCP margining, Yield Book mortgage valuation, Environmental, Social and Governance (ESG) scoring and the firms' capital models. Model risks can impact both the reputation and the financial condition of the Group. Refinitiv Transaction The newly acquired Refinitiv business relies on a wide range of analytical tools and processes (e.g. RDP, Indices and Benchmarks) and results in the addition of numerous models to LSEG's inventory carrying the same risk as above.	LSEG businesses have industry standard model risk control and governance pillars in place, including Model Risk Policy, the Model Management System, Developer and Validation Documentation Templates, as well as Development and Documentation Standards. Robust model validation is in place to ensure Group models are fit for purpose with respect to the development and implementation procedures. The Model Risk Management team provides model risk status reports on a quarterly basis to the Model Risk Committee, which oversees model risk across the Group. Model Management System (model inventory) has newly added model risk reporting functionality that supports model risk reporting on the Group and business unit level. Refinitiv Transaction Model Risk Management processes are being extended to cover the inventory of Refinitiv models.	Static

OPERATIONAL RISKS

The risk of loss, or other adverse consequences to the business, resulting from inadequate or failed internal processes, people and systems, or from external events.

Risk Description	Mitigation	Risk level
Data governance (Executive Lead: Chief Information Officer, Chief Data Officer, Chief Operating Officer) Through its various entities, LSEG collects, owns, licenses, calculates, transforms, and distributes data in many forms (e.g. structured, unstructured, electronic and print formats, audio-visual data, production, testing, archive data, derived data, etc.). LSEG is accountable to its customers, counterparties, owners, vendors, regulators, and the public, for the careful and proper protection and use of its data. Failure to govern the Group's data effectively, could result in those data being unfit for purpose with respect to availability, completeness, accuracy, validity, usage, entitlement, and timeliness. This could result in the Group or its customers and stakeholders placing reliance on inadequate data when making strategic or operational decisions, which could adversely affect the Group's reputation, financial condition and operating results. Refinitiv Transaction The acquisition of Refinitiv has substantially increased the Group's data and analytics business and the volume, value and complexity of data which underpins it as well as the breadth of stakeholders consumption and relying on the data. This in turn increases the risks associated with ineffective data governance.	The LSEG Chief Data Office (CDO) defines the Group's data standards within its Data Policy. The standards identify the various data held across the Group, access rights/entitlements, any legal or regulatory restrictions which may apply and how such data is used, and the intended future uses. The Data Governance Framework sets out the principles to ensure Group data is of the highest quality and meets the highest standards, while highlighting key characteristics of data in relation to oversight, function and measurement. As such the Group has defined a consistent, standardised approach to procurement, collection, ingestion, transformation, quality, storage, retention, calculations and disposition of its data. Refinitiv Transaction The Group's Data Policy and Data Governance Framework covering the Refinitiv business have been in effect since the close of the deal. Work is in progress to embed this policy.	Increasing
Information and cyber security threats (Executive Lead: Chief Information Officer, Chief Information Security Officer) Public and private organisations continue to be targeted by cyberattacks which are growing in frequency, complexity, and sophistication. Cyber-attacks have the potential to adversely impact LSEG customers and businesses. The loss or modification of data and information, or disruption to our important systems and services through any form of cyber-attack could result in a significant, negative reputational or financial impact to our Group. Threats such as ransomware, theft of customer or sensitive data, and distributed denial of service attacks remain significant to the financial industry, and we expect these to continue. Further, Covid-19 has introduced additional cyber threats which look to exploit remote working arrangements, such as Covid-19 themed phishing attempts, and attacks on video conferencing facilities. Additionally, new emerging technologies for the Group such as cloud computing and artificial intelligence could impact our cyber security risk profile. Refinitiv Transaction The expansion of the Group's geographic footprint, its networks, systems and channels increase our exposure to information security and cyber threats.	The Group continues to invest in enhancing our information and cyber security controls and operational processes, including our capability to recover quickly. Operational cyber risk scenario analysis is performed to assess business impact and residual risk which informs our Board approved Cyber Security Strategy. Extensive controls aligned to the National Institute of Standards and Technology (NIST) cyber security framework are in place to prevent, detect and respond to cyber security threats and potential incidents. These controls are subject to regular testing and assurance. Thorough onboarding due diligence, security training, and ongoing monitoring of our employees and third-party service providers remain key components of the control framework. The Group routinely monitors threat intelligence and liaises closely with global Government agencies, industry forums and regulators to help improve our ability to respond to the evolving threats faced by our customers, businesses and our industry. Refinitiv Transaction Information security policies and standards have been aligned across the new Group and are being embedded. These have been designed to reflect the new Group's information security and cyber risk exposure. The Group's information security and technology risk functions are being enhanced to ensure a robust Group-wide capability. Work is in progress to fully embed these policies.	Increasing
Technology (Executive Lead: Chief Information Officer) LSEG is highly dependent on the development and operation of its sophisticated technology and advanced information systems and those of its third-party service and outsourcing providers. Technology failures potentially leading to system outages may impact our customers and the orderly running of our markets, data services and distribution. The Group continues to recognise the increased technology risk posed by remote working and heightened market volatility experienced globally during the Covid-19 pandemic. This could adversely affect the reputation, the financial condition and the performance of the Group. LSEG, by the nature of its business activities, is exposed to potentially disruptive technologies in the markets in which it operates, which could impact its ability to compete in its industry. Refinitiv Transaction The new Group following the completion of the Refinitiv acquisition has a larger technology footprint and an increased reliance on third-party services, increasing the technology risk for the Group.	The Group continues to invest in the resilience of the technology systems and processes that underpin its important business services. The performance and availability of the Group's systems are constantly reviewed and monitored to prevent problems arising and where possible, ensure a prompt response to any potential service-impacting incident. Regular rigorous business impact and operational risk scenario analysis are performed in conjunction with the Group Risk, Group Business Continuity and Crisis Management functions to identify, assess and remediate potential system and governance vulnerabilities. In addition, all technology solutions are comprehensively tested by both LSEG Technology and third-party quality assurance providers as appropriate; functional, non- functional, user-acceptance and other testing is performed across all technology environments to ensure products are ready for deployment. LSEG Technology systems are designed to be highly resilient and alternative systems are available in the unlikely event of multiple failures from which the system is unrecoverable. The Group has additionally worked to enhance its service management capability and tooling to enhance technology service delivery to its businesses. The Group actively manages relationships with key strategic technology suppliers to avoid any disruption to service provision which could adversely affect the Group's businesses. Where possible the Group has identified alternative suppliers that could be engaged in the event of a third-party failing to deliver on its contractual commitments. Service Level Agreements (SLAs) and ongoing monitoring is in place for key suppliers. Refinitiv Transaction A new Group Technology Risk policy, revised Technology Risk library, and updated supporting processes have been defined and are being embedded. The Group technology and risk functions are being enhanced including the formation of a new Third-Party Risk Management function. Work is in progress to fully embed this policy.	Increasing
Change management (Executive Lead: Chief Operating Officer, Chief Information Officer and Divisional Group Heads) The considerable change agenda exposes the Group to the risk that change is either misaligned with the Group's strategic objectives or not managed effectively within time, cost and quality criteria and could impact the resilience of its operations and business services. This risk could be exacerbated by the remote working arrangements in place for most of its global workforce, key third-party service providers and of its customers and members. The volume of change is driven by both internal and external factors. Internal factors include a drive for technology innovation, consolidation and operational resilience and by the expected divestment of the Borsa Italiana Group (the integration of the Refinitiv business is covered under the Transformation section). External factors include the changing regulatory landscape and requirements which necessitate changes to our systems and processes. Design defects, errors, failures or delays associated with new, modified or upgraded technology, products or services could negatively impact the business, the financial performance and the reputation of the Group. Refinitiv Transaction Post-acquisition, the Group now has a larger and more complex change portfolio with more interdependencies and a potential for greater resource and change window contention increasing the technology change risk for the Group.	The risks associated with change are mitigated by effective implementation of the Group's Change framework. This includes Board oversight across the Group's change portfolio and project pipeline, to ensure these align to the Group and Divisional strategies and support our financial plans. Appropriate governance, risk and executive oversight is exercised over individual programmes and projects based on the scale, complexity and impact of the change. The purpose of this oversight is to confirm changes do not breach the Group's risk appetite, are compliant with the approved project management policy and to manage budget, resource, escalations, risk, issues and dependencies. For software specific development, software design methodologies, testing regimes and test environments are continuously being enhanced to minimise implementation risk. Refinitiv Transaction Rigorous planning and oversight was in place ahead of the Refinitiv transaction to ensure that technology change strategies and practices are aligned, and to minimise the risk of disruption to the Group's services or operations.	Increasing
For more information, see the Chair's statement on pages 2-3, and the Chief Executive's statement on pages 4-7.
Resilience (Executive Lead: Chief Information Officer, Chief Risk Officer and Divisional Group Heads) Resilience addresses the ability for the Group to prevent, adapt, respond and recover from operational disruptions to minimise the impact on our customers and on the capital markets financial stability. Business Continuity is central to resilience and tolerance for our business strategy. Whilst the Group has in place processes and controls to ensure the continuity of its operations, unforeseen events such as physical security and system security threats, epidemy or pandemic, or a major system breakdown, could impact the continuity of the Group's operation, reputation and its financial condition. The Covid-19 pandemic has presented many challenges throughout 2020 and required a coordinated response across all businesses to ensure continuity of operations whilst maintaining the wellbeing of all colleagues. Remote working has put additional pressure on technology resources and colleagues as they learn to adapt to new working practices. Refinitiv Transaction Whilst, the new Group's increased scale and complexity add to the resilience risks outlined, there are opportunities to leverage the diversity of technology, increased footprint and resources to enhance resilience capabilities for the benefit of the Group.	A Group-wide response has been provided to both the FCA and Bank of England consultations that reflects our role at the centre of financial markets. The response highlighted the need for clear communications and a resilience framework that is embedded within the organisational culture. Our Business Continuity plans have been updated throughout 2020 and migrated to a single platform to enable ease of access and reporting. The response to the Covid-19 pandemic was driven from our pandemic plan and was governed using our Crisis Management structure. A centralised framework for decision making across the Group drew upon local intelligence which ensured consistent implementation that could be tailored to local conditions. Technology infrastructure was bolstered early in the pandemic and there are regular communications with colleagues about our approach alongside wellbeing support. Refinitiv have followed a similar model to the rest of the Group for their Covid-19 response with more local decision-making to ensure speed of response across multiple locations. A Crisis Management plan is in place and regularly tested to ensure the business can respond appropriately in all situations. Plans must be the approach to resilience. Refinitiv Transaction A revised set of Business Continuity policies, standards and controls have been defined and are now being implemented. These have been designed to reflect the business' approach to resilience with supporting functions enhanced to ensure a robust Group-wide capability. Work is in progress to fully embed these policies.	Increasing
Third-party risk (Executive Lead: Group Chief Operating Officer, Chief Technology Officer) In pursuit of operational excellence, the Group and its entities engage third-party service providers, which may include outsourcing functions to other Group entities and external service providers, including Cloud Service Providers (CSPs). Increasingly the Group has engaged CSPs to host critical services and data. Whilst there are many similarities in the risks associated with CSPs and traditional outsourcing arrangements, reliance on a CSP exacerbates certain third-party risks such as data governance risks; inability to exit a CSP relationship and bring services back in house without service disruption; and the risk of services being concentrated on a small set of CSPs. Failure to manage the risks associated with the selection, management and oversight of critical third-party suppliers could impact the Group's ability to deliver its strategic objectives and result in the supplier being unable to meet its contractual, regulatory, confidentiality or other obligations to the Group, which could lead to incurring material financial loss, higher costs, regulatory actions and reputational harm. Refinitiv Transaction Following completion of the Refinitiv acquisition, the new Group outsources certain functions to third-party service providers, including for telecommunications, certain finance and human resources administrative functions, facilities management and IT services, in order to leverage leading specialised capabilities and achieve cost efficiencies. The new Group also relies on access to certain data used in its business through licences with third parties and depend on third-party suppliers for data and content that will be used in its products and services. Some of this data is provided exclusively from particular suppliers and may not be obtained from other suppliers. This increases the risk exposure of the Group described above.	The Group has a third-party risk management framework in place to ensure there are effective controls across all stages of the third-party lifecycle, covering the planning of the service, evaluation and selection of the third-party; contracting and onboarding; monitoring and managing the services; and termination and off-boarding. The framework helps to ensure that the Group assesses risk at key stages in the lifecycle and actively manages relationships with critical third-parties to avoid a breakdown in service provision. The existing outsourcing policy and controls have been broadened to include critical third-party suppliers in non-outsourcing arrangements and oversight of third-party risk management has been formally directed by the Second Line of Defence, to strengthen and formalise the risk oversight. The Group has focused on the ability of critical suppliers, who form part of its supply chain, to continue to supply goods and services in accordance with requirements and in compliance with contractual obligations. Due to uncertainties around supply chains at the start of the pandemic, an exercise was conducted to identify alternative suppliers and to purchase forward where practical to ensure that the supply chain was not disrupted. This analysis has continued throughout the pandemic and also in the lead up to and post the end of the Brexit transition period. There have been no significant impacts to the supply chain for the Group. Refinitiv Transaction Following completion of the Refinitiv acquisition the Third-Party Risk Management Framework, which was enhanced in collaboration with Refinitiv to address the increased complexity of the third-party landscape, will be embedded across the new Group to deliver consistency in the management of risk for critical suppliers and outsourced services. Work is in progress to embed this policy.	Increasing
Employees and talent (Executive Lead: Chief People Officer) The Group's ability to attract and retain key personnel is critical to achieving its strategic objectives. This is impacted by a number of key factors including the Group's culture, reputation, diversity and inclusion, career development and training, as well as external impacting factors of prevailing market conditions and changes in the regulatory landscape. A failure to adequately manage these factors could result in a loss of key talent or the inability to recruit an appropriate workforce. Cultivating a diverse talent pool and an inclusive culture is a key focus of the Group to ensure we reflect the societies we serve through delivering innovative benefits that diversity of thought helps to promote, but also in light of increased industry-wide expectations for ESG transparency and disclosure. While we have continued to operate a successful workforce largely remotely throughout 2020, the development of the existing Covid-19 pandemic and the threat of potential future pandemics continues to pose a threat to the health and safety and wellbeing of our employees globally. Although we have executed on our Brexit preparation plans and strategy, uncertainty of the longer term impact on the status of the EU citizens in the UK and UK citizens in the EU continues. Refinitiv Transaction In the context of the Refinitiv transaction, there is a risk that some current and prospective employees experience uncertainty about their future roles within the combined business impacting the ability to retain or recruit key talents.	We focus on ensuring we attract and retain the right talent for our business and continue to foster a culture of high performance. We operate a rigorous in-house recruitment and selection process, to ensure we bring the best talent into the organisation, in terms of their skills, technical capabilities, cultural fit and potential. A periodic review of compensation and benefit packages against industry standards globally is completed to ensure that we have the ability to attract high calibre of employees. A comprehensive annual review of critical roles is undertaken to ensure succession plans are in place to minimise the impact of losing critical personnel. Career development remains a key enabler for success, and we have a carefully managed learning and development programme which enables us to focus on providing colleagues with a range of courses, materials and tools to support their development. Levels of attrition are continually monitored, and actions taken where this is outside of accepted tolerance. We aim to strengthen colleagues' overall sense of engagement and level of satisfaction for working at LSEG, and this is assessed through the annual 'Have Your Say' engagement survey and analysis of the findings. During 2020, additional engagement surveys relating to Ways of Working were completed semiannually to ensure that employees are appropriately supported while they continue to work remotely. We continue to recognise the importance of the wellbeing of our colleagues and have strengthened our approach to supporting colleague wellbeing across the Group. The Wellbeing framework has been successfully delivered in the year covering the five pillars of wellbeing: financial, emotional, physical, social purpose, and workplace choice. New developments include the creation of Mental Health Champions across the Group globally for which over 340 colleagues deliver support to fellow colleagues through this support network. A social network has been launched to link colleagues globally to promote collaboration with other teams. Wellbeing resource through webinars, training and access to Employee Assistance Programme is provided and is accessible to all employees globally. This framework has enabled us to respond to the pandemic and support colleagues while working remotely. Diversity and inclusion remain a high priority of the Group to ensure we create an inclusive environment for all colleagues to pursue careers and encourage industry-wide change to increase equal opportunity for all, and across every part of LSEG. Our Diversity and Inclusion programme is focussed on key areas including gender, ethnicity, disability, sexual orientation and gender identity and other visible and invisible characteristics and beliefs. Following on from the success of the Women Inspired Network (WIN), we have launched a global Inclusion Network which will embrace networks supporting all elements of diversity. This includes the launch of the Black Employee Inspired Network Group (being), Parenting and Caregivers Network, Proud Network and Ability Networks which have all continued to develop and strengthen across the Group globally during the remote working environment. A virtual inclusion week was successfully held during September 2020 to celebrate and promote diversity across the Group, providing unique opportunities to connect with colleagues from different backgrounds and perspectives, locally and globally.	Static
For more information, see Supporting Sustainable Growth on pages 54-67, Corporate Governance on pages 76-83 and Remuneration Report on pages 98-119.

EMERGING RISKS Risks which are new to the Group or which are difficult to quantify due to their remote or evolving nature.

Risk Description	Mitigation	Risk level
Geopolitical risk (Executive Lead: Chief Executive Officer, Executive Committee) The UK exit from the EU leaves significant uncertainty with respect to the UK's future relationship with EU and other trading partners post transition period. Trade tensions between the US and its major trading partners, and more specifically China, also continues to unsettle global markets. These could have adverse impacts on the Group's businesses, operations, financial condition and cash flows. The new Group has a greater geographical footprint which leads to increased geopolitical risk exposure, including some high-risk jurisdictions. Significant regulatory change continues to be managed across the Group including Brexit, where aspects of equivalence are likely to remain for some time.	LSEG monitors the potential impact of macro-economic and political events on our operating environment and business model and the Group is an active participant in international and domestic regulatory debates.	Increasing
Emerging Technology (Executive Lead: Chief Information Officer)  The increased integrated artificial intelligence (AI) in digital transformation strategies brings with it associated risks such as inherent bias in the historical data and behaviour patterns which feed AI algorithms. This may give rise to automated decisions which are not aligned with current societal expectations or organisational values. AI use by cyber hackers can also render cyber security defence and detective mechanisms ineffective. Regulators are considering the application of existing or new frameworks to manage the development of innovative financial services technologies, which are important for maintaining the resilience and stability in the market and allowing innovation with emerging technology	The Group actively monitors new technological developments and opportunities such as blockchain and Artificial Intelligence (AI) and participates in relevant industry and academic forums on emerging technologies The Group continues to maintain systems and controls to mitigate the risk resulting from emerging technology. Risk arising from the Group's use of AI is identified, assessed, managed and reported through the risk framework. We align with industry best practices and guidance when considering the trustworthiness and bias in AI systems and AI-supported decision making. The Group ensures the use of AI is fair, explainable and transparent, secure and safe. The continuous development of AI has the potential to impact industry behaviour and our business, we will continue to monitor and manage this risk closely.	Increasing
Climate-related Risk (Executive Lead: Group Sustainability Committee) International organisations, governments and regulators are focused on integrating climate risks and opportunities into investment decision making, to enable transition to a low carbon economy. This is an area of emerging and wide-ranging policy making, impacting financial market participants and corporates. The increased focus from regulators, investors and other stakeholders, has generated a requirement for enhanced climate-related risk oversight. Climate-related risks include Transition risks (e.g. Regulation and Litigation risks) and Physical Risks. To further align with the Task Force on Climate-related Financial Disclosures (TCFD) recommendations, the Group has developed some preliminary quantification models to facilitate the risk assessment of climate related risks stemming from the Climate Scenarios previously selected. The two models currently developed cover Physical Risks for Operations and Transition Risks for one of the Group's business units. The Operations model developed has focused on three main pathways, namely the impact of climate events on our operations and resultant foregone revenue, the business disruption and repair costs for uninsurable buildings and equipment and the rising insurance costs. The associated preliminary output of the quantification of the financial risk for our Operations ranges between the probable values of £395,000 and £690,000 of likelihood weighted annual costs before mitigation over the next 10 to 30 years for the Group prior to the Transaction. With respect to this, it is acknowledged that climate-related risks are inherently linked to other strategic, financial and operational risks, as well as commercial opportunities. Please see also Supporting Sustainable Growth on pages 54-67 for details regarding sustainability.	We support consistent global standards and encourage continued alignment between the EU and UK on sustainable finance. We have been members of the EU High Level Expert Group and the Technical Expert Group, and the FCA/PRA Climate Financial Risk Forum. To further align with the TCFD recommendations, the Group has developed climate-related risks scenarios over both the medium and longer term, and how these may impact credit, operational, market and liquidity risks. In line with increased disclosure requirements for corporations and financial markets participants, LSEG has taken proactive steps to develop its methodology to define and model how climate change impacts its businesses. The aim is to reinforce the Group's resilience to acute physical risks today and chronic physical risks in the future, and to address transition risks, to be aligned with the TCFD recommendations, be prepared for potential future mandatory reporting requirements and to protect the Group's reputation - See the TCFD disclosures section under Supporting Sustainable Growth for more information. From the review of published climate scenarios, IEA WEO SDS and IEA WEO SPS were selected for transition risk, and for physical risk, SSP 2 RCP 4.5 and SSP 5 RCP 8.5 were considered as most appropriate. These scenarios cover a <2 degree and 3-4 degree scenario, over both the medium term (2025-2035 for transition risks) and longer term (2030-2050 for physical risks). Looking ahead, we plan to continue to integrate climate risk into our existing risk management frameworks, use and further improve the new Operations model to inform future strategic decisions and footprint planification, and develop further quantification models and climate risk assessment tools for the other Business Units and for the new Group following the Transaction.	Increasing

Financial Risk Management  

The Group seeks to protect its financial performance and the value of its business from exposure to capital, credit, concentration, country, liquidity, settlement, custodial and market (including foreign exchange, cash flow and fair value interest rate) risks.

The Group's financial risk management approach is not speculative and adopts a '3 lines of defence' model. It is performed both at a Group level, where the treasury function identifies, evaluates and hedges financial risks from a Group perspective and, locally, where operating units manage their regulatory and operational risks. This includes clearing operations at the Group's CCPs (CC&G and LCH Group) that adhere to local regulation and operate under approved risk and investment policies.

The Group Chief Risk Officer's team provides assurance that the governance and operational controls are effective to manage risks within the Board approved risk appetite, supporting a robust Enterprise-Wide Risk Management Framework. The Financial Risk Committee, a sub-committee of the Group Executive Committee and chaired by the Chief Financial Officer, meets at least quarterly to oversee the consolidated financial risks of the Group. In addition, the Treasury Committee, a sub-committee of the Financial Risk Committee (which is also chaired by the Chief Financial Officer), meets regularly to monitor the management of, and controls around, foreign exchange, interest rate, credit and concentration risks and the investment of excess liquidity, in addition to its oversight of the Group's funding arrangements and credit ratings. Both committees provide the Group's senior management with assurance that the treasury and risk operations are performed in accordance with Group Board approved policies and procedures. Regular updates, on a range of key criteria as well as new developments, are provided through the Enterprise-Wide Risk Management Framework to the Group Risk Committee. See 'Risk Management Oversight Supplement' for further detail on the Group's risk framework on our website at: www.lseg.com/about-london-stock-exchange-group/risk-managementoversight.

On 31 January 2020, the UK left the European Union and on 24 December 2020 the UK and EU agreed to the EU/UK Trade and Cooperation Agreement.

The Group had a structured Brexit programme which includes regulatory specialists engaging at appropriate levels and on financial market infrastructure considerations. Risks are actively monitored and managed and the Group has implemented its contingency plans to maintain continuity of service to customers and orderly functioning of its markets, including the launch of new operations in the EU27. Both the UK and the EU conducted assessments of regulatory equivalence of their respective regimes throughout 2020. Some of LSEG's cross-border activities benefit from equivalence. Not all aspects of the UK regulatory framework have been deemed equivalent by the EU at this stage. The affected companies have executed contingency plans as follows:  

Post Trade

On 1 January 2021, LCH Ltd became a third-country CCP under the EU framework (EMIR). On 21 September 2020, the European Commission published an Implementing Decision determining that the UK framework is equivalent to the EU framework. This equivalence decision confirms LCH Ltd's ability to continue to offer all clearing services for all products and services to all EU members and clients until 30 June 2022. LCH Ltd continues to engage and cooperate with the relevant authorities in respect of the permanent recognition of LCH Ltd under EMIR.

In addition, LCH SA and CC&G SpA are allowed under the Bank of England Temporary Recognition Regime (TRR) to provide clearing services and activities in the UK for up to three years post 31 December 2020, which may be extended in increments of 12 months thereafter.

UnaVista TRADEcho BV, an entity within the EU, has been granted a licence to operate as a Trade Repository for both EMIR and Securities Financing Transaction Regulations. This entity provides access to the full range of UnaVista services for EU clients and customers.

Capital Markets

There is no EU equivalence currently for the purpose of the Share Trading Obligation which has affected the ability for some EU firms to trade certain shares on LSE plc. The absence of EU equivalence for the purpose of the Derivative Trading Obligation will limit the ability of some EU firms to trade some classes of derivatives in the UK. The Group's key objectives are to provide continuity of stable financial infrastructure services as part of our global remit. As the various regulatory initiatives progress, there will be greater certainty with regard to their likely final form. The Group continues to focus on remaining well positioned to respond to regulatory developments and further opportunities exist for the Group to deliver solutions to help the market address the changing regulatory environment, including those linked with the departure of the UK from the EU.

Turquoise Global Holdings Europe BV (Turquoise Europe), an entity within the EU, went live on 30 November 2020 and offers the full range of Turquoise services to EU members. Turquoise Europe is regulated by the Autoriteit Financiële Markten (AFM - the Dutch Financial Services and Markets Authority) and the Dutch National Bank and has a licence to operate as a multilateral trading facility within the EU.

Borsa Italiana SpA continues to operate as normal within the EU.

MTS operates throughout the EU through a number of subsidiary companies and continues to offer all services as normal.

Information Services

FTSE Russell operates around the world through a number of subsidiary companies and these continue to offer the full range of services to EU customers and clients.

Capital risk

Risk description

Risk management approach

The Group is profitable and strongly cash generative and its capital base comprises equity and debt capital. However, the Group recognises the risk that its entities may not maintain sufficient capital to meet their obligations or they may make investments that fail to generate a positive or value enhancing return. The Group comprises regulated and unregulated entities. It considers that: • increases in the capital requirements of its regulated companies, or • negative yields on its investments of cash, or • a scarcity of debt or equity (driven by its own performance, its capital structure, or financial market conditions) either separately or in combination are the principal specific risks to managing its capital.

The Group focuses upon its overall cost of capital as it seeks, within the scope of its risk appetite, to provide superior returns to its shareholders, fulfil its obligations to the relevant regulatory authorities and other stakeholders and ensure that it is not overly dependent upon short and medium term debt that might not be available at renewal. Maintaining access to capital and flexibility to invest for growth is a key management consideration. The Group can manage its capital structure and react to changes in economic conditions by varying returns to shareholders, issuing new shares or increasing or reducing borrowings. The Board reviews dividend policy and funding capacity on a regular basis and the Group maintains comfortable levels of debt facility headroom. A highlevel summary of the Group's capital structure is presented below: 2020 2019 Book value of capital £m £m Total shareholders' funds 3,711 3,455 Group consolidated debt 1,951 2,085  Whilst the Company is unregulated, the regulated entities within the Group monitor compliance with the capital requirements set by their respective competent authorities and the terms of reference of the Financial Risk Committee includes oversight of the Group's Capital Management Policy. The Capital Management Policy seeks to ensure that capital is allocated optimally in order to maintain a prudent balance sheet and meet regulatory requirements, drive growth and offer suitable returns to shareholders. Regulated entities within the Group have to date predominantly issued equity and held cash to satisfy their local regulatory capital requirements. We believe that capital held by Group companies is sufficient to comfortably support current regulatory frameworks. The total amount of cash and financial assets set aside for regulatory purposes increased during the year in response to Covid-19 market volatility. The aggregate of the Group's regulatory and operational capital is shown below: 2020 2019 Regulatory and Operational Capital £m £m Total regulatory and operational capital 1,352 1,231 Amount included in cash and cash equivalents 1,242 1,125 To maintain the financial strength to access new capital at reasonable cost and sustain an investment grade credit rating, the Group monitors its net leverage ratio which is operating net debt (i.e. net debt after excluding cash and cash equivalents set aside for regulatory and operational purposes) to proforma adjusted EBITDA (Group consolidated earnings before net finance charges, taxation, impairment, depreciation and amortisation, foreign exchange gains or losses and non-underlying items, prorated for acquisitions or disposals undertaken in the period) against a target range of 1-2 times. The Group is also mindful of potential impacts on the key metrics employed by the credit rating agencies in considering increases to its borrowings. The Group seeks to maintain a strong investment grade credit rating over time and will therefore employ a credible plan to return to its target range in the event leverage rises temporarily due to a debt funded major investment. As at 31 December 2020, net leverage was 1.1 times (2019: 1.4 times) and remains well within the Group's target range. The Group is comfortably in compliance with its bank facility ratio covenants (net leverage and interest cover) and these measures do not inhibit the Group's operations or its financing plans.

Credit and concentration risk

Risk description

Risk management approach

The Group's credit risk relates to its customers and counterparties being unable to meet their obligations to the Group either in part or in full, including: • customer receivables, • repayment of invested cash and cash equivalents, and • settlement of derivative financial instruments. In their roles as CCP clearers to financial market participants, the Group's CCPs guarantee final settlement of transactions acting as buyer towards each seller and as seller towards each buyer. They manage substantial credit risks as part of their operations including unmatched risk positions that might arise from the default of a party to a cleared transaction. For more information see 'Principal Risks and Uncertainties', pages 24 to 39. Notwithstanding regulations that require CCPs to invest predominantly in secured instruments or structures (such as government bonds and reverse repos), CC&G and the LCH Group CCPs are able to maintain up to 5% of their total deposits at commercial banks on an unsecured basis. Through this potential for its CCPs to invest on an unsecured basis (as well as by certain other regulated and unregulated operations observing agreed investment policy limits), the Group may continue to face some risk of direct loss from a deterioration or failure of one or more of its unsecured investment counterparties. Concentration risk may arise through Group entities having large individual or connected exposures to groups of counterparties whose likelihood of default is driven by common underlying factors. This is a particular focus of the investment approach at the Group's CCPs.

Group Credit risk is governed through policies developed at a Group level. Limits and thresholds for credit and concentration risk are kept under review. Group companies make a judgement on the credit quality of their customers based upon the customer's financial position, the recurring nature of billing and collection arrangements and, historically, a low incidence of default. The Group is exposed to a large number of customers and so concentration risk on its receivables is deemed low by management. The Group's credit risk is equal to the total of its financial assets as shown in note 18. No estimated credit losses have been recognised on other financial instruments and there have been no significant increases in credit risk for these assets. Non-CCP entities Credit risk associated with cash and cash equivalents is managed by limiting exposure to counterparties with credit rating levels below policy minimum thresholds, potentially overlaid by a default probability assessment. Except where specific approval is arranged to increase this limit for certain counterparties, investment limits of between £25 million and £100 million apply for periods ranging between a week and 12 months, depending on counterparty credit rating and default probability risk. Derivative transactions and other treasury receivable structures are undertaken or agreed with well-capitalised counterparties and are authorised by policy to limit the credit risk underlying these transactions. CCPs To address market participant and latent market risk, the Group's CCPs have established financial safeguards against single or multiple defaults. Clearing membership selection is based upon supervisory capital, technical and organisational criteria. Each member must pay margins, computed and collected at least daily, to cover the exposures and theoretical costs which the CCP might incur in order to close out open positions in the event of the member's default. Margins are calculated using established and internationally acknowledged risk models and are debited from participants' accounts through central bank accounts and via commercial bank payment systems. Minimum levels of cash collateral are required. Non-cash collateral is revalued daily but the members retain title of the asset and the Group only has a claim on these assets in the event of a default by the member. Clearing members also contribute to default funds managed by the CCPs to guarantee the integrity of the markets in the event of multiple defaults in extreme market circumstances. Amounts are determined on the basis of the results of periodic stress testing examined by the risk committees of the respective CCPs. Furthermore, each of the Group's CCPs reinforces its capital position to meet the most stringent relevant regulatory requirements applicable to it, including holding a minimum amount of dedicated own resources to further underpin the protective credit risk framework in the event of a significant market stress event or participant failure. An analysis of the aggregate clearing member contributions of margin and default funds across the CCPs is shown below: Total collateral held 2020 2019 £bn £bn Collateral security Cash received 113 93 Non‑cash pledged 140 115 Guarantees pledged 3 4 Total collateral as at 31 December 255 212 Maximum collateral held during the year 311 242 Investment counterparty risk for CCP margin and default funds is managed by investing the cash element in instruments or structures deemed 'secure' by the relevant regulatory bodies including through direct investments in highly rated, 'regulatory qualifying' sovereign bonds and supra-national debt, investments in tri-party and bilateral reverse repos (receiving high-quality government securities as collateral) and, in certain jurisdictions, deposits with the central bank. The small proportion of cash that is invested unsecured is placed for short durations with highly rated counterparties where strict limits are applied with respect to credit quality, concentration and tenor. 2020 2019 £bn £bn Total investment portfolio 90 85 Maximum portfolio size during the year 150 122 Additional portfolio information: Amount invested securely 99.98% 100% Weighted average maturity (days) 61 90 Associated liquidity risks are considered in the investment mix and discussed further below. To address concentration risk, the Group maintains a diversified portfolio of high-quality, liquid investments and uses a broad range of custodians, payment and settlement banks and agents. The largest concentration of treasury exposures as at 31 December 2020 was 32% of the total investment portfolio to the French Government (2019: 17% to the French Government). Trade and fees receivable An impairment analysis is performed monthly using a provision matrix to measure expected credit losses on trade and fees receivable. The calculation reflects current conditions and forecasts of future economic conditions. None of the Group's trade receivables are material by individual counterparty. At 31 December 2020 Fees receivable £m <180 days £m >180 days £m Total £m Expected credit loss rate <1% <1% 64% Total receivables 123 288 14 425 Expected credit loss - (2) (9) (11) 123 286 5 414 At 31 December 2019 Fees receivable £m <180 days £m >180 days £m Total £m Expected credit loss rate <1% <1% 46% Total receivables 141 310 16 467 Expected credit loss - (2) (7) (9) 141 308 9 458

Country risk 

Risk description

Risk management approach

Distress can result from the risk that certain governments may be unable or find it difficult to service their debts. This could have adverse effects, particularly on the Group's CCPs, potentially impacting cleared products, margin collateral, investments, the clearing membership and the financial industry as a whole.

Specific risk frameworks manage country risk for both fixed income clearing and margin collateral and all clearing members' portfolios are monitored regularly against a suite of sovereign stress scenarios. Investment limits and counterparty and clearing membership monitoring are sensitive to changes in ratings and other financial market indicators, to ensure the Group's CCPs are able to measure, monitor and mitigate exposures to sovereign risk and respond quickly to anticipated changes. Risk Committees maintain an ongoing watch over these risks and the associated policy frameworks to protect the Group against potentially severe volatility in the sovereign debt markets. The Group's sovereign exposures of £1 billion or more at the end of the financial reporting periods were: Group Aggregate Sovereign Treasury Exposures 2020 2019 Country £bn £bn France 29 18 USA 10 12 Netherlands 10 - UK 10 6 Italy 9 11 EU 2 10 Spain 1 1 Germany 1 -

 Liquidity, settlement and custodial risk

Risk description			Risk management approach
The Group's operations are exposed to liquidity risk to the extent that they are unable to meet their daily payment obligations. In addition, the Group's CCPs and certain other Group companies must maintain a level of liquidity (consistent with regulatory requirements) to ensure the smooth operation of their respective markets and to maintain operations in the event of a single or multiple market stress event or member failure. This includes the potential requirement to liquidate the position of a clearing member under a default scenario including covering the associated losses and the settlement obligations of the defaulting member. The Group is exposed to the risk that a payment or settlement bank could fail or that its systems encounter operational issues, creating liquidity pressures and the risk of possible defaults on payment or receivable obligations. The Group uses third-party custodians to hold securities and is therefore exposed to the custodian's insolvency, its negligence, a misuse of assets or poor administration.			Group The combined Group businesses are profitable, generate strong free cash flow and operations are not significantly impacted by seasonal variations. The Group maintains sufficient liquid resources to meet its financial obligations as they fall due and to invest in capital expenditure, make dividend payments, meet its pension commitments, appropriately support or fund acquisitions or repay borrowings. Subject to regulatory constraints impacting certain entities, funds can generally be lent across the Group and cash earnings remitted through regular dividend payments by local companies. This is an important component of the Group Treasury cash management policy and approach. Management monitors forecasts of the Group's cash flow and overlays sensitivities to these forecasts to reflect assumptions about more difficult market conditions or stress events. The Group will take the appropriate actions to satisfy working capital requirements when committing to large scale acquisitions, including comfortable liquidity headroom projected over a reasonable timeframe. Non-CCP entities Treasury policy requires that the Group maintains adequate credit facilities provided by a diversified lending group to cover its expected funding requirements and ensure a minimum level of headroom for at least the next 24 months. The financial strength of lenders to the Group is monitored regularly. For full details on the Group's borrowings and the new facilities arranged during the year see note 25. CCPs The Group's CCPs maintain sufficient cash and cash equivalents and, in certain jurisdictions, have access to central bank refinancing or commercial bank liquidity support credit lines to meet the cash requirements of the clearing and settlement cycle. Revised regulations require CCPs to ensure that appropriate levels of back-up liquidity are in place to underpin the dynamics of a largely secured cash investment requirement, ensuring that the maximum potential outflow under extreme market conditions is covered (see credit and concentration risk section above). The Group's CCPs monitor their liquidity needs daily under normal and stressed market conditions.  Where possible, the Group employs guaranteed delivery versus payment settlement techniques and manages CCP margin and default fund flows through central bank or long-established, bespoke commercial bank settlement mechanisms. Monies due from clearing members remain the clearing members' liability if the payment agent is unable to effect the appropriate transfer. In addition, certain Group companies, including the CCPs, maintain operational facilities with commercial banks to manage intraday and overnight liquidity. Custodians are subject to minimum eligibility requirements, ongoing credit assessment, robust contractual arrangements and are required to have appropriate back-up contingency arrangements in place. Financial liability maturity The table below analyses the Group's financial liabilities into relevant maturity groupings based on the remaining period from the balance sheet date to the contractual maturity date. The amounts disclosed in the table reflect the contractual undiscounted cash flows. The borrowings line includes future interest on debt that is not accrued for in relation to bonds that are not yet due.
As at 31 December 2020	Less than 1 year	Between 1 & 2 years		Between 2 & 5 years	Over 5 years	Total
	£m	£m		£m	£m	£m
Borrowings	648	20		505	947	2,120
Trade & other payables (excluding lease liabilities)	554	-		-	-	554
Lease liabilities	42	36		82	82	242
Clearing member business liabilities	841,553	-		-	-	841,553
Derivative financial instruments	6	-		9	2	17
Other non-current liabilities (excluding lease liabilities)	-	5		-	-	5
As at 31 December 2019	Less than 1 year	Between 1 & 2 years		Between 2 & 5 years	Over 5 years	Total
	£m	£m		£m	£m	£m
Borrowings	529	333		483	914	2,259
Trade & other payables (excluding lease liabilities)	560	-		-	-	560
Lease liabilities	39	41		90	36	206
Clearing member business liabilities	796,102	-		-	-	796,102
Derivative financial instruments	1	-		30	9	40
Other non-current liabilities (excluding lease liabilities)	-	4		-	-	4

Market Risk - Foreign Exchange

Risk description	Risk management approach
The Group operates primarily in the UK, Europe and North America, but also has growing and strategically important businesses in Asia, and other alliances and investments across the globe. Its principal currencies of operation are Sterling, Euro and US dollars. Group companies generally invoice revenues, incur expenses and purchase assets in their respective local currencies. As a result, foreign exchange risk arises mainly from the translation of the Group's foreign currency earnings, assets and liabilities into its reporting currency, Sterling, and from occasional, high value intragroup transactions. Exceptions exist including at MillenniumIT (a Sri Lankan Rupee reporting entity) which invoices a material proportion of its revenues in US dollars, and at certain operations of the LCH Group (a Euro reporting subsidiary), which generate material revenues in Sterling and US dollars and incur material costs in Sterling. Intragroup dividends and the currency debt interest obligations of the Company may create short-term transactional FX exposures but play their part in controlling the level of translational FX exposures the Group faces. The Group may be exposed from time to time to FX risk associated with strategic investments in, or divestments from, operations denominated in currencies other than Sterling.	The Group seeks to match the currency of its debt liabilities to the currency of its earnings and cash flows which, to an extent, protects its key ratios (net leverage and interest coverage) and balances the currency of its assets with its liabilities. In order to mitigate the impact of unfavourable currency exchange rate movements on earnings and net assets, non-Sterling cash earnings are centralised and applied to matching currency debt and interest payments, and, where relevant, interest payments on Sterling debt re-denominated through the use of cross-currency swaps. A material proportion of the Group's debt is held in or swapped into Euros and US dollars as noted below. 31 December 2020 31 December 2019 Currency of debt £m £m Euro- denominated drawn debt 1,530 1,557 Euro- denominated cross-currency interest rate swaps (613) (637) US Dollar- denominated drawn debt - 107 US Dollar denominated cross - currency interest rate swaps 613 637 The cross-currency interest rate swaps are directly linked to Euro fixed debt. The Euro and US dollar denominated debt, including the cross-currency swaps, provides a hedge against the Group's net investment in Euro and US dollar denominated entities. As at 31 December 2020, the Group's designated hedges of its net investments were fully effective. Whilst transactional foreign exchange exposure is limited, the Group hedges material transactions in accordance with Group Treasury policy (which requires cash flows of single transactions or a series of linked transactions of more than £5 million or equivalent per annum to be hedged) with appropriate derivative instruments or by settling currency payables or receivables within a short timeframe. Where appropriate, hedge accounting for derivatives is considered in order to mitigate material levels of income statement volatility.  In addition to projecting and analysing its earnings and debt profile by currency, the Group reviews sensitivities to movements in exchange rates which are appropriate to market conditions. The Group has considered movements in the Euro and the US dollar over the year ended 31 December 2020 and year ended 31 December 2019 and, based on actual market observations between its principal currency pairs, has concluded that a 10% movement in rates is a reasonable level to illustrate the risk to the Group. The impact on post tax profit and equity is set out in the table below:
2020  2019   Post tax profit  Equity  Post tax profit  Equity   £m  £m  £m  £m Euro  Sterling weaken   -  40  -  5   Sterling strengthen  -  (36)   -  (5) US Dollar  Sterling weaken  6  (51)  (4)  (55)    Sterling strengthen  (5)  47  4  50 This reflects foreign exchange gains or losses on translation of Euro and US dollar denominated financial assets and financial liabilities, including Euro and US dollar denominated cash and borrowings. The impact on the Group's operating profit for the year before amortisation of purchased intangible assets and non-underlying items, of a 10 Euro cent and 10 US dollar cent movement in the Sterling-Euro and Sterling-US dollar rates respectively, can be seen below:    2020   2019    £m   m Euro  Sterling weaken  42  32    Sterling strengthen  (35)  (27)  US Dollar  Sterling weaken  14  37     Sterling strengthen  (12)  (31)

 Market risk - Cash Flow and Fair Value Interest Rate Risk

Risk Description

Risk management approach

The Group's interest rate risk arises through the impact of changes in market rates on cash flows associated with cash and cash equivalents, investments in financial assets and borrowings held at floating rates. The Group may also face future interest rate exposure connected to committed M&A transactions where significant debt financing is involved. The Group's CCPs face interest rate exposure through the impact of changes in the reference rates used to calculate member liabilities versus the yields achieved through their predominantly secured investment activities.

Group interest rate management policy focuses on protecting the Group's credit rating and maintaining compliance with bank covenant requirements. To support this objective, a minimum coverage of interest expense by EBITDA of 7 times, and a maximum floating rate component of 50% of total debt are targeted. This approach reflects: i)  a focus on the Group's cost of gross debt rather than its net debt given the material cash and cash equivalents set aside for regulatory purposes; ii)  the short duration allowed for investments of cash and cash equivalents held for regulatory purposes which, by their nature, generate low investment yields; iii)  a view currently maintained that already low market yields are unlikely to move materially lower; and iv)  the broad natural hedge of floating rate borrowings provided by the significant balances of cash and cash equivalents held effectively at floating rates of interest. As at 31 December 2020, consolidated net interest expense cover by EBITDA was measured over the 12-month period at 18.8 times (2019: 14.4 times) and the floating rate component of total debt was 16% (2019: 25%). Where the Group has committed to M&A transactions and is exposed to prospective interest rate risk on borrowings the Group Treasury function will consider the exposure and recommend hedging solutions that conform with policy and seek to limit future interest costs. The acquisition of Refinitiv will meaningfully increase the Group's debt and the interest rate risk exposure was evaluated during the financial period. As at 31 December 2020, no hedging had been arranged but the exposure remains under ongoing review. In the Group's CCPs, interest bearing assets are generally invested in secured instruments or structures and for a longer term than interest bearing liabilities, whose interest rate is reset daily. This makes investment revenue vulnerable to volatility in overnight rates and shifts in spreads between overnight and term rates. Interest rate exposures (and the risk to CCP capital) are managed within defined risk appetite parameters against which sensitivities are monitored daily. In its review of the sensitivities to potential movements in interest rates, the Group has considered interest rate volatility over the last year and prospects for rates over the next 12 months and has concluded that a 1 percentage point upward movement (with a limited prospect of material downward movement) reflects a reasonable level of risk to current rates. At 31 December 2020, at the Group level, if interest rates on cash and cash equivalents and borrowings had been 1 percentage point higher with all other variables held constant, post tax profit for the year would have been £10 million higher (2019: £8 million higher) mainly as a result of higher interest income on floating rate cash and cash equivalents partially offset by higher interest expense on floating rate borrowings. At 31 December 2020, at the CCP level (in aggregate), if interest rates on the common interest bearing member liability benchmarks of Eonia, Fed Funds and Sonia, for Euro, US dollar and Sterling liabilities respectively, had been 1 percentage point higher, with all other variables held constant, the impact on post tax profit for the Group would have been £2 million lower (2019: £2 million lower). This deficit is expected to be recovered as investment yields increase as the portfolio matures and is reinvested.

The Annual Report contains the following statements regarding responsibility for financial statements on page 125:  "The Directors are responsible for preparing the Annual Report, the Directors' Remuneration Report and the financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. The Directors have prepared the Group and Company financial statements in accordance with International Financial Reporting Standards (IFRSs) adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union. Under company law, the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of the affairs of the Group and the Company and of the profit or loss for that year. In preparing those financial statements, the Directors are required to:

• Select suitable accounting policies in accordance with IAS 8: Accounting Policies, Changes in Accounting Estimates and Errors and then apply them consistently

• Present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information

• Make judgements and estimates that are reasonable

• Provide additional disclosures when compliance with the specific requirements in IFRSs adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Group and the Company's financial position and financial performance

• In respect of the Group financial statements, state whether IFRSs in conformity with the Companies Act 2006 and IFRSs adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union have been followed, subject to any material departures disclosed and explained in the financial statements

• In respect of the parent Company financial statements, state whether IFRSs in conformity with the Companies Act 2006, have been followed, subject to any material departures disclosed and explained in the financial statements

• Prepare the financial statements on the going concern basis, unless it is inappropriate to presume that the Group and the Company will continue in business

The Directors confirm that they have complied with the above requirements in preparing the financial statements.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group and the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and the Group and to enable them to ensure that the financial statements and the Directors' Remuneration Report comply with the Companies Act 2006, other applicable laws and regulations, including the requirements of the Listing Rules and the Disclosure Guidance and Transparency Rules, and, as regards the Group financial statements, Article 4 of the IAS Regulation. The Directors are also responsible for safeguarding the assets of the Company and the Group and for taking reasonable steps for the prevention and detection of fraud and other irregularities.  

The Directors are responsible for the maintenance and integrity of the corporate and financial information on the Company's website.

Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Overview and Strategic Report sections of the Annual Report on pages 2-71. In particular, the current economic conditions continue to pose a number of risks and uncertainties for the Group and these are set out in Principal Risks and Uncertainties on pages 25-39.

The Financial Risk Management objectives and policies of the Group and the exposure of the Group to capital risk, credit risk, market risk and liquidity risk are discussed on pages 149-152. The Group continues to meet Group and individual entity capital requirements and day-to-day liquidity needs through the Group's cash resources and available credit facilities.

The combined total of committed facilities and bonds issued at 31 December 2020 was £2,853 million (2019: £2,781 million) excluding the undrawn Bridge Facility arranged to provide financing capacity relating to the Group's acquisition of Refinitiv, with the first maturing in November 2021. Following the completion of the acquisition of Refinitiv, the revised committed facilities and bonds issued was £6,072 million excluding the undrawn Bridge Facility.

The Directors have reviewed the Group's forecasts and projections, taking into account reasonably possible changes in trading performance, which show that the Group has sufficient financial resources. On the basis of this review, and after making due enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the financial statements.

Each of the Directors, whose names and functions are set out on pages 73-75 of this Annual Report confirms that, to the best of their knowledge and belief:

• The Group and the Company financial statements, which have been prepared in accordance with IFRSs adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the Group taken as a whole

• The report of the Directors contained in the Annual Report includes a fair review of the development and performance of the business and the position of the Company and the Group taken as a whole, together with a description of the principal risks and uncertainties that they face

• They consider that the Annual Report and Accounts 2020, taken as a whole, is fair, balanced and understandable and provide the information necessary for shareholders to assess the Group and the Company's performance, business model and strategy.

By Order of the Board

Lisa Condron

Group Company Secretary

5 March 2021" 

"33. Transactions with Related Parties

Key management personnel

Key management personnel comprises the Executive Directors, Group Chair and Executive Committee, who have authority for planning directing and controlling the activities of the Group. Compensation for key management personnel was as follows:

2020		2019
£m		£m
Salaries and other benefits	16	11
Pensions	1	1
Share based payments	17	12
34			24

Key management compensation relates to the Executive Directors, Group Chair and Executive Committee, who have authority for planning, directing and controlling the Group.  

Other directors' interests

One director of the Company has a 33.8% (2019: 40.5%) equity interest in Quantile Group Limited (QGL) which as a group is an approved compression service provider for the Group's LCH Limited and London Stock Exchange plc subsidiaries. The Group operated a commercial arrangement with Quantile Technologies Limited (a subsidiary of QGL) and all transactions were carried out on an arm's length basis. During the year the Group recognised income of £0.1 million as part of the agreement (2019: income £0.5 million; expenses £0.4 million).

Inter-company transactions with subsidiary undertakings 

The Company has unsecured loans with subsidiary undertakings. Details of the loans outstanding as at 31 December 2020 are shown below:

	Amount (owed to)/due from				Interest (charge)/credit
Loan counterparty	2020	2019	Term	Interest rate as at 31 Dec 2018	2020	2019
London Stock Exchange plc	£(209)m	£(203)m	25 years from May 2006 with five equal annual repayments commencing in May 2027.	LIBOR plus 2% per annum	£(6)m	£(6)m
London Stock Exchange Employee Benefit Trust	£45m	£41m	Repayable on demand.	Non-interest bearing	-	-
London Stock Exchange Group Holdings (Italy) Limited	€(202)m	€(206)m	Fifth anniversary of the initial utilisation date which was April 2018.	EURIBOR plus 1.5% per annum	€(2)m	€(2)m
London Stock Exchange Group Holdings Limited	£175m	£272m	Fifth anniversary of the initial utilisation date which was October 2019.	LIBOR plus 1.5% per annum	£4m	£9m
London Stock Exchange Reg Holdings Limited	£15m	£24m	Fifth anniversary of the initial utilisation date which was July 2018.	LIBOR plus 1.2% per annum	-	-
London Stock Exchange (C) Limited	-	£(40)m	Fifth anniversary of the initial utilisation date which was May 2017.	EURIBOR plus 1.5% per annum	-	-
London Stock Exchange Group Holdings (Luxembourg) Ltd	US$(418)m	US$(227)m	Fifth anniversary of the initial utilisation date which was November 2019.	EURIBOR plus 1.5% per annum	US$(6)m	US$(2)m
LSEG Employment Services Limited	714m	£34m	Fifth anniversary of the initial utilisation date which was April 2020	LIBOR plus 1.2% per annum	£1m	£1m
London Stock Exchange Group (Services) Limited	£217m	£197m	Fifth anniversary of the initial utilisation date which was January 2016	LIBOR plus 0.9% per annum	£2m	£3m

During the year, the Company charged its subsidiaries the following amounts in respect of employee share scheme expenses:

Subsidiary company or group		2020 £m	2019 £m
LSEG Employment Services Limited		16	10
LCH group		9	6
London Stock Exchange Group Holdings Italia SpA		5	4
FTSE group		4	4
London Stock Exchange Group Holdings Inc		7	5
London Stock Exchange plc		6	4
Other		2	2

During the year the Company received the following dividends:

Subsidiary company		2020 £m	2019 £m
LSEGH (Luxembourg) Ltd		55	60
London Stock Exchange Group Holdings (Italy) Ltd		123	31
London Stock Exchange Group Holdings Ltd		45	155
London Stock Exchange plc		193	218
London Stock Exchange (C) Ltd		167	-

The Company recognised £11 million other income (2019: £7 million) and £58 million operating expenses (2019: £72 million) with subsidiary companies in corporate recharges during the year.

At 31 December 2020, the Company had £88 million (2019: £25 million) other receivables due from subsidiary companies and other payables of £68 million (2019: £78 million) owed to subsidiary companies.

Transactions with associates

In the year ended 31 December 2020, the Group recognised £3 million revenue (2019: £1 million) from its associates and as at 31 December 2020, the Group had £3 million receivable from its associates (2019: £1 million).

All transactions with subsidiaries and associates were carried out on an arm's length basis."  

 

END

 

 

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