Annual Financial Report

RNS Number : 9847V

Vanquis Banking Group PLC

12 April 2023

 

12 April 2023

Vanquis Banking Group plc ('Company')

Publication of 2022 Annual Report and Financial Statements and Notice of 2023 Annual General Meeting

The Company has today published the following documents:

-  2022 Annual Report and Financial Statements; and

-  Notice of 2023 Annual General Meeting ('AGM').

In compliance with LR 9.6.1R, the 2022 Annual Report and Financial Statements and Notice of 2023 AGM have been submitted to the Financial Conduct Authority via the National Storage Mechanism and will shortly be available to the public for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism . These documents will also be available on the Group's website from today at: www.vanquisbankinggroup.com/shareholder-hub .

Annual General Meeting

The AGM will be held at 11.30 on Thursday 25 May 2023 at the offices of Clifford Chance, 10 Upper Bank Street, Canary Wharf, London E14 5JJ.

Additional information

A condensed set of the Company's financial statements and information on important events that have occurred during the financial year and their impact on the financial statements were included in the Company's results statement (RNS announcement dated 31 March 2023 ("Preliminary results for the year ended 31 December 2022")). That information, together with the information set out below constitutes the material required by DTR 6.3.5R. This announcement is not a substitute for reading the 2022 Annual Report and Financial Statements in its entirety. Page, note and section references below refer to the corresponding pages and/or notes/section in the 2022 Annual Report and Financial Statements.

Contact: David Whincup, (0)1274 351 344

Appendix

Principal risks

Principal risks

Principal risks are risks which are most significant to Vanquis Banking Group's strategy and business model and have formally been articulated as part of its Risk Appetite Framework. Principal risk categories and associated risk appetite statements are reviewed and approved by the Board on an annual basis, effectively defining Vanquis Banking Group's overall risk appetite.

P1 Capital risk

Risk description The risk that the Group fails to maintain the minimum regulatory capital requirements and a management buffer on a consolidated basis to cover risk exposures and withstand a severe stress as identified as part of the Internal Capital Adequacy Assessment Process (ICAAP).

Mitigating activities and other considerations · The Group and Bank maintain capital ratios in excess of regulatory requirements. The capital risk metrics are regularly monitored at Asset and Liability Committee (ALCO), the Risk Committee and the Board, and are subject to other internal management reviews. This includes ensuring that capital resources are sufficient for planned changes in the balance sheet, and consideration of changes in the regulatory environment. On 8 March 2023 the Group announced an update about our capital requirements from the PRA, following conclusion of its Capital Supervisory Review and Evaluation Process. The outcome was a reduction in the Group's Total Capital Requirement by more than a third, from 18.3% to 11.9%. · In line with the PRA's requirements, the Group's Internal Capital Adequacy Assessment Process (ICAAP) is updated at least annually. Challenge and oversight of the ICAAP occurs at ALCO and Risk Committee before approval by Board. · The 2022 ICAAP is the first assessment since the closure of the Consumer Credit Division (CCD). As CCD has been removed from the assessment, the associated capital requirements have reduced. The ICAAP demonstrated that the Group and Bank are more than adequately capitalised. · The methodology for assessing capital risks takes the Pillar 1 requirements for credit, operational and market risks as a starting point. The assessment then considers whether the Pillar 1 requirement is sufficient to cover management's own assessment of the risks (such as credit concentration, operational, pension and interest rate risk). Where it is considered that additional capital is required, this is held as a Pillar 2A requirement. The combination of Pillar 1 and Pillar 2A requirements form the total capital requirement (TCR). · To protect against the risk of consuming Pillar 1 and Pillar 2A requirements, firms are subject to regulatory capital buffers. Where relevant a firm-specific PRA buffer is also applied. · The overall capital requirement (OCR) for the Group and Bank is comprised of: (i) the TCR (covering Pillar 1 and 2A) set by the PRA after review of the ICAAP; (ii) the combined buffers; and (iii) a PRA buffer set by the PRA. · At 31 December 2022, the Group's CET1 ratio was 26.4% (2021: 29.1%), the TCR was 37.5% (2021: 40.6%) and the OCR was 21.8% (2021: 20.8%), excluding any confidential buffers, if applicable. The Group and Bank also monitors the Leverage Ratio which was 21.0% (2021: 18.1%). By 1 January 2022, around 75% of all transitional adjustments had been absorbed through capital resources, with the remaining transitional adjustment to be fully unwound on 1 January 2023. On a fully loaded basis, the Group capital resources are in excess of its capital requirement. · In December 2021, the Financial Policy Committee (FPC) announced an increase to the UK Countercyclical Capital Buffer (CCyB) rate to 1%, to be implemented by 13 December 2022. In July 2022, the FPC confirmed a further expected increase to 2%, effective 5 July 2023. The impact of this on the Group's OCR is expected to be partly offset by a confirmation from the PRA that the temporary 0.56% buffer (being the CET1 portion of the PS15/20 2A reduction) imposed due to uncertainty arising from Covid-19 will be removed, effective 31 December 2022. The Group and Bank already have sufficient capital resources to fully absorb the net increase of 1.44%. · The Group and Bank have elected to adopt the transitional adjustments for IFRS 9. The transitional adjustments have historically had a material impact on the Group's and Bank's regulatory capital position due to high levels of provisioning. By 1 January 2022 around 75% of all transitional adjustments had been absorbed through capital resources. With the remaining transitional adjustment to be fully unwound on 1 January 2023. · Given the robustness of the Group's financial position and the Group's first half performance, an interim dividend was announced as part of the 2022 interim results. Prior to this the Group had not paid a dividend since the 2019 interim dividend. · If the Group or Bank was to encounter a significant stress on capital resources, a Recovery Plan is maintained which includes options to ensure that they can remain sufficiently capitalised to remain viable. Recovery Plan Early Warning Indicators (EWIs) and Invocation Trigger Points (ITPs) are regularly monitored and reported against. During 2022, the Recovery Plan was enhanced to ensure compliance with latest regulatory guidance, as well as ensuring that all recovery options were appropriately considered. The Group and Bank continue to have a wide range of recovery options available. · As part of the intra-group funding arrangement, a Core UK Group (CUG) waiver was approved in November 2022 which allows Vanquis to utilise retail deposits to fund the different parts of the Group, resulting in lower cost of funds for the non-bank group. As part of considerations over Vanquis Bank's CUG waiver application, a Capital Support Agreement (CSA) was granted by Moneybarn in favour of Vanquis Bank. The CSA, in circumstances where Vanquis Bank is failing to meet its solo capital requirements, requires Moneybarn to contribute any excess capital, or liquidity, it holds to Vanquis Bank. In addition, Moneybarn was capitalised as if it were a regulated entity, based on the Group's 2022 ICAAP. · The Group's Pillar 3 disclosures contain a comprehensive assessment of its capital requirement and resources. Pillar 3 disclosures for the year ended 31 December 2022 are published separately on the Group's website, www.vanquisbankinggroup.com.

P2 Funding and liquidity risk
Risk description The risk that the Group has insufficient financial resources to meet its obligations (cash or collateral requirements) as they fall due, resulting in the failure to meet regulatory liquidity requirements, or is only able to secure such resources at excessive cost.	Mitigating activities and other considerations · Funding and liquidity risks are managed within a comprehensive risk framework. This framework ensures that the Group and the Bank maintain stable and diverse funding sources and a sufficient holding of high-quality liquid assets such that there is no significant risk that liabilities cannot be met as they fall due. Funding and liquidity requirements are regularly monitored to support the strategy of the Group and Bank. · Funding and liquidity risk is managed by the Group's Treasury function and is overseen by the ALCO Funding and liquidity metrics are monitored daily through daily liquidity reporting and monthly at ALCO meetings. Metrics are also included in the information packs presented to the Group's ExCo, Risk Committee and Board. · The primary metrics used to monitor and assess the adequacy of liquidity is the Overall Liquidity Adequacy Rule (OLAR) (which is the Board's own view of the Group and Bank liquidity needs as set out in the Board approved Internal Liquidity Adequacy Assessment Process (LAAP)), the Liquidity Coverage Ratio (LCR), and Net Stable Funding Ratio (NSFR). Liquidity is managed by working to ensure compliance with the most binding metric and is monitored on a solo and consolidated basis. · During 2022, a significant amount of work was undertaken to update the ILAAP. The 2022 Board approved ILAAP is the first ILAAP prepared for the consolidated Group and excludes the CCD which was closed in December 2021. The ILAAP demonstrates that the Group and Bank have sufficient high-quality liquid assets to meet severe but plausible stress scenarios. · Treasury conducts regular and comprehensive liquidity stress testing to ensure that the Group and Bank's liquidity position remains within the Board risk appetite. Stress testing covers idiosyncratic, market-wide and combined stress scenarios, including reverse stress testing. · The Group and Bank have maintained liquidity ratios in excess of regulatory and internal requirements throughout the year and continue to hold significant levels of high-quality liquid assets (HQLA). The liquidity position was managed to more normalised levels following action that was taken during the Covid-19 pandemic. · Throughout the year, the Bank has demonstrated that it continues to have access to the retail deposit market through fixed rate deposits. The Bank is seeking to widen the range of retail deposit products that it offers, increasing the pool of retail deposits it has access to as well as helping to alleviate upward movements in funding cost. · Following the approval of the CUG waiver, retail deposits will provide most of the funding for the Group, resulting in lower cost of funds. Wholesale funding sources will be maintained to ensure diversity of funding sources and provide contingent funding options. · If the Group or Bank was to encounter a significant stress on liquidity resources, a Recovery Plan is maintained which includes options to ensure that they can remain sufficiently liquid to remain viable. Recovery Plan Early Warning Indicators (EWIs) and Invocation Trigger Points (ITPs) are regularly monitored and reported against. During 2022, the Recovery Plan was enhanced to ensure compliance with latest regulatory guidance, as well as ensuring that all recovery options were appropriately considered. The Group and Bank continue to have a wide range of recovery options available.

P3 Market risk
Risk description The risk that the net value of, or net income arising from, assets and liabilities is impacted as a result of changes in market prices or rates, specifically interest rates, currency rates or equity prices.	Mitigating activities and other considerations · Market risk is managed by the Group's Treasury function and is overseen by the ALCO. The Group and Bank do not take significant unmatched positions and do not operate trading books. · The Group and Bank use interest rate sensitivity gap analysis to inform the Group and Bank of any significant unmatched positions. · The interest rate risk position is reported on a monthly basis to the ALCO and includes risk appetite metrics set for both earnings at risk (EaR) and market value sensitivity (MVS). These are assessed against a 100bps and 200bps parallel shift in rates respectively. · The Group and Bank also monitor their exposure to economic value of equity (EVE), against a 200bps parallel shock in interest rates, as well as the six standardised shocks prescribed by the Basel Committee on Banking Supervision (BCBS). · Throughout 2022, a significant amount of work has been undertaken to validate the interest rate risk position on a behavioural basis and introduce the capability to transact interest rate derivatives to manage the residual interest rate risk position. This culminated in the transaction of interest rate derivatives (SONIA linked) in the second half of the year. · The Group and Bank monitor their exposure to basis risk, with Bank of England base rate and SONIA the only external reference rates used. The Group does not have any exposure to LIBOR. · The Group continues to monitor potential implications for the strategy in response to financial market turbulence and undertakes reviews of product pricing to ensure it is consistent with markets and cost of funds.

P4 Credit risk
Risk description The risk of unexpected credit losses arising through either adverse macroeconomic factors or parties with whom the Group has contracted failing to meet their financial obligations.	Mitigating activities and other considerations · Credit risk remains a key focus for the Group given the current macroeconomic environment. · The Group continues to monitor the impact of the cost of living crisis on portfolio performance, and internal measures have been put in place to help mitigate potential risks. These include, but are not limited to, alignment of creditworthiness assessments to the latest official inflationary outlook, production of targeted management information, and enhanced forbearance programmes. Ongoing executive focus is maintained through a Cost of Living Forum, jointly chaired by the CRO and the COO, together with standard Risk Committee reporting. · The Group's credit risk appetite is under regular review by the Credit Committee and Risk Committee to ensure that it remains aligned to current market and economic conditions. · A cross-functional working group is in place to create a centre of excellence for calculation of provisions under IFRS 9. The working group ensures that there are suitably skilled resources with clear accountabilities, effective governance arrangements, optimised models, aligned activities and effective management information and insights across the Group. · Performance of risk models is being closely monitored by the Group, with adjustments implemented where any continued deviation from expected performance is evidenced. · The Group continues to pursue opportunities to supplement existing data sources to enhance both credit and affordability risk, i.e. open banking.

P5 Strategic execution risk
Risk description The risk of making and/or executing poor strategic decisions related to acquisitions, products, distribution, etc. as a result of ineffective governance arrangements, processes and controls.	Mitigating activities and other considerations · The Board and its sub-committees make risk-based decisions in the formulation of their business strategy, in line with their Delegated Authority Framework and Risk Appetite Framework and subject to independent oversight from the Risk function. · Board Governance Manual and Delegated Authorities Matrix (DAM) is in place to provide a framework for key decision making at all levels across the Group. · Executive director scorecards are in place, with reward incentives based on a combination of financial and non-financial measures. · Group Risk Appetite Framework is in place with agreed metrics and thresholds approved by the Board. · Strategic and emerging risks are reported to the GEC and GRC on any areas of concern. · Risk overlay is completed annually by the Group CRO on behalf of the Remuneration Committee (RemCo) to provide recommendations on adjustments to variable reward where governance has failed.

P6 Climate risk
Risk description The physical risk of the impacts of climate change and the business risk posed to the Group and its counterparties related to non-compliance costs and financial loss associated with the process of adjusting to a low carbon economy.	Mitigating activities and other considerations · Group-wide Climate Strategy and Policy is in place to ensure appropriate governance, controls and processes are in place to support compliance with TCFD requirements and broader ESG strategy (including net-zero targets). · Climate Risk Committee is in operation, supported by Climate Risk and Environmental Working Groups, facilitating the integration of climate considerations into the Group's broader Risk Management Framework through its reporting lines into the Customer, Culture and Ethics Committee and Group Executive Committee. · Quantitative Climate Risk Scenario Analysis and Stress Testing Framework is in place to inform forward-looking strategy, with scenarios proposed to identify potential financial impacts of transition and physical climate-related risks. ICAAP activity continues to take account of material climate-related financial impacts, meeting PRA requirements. · The Group continues to offset its direct operational carbon footprint via sustainable development projects and all main Group premises maintain ISO 14001:2015 compliant status.

P7 Legal and governance risk
Risk description The risk that the Group is exposed to financial loss, fines, censure or enforcement action due to failing to comply with legal and governance requirements as a result of ineffective arrangements, processes and controls.	Mitigating activities and other considerations · The Group simplified and strengthened its governance structure by collapsing and consolidating the Vanquis Banking Group and VBL Board executive structures. · Board Governance Manual and Group Delegated Authorities Framework is in place, setting out key decision making at all levels across the Group. · Board effectiveness is assessed on an annual basis with action plans in place to promote a culture of continuous improvement. · Explicit approval from the Board is required before any decisions and actions are made that could result in risks materialising outside of appetite. · Conflicts of Interest Policy and processes are in place to ensure all employees meet their fiduciary responsibilities. · All regulatory interactions are recorded and tracked, with regular reporting through the executive and Board committees to ensure consistency and read across through a Group lens. · The Group proactively engages with regulatory authorities and industry bodies on forthcoming regulatory changes. · Governance arrangements are continuously reviewed to ensure they are designed and operating effectively to meet the Group's objectives.

P8 Financial crime risk
Risk description The risk that the Group's products and services are used to facilitate financial crime against the Group, customers or third parties.	Mitigating activities and other considerations · The Group is committed to operating a strong and risk-proportionate set of systems and controls to manage the risk within appetite. · The second line Financial Crime Oversight team has been significantly enhanced with regards to capacity and capability. · A revised Group-wide financial crime assessment approach established to set control requirements which define the standards by which financial crime risk will be managed. · New AML, CTF and Sanctions Policy has been implemented which sets out control standards and requirements in line with the Group's Financial Crime Risk Assessment Methodology. · Regulatory actions and notifications are monitored and managed in line with relevant timescales, and regular horizon scanning takes place to identify relevant and significant regulatory change. · A Customer Lookback Project was successfully completed in March 2022, whereby 100,000 alerts were manually reviewed. This gave the Group confidence of Politically Exposed Person (PEP) records and that no relationships exist with individuals subject to economic sanctions.

P9 Conduct and regulatory risk
Risk description The risk of customer detriment due to poor design, distribution and execution of products and services or other activities which could lead to unfair customer outcomes or regulatory censure.	Mitigating activities and other considerations · A Group-wide Conduct Risk Framework has been developed, with plans in place to further embed its requirements across the Group. This enables the Group to demonstrate adherence to the requirements set out within the FCA's three-year Strategy and Annual Business Plan and includes improved monitoring of customer outcomes across all high-risk interactions such as lending, forbearance, vulnerability and complaints. · A programme of activity has been established to meet the requirements of the FCA's Consumer Duty regulations coming into force 2023-2024. The Board and Risk Committee are provided with regular updates to support their oversight. · As part of risk harmonisation, the legacy divisional Conduct and Compliance teams have been centralised and report to the Group's Chief Conduct and Compliance Officer who continues to consolidate consistent and best practices. · Conduct Policies and Procedures are in place to ensure the Group has appropriate controls and processes to deliver fair customer outcomes. · Group Complaints Forum and reporting were established to ensure the Group is learning from complaints trends across products, including any FOS referrals or upholds and actions of claims management companies. This has resulted in a number of strategic changes outlined in the Group's emerging risks: 'Threats to our business model' and 'Responsible lending'. · As part of the Group's response to the cost of living crisis (COLC), a number of steps have been taken, including reviewing the range of support available to customers and setting up a Cost of Living Forum, which closely monitors for early indicators of cost of living pressures in the Group's book performance, to enable any remedial action to be taken as required. The Group has proactively liaised with regulators to share insights on the COLC impact, providing updates on the outcome of the Group's monitoring and adjustments to its credit risk approach throughout the year. The FCA have concluded a review of Cost-of-Living Crisis Forbearance Outcomes which Moneybarn were selected to be part of. The findings, received on 3 February 2023, were consistent with an internal review performed during 2022 which initiated a programme of work to enhance the effectiveness of operational areas to deliver improved customers outcomes. This in-flight programme will be further enhanced to reflect any additional areas of concern raised by the FCA. · A Compliance Monitoring Programme is in place, supported by a robust methodology and approved by the Risk Committee, to assess the adequacy and effectiveness of the control frameworks in place and supporting fair customer outcomes and regulatory compliance. · The Group proactively engages with regulatory authorities on a frequent basis.

P10 People risk
Risk description There is a risk that we have insufficient operational capacity and colleagues with the right skills in meeting our financial, customer and regulatory responsibilities.	Mitigating activities and other considerations · People and HR function centralised to streamline critical people management activities across the Group. · People Risk Forum to support the management of key people-related risks. · Operational Effectiveness Steering Group (OESG) implemented to govern and manage the risks associated with structural changes. · Succession plans completed and in place for all Executive and Senior Management. · Communications have and continue to be shared with colleagues across the Group to keep them apprised of business changes and to support wellbeing. · Full health and safety risk assessment completed of all our key work locations with mitigating actions completed. · Recruitment, onboarding, training and exit processes have been strengthened across the Group. · Consistent frameworks have been developed and embedded for Group reward, performance management (Be Better) and talent management.

P11 Technology and information security risk
Risk description The risk arising from compromised or inadequate technology, security and data that could affect the confidentiality, integrity or availability of the Group's data or systems.	Mitigating activities and other considerations · An IT shared service operating model has been implemented to seek commercial and cost opportunities and manage associated risks effectively and efficiently across all product lines. · An IT Strategic Programme is in place to deliver new architecture to embrace modern principles of open architecture, supporting easy addition, upgrade and replacement of components and the use of scalable cloud services, while continuing to address key areas of technical debt. · A cyber security strategy has been developed to align security across the Group and implement a consistent and robust service which supports the delivery of the overall business and IT strategies. · Continued progress with the IT First Line Controls Review (FLCR), enhancing IT control effectiveness and risk maturity across the Group and transitioning risk and control ownership into business as usual (BAU) activity.

P12 Operational risk
Risk description The risk of loss resulting from inadequate or failed internal processes, people and systems or from external events.	Mitigating activities and other considerations · The Group's three lines of defence model ensures there are clear lines of accountability between management which owns the risks, oversight by the Risk function and independent assurance provided by Internal Audit. · The Risk Harmonisation Programme, which provides a more consistent and integrated approach to risk management across the Group, has moved from implementation to embedding stage. The programme is delivering a single Enterprise Risk Management Framework, consolidated Risk Policies and methodologies, and risk reporting capability. · An integrated Risk Management System (Riskonnect) has been implemented which provides a central and secure repository of risk information across the Group's three lines of defence. Implementation of the system significantly enhances the Group's risk management capability, improved risk and control effectiveness, and realised resource efficiencies with the automation of processes and reporting. · The Risk and Control Self-Assessment (RCSA) process has been subject to a budgeted programme of improvement activity, jointly sponsored by the Chief Operations Officer, Chief Information Officer and Chief Risk Officer. This programme has enhanced the accuracy, completeness and reliability of risk and control data. · A fully standardised model for supplier management is being embedded, which includes the implementation of a new Supplier Relationship Management (SRM) Framework, Change Governance Framework, Portfolio Working Group and Transformation Executive Committee, and alignment of the Operational Resilience and Supplier and Third-Party Risk Management Frameworks. · Work is progressing on the implementation and embedding of a harmonised change management control environment across the Group.

P13 Model risk
Risk description The risk of financial losses where models fail to perform as expected due to poor governance (including design and operation).	Mitigating activities and other considerations · Model Risk Management Framework and Policy, Target Operating Model and supporting modelling standards are in place. · Material models across the Group are independently validated as required in the policy. · Group model inventory, containing key models across the Group, is reviewed and updated on a regular basis and has all the necessary information to enable effective model risk reporting and planning. · High-risk issues and findings on material models are addressed urgently and outstanding model risk issues and findings are monitored and reported to relevant governance forums across the Group. · Group Model Governance Forum meets regularly and effectively provides model risk oversight, driving a standardised approach to model development and governance across the Group. · Existing Group Model Risk Management Framework has been assessed against the PRA's proposed Model Risk Management Principles (CP6/22) and found no material gaps. · Enhancements made to the existing IFRS 9 models with further improvements planned on the governance, performance monitoring and methodology of these models.

Responsibilities statement

The Directors' responsibilities statement is extracted from page 118 of the 2022 Annual Report and Financial Statements.

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors are required to prepare the Group financial statements in accordance with relevant IFRS, IFRIC interpretations and the Companies Act 2006.

Patrick Snowball	Chairman
Malcolm Le May	Chief Executive Officer
Neeraj Kapur	Chief Finance Officer
Andrea Blance	Senior Independent Director
Angela Knight	Non-Executive Director
Elizabeth Chambers	Non-Executive Director
Margot James	Non-Executive Director
Paul Hewitt	Non-Executive Director
Graham Lindsay	Non-Executive Director
Michele Greene	Non-Executive Director Appointed 9th March 2023
Robert East	Non-Executive Director Resigned 13th January 2022

 

END

 

 

ACSNKBBNCBKKCQD