_________________________________
ANNUAL REPORT 2019
Welcome to Manx Financial Group PLC
Welcome to Manx Financial Group PLC
Welcome to Manx Financial Group PLC
Welcome to Manx Financial Group PLC
Integrity through independence and service
An independent banking group founded in 1935, domiciled in the
Isle of Man
Manx Financial Group PLC (“MFG”) is
an AIM-listed company (LSE: MFX.L)
which has subsidiaries engaged in a
suite of financial services based in the
Isle of Man and
the UK. These
companies offer financial services to
both retail and commercial customers.
MFG's strategy is to grow organically
and through strategic acquisition to
further augment the range of services
it offers.
Principal wholly owned subsidiaries:
• Conister Bank Limited
• Conister Finance & Leasing Ltd
• Blue Star Business Solutions Limited
• Edgewater Associates Limited
• Manx FX Limited
Conister Bank Limited (the “Bank”) is a
licensed independent bank, regulated
by the Financial Services Authority in
the Isle of Man, the Financial Conduct
Authority in the UK and is a full
member of
Isle of Man’s
Association of Licensed Banks.
the
The Bank provides a variety of
financial products and services,
including savings accounts, asset
financing, personal loans, loans to
small and medium sized enterprises,
block discounting and other specialist
secured credit facilities to the Isle of
the UK consumer and
Man and
business sectors.
Conister Finance & Leasing Ltd
(“CFL”) is a subsidiary of the Bank. It
is a credit broker providing brokerage
of hire purchase and leasing finance
facilities in the UK.
CFL is regulated by the Financial
Services Authority in the Isle of Man
and the Financial Conduct Authority in
the UK.
Blue Star Business Solutions Limited
(“BBSL”) is a finance broker providing
asset finance and commercial loans in
the UK to an expanding customer
base.
Edgewater Associates Limited (“EAL”)
is the largest independent financial
adviser in the Isle of Man.
EAL provides a bespoke and personal
service to Isle of Man residents and to
the Group’s business and personal
customers and advises on assets in
excess of £324 million (31 December
2018: £310 million).
EAL provides services in the areas of
wealth management, mortgages,
general
retirement
planning.
insurance, and
Manx FX Limited provides access to
competitive foreign exchange and
international payment processing
facilities.
CONTENTS
Chairman’s Statement
Business Model and Strategy
Risk Management
Corporate Governance Report
Directors, Officers and Advisers
Audit, Risk and Compliance Committee
Directors’ Remuneration Report
Directors’ Report
Annual Financial Statements’ Contents
Statement of Directors’ Responsibilities
Independent Auditor’s Report
Consolidated Statement of Profit or Loss and Other Comprehensive Income
Company Statement of Profit or Loss and Other Comprehensive Income
Consolidated Statement of Financial Position
Company Statement of Financial Position
Consolidated and Company Statements of Changes in Equity
Consolidated Statement of Cash Flows
Company Statement of Cash Flows
Notes to the Consolidated Financial Statements
01
04
06
12
16
18
21
23
24
25
26
31
32
33
34
35
36
37
38
STRATEGIC REPORT
CHAIRMAN’S STATEMENT
Dear Shareholderssss
Dear Shareholder
Dear Shareholder
Dear Shareholder
Introduction
Introduction
Introduction
Introduction
Normally, it would be pleasing to announce that 2019
produced record results, with pre-tax profit increasing by
11.5% to £3.0 million (2018: £2.7 million) and profit after tax
increasing by 8.4% to £2.7 million (2018: £2.5 million).
However, it would be remiss of me, in the publication of these
encouraging figures, to not comment on the impact, both here
and across the world, of COVID-19. Government actions to
stop the spread of the virus have, in turn, led to a cessation of
economic activity
in many sectors which, despite
unprecedented financial support, will clearly take some time to
recover to their previous levels. As a consequence, I have
delayed the publication of these accounts to enable me to
provide as much clarity as possible on the potential effect of
COVID-19 to the Group and its subsidiaries.
As a Group, we are as well prepared as possible for the
financial impact of the virus on our operations and, thankfully
over the years, we have been cautious in our provisioning and
understood the need to maintain maximum liquidity. I will
return to this topic later in my report.
Our 2019 results show operating income increasing by 28.1%
to £16.9 million (2018: £13.2 million), which includes a 15.2%
growth in our net interest income to £17.9 million (2018: £15.6
million) and a further reduction of 11.2% in commission
expense to £5.4 million (2018: £6.1 million). These figures
represent the effect of a record year for gross new business
origination of £153.8 million (2018: £102.1 million), an
increase of 50.6%.
Against this, our operating expenses ex-provisions have
grown by 24.4% to £11.9 million (2018: £9.6 million), the
majority of which reflects the continuing investment in our UK
expansion. In line with our continuing policy of reviewing
Conister Bank’s loan book, we have increased provisions by a
further £1.9 million (2018: £0.9 million). Thus, in balance sheet
terms, our cumulative provisions of £4.8 million (2018: £3.4
million) against the net loan book stand at only 2.7% (2018:
2.3%) – further confirming the strength of Conister Bank’s
credit underwriting. Despite our strategic investment in UK
expansion, our operating cost (less provisions) to operating
income ratio has improved to 70.8% (2018: 72.9%).
Turning to our balance sheet, our loan book has grown by
21.0% to £179.4 million (2018: £148.3 million) which, whilst
not quite the growth that I was anticipating, is still a notable
achievement. I previously mentioned that we have taken steps
to increase Conister Bank’s liquidity, and our cash and near
cash has increased by 52.4% to £61.4 million (2018: £40.3
million), taking advantage of lower interest rates and, as a
consequence, our customer deposits have grown by 32.4% to
£209.9 million (2018: £158.5 million). Our net interest yield on
deposits at 10.0% remains much the same as the previous
year (2018: 10.5%) despite our gain in liquidity. Thus, our total
asset base has increased by 28.4% to £252.9 million (2018:
£196.9 million).
Shareholder equity has increased by 13.2% to £22.3 million
(2018: £19.7 million) and basic earnings per share have grown
to 1.98 pence (2018: 1.88 pence).
Our key objectives for 2020
Our key objectives for 2020
Our key objectives for 2020
Our key objectives for 2020
Turning to the current year, our fundamental focus is the
protection of shareholder value. Thus, following a recent
review, our strategic concentration is to:
Provide the highest quality service throughout our
operations to all customers, ensuring that their
treatment is both fair and appropriate;
Adopt a pro-active strategy of managing risk within a
structured compliant regime;
Concentrate on developing our core business by
considered acquisitions,
increasing prudential
lending and augmenting the range of financial
services we offer;
Implement an enhanced and
infrastructure
to better service
requirements of a growing Group without
for a disproportionate
requirement
headcount and other associated operational costs;
Focus on improving the return on the liabilities side
of our balance sheet by developing the newly
introduced Treasury management
function and
structure; and
IT
scalable
the operational
the
in
increase
Manage our balance sheet to exceed, as far as
possible, the regulatory requirements for capital
adequacy.
Risk and Governance
Risk and Governance
Risk and Governance
Risk and Governance
Immediately following this Statement, I detail our approach to
risk and governance, including an assessment of the business
models and strategies of our operating subsidiaries. In
particular, I set out our perceived risks and how these are
managed, together with a review of our regulatory compliance
and also how we meet the requirements of the QCA Code
which we adopted last year. Rather than reiterate these
methodologies at this point, I would ask that you take the
opportunity to review these topics in conjunction with my
report.
Operating subsidiaries
Operating subsidiaries
Operating subsidiaries
Operating subsidiaries
Conister Bank Limited (the “Bank”)
Conister Bank Limited (the “Bank”)
Conister Bank Limited (the “Bank”)
Conister Bank Limited (the “Bank”)
For some time, we have believed our VAT recovery rate was
neither fair nor reasonable. I am pleased to report that the
decision by the European Union in favour of Volkswagen
Financial Services (UK) Limited versus the UK’s HMRC will
allow progress to be made in recovering our outstanding
debtor: this figure now stands at £0.91 million (2018: £1.05
million). I would expect good progress to be made this year to
conclude this matter.
Our strategy to increase lending in our two geographical areas
has continued to prove successful. Advances during the year
Page | 1
STRATEGIC REPORT
CHAIRMAN’S STATEMENT
more than doubled the level achieved just two years ago, with
lending £51.7 million ahead of last year at £153.8 million
(2018: £102.1 million). Of particular note were our Isle of Man
advances, which grew by 15.8% to £31.6 million (2018: £27.3
million) and our new Newbury office which advanced £117.4
million (2018: £72.7 million). The Group’s recently acquired
broker Bluestar Solutions Limited, having integrated well into
the Bank’s operating structure, generated advances £2.7
million ahead of last year at £4.8 million (2018: £2.1 million).
This growth has not been at the cost of asset quality with the
performing loan book being a commendable 97.4% (2018:
97.8%). Our net loan book grew by 20.8% to £179.4 million
(2018: £148.3 million). This led to interest income increasing
by £3.2 million to £22.4 million (2018: £19.2 million).
Our Isle of Man deposit base remains very loyal and during the
year we achieved record monthly retention rates which is a
tribute to our customers, our people and our new systems.
With deposits increasing by £51.4 million to £209.9 million
(2018: £158.5 million) we continue to have ample deposits to
fund our growth ambitions. Although in the short term this has
negatively impacted our Loan to Deposit ratio, normally a key
efficiency measure, 85.6% (2018: 93.9%). This prudent
growth in deposits increased our interest expense by £0.8
million to £4.8 million (2018: £4.0 million).
I have discussed over the last few years the need to reduce
our dependence on overly expensive introducers and I am
pleased to report continued progress on this matter despite
the 50.6% increase in advances. During the period our
commissions paid reduced by 7.1% to £5.7 million (2018: £6.1
million).
As a result of the above our net trading income increased by
31.1%, £2.8 million, to £11.9 million (2018: £9.1 million) which
led operating income also increasing by 30.7%, £2.9 million,
to £12.4 million (2018: £9.5 million).
Overheads increased by £1.0 million to £7.2 million (2018:
£6.2 million) reflecting the first full year of our Newbury office
and the continued bolstering of our control functions. With our
loan book increasing, provisioning increased in the year by
£1.0 million to £1.9 million (2018: £0.9 million). Depreciation
increased by £0.3 million (2018: £0.0 million) driven by
accounting for leases in relation to a structured product
counterparty. Other costs netted to zero year on year. Thus, in
total the cost base increased by £2.5 million to £9.8 million
(2018: £7.3 million).
For the year, profit before taxation increased by 18.0%, £0.4
million, to £2.6 million (2018: £2.2 million).
Total assets, driven by treasury and net loan book growth,
increased by 28.7%, £55.0 million, to £245.7 million (2018:
£190.7 million). During the year we continued to improve the
capitalisation of the Bank by increasing the called-up share
capital by a further £1.7 million to £10.8 million (2018: £9.1
million). Shareholder funds increased by 18.1%, £3.8 million,
to £25.0 million (2018: £21.2 million).
Edgewater Associates Limited (“EAL”)
Edgewater Associates Limited (“EAL”)
Edgewater Associates Limited (“EAL”)
Edgewater Associates Limited (“EAL”)
Our independent financial advisory business remains the
largest on the Isle of Man and had a satisfactory year despite
strategic headwinds
legislative and VAT
from both a
perspective. Both of these issues were dealt with in the year
and the business is now positioned for further growth knowing
its competitors have still to navigate these matters. Such
uncertainties will create opportunities for EAL which I would
expect to be reflected in its performance in the coming year.
A key internal measure, which is driven by customer
satisfaction, is renewal income as a percentage of operating
income. This year I am pleased to report it has increased by
4.0% to 43.6% (2018: 39.6%) as our dedicated staff continued
to deliver unparalleled service in this sector. Renewal income
of £1.1 million (2018: £1.0 million) was supported by an
improved performance by our general insurance team. This
helped to offset a small dip in new business of £0.1 million to
£1.2 million (2018: £1.3 million) as uncertainties to changes in
pension legislation led to a temporary halt in new pension
business. Operating income remained stable at £2.5 million
(2018: £2.5 million). With costs decreasing by 5.8%, £0.1
million, to £2.1 million (2018: £2.2 million) EAL’s underlying
profit for the year increased by 26.5%, £0.1 million, £0.5
million (2018: £0.4 million). After a one-off VAT repayment, the
profit for the year was £0.2 million (2018: £0.2 million).
Total assets decreased by 1.4% to £3.1 million (2018: £3.2
million).
Manx FX Limited (“MFX”)
Manx FX Limited (“MFX”)
Manx FX Limited (“MFX”)
Manx FX Limited (“MFX”)
Our fledgling foreign exchange business continues to perform
well with performance slightly ahead of last year. The business
is prudently increasing its customer base and considering new
products and territories to operate within. I still expect volatility
in the results of MFX until it achieves its aim of broadening its
client base.
Income increased by 4.6% to £0.8 million (2018: £0.8 million)
and costs were in line with last year. Profit for the year
increased by 2.4% to £0.5 million (2018: £0.5 million).
The business has a very liquid balance sheet and declared
both an interim dividend, £0.4 million, and a final dividend of
£0.7 million in the year.
An update on the provision of a dividend
An update on the provision of a dividend
An update on the provision of a dividend
An update on the provision of a dividend
In the last Chairman’s Statement, I discussed the need for the
Group to reward shareholders with a dividend. Unfortunately,
the advent of COVID-19 has meant that our regulators are
keen to ensure that we preserve as much of our capital within
the Group and the Bank as possible. As a result, we are
working on a scheme whereby shareholders will be eligible for
a script-based payment, with the intention of rewarding long-
Page | 2
STRATEGIC REPORT
CHAIRMAN’S STATEMENT
term holders. I expect to announce the details of this scheme
later this year.
businesses facing financial challenges. These loans are at
advantageous terms and are 80% Government backed.
Post Period Events
Post Period Events
Post Period Events
Post Period Events
Beer Swaps Limited (“BSL”)
Beer Swaps Limited (“BSL”)
Beer Swaps Limited (“BSL”)
Beer Swaps Limited (“BSL”)
The agreement entered into with BSL in 2018 included an
option to acquire the remaining shares by April 2021. The
Bank acquired further shares in BSL to increase its ordinary
shareholding to 75% for a cash consideration of approximately
£0.5 million. In addition, the Bank simplified the capital
structure of BSL by repaying all director loans, being £0.1
million, and all issued preference shares, being £0.2 million.
For the year ended 31 March 2019, BSL reported turnover of
£0.4 million and a profit before tax of £0.1 million with net
assets of £0.2 million. I am pleased to note that this is yet
another successful purchase and integration which bodes well
for our future acquisition strategy.
April 2020 EGM
April 2020 EGM
April 2020 EGM
April 2020 EGM
At the Group’s EGM on 9 April 2020, two resolutions were
considered by shareholders: firstly, to allow the buyback and
cancellation of 16,966,158 ordinary shares in return for
entering into a £1.6 million loan; and then to consider a request
to waive Rule 9 of the Takeover Code. Both of these
resolutions were passed with significant majorities. As a
result, the Group has been able to eliminate the selling
overhang of the shareholdings associated with Southern Rock
which had been depressing the Group’s share price since the
announcement of an intention of sale made in November
2018. The share cancellation has had a positive effect on the
calculation of net asset value per share which is to the benefit
of all shareholders.
Board Changes
Board Changes
Board Changes
Board Changes
Following the EGM, John Banks stepped down from the Board
and I would like to take this opportunity to thank him for his
invaluable contribution in the time that he was with us and wish
him well for the future. In May 2020, we welcomed John
Spellman who has joined the boards of both the Group and the
Bank. John’s commercial experience will be invaluable as we
continue to grow the businesses, both in the Isle of Man and
UK.
Outlook
Outlook
Outlook
Outlook
The Group’s response to COVID-19 was carefully considered
and professionally executed with the wellbeing of our staff,
their families, and our customers being our principal concern.
We deployed our working from home strategy which has
allowed the business to continue to function seamlessly for all
of our customers for the last ten weeks. As I write, the Isle of
Man has had no further cases for thirty seven consecutive
days with life returning to much as normal, but with our borders
shut. The Bank, in conjunction with the Island’s principal
clearing banks, has worked very successfully with the Isle of
Man Treasury in the provision of disruption loans to those
Unfortunately, the situation in the UK, whilst clearly improving,
is still somewhat concerning. Conister Finance & Leasing, a
subsidiary of the Bank, is working with its clients to obtain the
relevant UK Government’s business support packages.
Trading for the initial three months of the year was strong in all
areas, but as the year progressed, a number of our loan
customers have found difficulty in meeting their initial terms.
As a result, we are now in continual dialogue with these
customers to help them through any unforeseen economic
shock. However, the Bank’s response has not been confined
to forbearance and renegotiation, but has extended to
respecting the commitments made to our customers and
remaining open for new business. Whilst we have continued
with our conservative approach to provisioning, I am pleased
to note that recently our clients’ circumstances appear to be
improving, especially in the Isle of Man where new business
acquisition continues apace.
Almost all commentators predict a forthcoming recession in
the UK, with the impact of COVID-19 together with Brexit
making any realistic assessment almost impossible. Our
current view is that it will take some time before the economy
becomes stable and, as a result, we anticipate that it will be
well into the first half of 2021 before confidence returns.
in our
income
The earlier slowdown in new advances will, in turn, lead to a
reduction
interest. The acceptance of
forbearance requests will also impact the income statement.
As a result, we anticipate that our net loan book will reduce.
Factoring this into our planning, we have built up our liquidity
to the highest level that we are able, ensuring that we are well
lending opportunities.
placed to take advantage of all
Additionally, any reduction in our net loan book will further
improve our regulatory capital ratios.
In short, the financial impact of the virus on the full year’s
figures is still too uncertain to provide any reliable guidance
but our strong cash reserves and diverse income streams will
prove valuable assets in the forthcoming months.
I would like to thank my fellow Board members, the Group’s
executive team and staff for their continued contribution to our
ongoing business. I would also like to thank our shareholders
and customers for their continued support.
Jim Mellon
Jim Mellon
Jim Mellon
Jim Mellon
Executive Chairman
26 June 2020
Page | 3
STRATEGIC REPORT
BUSINESS MODEL AND STRATEGY
Conister Bank
imited (the “Bank”)
Conister Bank LLLLimited (the “Bank”)
imited (the “Bank”)
imited (the “Bank”)
Conister Bank
Conister Bank
The Bank’s Board of Directors (the “Bank’s Board”) has set
strategic objectives, aligned to its strategic plan. These
objectives provide the framework for setting risk appetite
statements and tolerances for all material risks. The strategic
objectives set are:
Maintain capital adequacy;
Deliver stable earnings growth;
Secure stable and efficient access to funding and
liquidity; and
Maintain stakeholder confidence.
These strategic objectives provide the link between the Bank’s
strategic planning and its risk management framework, using
risk appetite statements, measures and tolerances to manage
risk on a day-to-day basis and are reviewed annually and
approved by the Bank’s Board. Key in considering the Bank’s
judgement of appetites is its assessment of its regulatory
environment (both in the Isle of Man (“IOM”) and the United
Kingdom (“UK”); the IOM deposit market; access to regulatory
capital; the IOM and UK credit markets; the suitability of its
product range; concentrations of advances and historic
arrears. The aim is to deliver controlled growth, by providing
adequate returns with strong credit profiles.
Having considered the above, drawing on both internal and
external resources, the Bank continues to believe the credit
markets it operates within remains conducive to growth with
liquidity sourced from both its Balance Sheet and the IOM’s
substantial deposit base. This growth will be achieved through
the expansion of existing products organically and through
acquisition. The Bank continues to explore opportunities with
both new products and new markets. This strategy can be
analysed by the two geographical areas the Bank operates
within, namely the IOM and the UK.
The Bank is proud of its heritage and remains heavily centric
in the IOM but recognised that as its UK loan book grows it
would need to create a UK presence to manage and grow this
aspect of its business. As such, in 2019, the Bank continued
its expansion of its offices in Newbury with 18 full-time
employees, representing nearly a quarter of the Bank’s
workforce. The office deals with all aspects of the Bank’s UK
credit broker market and wholesale lending portfolio. These
are two markets in which the Bank wishes to increase its
presence in the UK.
Sourcing reliable funding underpins the Bank’s growth
objectives. Through the Bank’s Class 1 Isle of Man Deposit
Taking licence it has access to £35.0 billion of deposits. The
Bank currently restricts itself to the retail market, of which it
has circa 1.0% market share, but the Bank recognises it has
an opportunity to increase its market share through the
reduction in competition experienced in this market and or by
increasing interest rates. In the last year, the Bank has
launched a notice account offering and penetrated the
corporate deposit market. As such, the Bank believes that it
has sufficient reliable alternatives to be confident that it can
raise the necessary deposits when required.
The Bank’s acquisition strategy is to gain market share in
markets it already operates within or to gain access to a
desirable market through an existing reputable, profitable
operator.
Regarding the former, the Bank continues to enjoy a positive
lending experience within the UK credit broker market and
currently has circa £41.9 million of net loans outstanding. The
strategy for growth is both organic (through improving
customer service and increasing the number of brokers on its
roster) and acquisitive. The Bank acquired an established
credit broker in the year, Blue Star Business Solutions Limited,
with the view of expanding its offering to SMEs.
Edgewater Associates
Limited (“EAL”)
Edgewater Associates Limited (“EAL”)
Limited (“EAL”)
Limited (“EAL”)
Edgewater Associates
Edgewater Associates
EAL is the largest Independent Financial Advice (“IFA”) firm in
the IOM and is regulated by the Isle of Man Financial Services
Authority. Its strategic objective is to:
Grow and service its client base;
Increase assets under advice; and
Grow and develop its staff complement.
EAL is a generalist IFA practice with a diverse mix of clients
requiring a broad range of products and services covering:
First time buyers --- mortgages;
Newly qualified professionals --- protection,
savings, school fees;
Established clients --- wealth management,
retirement planning; and
General insurance clients --- home, car, travel,
commercial and specialist.
In 2016 EAL embarked on an aggressive and successful
acquisition programme covering a two year period; at the
outset it had a client base of approximately 4,600 clients. After
four acquisitions and an active data cleansing review, EAL
now has an active client base of approximately 11,800, with
associated assets under advice of £324 million (up from £310
million in 2018).
Whilst EAL will continue to grow and develop its standard
business model, it will always be open to new opportunities. It
remains nimble and ready to move with economic and
regulatory changes as they arise; its team remains up-to-date
against industry standards and trends. It retains an appetite
for growth either through additional acquisition opportunities
that may arise, or via organic growth from its existing clients
it has built strong
and business partners with whom
relationships.
Diversification opportunities are also encouraged and
pursued, as per its successful programme to grow or build
Employee Benefit Group Schemes. This incorporates staff
pensions (including pension freedom), protection, private
medical cover, and death in service.
To keep pace with its development it will continue to train
talented young people to progress to rounded, professional
advisers who are able to fit into succession planning. To
supplement this, it also takes the opportunity to recruit quality
experienced advisers and para-planners who can further
enhance its team.
Manx Manx Manx Manx FX Limited (“MFX”)
FX Limited (“MFX”)
FX Limited (“MFX”)
FX Limited (“MFX”)
MFX has specialist knowledge of currency operational
requirements and has carefully selected the best UK partners
Page | 4
STRATEGIC REPORT
BUSINESS MODEL AND STRATEGY
to provide foreign exchange and leading payment services.
The strategic objectives of MFX are:
To maintain and develop existing client relationships;
To increase the number of referrals to its foreign
exchange business partners with a view of on-
boarding new clients; and
To raise MFX’s profile and build a professional
reputation on the IOM.
MFX believes the foreign exchange and international payment
offering via its UK partners is second to none. With its upfront
agreed foreign exchange margins the customer has complete
pricing transparency. Its business partners have been
carefully selected to ensure they are able to obtain the best
possible pricing from the market.
The international payments fees offer outstanding value, at
reduced rates compared to local high street banks.
For the next 12 months, MFX will concentrate its efforts in the
IOM. The IOM offers large potential having a diverse range of
industries.
A small but dedicated team know and understand the
importance of offering excellent service and has pride and
integrity when dealing with both existing clients and new
prospects. MFX’s professional reputation is important to its
business and its colleagues attend local industry events which
serve two purposes; to enforce and raise the profile of MFX
and support IOM businesses.
Maintaining a close working relationship with its UK partners
is core to its business and customer success. Regular
conference calls and quarterly face-to-face meetings are held
to discuss new opportunities, changes to product offering,
industry updates and, just as importantly, a chance to develop
the personal working relationship.
Page | 5
RISK AND GOVERNANCE
RISK MANAGEMENT
Risk Risk Risk Risk mmmmanagement
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Effective risk management is crucial to MFG’s sustainability.
The MFG’s Board of Directors (“Board”)
is ultimately
accountable for the effective governance of risk management.
The Board maintains its oversight and responsibilities in terms
of the three lines of defence risk governance model set out
below.
Determining the MFG Group’s (“Group”) risk tolerance and
appetite through enterprise risk management is a key element
of MFG’s corporate governance framework. This framework
has been enhanced during 2019 and sets out the governance
principles, practices and guidance to facilitate effective and
efficient management of the Group’s business. It is primarily
designed to assist the Group in enhancing its corporate
governance framework and intended to reinforce the key
elements of widely accepted and long-established Quoted
Companies Alliance (“QCA”) corporate governance principles.
its
through
(“ICAAP”))
A fundamental principle contained in the code, is for effective
risk management: MFG has in place a Risk Management
Framework and a Capital Management Framework
Internal Capital Adequacy
(undertaken
Assessment Process
the
implementation of some of the principles of the MFG
Governance Framework at subsidiary
level. The Risk
Management Framework supports the Board and senior
management in fulfilling their respective duties in relation to
the sustainable operation of
risk
management system is supported by policies, processes and
activities relating to the taking, management and reporting of
risk.
the business. The
support
to
Management and accountabili
Management and accountabilitytytyty
Management and accountabili
Management and accountabili
The Audit, Risk and Compliance Committee (“ARCC”) is
operated at a Group level and currently comprises of three
experienced Non-executive Directors who are both qualified
accountants. Only members of the ARCC have the right to
attend ARCC meetings to allow for independence. However,
other individuals representing Executive Management, Risk,
Compliance and Internal Audit are invited by the Chairman of
the ARCC to attend all or part of any meeting as and when
appropriate.
The main objectives of the ARCC are to review operations and
ensure that they are conducted to the highest possible
standards. This is accomplished by providing an independent
objective assurance function specifically for, but not limited to:
Internal Controls and Risk Management Systems;
Whistleblowing and Fraud; Risk and Compliance; Internal
Audit and External Audit.
It provides oversight of compliance with all legislation,
regulation and applicable codes of practice in the jurisdictions
reviews policies,
that MFG conducts business; and
procedures and processes to effectively identify, quantify and
manage all material risks and to advise on best practice.
Governance framework
Governance framework
Governance framework
Governance framework
The following overview of the key governance components
that make up the MFG system of governance illustrates the
crucial role of risk management:
Page | 6
RISK AND GOVERNANCE
RISK MANAGEMENT
Culture
Culture
Culture
Culture
The risk culture, which forms part of MFG’s overall culture,
encompasses the tone at the top of the organisation and a set
of shared attitudes, values, behaviours and practices that
characterise how individuals at MFG consider risk in their day-
to-day business activities. Learnings are taken from previous
incidents and ongoing assessment to ensure continuous
improvement in the management of risk.
All individuals are trained to understand the importance of
effective risk management and ensure that risks associated
with their role are appropriately understood, managed and
reported. Individuals at all levels communicate risk related
insights in a timely, transparent and honest manner.
This culture is driven from the top by the Board and Executive
Management through how they communicate, make decisions
and motivate the business. Managers and leaders ensure that
in all their actions and behaviours they continually reinforce
the culture that the effective management of risk is critical to
MFG’s success and that every individual plays a role in the
management of risk.
Appetite
Appetite
Appetite
Appetite
Risk appetites are currently only set at subsidiary level and set
out the maximum amount of risk that it is prepared to accept
in the pursuit of delivering on business objectives. The risk
appetite considers all the risks detailed under “Principal risks”
on page 8 and is reviewed annually, and as the operating
environment changes, it is constantly measured against stated
appetite to take appropriate action.
Risk identification, measurement
control
Risk identification, measurement andandandand control
control
control
Risk identification, measurement
Risk identification, measurement
Improving a robust understanding of the risks to which the
business is exposed is crucial to ensure that all material risks
are appropriately monitored, managed and reported on. Each
individual within the Group in conjunction with their manager
is responsible for understanding the risks associated with their
role. An understanding of risk is developed through the
identification,
appropriate,
measurement of risks to which the business is exposed.
and, where
assessment
These processes are performed as part of strategy setting,
strategy execution and day-to-day operations and are referred
to as risk and control assessments. The Risk team provides
tools to aid managers and individuals in developing an
understanding of risk within
their respective business
responsibilities.
The risk and control assessment process of understanding
risk and reviewing the adequacy and effectiveness of related
controls and risk mitigation approaches is generally performed
on a regular basis, at least annually, as part of a continuous
risk management cycle.
efence and key assurance functions
ines of ddddefence and key assurance functions
Three lines of
Three l
efence and key assurance functions
efence and key assurance functions
ines of
ines of
Three l
Three l
As part of its overall governance framework, MFG has adopted
best practice monitoring and control mechanisms by
implementing the three lines of defence governance and
combined assurance model. This means that responsibility for
the
governance and oversight
organisation according to the three lines of defence principles.
is allocated
throughout
The three lines of defence governance model is regarded as
international best practice for ensuring good governance
(including governance within risk and capital management)
across an organisation. The emphasis is placed on ownership,
responsibility,
independence, assurance, communication,
oversight and transparency across MFG’s governance.
The term ‘key assurance function’ refers to a properly
authorised function, whether in the form of a person, unit or
department, serving as a control or ‘checks and balances’
function from a governance perspective, and which carries out
such activities. These functions typically are second and third
line of defence functions.
First
efence
ine of ddddefence
First lllline of
efence
efence
ine of
ine of
First
First
The first line of defence e.g. business management is primarily
accountable
risk origination and
management in accordance with risk policy and strategy. This
implementing
includes
responses.
identifying, assessing risks and
the day-to-day
for
Second
efence
ine of ddddefence
Second lllline of
efence
efence
ine of
ine of
Second
Second
The second line of defence is responsible for the development
and maintenance of the frameworks and policies. The second
line provides oversight of, and challenge to, the first line of
defence and drives the implementation of the frameworks and
policies.
Third
efence
ine of ddddefence
Third lllline of
efence
efence
ine of
ine of
Third
Third
The third line of defence is the independent assurance
function providing overall assurance
the Board on
governance, risk management, and internal controls. The third
line of defence comprises of internal audit, external audit and
other independent assurance providers. The third line of
defence is completely independent from the management of
the day-to-day business activities
to
unctions
ssurance ffffunctions
MFG MFG MFG MFG aaaassurance
unctions
unctions
ssurance
ssurance
MFG has effective systems of risk management and internal
control. The tasks, processes and obligations of the key
assurance functions are transparent and clearly defined, with
regular exchange of information between the functions. Each
of the functions is structured to ensure that the function has
the necessary authority, independence, resources, expertise
and access to the Board and all relevant employees and
information to exercise its authority. The minimum assurance
functions within MFG include:
Risk management function;
Compliance function; and
Internal Audit function.
The head of each of these key functions possesses the
necessary skills, experience and knowledge required for the
specific positions they exercise, and meet all suitability or ‘fit
and proper’ requirements. Written guidelines for these
functions are in place, and compliance with them is assured
on a regular basis. All of the key functions within MFG have
a direct reporting line to the Board.
MFG has developed a combined assurance model to
effectively manage the organisation’s significant risks and
material matters through a combination of the assurance
service providers and functions described above.
Page | 7
RISK AND GOVERNANCE
RISK MANAGEMENT
Risk st
verview
rategy andandandand ooooverview
Risk strategy
verview
verview
rategy
rategy
Risk st
Risk st
Risk Risk Risk Risk pppplanlanlanlan
Key deliveries of the Risk Management Framework are split
between ‘Risk infrastructure’ and ‘Risk management cycle’.
The risk infrastructure is the establishment of a consistent
foundation and approach to enterprise requirements and
supporting components in managing risks. The cycle of risk
management is adaptable and continuously progressing and
responding to the changing internal and external environment.
This work has resulted in:
Management Committee frameworks, including roles
and responsibilities to ensure that all material risks
are captured and formally considered prior to
presentation to the ARCC and the Board;
Classification of
the policies within
the policy
framework to ensure that the relevant Management
Committee is accountable for the policies that
support their risk, and to reduce the workload for the
ARCC and the Board, enabling them to focus on
overseeing and challenging the risk management
framework;
More detailed Board approved
risk appetite
statements, and the design of an underlying risk
appetite measures framework, to be owned and
monitored by the relevant Management Committee;
Risk management framework which looks to adopt a
common language across the combined assurance
model (and all lines of defence), with a supporting
risk catalogue and classification matrix; and
A high level risk assessment to identify the top risks
enabling work to progress in a risk focused manner
on completing risk and control assessments, in order
to build a key controls monitoring programme.
Principal r
isks
Principal risks
isksisks
Principal r
Principal r
The Group has exposure to the following key risks:
Strategic risk;
Credit risk including counterparty credit risk;
Operational risk including regulatory risk;
Conduct risk;
Liquidity risk;
Interest rate risk;
Regulatory risk; and
Reputation risk.
The Group has considered the above key risks that it faces
and the mitigating controls against those risks:
Strategic
Strategic rrrriskiskiskisk
Strategic
Strategic
Strategic risk is the risk to the Group’s revenue as set within
the budget and the medium-term plans arising through sub-
optimal implementation of the strategic plan due to either
internal or external factors faced by its subsidiaries.
Controls and
itigation
Controls and mmmmitigation
itigation
itigation
Controls and
Controls and
The Group controls and mitigates this risk via a number of
measures:
Subsidiaries generally commence
formal
planning process in September for the forthcoming
year, to inform the budget submitted to the Boards
throughout the Group for approval. In reality, the
their
planning process is continuous and responsive to
change in the internal and external environment.
Barriers to delivering the strategic plan, and changes
to planned activity are captured in the various
subsidiary ‘Managing Director’s Reports’ which are
submitted to their respective Boards and then
ultimately reported to the Group Board at each Board
meeting. The reports will take account of input from
the Group Executive Directors and current financial
performance versus budget and seek to highlight
strategic responses for the related subsidiary.
Key strategic projects are managed under formal
project governance with progress of key projects
tracked, and communicated and discussed at regular
project meetings.
The impact of limited capital, liquidity, operational
capacity and regulator restriction on the achievement
of strategy is captured by the planning process, with
exceptional items dealt with under the relevant risk
category, where the impact on risk appetite and
mitigating actions will be formally recorded.
Page | 8
RISK AND GOVERNANCE
RISK MANAGEMENT
Credit risk including counterparty credit risk
Credit risk including counterparty credit risk
Credit risk including counterparty credit risk
Credit risk including counterparty credit risk
Credit risk is defined as the risk that counterparties fail to fulfil
their contractual obligations. A material decline in credit
quality, or the failure of a counterparty could result in higher
levels of arrears and ultimately in increased provisions and
write-offs, which impacts upon profitability, potentially eroding
the capital position for the Group’s subsidiaries.
itigation
Controls and mmmmitigation
Controls and
itigation
itigation
Controls and
Controls and
individual
Delegated authorities: The Group operates to a
schedule of delegated authorisation limits linked to
and
an
experience. This is bolstered by validations of all
significant credit exposures over set limits and
ongoing monitoring of credit positions of key
suppliers and intermediary networks.
underwriter’s
knowledge
Distribution strategy: The Group actively monitors
and controls the credit risk of all business written to
ensure that it is treating customers fairly and as a
safeguard against the failure of any business
relationship. Mitigation of counterparty credit risk is
the maintenance, where
undertaken
appropriate, of cash reserves and loss pools to fund
any buy-back
indemnity. Comprehensive due
diligence processes are also undertaken.
through
Monitoring of credit quality exposure: The Group
monitors its credit risk exposures via an internal
credit risk grading methodology that assigns each
individual exposure with one of three credit grades
based upon the probability of default at product and
distribution channel level. This allows for better
monitoring of credit quality and impairment of its
current book as well as forecast and stress test on a
more accurate basis.
Concentration
the
risk: To protect against
exposures where
build-up
unintentional
deterioration
the
impact
could materially
sustainability and profitability, the Group seeks to
maintain a diverse portfolio of products across a
variety of geographical regions, customers, sectors
and asset classes. This diversity protects the Group
against any deterioration in a particular geographical
region,
the economic environment, commercial
sector etc.
Accounting standards: Finally, the introduction of
IFRS 9 – Financial Instruments, effective from 2018,
necessitated
loss
provisioning methodology rather than an incurred
loss. This provides an additional credit risk buffer.
to an expected
the move
of
including regulatory risks
Operational risk including regulatory risks
Operational risk
including regulatory risks
including regulatory risks
Operational risk
Operational risk
Operational risk is the risk of loss resulting from human error,
inadequate or failed internal processes or controls, system
failure, improper conduct, fraud or external events.
The principal operational risks for the Group arise from the
following areas:
Resilience of the IT environment: The IT environment
is under constant review to identify and implement
efficiencies to enable increased customer service
through the provision of additional services and
products and to automate manual tasks wherever
possible to minimise the potential for human error.
The Group’s IT Steering Committee reviews and
monitors current service standards, highlight any
deficiencies and mitigate accordingly. There are a
number of exception reports and scheduled tasks on
a daily basis to ensure that any controls within
systems are being reported on adequately.
Third Party administration services: The key
operational controls ensure that partners are fulfilling
their legal and regulatory obligations in accordance
with their service-level agreement with the Group.
The Group has an outsourcing policy to ensure
obligations are monitored and met. Internal reviews
and audits are conducted on counterparties to
ensure terms agreed are being adhered to.
itigation
Controls and mmmmitigation
Controls and
itigation
itigation
Controls and
Controls and
Adherence to internal limits and approval processes
through:
o Delegated authorities: The Group operates
to a schedule of delegated credit
authorisation limits and payment approval
limits, linked to an individual’s knowledge
and experience.
o Segregation of duties: There is appropriate
segregation between
those authorising
transactions and those executing them, with
four eyes principals
in place where
required.
o Exception
reporting
reporting: Daily
ensures that any regulatory and internal
limits are
the
appropriate Management team.
regularly by
reviewed
o New Business approval policy: All material
new business is approved in line with a
formally approved policy, with ultimate
decision making resting with the applicable
Executive Committee.
Change control: The Group ensures that both,
changes to existing products and services and new
products and services, are delivered in a controlled
manner with the appropriate checks and controls in
place.
Onboarding: A comprehensive on-boarding process
in place for new outsourced partners in the UK.
Due diligence checks: The operational risk from the
Group’s third party administrators is mitigated by a
comprehensive due diligence process which
includes a take-on due diligence and a full review of
the partner’s policies, procedures and financial
stability.
Key Operational Controls: Key controls are
monitored through a combination of management
oversight, Risk and Compliance monitoring and
Internal Audit reviews.
New Business Policy and Process: New business
and material business change is outlined in a formal
policy, which
that a sequence of
assessment and approval is followed. This will
ensure that all relevant input is included and material
risks considered.
requires
Exception reports: Exception reporting allows the
Group to identify weaknesses in processes and
controls which in turn allows for adequate training
and the bolstering of systems and processes.
Page | 9
RISK AND GOVERNANCE
RISK MANAGEMENT
Conduct risk
Conduct risk
Conduct risk
Conduct risk
The Group is exposed to conduct risk through its operations
and interactions with consumers, either directly or through
third parties (brokers, or counter-parties). The risk exposure
is regulatory in nature for the Group’s UK based operations
and consideration of any local jurisdiction guidance on good
practice.
Controls and m
itigation
Controls and mitigation
itigation
itigation
Controls and m
Controls and m
The Group has an outsourcing policy to ensure that adherence
to conduct and regulatory standards is contracted, and
compliance with standards is appropriately monitored through
the collection and assessment of relevant data, partner
attestation, and onsite audits where appropriate.
General conduct and particularly Treating Customers Fairly
(“TCF”) principles are applied across the Group’s activities.
Liquidity risk
Liquidity risk
Liquidity risk
Liquidity risk
Financial institutions are subject to liquidity risk as an inherent
part of their business. Liquidity risk is the risk that the Group
may not hold sufficient liquid funds meaning it would be unable
to meet its contractual liabilities as they fall due.
theoretically be able to change its lending rate to
match any corresponding change in its cost of funds.
The Group attempts to efficiently match its deposit
taking to its funding requirements.
The maturity profile of the Group’s loan book through
staged repayments means interest risk is difficult to
hedge effectively so the Group does not currently
hedge against this risk, and is therefore not exposed
to any additional market interest rate risk in this
respect.
Funding cost: The Group would be exposed to
potential risk if its cost of funds, which is linked to the
cost of retail deposits, and ultimately the UK banks’
base rate, was to increase and it was unable, due to
a competitive lending environment, to raise its
lending rate correspondingly. The Group’s three year
plan allows for an increase in its cost of funds, but the
Group accepts that these assumptions may not
reflect the timing of any interest rate rise or the
quantum of any increase.
Regulatory risk
Regulatory risk
Regulatory risk
Regulatory risk
Regulatory risk is the risk of material breach of regulation.
Liquidity risk arises where the Group, through its subsidiaries,
has contractual credit obligations that can be placed under
stress during
illiquidity. The Group generally
accesses wholesale funding markets or builds a core portfolio
of liquid assets or buffers as additional sources of liquidity that
can be utilised during such times.
times of
The Group holds a Class 1 (1) Banking Licence in the IOM and
is accordingly regulated by the Financial Services Authority
(“FSA”). The Group also holds permissions with the UK’s
Financial Conduct Authority (“FCA”) pertaining to regulated
credit activities, and other specified regulated products and
services in the UK.
Controls and
itigation
Controls and mmmmitigation
itigation
itigation
Controls and
Controls and
Overall, the Group’s liquidity profile is resistant to stress as the
Group:
Has no contractual credit obligation. The Group has
no absolute credit line obligations to its customers
meaning that in times of liquidity stress, it is able to
reduce its lending appetite accordingly;
Has a matched funding profile and does not engage
in maturity transformation which means that on a
cumulative mismatch position the Group is forecast
to be able to meet all liabilities as they fall due;
Maintains an adequate liquidity buffer; and
Has no exposure to the interbank lending market.
The Group’s liquidity position is monitored on a daily basis
against internal and external agreed limits. The Group also
has a Liquidity Contingency Policy and Liquidity Contingency
Committee should a liquidity crisis or potential liquidity
disruption event occur.
Interest rate risk
Interest rate risk
Interest rate risk
Interest rate risk
The principal potential interest rate risk that the Group is
exposed to is the risk that the fixed interest rate and term
profile of its deposit base differs materially from the fixed
interest rate and term profile of its asset base, or basis and
term structure risk.
itigation
Controls and mitigation
Controls and m
itigation
itigation
Controls and m
Controls and m
Funding profile: Interest rate risk for the Group is not
deemed to be material currently due to the Group’s
matched funding profile. In a rising interest rate
environment, due to the nature of the Group’s
products and its matched funded profile, it should
The risk of regulatory breach arises through a failure to
identify, assess and apply applicable regulation; or a failure to
adhere to the applicable regulation as applied.
Monitoring and complying with the requirements of existing
regulation across numerous regulatory bodies, along with the
rapid pace and volume of regulatory change is a key risk. The
risk is compounded due to the size of the Group, and the need
to maintain a manageable cost of compliance.
Controls and
itigation
Controls and mmmmitigation
itigation
itigation
Controls and
Controls and
The Group remains well placed to meet the regulatory
challenges that bring change to the macro environment. In
order to strengthen the Risk and Compliance department, the
ARCC and the Board increased the headcount in 2019 and
appointed an experienced Operational Risk Manager and
Compliance Manager in the UK.
Regulatory risks continue to be mitigated by themed and ad-
hoc compliance monitoring reviews which are driven using a
risk-based approach to ensure resource is directed to areas of
potential material risk. The monitoring plan is approve
annually by the ARCC. Monitoring reviews are supplemented
by ongoing staff training and guidance.
Wherever possible, legislative and regulatory requirements
are built into relevant administration systems, with appropriate
monitoring and exception reporting processes in place to
monitor compliance.
The Group maintains a watching brief on the regulatory
environment and, as active members of a number of IOM and
UK trade bodies, it receives additional regulatory updates and
guidance on proposed legislative and regulatory issues.
Page | 10
RISK AND GOVERNANCE
RISK MANAGEMENT
Upstream regulatory changes are tracked and assessed for
impact by the Compliance Department and material items
reported to the ARCC.
Reputation risk
Reputation risk
Reputation risk
Reputation risk
Reputation risk is the risk of loss resulting from damages to
the Group’s reputation, in lost revenue or increased costs; or
destruction of shareholder value.
Controls and mitigation
Controls and mitigation
Controls and mitigation
Controls and mitigation
The Group mitigates this risk by ensuring that its key risks are
identified and managed, with an impact assessment of any
potential or actual issues considering the impact to the
Group’s reputation. The Group actively seeks to minimise the
occurrence of events or issues which could give rise to loss or
negative feedback, and actively manages the impact should
issues occur.
Capital
stress testing
Capital stress testing
stress testing
stress testing
Capital
Capital
ICAAP””””))))
Internal Capital Adequacy Assessment Process ((((““““ICAAP
Internal Capital Adequacy Assessment Process
ICAAP
ICAAP
Internal Capital Adequacy Assessment Process
Internal Capital Adequacy Assessment Process
Overview
Overview
Overview
Overview
ICAAP is a key strategic and risk management tool for the
Bank. It is a key component of the Bank’s planning process
during the short and medium term. The Bank’s lead regulator,
the FSA, requires the Bank to establish and maintain an
ongoing internal adequacy assessment process which is
appropriate to the nature and scale of its business and review
that process annually and evidence that review.
Methodology
Methodology
Methodology
Methodology
The Bank’s ICAAP process is as follows:
Formulation of the Bank’s strategy and budget
Formulation of the Bank’s strategy and budget
Formulation of the Bank’s strategy and budget
Formulation of the Bank’s strategy and budget
Strategic plans are prepared annually for the forthcoming
year, which will consider the Bank’s risk appetite, key market
sectors to target, products to leverage/introduce, headcount,
operational and capital investment required.
Risk assessment
Risk assessment
Risk assessment
Risk assessment
The Executive Team will liaise with the Risk and Compliance
department to determine the material risks in the Bank based
on incidents and breaches, Internal Audit reports, Risk and
Compliance report findings and issues raised at the Board and
Committee meetings.
Stress testing and reverse stress testing
Stress testing and reverse stress testing
Stress testing and reverse stress testing
Stress testing and reverse stress testing
The Finance department use Bank of England market
assumptions for stress testing and stress the five-year
forecasts to identify any capital deficiencies. Reverse stress
testing is also used based on the assumption that the Bank
ceases to trade, coupled with a run-off scenario to determine
the capital distribution.
Reverse stress testing is used to explore the vulnerabilities of
the Bank’s strategy and plans to extreme adverse events that
would cause the business to fail in order to facilitate
contingency planning.
Calculation of capital requiremen
t and buffers
Calculation of capital requirement and buffers
t and buffers
t and buffers
Calculation of capital requiremen
Calculation of capital requiremen
Following the setting of strategy, risk assessment and stress
tests, the Bank will then calculate its capital requirements by
considering the following areas:
Pillar I – The calculation is based on the minimum
regulatory requirement under Pillar I of 10.0% of risk
weighted assets for material risks;
Pillar II – Assessment of any additional business risks
not covered by the minimum Pillar I requirement, plus
an assessment of Pillar II risks based upon the
current material risk assessment and stress tests, to
determine whether any additional capital buffers are
deemed appropriate;
Pillar III – Pillar III establishes measures to make
better use of market discipline. Pillar III applies only
at the top consolidated level of a banking group and
is therefore generally not considered to be applicable
to IOM incorporated banks as per FSA ICAAP
guidance; and
Buffers – The Bank assesses its position to industry
standard for regulatory buffers and calculates its
position based on its overall exposures to different
jurisdictions.
Review, challenge and adoption of the ICAAP
Review, challenge and adoption of the ICAAP
Review, challenge and adoption of the ICAAP
Review, challenge and adoption of the ICAAP
The ICAAP is prepared by the Finance department in
conjunction with the Risk and Compliance department, and
reviewed by the Bank’s Executive Team, Risk Management
Committee, ARCC, Internal Audit and the External Auditor
prior to approval by the Board. It is used to measure and
benchmark the Bank’s risk appetite and to forecast capital
usage under both stressed and normal conditions. The ICAAP
is challenged at all stages of the review process and presented
to the Board by the ARCC for approval prior to being submitted
to the FSA. The ICAAP is regularly reviewed and updated
throughout the year by management and referred to the ARCC
and the Board.
ICAAP Results
ICAAP Results
ICAAP Results
ICAAP Results
The Bank has completed its ICAAP testing for 2019 in
compliance with regulatory requirements. Despite the severity
of the risk scenarios modelled, the Bank satisfied the capital
and leverage requirements for the purpose of the stress test.
Page | 11
RISK AND GOVERNANCE
CORPORATE GOVERNANCE REPORT
to comply with
Corporate
eport
overnance rrrreport
Corporate ggggovernance
eport
eport
overnance
overnance
Corporate
Corporate
The Manx Financial Group Board (the “Board”) is committed
to best practice in corporate governance. Directors have
agreed
the Quoted
Companies Alliance (“QCA”) Corporate Governance Code for
Small and Mid-Size Quoted Companies to the extent which is
appropriate to its nature and scale of operations. This report
illustrates how Manx Financial Group PLC (the “Group”)
complies with those principles.
the provisions of
QCA Principle 1: Establish a strategy and business model
QCA Principle 1: Establish a strategy and business model
QCA Principle 1: Establish a strategy and business model
QCA Principle 1: Establish a strategy and business model
value for shareholders
which promote long----termtermtermterm value for shareholders
which promote long
value for shareholders
value for shareholders
which promote long
which promote long
The immediate strategy and business operations of the Group
are set out in the Strategic Report.
The Group’s strategy and business model and amendments
thereto, are developed by the Chief Executive Officer (“CEO”)
and his senior management team, and approved by the Board.
The management team, led by the CEO, is responsible for
implementing the strategy and managing the business at an
operational level.
The Group’s overall strategic objective is to capitalise on its
unique position as owning the only independent Bank within
the British Crown Dependencies by developing core
financial services sector, both
businesses within
organically and by considered acquisitions.
the
The Group has a balanced portfolio of regulated and
unregulated operations, all of which are managed on a risk-
based and prudential approach. The principal activities
include: deposit taking; lending to consumer and commercial
markets in the IOM and the UK; the provision of dedicated
financial advice, especially in the areas of pensions and
foreign currency and payment
general
services.
insurance; and
The Group has adopted a portfolio approach to its strategic
assets and is not dependent on one particular platform
technology. The Directors believe that this approach helps to
mitigate any concentration risk.
The Group largely operates in an inherently heavily regulated
sector and this is reflected in the emphasis on compliance and
the provision of excellent customer service.
In executing the Group’s strategy and operational plans,
management will typically confront a range of day-to-day
challenges associated with risks and uncertainties, and will
seek to deploy the identified mitigation steps to manage these
risks as they manifest themselves.
QCA Principl
e 2: Seek to understand and meet shareholder
QCA Principle 2: Seek to understand and meet shareholder
e 2: Seek to understand and meet shareholder
e 2: Seek to understand and meet shareholder
QCA Principl
QCA Principl
needs and expectations
needs and expectations
needs and expectations
needs and expectations
The Group, via the CEO, seeks to maintain a regular dialogue
with both existing and potential new Shareholders in order to
communicate the Group’s strategy and progress and to
understand the needs and expectations of Shareholders.
Beyond the Annual General Meeting, the CEO and, where
appropriate, other members of the senior management team
will meet with investors and analysts to provide them with
updates on the Group’s business and to obtain feedback
regarding the market’s expectations of the Group.
The Group’s investor relations activities encompass dialogue
with both institutional and private investors. From time to time,
the Company attends private investor events, providing an
opportunity for those investors to meet with representatives
from the Group in a more informal setting.
QCA Principal 3: Take into account wider stakeholder and
QCA Principal 3: Take into account wider stakeholder and
QCA Principal 3: Take into account wider stakeholder and
QCA Principal 3: Take into account wider stakeholder and
social responsibilities and their implications for long
term
social responsibilities and their implications for long----term
term
term
social responsibilities and their implications for long
social responsibilities and their implications for long
success
success
success
success
employees,
The Group is aware of its corporate social responsibilities and
the need to maintain effective working relationships across a
range of stakeholder groups. These include not only the
regulatory
partners,
Group’s
authorities, but also customers, be they depositors, borrowers
or seeking financial advice. The Group’s operations and
working methodologies take account of the need to balance
the needs of all of these stakeholder groups while maintaining
focus on the Board’s primary responsibility to promote the
success of the Group for the benefit of its members as a whole.
suppliers,
Shareholders – where appropriate shareholder feedback
is discussed at the Board, with any actions agreed being
tracked to completion by the Company Secretary.
Shareholders have an opportunity to raise questions to
the Board, in person or via a nominee, at the Annual
General Meeting. In addition, the Group CEO meets with
and addresses shareholder concerns where appropriate;
Employees – the Group collates employee feedback on
an annual basis, engages employees via workshops,
with all outputs analysed and visibly addressed by the
Executives of the operational subsidiaries that form the
Group; with the aim being to build an engaged,
committed and enthusiastic workforce;
Partners and Suppliers – the Executive and Management
regularly meet with our partners and suppliers to ensure
the needs of all parties are understood in order to
achieve continued excellent working relations;
Customers – are at the heart of all we do, the Group
operates with a shared vision and set of values. The
values instil a sense of how all staff form a part of the
customer journey. Feedback is encouraged at all points
of contact, it is proactively enacted upon as it aids the
identification of process and system enhancements; and
Environment - the Group takes due account of any
impact that its activities may have on the environment
and seeks to minimise this impact by demonstrating
leadership
in corporate citizenship. Our continued
dedication toward making a positive contribution to our
communities and offering a great place to work is
demonstrated
subsidiaries’
involvement in community events, charitable fundraising
and the provision of ongoing support. In doing so the
Group ensures continuous
the
management of our environmental impact, in line with
the principles and standards set out within the Group’s
Corporate Social Responsibility Policy.
the operational
improvement
via
in
Page | 12
RISK AND GOVERNANCE
CORPORATE GOVERNANCE REPORT
QCA Principal 4: Embed effective
risk management,
risk management,
QCA Principal 4: Embed effective
risk management,
QCA Principal 4: Embed effective
risk management,
QCA Principal 4: Embed effective
considering both opportunities and threats, throughout the
considering both opportunities and threats, throughout the
considering both opportunities and threats, throughout the
considering both opportunities and threats, throughout the
organisation
organisation
organisation
organisation
The Board is responsible for the systems of risk management
and internal control and for reviewing their effectiveness by a
series of committees, overseen by the ARCC, and reviewed
by Internal Audit. The internal controls are designed to
manage rather than eliminate risk and provide reasonable but
not absolute assurance against material misstatement or loss.
Through the activities of the ARCC, which meets at least six
times per year, the effectiveness of these internal controls is
formally reviewed four times per year.
A comprehensive budgeting process is completed once a year
and is reviewed and approved by the Board. The Group’s
results, compared with the budget, are reported to the Board
on a monthly basis.
The Group maintains appropriate insurance cover in respect
of actions taken against the Directors because of their roles,
as well as against material loss or claims against the Group.
The insured values and type of cover are comprehensively
reviewed on at least an annual basis.
The senior management team (“Executive Committee”) meets
weekly to consider new risks and opportunities presented to
the Group, making recommendations to the Board and / or the
ARCC as appropriate.
The Directors consider they provide all necessary information
to assess the Company’s position, performance, business
model and strategy.
QCA QCA QCA QCA Principal 5: Maintain the board as a well
functioning,
Principal 5: Maintain the board as a well----functioning,
functioning,
functioning,
Principal 5: Maintain the board as a well
Principal 5: Maintain the board as a well
balanced team led by the chair
balanced team led by the chair
balanced team led by the chair
balanced team led by the chair
Director who holds options over the Group’s shares. The
number and terms are found on page 23.
The option grant concerned is not deemed to be significant,
either for the individual Executive Director or in aggregate. The
current remuneration structure for the Board’s Non-executive
Directors is deemed to be proportionate.
QCA Principal 6
Ensure that between them the directors have
QCA Principal 6:::: Ensure that between them the directors have
Ensure that between them the directors have
Ensure that between them the directors have
QCA Principal 6
QCA Principal 6
date experience, skills and capabilities
the necessary up----totototo----date experience, skills and capabilities
the necessary up
date experience, skills and capabilities
date experience, skills and capabilities
the necessary up
the necessary up
The Board considers that all of the Non-executive Directors
are of sufficient competence and calibre to add strength and
objectivity to its activities, and bring considerable experience
in regulatory, financial and operational development within the
financial service sector in both the IOM and the UK.
The Directors’ biographies are set out on pages 16 and 17.
The Board regularly reviews the composition of the Board to
ensure that it has the necessary breadth and depth of skills to
support the ongoing development of the Group.
The Chairman, in conjunction with the Company Secretary,
ensures that the Directors’ knowledge is kept up-to-date on
key issues and developments pertaining to the Group, its
operational environment and to the Directors’ responsibilities
as members of the Board. During the course of the year,
Directors receive updates from the Company Secretary and
various external advisers on a number of corporate
governance matters.
Directors’ service contracts or appointment letters make
provision for a Director to seek personal advice in furtherance
of his or her duties and responsibilities, normally via the
Company Secretary.
The Group’s Board currently comprises four Non-executive
Directors and three Executive Directors.
QCA Principal 7
Evaluate board performance based on clear
QCA Principal 7:::: Evaluate board performance based on clear
Evaluate board performance based on clear
Evaluate board performance based on clear
QCA Principal 7
QCA Principal 7
objectives, seeking continuous improvement
and relevant objectives, seeking continuous improvement
and relevant
objectives, seeking continuous improvement
objectives, seeking continuous improvement
and relevant
and relevant
All of the Directors are subject to election by Shareholders at
the first Annual General Meeting after their appointment to the
Board and will continue to seek re-election at least once every
three years.
Directors’ biographies are set out on pages 16 and 17.
The Board is responsible to the Shareholders for the proper
management of the Group and meets at least four times a year
to set the overall direction and strategy of the Group, to review
operational and financial performance, and to advise on
management appointments. All key operational and
investment decisions are subject to Board approval.
The Board considers itself to be sufficiently independent. The
QCA Code suggests that a board should have at least two
independent non-executive directors. The Board considers
that
two Non-executive Directors, namely Alan Clarke
(Chairman of the ARCC) and David Gibson, are regarded as
independent under the QCA Code’s guidance for determining
such independence.
Non-executive Directors receive their fees in the form of a
basic cash emolument. The Group Finance Director is the only
The Board has an internal process for evaluation of its own
performance, that of its committees and individual Directors,
including the Chairman. This process is conducted annually
and last took place in March 2019, with no substantive issues
arising. The Board intends to utilise the services of an
independent third-party organisation to manage the future
evaluation process, analyse the results and report back to the
Board for subsequent follow-up. Evaluation criteria include
Controls and Procedures, Strategic Aims, Entrepreneurial
Leadership and Communications and Relationships.
The Board may utilise the results of the evaluation process
when considering the adequacy of the composition of the
Board and for succession planning.
corporate culture that is based on
Promote a corporate culture that is based on
QCA Principal 8:::: Promote a
QCA Principal 8
corporate culture that is based on
corporate culture that is based on
Promote a
Promote a
QCA Principal 8
QCA Principal 8
ethical values and behaviours
ethical values and behaviours
ethical values and behaviours
ethical values and behaviours
The Board seeks to maintain the highest standards of integrity
and probity in the conduct of the Group’s operations. These
values are enshrined in the written policies and working
practices adopted by all employees in the Group. An open
culture
the Group, with regular
communications to staff regarding progress and staff feedback
regularly sought. The Executive Committee regularly monitors
Page | 13
is encouraged within
RISK AND GOVERNANCE
CORPORATE GOVERNANCE REPORT
the Group’s cultural environment and seeks to address any
concerns that may arise, escalating these to Board level as
necessary.
The Group is committed to providing a safe environment for its
staff and all other parties for which the Group has a legal or
moral responsibility in this area. This is enshrined in the
Group’s health and safety policy.
QCA Principal 9
Maintain governance structures and
QCA Principal 9:::: Maintain governance structures and
Maintain governance structures and
Maintain governance structures and
QCA Principal 9
QCA Principal 9
processes that are fit for purpose and support good decision
processes that are fit for purpose and support good decision----
processes that are fit for purpose and support good decision
processes that are fit for purpose and support good decision
making by the board
making by the board
making by the board
making by the board
The The The The rrrrole of the Board
ole of the Board
ole of the Board
ole of the Board
The Board is collectively responsible for the long-term success
of the organisation. Its principal function is to determine the
strategy and policies of the Group within an effective control
framework which enables risk to be assessed and managed.
The Governance Framework is reviewed to ensure it remains
fit for purpose on an annual basis and is approved by the
Board.
The Board ensures that the necessary financial and human
resources are in place for the Group to meet its objectives and
that business and management performances are reviewed.
Furthermore, the Board ensures that the Group operates within
its constitution, relevant legislation and regulation and that
proper accounting records and effective systems of business
control are established, maintained, documented and audited.
There are at least four formal Board meetings each year. All
Board members have the benefit, at the Group’s expense, of
liability insurance in respect of their responsibilities as
Directors and have access to independent legal or other
professional advice if required. The Board has a formal
schedule of matters which are reserved for its consideration
and it has established three committees to consider specific
issues in greater detail, being the ARCC, the Remuneration
Committee and the Nomination Committee. The Terms of
Reference for each of these Committees are published on the
Group’s website www.mfg.im.
There is a clear separation of the roles of CEO and Executive
Chairman.
Chairman
Chairman
Chairman
Chairman
The Chairman is responsible for leading the Board, ensuring
its effectiveness in all aspects of its role, promoting a culture of
openness of debate and communicating with the Group’s
members on behalf of the Board. The Chairman sets the
direction of the Board and promotes a culture of openness and
debate by facilitating the effective contribution of Non-
executive Directors and ensuring constructive relations
between Executive and Non-executive Directors. The
Chairman also ensures that Directors receive accurate, timely
and clear information. In doing so, this fosters a positive
corporate governance culture throughout the Group.
Chief Executive Officer
Chief Executive Officer
Chief Executive Officer
Chief Executive Officer
The CEO is responsible for managing the Group’s business
and operations within the parameters set by the Board.
NonNonNonNon----executive Directors
executive Directors
executive Directors
executive Directors
The Non-executive Directors are responsible for bringing
independent judgement to the discussions held by the Board,
using their breadth of experience and understanding of the
business. Their key responsibilities are to constructively
challenge and contribute to strategic proposals, and to monitor
resources, and standards of conduct,
performance,
compliance and control, whilst providing support to executive
management in developing the Group.
The Board has established an ARCC, a Remuneration
Committee and a Nomination Committee with formally
delegated duties and responsibilities.
integrity of
for reviewing
AAAAudit, Risk and Compliance Committee (“A
udit, Risk and Compliance Committee (“ARRRRCCCCCCCC”)”)”)”)
udit, Risk and Compliance Committee (“A
udit, Risk and Compliance Committee (“A
The ARCC meets at least six times each year and comprises
two Non-executive Directors, currently Alan Clarke
of
(Chairman) and David Gibson. Representatives
from
Compliance and Risk, the Internal and External Auditor and
executive management attend by invitation. Its role is to be
responsible
financial
the
statements and the balance of information disclosed in the
accompanying Directors’ Report, to review the effectiveness
of internal controls and risk management systems, to monitor
and review the effectiveness of the internal audit function and
to consider and recommend to the Board (for approval by the
members) the appointment or re-appointment of the External
Auditor. The ARCC reviews and monitors the External
Auditor’s objectivity,
competence, effectiveness and
independence, ensuring that if it or its associates are invited
to undertake non-audit work it will not compromise auditor
objectivity and independence.
the
Remuneration Committee
“REMCO”)
Remuneration Committee ((((“REMCO”)
“REMCO”)
“REMCO”)
Remuneration Committee
Remuneration Committee
The Remuneration Committee meets at least twice a year and
comprises of two Non-executive Directors, with the Executive
Directors, Head of Human Resources and external advisers
attending by invitation when appropriate. It is chaired by Alan
Clarke and is responsible for determining the remuneration of
the Executive Directors, the Company Secretary and other
members of the management. Committee members do not
take part in discussions concerning their own remuneration.
The Chairman and CEO determine the Non-executive Director
fees.
The Directors believe that the above disclosures constitute
sufficient disclosure to meet the QCA Code’s requirement for
a Remuneration Committee Report.
Nomination Committee
Nomination Committee
Nomination Committee
Nomination Committee
The Nomination Committee is comprised of the whole Board.
It is chaired by the Chairman of the Board and is responsible
for making recommendations to the Board on matters relating
to the composition of the Board, including Executive and Non-
executive Director succession planning, the appointment of
new Directors throughout the Group and re-election of existing
Directors.
Appointments to the Board
Appointments to the Board
Appointments to the Board
Appointments to the Board
The principal purpose of the Nomination Committee is to
undertake the assessment of the balance of skills, experience,
independence and knowledge on the Board and subsidiary
boards against the requirements of the business, with a view
to determining whether any shortages exist. Having completed
the assessment, the Committee makes recommendations to
Page | 14
RISK AND GOVERNANCE
CORPORATE GOVERNANCE REPORT
the Board accordingly. Appointments to the Board are made
on merit, with due regard to the benefits of diversity. Within this
context, the paramount objective is the selection of the best
candidate, irrespective of background, and it is the view of the
Board that establishing quotas or targets for the diversity of the
Board is not appropriate.
Approval
Approval
Approval
Approval
This report was approved by the Board of Directors on 29 June
2020 and signed on its behalf by:
All Group Director appointments must be approved by the
Company’s Nominated Adviser, as required under the AIM
Rules, before they are appointed to the Group Board.
Jim Mellon
Jim Mellon
Jim Mellon
Jim Mellon
Executive Chairman
29 June 2020
Prior to appointment, Non-executive Directors are required to
demonstrate that they are able to allocate sufficient time to
undertake their duties.
ReReReRe----election
election
election
election
The Group’s Rules require that all Directors are submitted for
election at the AGM following their first appointment to the
Board and one third of the Directors are subject to retirement
by rotation on an annual basis to refresh the Board,
irrespective of performance.
The Corporate Governance Manual also contains a schedule
of matters specifically reserved for Board decision or approval
and sets out the Company’s share dealing code and its public
interest disclosure (“whistle-blowing”) policy and procedures.
Board and committee attendance
Board and committee attendance
Board and committee attendance
Board and committee attendance
The number of formal scheduled Board and Committee
meetings held and attended by Directors during the year was
as follows:
Jim Mellon
Denham Eke
Douglas Grant
Alan Clarke
David Gibson
John Banks
Gregory Bailey
Board
4/6
6/6
6/6
6/6
6/6
4/6
4/6
ARCC
-
-
-
8/8
8/8
-
-
REMCO
-
-
-
6/6
6/6
-
-
QCA Principal 10: Communicate how the company is
QCA Principal 10: Communicate how the company is
QCA Principal 10: Communicate how the company is
QCA Principal 10: Communicate how the company is
governed and is performing
by maintaining a dialogue with
governed and is performing by maintaining a dialogue with
by maintaining a dialogue with
by maintaining a dialogue with
governed and is performing
governed and is performing
shareholders and other relevant stakeholders
shareholders and other relevant stakeholders
shareholders and other relevant stakeholders
shareholders and other relevant stakeholders
The Group places a high priority on regular communications
with its various stakeholder groups and aims to ensure that all
communications concerning the Group’s activities are clear,
fair and accurate. The Group’s website is regularly updated
and users can register to be alerted when announcements or
details of presentations and events are posted onto the
website.
Notices of General Meetings of the Company can be found on:
https://www.mfg.im/investor-centre/regulatory-news
The results of voting on all resolutions in future general
meetings will be posted to the Group’s website, including any
actions to be taken as a result of resolutions for which votes
against have been received from at least 20 per cent of
independent Shareholders.
Page | 15
RISK AND GOVERNANCE
DIRECTORS, OFFICERS AND ADVISERS
Executive Directors
Denham Eke (68) ‡
Chief Executive Officer
Denham Eke is the Managing Director of Burnbrae
Group Limited, a private
international asset
management company. He began his career in
stockbroking with Sheppards & Chase before
moving into corporate planning for Hogg Robinson
plc, a major multinational insurance broker. He is a
director of many years standing of both public and
private companies
financial
involved
services, property, mining, and manufacturing
sectors.
the
in
Appointment
Appointment
Appointment
Appointment
Appointed to the Board on 2 November 2007 and
appointed as Chief Executive on 12 February 2009.
Douglas Grant (55) ‡
Group Finance Director
Douglas Grant has over 30 years’ experience
working in finance, initially with Scottish Power,
before moving to the industrial sector to work
with ICI and then Allenwest. Prior to joining
Manx Financial Group PLC, he was the group
financial controller and later financial director of
various UK and Isle of Man private sector
companies and has extensive capital markets
experience.
Appointment
Appointment
Appointment
Appointment
Appointed to the Board on 14 January 2010. He
is Managing Director of Conister Bank Limited.
Jim Mellon (63)‡
Executive Chairman
Jim Mellon
is a well-known and successful
entrepreneur, author and economic commentator,
starting his career in fund management and now
including biopharma, property, mining and
information
technology amongst his many
investments. He holds directorships in a number of
companies, both quoted and unquoted, including
the chairmanship of Juvenescence Limited and
being a non-executive director of Agronomics
Limited. He, together with Burnbrae Group Limited,
of which he is the beneficial owner, holds 16% of
Manx Financial Group PLC. He is the founder,
principal shareholder and chairman of the Regent
Pacific Group, quoted on the Hong Kong Stock
Exchange. He is Chairman of Juvenescence Ltd,
and also a director of Agronomics Limited.
Appointment
Appointment
Appointment
Appointment
Appointed to the Board on 2 November 2007 and
appointed as Executive Chairman on 12 February
2009.
Non-executive Directors
Alan Clarke (69)‡†* ≠
Non-executive Director
David Gibson (73) ‡†* ≠
Non-executive Director
Gregory Bailey (64) ‡
Non-executive Director
Alan Clarke is a chartered accountant and former
senior partner of Ernst & Young during which time
he worked closely with HSBC offshore operations in
both the Channel Islands and the Isle of Man.
Currently, he specialises in corporate finance and
strategic consultancy, advising a variety of both
listed and private companies. He holds several non-
executive directorships and is a past President of
ICAEW Manchester. He is also a registered auditor,
being the senior partner of Downham Mayer Clarke.
Appointmentntntnt
Appointme
Appointme
Appointme
Appointed to the Board on 2 November 2007.
Chairman of the Audit, Risk and Compliance
Committee and Chairman of the Remuneration
Committee.
David Gibson qualified as a certified accountant
whilst holding posts with Shell-Mex and BP and
CIBA-Geigy throughout the UK and abroad, before
transferring into treasury management in senior
positions with Turner and Newall and Westland
Helicopters where he qualified as a corporate
treasurer. He joined the Trustee Savings Bank of
the Channel Islands as finance director, prior to
becoming general manager finance at TSB Retail
Bank where he gained his formal qualifications as
a banker. Prior to retiring from executive life for
family reasons, he was group finance director of
Portman Building Society for 9 years. He is also
deputy chairman of
investment
companies.
two property
Appointment
Appointment
Appointment
Appointment
Appointed to the Board on 12 February 2009. He is
Chairman of Conister Bank Limited.
Gregory Bailey, founded Palantir Group Inc
which made successful investments in bio-tech
company start-ups and financings, and is
currently CEO of Juvenescence Ltd, chairman
of Portage Biotech Inc, a CSE-traded drug
development company and non-executive
director
Biohaven
Pharmaceuticals Holding Company. Along with
comprehensive experience
finance and
healthcare, he has served on many public
company boards and brings to the Group an
corporate
extensive
governance.
involvement
traded
NYSE
of
in
in
Appointment
Appointment
Appointment
Appointment
Appointed to the Board on 7 February 2018.
Page | 16
RISK AND GOVERNANCE
DIRECTORS, OFFICERS AND ADVISERS
Non-executive Directors
Company Secretary
* Member of the Audit, Risk and
Compliance Committee
† Member of the Remuneration Committee
‡ Member of the Nominations Committee
≠ Independent Non-executive Director
John Spellman (53) ‡* ≠
Non-executive Director
Lesley Crossley (52)
Company Secretary
John Spellman is both a qualified accountant and banker.
He spent his early years in banking, fund management
and accountancy specialising in the various parts of the
offshore industry before being appointed managing
director of Clerical Medical Offshore. He transferred to
the UK as chief operating officer within Clerical Medical
Financial Services before being appointed managing
director of HBoS Financial Services. He has worked with
and created a number of successful businesses and has
wide experience liaising with government regulators. He
has held approved status with the FSA Isle of Man in
various roles and has acted as strategic advisor to the
Isle of Man government, specialising in finance and
foreign direct investment for over 10 years.
Appointment
Appointment
Appointment
Appointment
Appointed to the Board on 4 May 2020.
Lesley Crossley is a Fellow of The Chartered
Institute of Secretaries and Administrators and an
Associate of the Chartered Insurance Institute. She
has over 30 years of wide-ranging experience in the
financial services industry both in the UK and the
Isle of Man and has held the position of Company
Secretary with a number of Isle of Man and
international companies.
Appointment
Appointment
Appointment
Appointment
Appointed as Company Secretary on 2 September
2019.
John Banks (51) resigned from the Board and his role as Non-executive Director and Member of the Nominations
Committee on 14 April 2020.
Advisers
Advisers
Advisers
Advisers
Registered Office
Registered Office
Registered Office
Registered Office
Clarendon House
Victoria Street
Douglas
Isle of Man IM1 2LN
Registered Agent
Registered Agent
Registered Agent
Registered Agent
CW Corporate Services Limited
Bank Chambers
15-19 Athol Street
Douglas
Isle of Man IM1 1LB
Legal Advisers
Legal Advisers
Legal Advisers
Legal Advisers
As to Isle of Man law
Long & Humphrey
The Old Courthouse
Athol Street
Douglas
Isle of Man IM1 1LD
As to English law
Hill Dickinson LLP
The Broadgate Tower
20 Primrose Street
London EC21 2EW
Independent Auditor
Independent Auditor
Independent Auditor
Independent Auditor
KPMG Audit LLC
Heritage Court
41 Athol Street
Douglas
Isle of Man IM99 1HN
Principal Bank
Principal Bankersersersers
Principal Bank
Principal Bank
Royal Bank of Scotland
135 Bishopsgate
London EC2M 3UR
Consulting Actuaries
Consulting Actuaries
Consulting Actuaries
Consulting Actuaries
Boal & Co Ltd
Marquis House
Isle of Man Business Park
Douglas
Isle of Man IM2 2QZ
Pension Fund
Pension Fund
Pension Fund
Pension Fund
Investment Manager
Investment Manager
Investment Manager
Investment Manager
Canaccord Genuity Wealth
Management
Anglo International House
Bank Hill
Douglas
Isle of Man IM1 4LN
Nominated Advisor
Nominated Advisor
Nominated Advisor
Nominated Advisor
and Broker
and Broker
and Broker
and Broker
Beaumont Cornish
Limited
10th Floor
30 Crown Place
London EC2A 4EB
Registrar
Registrar
Registrar
Registrar
Computershare Investor
Services (Jersey) Limited
Queensway House
Hilgrove Street
St Helier
Jersey JE1 1ES
Presentation of Annual
Presentation of Annual
Presentation of Annual
Presentation of Annual
Report and Accounts
Report and Accounts
Report and Accounts
Report and Accounts
Presented here are the
Annual
and
Accounts
Manx
Financial Group PLC.
Report
of
Company Information
Company Information
Company Information
Company Information
The Annual and Interim
Reports, along with other
supplementary
information of interest to
are
Shareholders,
included on its website.
The address of
the
is www.mfg.im
website
which
investor
includes
relations information and
contact details.
Page | 17
RISK AND GOVERNANCE
AUDIT, RISK AND COMPLIANCE COMMITTEE
Dear Shareholder
Dear Shareholderssss
Dear Shareholder
Dear Shareholder
I am pleased to set out below an account of the ARCC’s role
and activities during 2019 and up to the date of publication of
this Annual Report.
the Nomination Committee,
Membership
Membership
Membership
Membership
Members of the ARCC are appointed by the Board, on the
recommendation of
in
consultation with the Chairman of the Committee. The
Committee is made up of at least 2 members. All members of
the Committee shall be Non-executive Directors and at least
one of whom shall have recent and relevant financial
experience with a professional qualification from one of the
professional accountancy bodies. The Chairman of the Board
shall not be a member of the Committee.
Appointments to the Committee shall be for a period of up to
3 years, which may be extended by the Board for a further 3-
year period (or, in exceptional circumstances, two further 3
year periods), provided the Director remains independent.
The Board may approve annual extensions to any Director
who has served 3 consecutive terms.
The Board shall appoint the Chairman of the Committee who
shall be a Non-executive Director. In the absence of the
Chairman of the Committee and / or an appointed deputy, the
remaining members present shall elect one of themselves to
chair the meeting.
The Committee shall meet at least six times a year. Of these,
two will be held to review the annual and interim financial
statements. Outside of the formal meeting programme, the
Chairman of the Committee will maintain a dialogue with key
individuals involved in the Company’s governance.
Members
Members
Members
Members
Appointed
Appointed
Appointed
Appointed
Alan Clarke (Chairman)
David Gibson
2 February 2007
13 February 2009
Number of
Number of
Number of
Number of
meetings
meetings
meetings
meetings
attended
attended
attended
attended
8/8
8/8
Only members of the Committee have the right to attend
Committee meetings. However other individuals may be
invited by the Chairman of the Committee to attend all or part
of any meeting as and when appropriate.
The ARCC holds separate meetings with the Head of Internal
Audit, Head of Risk and Compliance and our External Auditor,
KPMG Audit LLC.
The Chairman of the Board, the Executive Directors and
executive management are invitees to meetings of ARCC but
are excluded from the separate meetings held between the
ARCC and the External Auditor.
Execution of functions
Execution of functions
Execution of functions
Execution of functions
The ARCC has executed its duties and responsibilities during
the year in accordance with its terms of reference as it relates
to auditor independence, assisting the Board in its evaluation
of our control environment and internal controls including
information systems and accounting practices.
Due to its adoption of the QCA Corporate Governance
standard, the Committee reassessed the adequacy of its
terms of reference and its function bearing in mind the
requirements of this standard.
During the year under review, the Committee considered
among other matters, the following:
ancial reporting and annual financial statements:
FinFinFinFinancial reporting and annual financial statements:
ancial reporting and annual financial statements:
ancial reporting and annual financial statements:
Considered the annual financial statements with the
External Auditor, Executive Directors
and
management and reviewed the appropriateness of
significant judgements, estimates and accounting
policies;
Reviewed and recommended to the Board for
approval:
o Unaudited condensed interim results for the
period-ended 30 June 2019;
o Audited MFG PLC Group and subsidiary
annual financial statements for the year-
ended 31 December 2019; and
Discussed any significant and unusual accounting
matters including key audit matters identified by the
External Auditor.
External audit:
External audit:
External audit:
External audit:
Monitored and assessed the independence of the
External Auditor based on reports received and
inquiries made into work performed;
Determined the nature and extent of non-audit
services performed by the External Auditor;
Reviewed and assessed the significance of non-
audit fees compared to audit fees;
Reviewed and agreed the external audit plan in
advance for the year-end audit which set out the
scope of audit, significant risks, areas of audit focus
and audit timetable;
Received a presentation from the External Auditor on
the findings from their execution of the audit plan;
and
Satisfied itself as to the expertise experience and
independence of the engagement partner.
Internal audit::::
Internal audit
Internal audit
Internal audit
Reviewed and approved the Internal Audit plan;
Reviewed Internal Audit’s findings including the
design and operating effectiveness of the internal
control environment and control activities; and
Reviewed Internal Audit’s findings on the adequacy
and reliability of management information.
pliance::::
Risk and compliance
Risk and com
pliance
pliance
Risk and com
Risk and com
Assessed the effectiveness of the Group Risk and
Compliance function;
Reviewed
the Group Risk and Compliance
department findings on the effectiveness of the
Group’s regulatory controls;
Recommended a
revision of
the Risk and
Compliance policies for Board approval; and
Recommended a revision of the Internal Capital
Adequacy Assessment Process for Board approval.
Page | 18
RISK AND GOVERNANCE
AUDIT, RISK AND COMPLIANCE COMMITTEE
External
s independence
uditor’’’’s independence
External AAAAuditor
s independence
s independence
uditor
uditor
External
External
The External Auditor, KPMG Audit LLC, has been the Group’s
auditor since 2007.
Consideration was given to the non-audit work performed by
the External Auditor. The ratio of non-audit fees to audit fees
for the year was 0.78 to 1 (2018: 0.08 to 1). Non audit services
related to transaction services and tax advisory services.
Services were performed by a separate team to the audit team
to safeguard against the self-review threat to independence.
The ARCC obtained assurance from the External Auditor that
internal governance processes within KPMG Audit LLC
support and demonstrate its claim of independence. This
assurance was provided through the receipt of an ISA 260
letter.
The ARCC is satisfied with the independence of KPMG Audit
LLC.
uditor’’’’s s s s reappointment
External
reappointment
External AAAAuditor
reappointment
reappointment
uditor
uditor
External
External
the
responsible
The ARCC
reappointment of the Group’s External Auditor to the Board
which,
its
Shareholders.
turn, will make a
recommendation
recommending
for
to
in
is
Key accounting matter
Key accounting matter
Key accounting matter
Key accounting matter
Loan impairment
wholesale funding and individual finance
Loan impairment –––– wholesale funding and individual finance
wholesale funding and individual finance
wholesale funding and individual finance
Loan impairment
Loan impairment
agreements
agreements
agreements
agreements
Impairments cover loans specifically identified as impaired and
a collective impairment of all other loans for those impairments
incurred but not yet specifically identified.
Loan impairment provisions reflect estimates of the amount and
timing of future recoveries which require an assessment of
matters such as future economic conditions and the value of
collateral. Estimates, by their nature, give rise to a higher risk
of material misstatement due to error or fraud.
The effect of these matters is that, as part of the External
Auditor’s risk assessment, they determined that the impairment
provision has a high degree of estimation uncertainty, with a
potential range of reasonable outcomes greater than their
materiality for the financial statements as a whole, and possibly
many times that amount.
e assets
Impairment of goodwill and intangible assets
Impairment of goodwill and intangibl
e assets
e assets
Impairment of goodwill and intangibl
Impairment of goodwill and intangibl
Goodwill and
the
estimated recoverable amount of these balances is subjective
due to the inherent uncertainty involved in forecasting and
discounting future cash flows for the goodwill impairment test
and in performing a review for indicators of impairment for
intangible assets.
intangible assets are significant and
The effect of these matters is that, as part of the External
Auditor’s risk assessment, they have determined that the value
in use of goodwill has a high degree of estimation uncertainty,
with a potential range of reasonable outcomes greater than
their materiality for the financial statements as a whole.
It is noted that with good corporate governance, an audit
tender process should regularly be conducted. With this in
mind, the ARCC are considering whether an audit tender
process should commence for the year-ended 31 December
2021. This will allow sufficient time to run a comprehensive
and considered tender process.
The ARCC therefore recommend to the Board that its External
Auditor be reappointed for the year-ended 31 December 2020,
whilst it considers a tender process. Should the process
commence, the ARCC are expected to have the tender
complete prior to the 2021 AGM.
Firms outside the Big 4 would be invited to take part in this
process so long as they have sufficient resources and
expertise to merit their inclusion. There are no anticipated
conflicts of interest noted at this time and should any arise,
they will be mitigated appropriately.
Key accounting matters
Key accounting matters
Key accounting matters
Key accounting matters
The ARCC considered key accounting matters in relation to
the Group’s financial statements and disclosures. The primary
areas in relation to 2019 and how they were addressed are
detailed below:
ARCC response
ARCC response
ARCC response
ARCC response
The ARCC satisfied itself that the internal control environment
and control activities are appropriately designed and
implemented. This was supported by review of Internal and
External Audit reports and findings.
The ARCC reviewed reports from executive management on
the continued implementation of IFRS 9 and key changes to
internal processes and controls. The ARCC reviewed the key
assumptions used by management such as Loss Given
Default, Loss Rates, Probability of Default on a quarterly basis.
The ARCC satisfied itself that the internal control environment
and control activities are appropriately designed and
implemented. This was supported by review of Internal and
External Audit reports and findings.
The ARCC reviewed management’s assessment of Goodwill
and Intangible Asset impairment and concluded that the
recoverable amount is appropriate.
Page | 19
RISK AND GOVERNANCE
AUDIT, RISK AND COMPLIANCE COMMITTEE
ARCC response
ARCC response
ARCC response
ARCC response
The ARCC satisfied itself that the internal control environment
and control activities are appropriately designed and
implemented. This was supported by review of Internal and
External Audit reports and findings.
The ARCC reviewed management’s assessment of VAT
receivable impairment and concluded that the recoverable
amount is appropriate.
The ARCC is satisfied that the going concern assessment over
the Group provides sufficient assurance over the recoverability
of the Company’s subordinated loans and investment in
subsidiaries.
is significant and
receivable exposure
Key accounting matter
Key accounting matter
Key accounting matter
Key accounting matter
VAT receivable
VAT receivable
VAT receivable
VAT receivable
The VAT
its
recoverability rests on the outcome of discussions with the
Isle of Man Government Customs and Excise Division (“IOM
C&E”), which in turn will take into account the final assessment
by UK Customs and Excise of the impact of the recent ruling by
the Court of Justice of the European Union regarding the
dispute between Volkswagen Financial Services (UK) Limited
vs HM Revenue & Customs.
The effect of these matters is that, as part of the External
Auditor’s risk assessment, they determined that the impact of
the final assessment of the amount of VAT to be recovered has
a high degree of estimation uncertainty, with a potential range
of reasonable outcomes greater than their materiality for the
financial statements as a whole, and possibly many times that
amount.
Carrying value of Company’s subordinated
Carrying value of Company’s subordinated
Carrying value of Company’s subordinated
Carrying value of Company’s subordinated
investment in subsidiaries
investment in subsidiaries
investment in subsidiaries
investment in subsidiaries
The carrying value of the Company’s subordinated loans to and
investment in subsidiaries represents 97% (2018: 93.0%) of the
Parent Company’s total assets.
loans and
loans and
loans and
loans and
The assessment of carrying value is not at a high risk of
significant misstatement or subject to significant judgement as
the carrying value is supported by the audited net asset value
of the subsidiaries.
However, due to its materiality in the context of the Company
financial statements, the External Auditors considered this to
be the area that had the greatest effect on their overall
Company audit.
The ARCC has complied with and discharged its responsibilities as set out in its Terms of Reference.
Alan Clarke
Alan Clarke
Alan Clarke
Alan Clarke
Chairman
29 June 2020
Page | 20
RISK AND GOVERNANCE
DIRECTORS’ REMUNERATION REPORT
Dear Shareholder
Dear Shareholderssss
Dear Shareholder
Dear Shareholder
On behalf of the Board, I am pleased to present the Directors’
Remuneration Report for the year ended 31 December 2019.
Membership
Membership
Membership
Membership
Members of the Remuneration Committee (“REMCO”) are
appointed by the Board, on the recommendation of the
Nomination Committee in consultation with the Chairman of
the Committee. The Committee is made up of at least 3
members. All members of the Committee shall be Non-
executive Directors. The Chairman of the Board shall not be a
member of the Committee.
Appointments to the Committee shall be for a period of up to
3 years, which may be extended by the Board for a further 3-
year period (or, in exceptional circumstances, two further 3
year periods), provided the Director remains independent.
The Board may approve annual extensions to any Director
who has served 3 consecutive terms.
The Board shall appoint the Chairman of the Committee who
shall be a Non-executive Director. In the absence of the
Chairman of the Committee and/or an appointed deputy, the
remaining members present shall elect one of themselves to
chair the meeting.
The Committee shall meet at least twice a year and at such
other times as the Chairman of the Committee shall require.
Membership
Membership
Membership
Membership
Appointed
Appointed
Appointed
Appointed
Alan Clarke (Chairman)
David Gibson
13 February 2009
12 December 2010
Number of
Number of
Number of
Number of
meetings
meetings
meetings
meetings
attended
attended
attended
attended
6/6
6/6
Only members of the Committee have the right to attend
Committee meetings. However, other individuals may be
invited by the Chairman of the Committee to attend all or part
of any meeting as and when appropriate.
Areas of focus for 2019999
Areas of focus for 201
Areas of focus for 201
Areas of focus for 201
During the year, the Committee considered the following:
Reviewed the overall pay increase of Executive Directors;
Reviewed
annual
non-discretionary
overall
the
performance related pay scheme for Group staff; and
Reviewed and approved all new staff appointments with
annual packages over £50,000.
Remuneration policy
Remuneration policy
Remuneration policy
Remuneration policy
The Group’s Remuneration Policy reflects the Group’s
business strategy and objectives as well as sustained and
long-term value creation for shareholders. In addition, the
policy aims to be fair and provide equality of opportunity,
ensuring that:
the Group is able to attract, develop and retain high-
performing and motivated employees in the competitive
local IOM and wider UK markets;
employees are offered a competitive remuneration
package to encourage enhanced performance and are, in
a fair and responsible manner, rewarded for their individual
contribution to the success of the Group;
it reflects our culture and values; and
there is full transparency of the Group’s Remuneration
Policy.
In line with the Board’s approach, which reflects that adopted
the Group’s
within other comparable organisations,
Remuneration Policy provides for the reward of Executive
Directors through salaries and other benefits.
Executive Directors’ Emoluments
Executive Directors’ Emoluments
Executive Directors’ Emoluments
Executive Directors’ Emoluments
The remuneration for Executive Directors reflects their
responsibilities.
It comprises basic salary, performance
related variable pay when this is considered appropriate, and
various benefits detailed below.
Performance related payments are not pensionable and are
not contracted.
As with staff generally, whose salaries are subject to annual
reviews, basic salaries payable to Executive Directors are
reviewed each year with reference to jobs carrying similar
responsibilities in comparable financial organisations, market
conditions generally and local employment competition in view
of the Group’s geographical position.
The Group operates a non-contractual discretionary annual
performance related pay scheme based on the trading
performance of the Group and the individual employee’s
performance assessed for the period under review in a
manner which promotes sound risk management and does not
promote excessive risk taking.
The non-contractual discretionary annual performance related
pay scheme may be paid in one year but that does not confer
any entitlement in future years.
to
Performance assessments are conducted annually
determine
the performance rating of each employee’s
achievements against a mix of targets set and agreed at the
beginning of each year between the employee and their
manager. No incentives are paid to employees or executives
where the performance rating reflects below an agreed
expected level for the role employed.
The non-contractual discretionary annual performance related
pay scheme may be disbursed as a cash payment through
payroll, share based instruments (including share options) or
a mixture of both. An element of deferment to align the
interests of the employee to the longer term performance of
the Group may also be included.
the Advisor’s client base and
EAL’s Financial Advisors are salaried and commission is
calculated on a pre-agreed percentage over target which is set
at between 2 to 3 times annual gross salary depending on the
their historical
size of
performance. Each Financial Advisor is set objectives at the
beginning of the year including a 100% pass in all compliance
requirements. Where indemnified commission is paid and the
underlying client policy lapses and the commission is clawed
back then this is reviewed by an Executive Director in order to
monitor trends and is then clawed back from the relevant
Financial Advisor.
Where
the Group operates contractually guaranteed
performance related pay, the contractual conditions must be
approved by the REMCO.
Page | 21
RISK AND GOVERNANCE
DIRECTORS’ REMUNERATION REPORT
Executive Directors’
erms
ontractual tttterms
Executive Directors’ ccccontractual
erms
erms
ontractual
ontractual
Executive Directors’
Executive Directors’
In keeping with current recommended practice, the standard
term for Executive Director appointments, which have a
contractual notice period, is 6 months.
NonNonNonNon----executive
emuneration
irectors’ rrrremuneration
executive DDDDirectors’
emuneration
emuneration
irectors’
irectors’
executive
executive
Non-executive Directors do not receive any benefits other than
their fees and travelling expenses for which they are
reimbursed. The level of fees payable to Non-executive
Directors is assessed using benchmarks from a group of
comparable financial organisations.
The The The The pppprocedure for
emuneration
etermining rrrremuneration
rocedure for ddddetermining
emuneration
emuneration
etermining
etermining
rocedure for
rocedure for
The REMCO, comprising two Non-executive Directors, is
responsible for setting the remuneration of the Executive
Directors’ emoluments
Directors’ emoluments
Directors’ emoluments
Directors’ emoluments
Remuneration/
Fees
£
Performance
Related Pay
£
Executives
Executives
Executives
Executives
Jim Mellon
Denham Eke
Douglas Grant
NonNonNonNon----executives
executives
executives
executives
Alan Clarke
Gregory Bailey
John Banks
David Gibson
John Spellman
Aggregate
emoluments
25,000
25,000
208,720
258,720
45,000
12,500
25,000
69,167
-
151,667
-
-
50,000
50,000
-
-
-
-
-
-
Directors and is chaired by Alan Clarke. Committee members
in discussions concerning their own
do not take part
remuneration. The basic Non-executive Director fee is set by
the Group Chairman and CEO. The Chairman of the
Committee reports at
following a
Committee meeting.
the Board meeting
Implementation report
Implementation report
Implementation report
Implementation report
It is the view of the Committee that Directors’ remuneration
awarded across the Group for the year has been in
accordance with the Group’s stated Remuneration Policy and,
on behalf of the Committee I recommend that you endorse this
Group report. An analysis of Directors’ emoluments is as
follows:
Pension
£
-
-
20,589
20,589
-
-
-
-
-
-
2012012012019999
Total
Total
Total
Total
££££
25,000
25,000
25,000
25,000
25,000
25,000
25,000
25,000
279,309
279,309
279,309
279,309
329,309
329,309
329,309
329,309
45,000
45,000
45,000
45,000
12,500
12,500
12,500
12,500
25,000
25,000
25,000
25,000
69,167
69,167
69,167
69,167
----
151,667
151,667
151,667
151,667
2018
Total
£
25,000
25,000
260,604
310,604
42,917
22,400
25,000
55,000
-
145,317
410,387
50,000
20,589
480,976
480,976
480,976
480,976
455,921
Approval
Approval
Approval
Approval
This report was approved by the Board of Directors on 29 June 2020 and signed on its behalf by:
Alan Clarke
Alan Clarke
Alan Clarke
Alan Clarke
Chairman of the Remuneration Committee
29 June 2020
Page | 22
RISK AND GOVERNANCE
DIRECTORS’ REPORT
The Directors present their annual report and the audited
financial statements for the year ended 31 December 2019.
Directors and Directors’ share interests
Directors and Directors’ share interests
Directors and Directors’ share interests
Directors and Directors’ share interests
Details of current Directors are set out on pages 16 and 17.
Principal regulated activities
Principal regulated activities
Principal regulated activities
Principal regulated activities
The principal activities of Manx Financial Group PLC (the
“Company” or “MFG”) and its subsidiaries (together referred to
as the “Group”) are the provision of asset and personal finance,
investing activities, foreign exchange brokerage services and
wealth management.
The Bank, a wholly owned subsidiary of the Company, holds a
Class 1(1) deposit taking licence issued under Part 2 of the Isle
of Man Financial Services Act 2008. Deposits made with the
Bank are covered by the Isle of Man Depositors’ Compensation
Scheme contained in the Banking Business (Compensation of
Depositors) Regulations 1991.
CFL is authorised by the Financial Conduct Authority (“FCA”) to
conduct brokerage services.
EAL is authorised by the Isle of Man Financial Services
Authority under section 7 of the Financial Services Act 2008 to
conduct investment business as a Class 2, sub-classes (3), (6)
and (7) licence holder.
Results and dividends
Results and dividends
Results and dividends
Results and dividends
The proposed transfers to and from reserves are as set out in
the Statement of Changes in Equity on page 35. The Directors
do not recommend the payment of a dividend (2018: nil).
Share capital
Share capital
Share capital
Share capital
Particulars of the authorised and issued share capital of the
Company are set out in note 31 to the financial statements.
Significant shareholdings
Significant shareholdings
Significant shareholdings
Significant shareholdings
The number of shares held and the percentage of the issued
shares which that number represented as at 26 June 2020 are:
% of % of % of % of
issued capital
issued capital
issued capital
issued capital
Number
Number
Number
Number
Jim Mellon1
Gregory Bailey2
Euroclear Nominees Limited3
Lynchwood Nominees Limited
Island Farms Limited
Rock (Nominees) Limited
21,492,232
17,835,750
17,039,623
9,673,385
4,222,319
3,979,914
18.83
15.63
14.93
8.48
3.70
3.49
1 Burnbrae Limited holds 19,164,250 Ordinary Shares. Burnbrae
Limited is 100% beneficially owned by Jim Mellon. Denham
Eke, CEO of MFG is also a director of Burnbrae Limited.
Pershing Nominees Limited holds 166,666 Ordinary Shares and
Vidacos Nominees Limited holds 1,468,666 Ordinary Shares in
trust for Jim Mellon and 692,650 Ordinary Shares are held in his
own name.
2 Vidacos Nominees Limited holds 17,835,750 Ordinary Shares
in trust for Gregory Bailey.
3 Euroclear Nominees Limited holds 17,039,623 Ordinary Shares
in trust for Aeternitas Imperium Privatstiftung.
The number of shares held by the current Directors is as follows:
Jim Mellon4
Gregory Bailey5
David Gibson6
Douglas Grant
Alan Clarke
Number
Number
Number
Number
26262626/0/0/0/06666////20202020
21,492,232
21,492,232
21,492,232
21,492,232
17,835,750
17,835,750
17,835,750
17,835,750
1,721,433
1,721,433
1,721,433
1,721,433
505,821
505,821
505,821
505,821
52,149
52,149
52,149
52,149
Number
Number
Number
Number
31/12/19
31/12/19
31/12/19
31/12/19
21,492,232
21,492,232
21,492,232
21,492,232
17,835,750
17,835,750
17,835,750
17,835,750
1,721,433
1,721,433
1,721,433
1,721,433
505,821
505,821
505,821
505,821
52,149
52,149
52,149
52,149
Number
31/12/18
21,492,232
17,835,750
1,721,433
505,821
52,149
4 Burnbrae Limited holds 19,164,250 Ordinary Shares. Burnbrae
Limited is 100% beneficially owned by Jim Mellon. Denham
Eke, CEO of MFG is also a director of Burnbrae Limited.
Pershing Nominees Limited holds 166,666 Ordinary Shares and
Vidacos Nominees Limited holds 1,468,666 Ordinary Shares in
trust for Jim Mellon and 692,650 Ordinary Shares are held in his
own name.
5 Vidacos Nominees Limited holds 17,835,750 Ordinary Shares
in trust for Gregory Bailey.
6 Comprises 1,721,433 Ordinary Shares held by Interactive
Investor Services Limited for the benefit of David Gibson.
The number of share options held by the current Directors is as
follows:
Douglas Grant
Number
Number
Number
Number
26262626/0/0/0/06666////20202020
1,042,466
1,042,466
1,042,466
1,042,466
Number
Number
Number
Number
31/12/1
31/12/19999
31/12/1
31/12/1
1,042,466
1,042,466
1,042,466
1,042,466
Number
31/12/18
1,042,466
Directors’ liability insurance
Directors’ liability insurance
Directors’ liability insurance
Directors’ liability insurance
The Group maintains insurance cover for Directors’ potential
liability.
Fixed and intangible assets
Fixed and intangible assets
Fixed and intangible assets
Fixed and intangible assets
The movement in fixed and intangible assets during the year are
set out in notes 24 and 25 respectively to the financial
statements.
StaffStaffStaffStaff
At 31 December 2019, there were 127 members of staff (2018:
113), of whom 14 were part-time (2018: 11).
Investment in subsidiaries
Investment in subsidiaries
Investment in subsidiaries
Investment in subsidiaries
Investments in the Company’s subsidiaries are disclosed in
note 32 to the financial statements.
Auditor
Auditor
Auditor
Auditor
KPMG Audit LLC, being eligible, has expressed its willingness
to continue in office.
Page | 23
ANNUAL FINANCIAL STATEMENTS
CONTENTS
Assurance
Assurance
Assurance
Assurance
Page
Statement of Directors’ Responsibilities
Independent Auditor’s Report
Consolidated and company financial statements
Consolidated and company financial statements
Consolidated and company financial statements
Consolidated and company financial statements
Consolidated Statement of Profit or Loss and Other
Comprehensive Income
Company Statement of Profit or Loss and Other
Comprehensive Income
Consolidated Statement of Financial Position
Company Statement of Financial Position
Consolidated and Company Statement of Changes in
Equity
Consolidated Statement of Cash Flows
Company Statement of Cash Flows
Notes to the consolidated and company financial statements
Notes to the consolidated and company financial statements
Notes to the consolidated and company financial statements
Notes to the consolidated and company financial statements
Basis of preparation
Basis of preparation
Basis of preparation
Basis of preparation
1. Reporting entity
2. Basis of accounting
3. Functional and presentation currency
4. Use of judgements and estimates
5. Changes in accounting policies
Financial risk review and fair value
Financial risk review and fair value
Financial risk review and fair value
Financial risk review and fair value
6. Classification of financial assets and liabilities
7. Fair value of financial instruments
8. Financial risk review
Performance for the year
Performance for the year
Performance for the year
Performance for the year
9. Operating segments
10. Net interest income
11. Net fee and commission income
12. Terminal funding
13. Personnel expenses
14. Other expenses
15. Impairment on loans and advances to customers
16. Profit before tax payable
17. Income tax expense
18. Earnings per share
Assets
Assets
Assets
Assets
19. Cash and cash equivalents
20. Debt securities
21. Trading asset
22. Loans and advances to customers
23. Trade and other receivables
24. Property, plant and equipment and right-of-use
assets
25. Intangible assets
25
26
31
32
33
34
35
36
37
38
38
38
38
38
40
41
43
49
50
50
51
51
51
51
52
52
53
54
54
54
54
55
56
57
Liabilities and equity
Liabilities and equity
Liabilities and equity
Liabilities and equity
26. Deposits from customers
27. Creditors and accrued charges
28. Block creditors
29. Loan notes
30. Pension liability
31. Called up share capital
Group composition
Group composition
Group composition
Group composition
32. Investment in Group undertakings
Other information
Other information
Other information
Other information
33. Related parties transactions
34. Operating leases
35. Subsequent events
36. Financial risk management
Accounting policies
Accounting policies
Accounting policies
Accounting policies
37. Basis of measurement
38. Significant accounting policies
39. Standards issued but not yet adopted
PagePagePagePage
57
58
58
58
58
61
62
65
66
66
67
69
70
80
Page | 24
ANNUAL FINANCIAL STATEMENTS
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
responsible
The Directors are
for keeping adequate
accounting records that are sufficient to show and explain the
Parent Company’s transactions and disclose with reasonable
accuracy at any time the financial position of the Parent
Company and enable them to ensure that its financial
statements comply with the Isle of Man Companies Act 2006.
They are responsible for such internal control as they
determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether
due to fraud or error, and have general responsibility for taking
such steps as are reasonably open to them to safeguard the
assets of the Group and to prevent and detect fraud and other
irregularities.
The Directors are responsible for the maintenance and
integrity of the corporate and financial information included on
the Company’s website. Legislation in the Isle of Man
governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
The Directors are responsible for preparing the Annual Report
and the Group and Parent Company financial statements in
accordance with applicable law and regulations.
The Directors are required to prepare Group and Parent
Company financial statements for each financial year. As
required by the AIM Rules of the London Stock Exchange they
are required to prepare the Group financial statements in
accordance with International Financial Reporting Standards
(“IFRSs”) as adopted by the EU, as applicable to an Isle of
Man Company and applicable law and have elected to prepare
the Parent Company financial statements on the same basis.
The Directors must not approve the financial statements
unless they are satisfied that they give a true and fair view of
the state of affairs of the Group and Parent Company and of
their profit or loss for that period. In preparing each of the
Group and Parent Company
the
Directors are required to:
select suitable accounting policies and then apply them
financial statements,
consistently;
make judgements and estimates that are reasonable,
relevant and reliable;
state whether they have been prepared in accordance
with IFRSs as adopted by the EU;
assess the Group and Parent Company’s ability to
continue as a going concern, disclosing, as applicable,
matters related to going concern; and
use the going concern basis of accounting unless they
either intend to liquidate the Group or the Parent
Company or to cease operations or have no realistic
alternative but to do so.
Page | 25
ANNUAL FINANCIAL STATEMENTS
INDEPENDENT AUDITOR’S REPORT, TO THE MEMBERS OF MANX FINANCIAL
GROUP PLC
1 Our opinion is unmodified
1 Our opinion is unmodified
1 Our opinion is unmodified
1 Our opinion is unmodified
We have audited the financial statements of Manx Financial Group
PLC (“the Company”) for the year ended 31 December 2019 which
comprise the Consolidated and Parent Company Statements of Profit
or Loss and Other Comprehensive Income, the Consolidated and
Parent Company Statements of Financial Position, the Consolidated
and Parent Company Statements of Cash Flows and the Consolidated
and Parent Company Statements of Changes in Equity, and the related
notes, including the accounting policies in note 38.
In our opinion the financial statements:
give a true and fair view of the state of the Group’s and of
the Parent Company’s affairs as at 31 December 2019 and
of the Group’s and Parent Company’s profit for the year then
ended;
have been properly prepared
in accordance with
International Financial Reporting Standards as adopted by
the European Union (IFRSs as adopted by the EU), as
applicable to an Isle of Man Company; and
have been prepared in accordance with the requirements of
the Isle of Man Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on
Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities
are described below. We have fulfilled our ethical responsibilities
under, and are independent of the Group in accordance with, UK
ethical requirements including the FRC Ethical Standard as applicable
to listed entities. We believe that the audit evidence we have obtained
is a sufficient and appropriate basis for our opinion.
our assessment of risks of material misstatement
2 Key audit matters:
2 Key audit matters: our assessment of risks of material misstatement
our assessment of risks of material misstatement
our assessment of risks of material misstatement
2 Key audit matters:
2 Key audit matters:
Key audit matters are those matters that, in our professional judgment,
were of most significance in the audit of the financial statements and
include the most significant assessed risks of material misstatement
(whether or not due to fraud) identified by us, including those which
had the greatest effect on: the overall audit strategy; the allocation of
resources in the audit; and directing the efforts of the engagement
team. These matters were addressed in the context of our audit of the
financial statements as a whole, and in forming our opinion thereon,
and we do not provide a separate opinion on these matters. In arriving
at our audit opinion above, the key audit matters, in decreasing order
of audit significance, are set out below. These are unchanged from
2018, with the exception that this year loan impairment has been
separated into wholesale funding and individual finance agreements.
Key audit matter
Key audit matter
Key audit matter
Key audit matter
Loan impairment
wholesale
Loan impairment –––– wholesale
wholesale
wholesale
Loan impairment
Loan impairment
funding
funding
funding
funding
Loans
to
customers £40,491,000 (2018:
£41,746,000)
advances
and
Impairment Provision £536,000
(2018: £nil)
Refer to the Audit, Risk and
Compliance Report (“ARCC”),
note 4 (Use of Judgements and
Estimates - Assumptions and
Estimation Uncertainties), note
8(A) (Credit Risk), note 15
(Impairment on Loans and
Advances to Customers), note
22 (Loans and Advances to
Customers),
(B)
(Financial Risk Management –
Credit risk) and note 38(G)(vii)
for
(Accounting
Financial
Impairment
Instruments).
Policy
note
36
of
The risk
The risk
The risk
The risk
Subjective estimate
Subjective estimate
Subjective estimate
Subjective estimate
Impairments cover loans specifically identified as
impaired and a collective impairment of all other
loans for those impairments incurred but not yet
specifically identified.
Wholesale Funding comprises Block Finance,
Wholesale Funding Agreements and Stocking Plans.
These books comprise individually significant loan
balances and are in the nature of a secured business
loan. The security is principally an underlying pool of
loans.
Loan impairment provisions reflect estimates of the
amount and timing of future recoveries which require
an assessment of matters such as future economic
conditions and the value of collateral. Estimates, by
their nature, give rise to a higher risk of material
misstatement due to error or fraud.
The effect of these matters is that, as part of our risk
assessment, we determined that the impairment
provision has a high degree of estimation
uncertainty, with a potential range of reasonable
outcomes greater
the
financial statements as a whole, and possibly many
times that amount.
than our materiality for
Auditor’s
response
Auditor’s response
response
response
Auditor’s
Auditor’s
Our procedures included:
---- Control design:
Control design: Understanding the controls in
Control design:
Control design:
respect of the origination of wholesale funding loans,
including borrower due diligence.
Control design: Understanding the controls in
---- Control design:
Control design:
Control design:
respect of the Group’s loan impairment process such
as the timely recognition of impairment provisions,
the completeness and accuracy of reports used in
the loan impairment process and management
review processes over the calculation of collective
and specific provisions.
in
the
Test of details: We agreed the specific provisions
---- Test of details:
Test of details:
Test of details:
included
to
management’s provisioning schedule and vouched
that this schedule was correctly extracted from the
loans and advances system, including the arrears
information.
statements
financial
---- Test of details:
Test of details: We tested all specific provisions.
Test of details:
Test of details:
challenging management’s
included
This
assessment of the specific provision, taking account
of such factors as: amount of arrears; financial
standing of the business – by reviewing latest
accounts; status of underlying security – by verifying
a sample of security documentation; and likelihood
of recovery of any personal guarantees – by vouching
to the personal guarantee agreement and assessing
supporting evidence of the ability of the guarantor to
meet their obligations.
---- Historical comparison:
Historical comparison: We challenged the inputs
Historical comparison:
Historical comparison:
used in collective impairment models by comparison
to default and recovery experience across each of
the loan finance categories.
---- Assessing transparency:
Assessing transparency: Assessing the adequacy
Assessing transparency:
Assessing transparency:
of the Group’s disclosures about the degree of
estimation uncertainty involved at arriving at the
provisions.
Page | 26
ANNUAL FINANCIAL STATEMENTS
INDEPENDENT AUDITOR’S REPORT, TO THE MEMBERS OF MANX FINANCIAL
GROUP PLC
2 Key audit matters: our assessment of risks of material misstatement (continued)
2 Key audit matters: our assessment of risks of material misstatement (continued)
2 Key audit matters: our assessment of risks of material misstatement (continued)
2 Key audit matters: our assessment of risks of material misstatement (continued)
Key audit matter
Key audit matter
Key audit matter
Key audit matter
Loan
––––
impairment
impairment
Loan
impairment
Loan
impairment
Loan
finance agreements
finance agreements
finance agreements
finance agreements
Loans
to
customers £138,879,000 (2018:
£106,532,000)
advances
individual
individual
individual
individual
and
Provision
Impairment
£4,237,000 (2018: £3,394,000).
Refer to the Audit, Risk and
Compliance Report (“ARCC”),
note 4 (Use of Judgements and
Estimates - Assumptions and
Estimation Uncertainties), note
8(A) (Credit Risk), note 15
(Impairment on Loans and
Advances to Customers), note
22 (Loans and Advances to
Customers),
(B)
(Financial Risk Management –
Credit risk) and note 38(G)(vii)
(Accounting
for
Financial
Impairment
Instruments).
Policy
note
36
of
The risk
The risk
The risk
The risk
Subjective estimate
Subjective estimate
Subjective estimate
Subjective estimate
Impairments cover loans specifically identified as
impaired and a collective impairment of all other
loans for those impairments incurred but not yet
specifically identified.
Loan impairment provisions reflect estimates of the
amount and timing of future recoveries which require
an assessment of matters such as future economic
conditions and the value of collateral. Estimates, by
their nature, give rise to a higher risk of material
misstatement due to error or fraud.
The effect of these matters is that, as part of our risk
assessment, we determined that the impairment
provision has a high degree of estimation
uncertainty, with a potential range of reasonable
the
outcomes greater
financial statements as a whole, and possibly many
times that amount.
than our materiality for
Auditor’s response
Auditor’s response
Auditor’s response
Auditor’s response
Our procedures included:
---- Control design:
Control design: Understanding the controls in
Control design:
Control design:
respect of the origination individual finance loans,
including borrower due diligence.
Control design: Understanding controls in respect
---- Control design:
Control design:
Control design:
of the Group’s loan impairment process such as the
timely recognition of impairment provisions, the
completeness and accuracy of reports used in the
loan impairment process and management review
processes over the calculation of collective and
specific provisions.
the
etails: We agreed the specific provisions
---- Test of d
Test of details:
etails:
etails:
Test of d
Test of d
included
to
in
management’s provisioning schedule and vouched
that this schedule was correctly extracted from the
loans and advances system, including the arrears
information.
statements
financial
towards
---- Test of
details: We tested a sample of specific
Test of details:
details:
details:
Test of
Test of
those against
provisions, weighted
individually significant impaired loans. This included
challenging management’s assessment of
the
specific provision, taking into account such factors
as: the number of repayments in arrears; the known
whereabouts of the hirer/lessor and of the assets
under finance; and the amounts received under
agreed
scheduled
repayments under the original agreement are no
longer being met.
repayment plans, where
---- Historical comparison
Historical comparison:::: We challenged the inputs
Historical comparison
Historical comparison
used in collective impairment models and considered
whether those inputs reflected default and recovery
experience across each of
finance
categories.
loan
the
---- Assessing transparency:
Assessing transparency: Assessing the adequacy
Assessing transparency:
Assessing transparency:
of the Group’s disclosures about the degree of
estimation uncertainty involved at arriving at the
provisions.
Page | 27
ANNUAL FINANCIAL STATEMENTS
INDEPENDENT AUDITOR’S REPORT, TO THE MEMBERS OF MANX FINANCIAL
GROUP PLC
assessment of risks of material misstatement (continued)
2 Key audit matters: our assessment of risks of material misstatement (continued)
2 Key audit matters: our
assessment of risks of material misstatement (continued)
assessment of risks of material misstatement (continued)
2 Key audit matters: our
2 Key audit matters: our
Key audit matter
Key audit matter
Key audit matter
Key audit matter
Impairment of goodwill and
Impairment of goodwill and
Impairment of goodwill and
Impairment of goodwill and
intangible assets
intangible assets
intangible assets
intangible assets
The risk
The risk
The risk
The risk
based valuation
Forecast----based valuation
Forecast
based valuation
based valuation
Forecast
Forecast
Goodwill and intangible assets are significant and
the estimated recoverable amount of these balances
is subjective due to the inherent uncertainty involved
in forecasting and discounting future cash flows for
the goodwill impairment test and in performing a
review for indicators of impairment for intangible
assets.
The effect of these matters is that, as part of our risk
assessment, we determined that the value in use of
goodwill has a high degree of estimation uncertainty,
with a potential range of reasonable outcomes
greater
financial
statements as a whole. The financial statements
(note 32) disclose the sensitivity estimated by the
Group.
than our materiality
the
for
Goodwill
£3,734,000 (2018: £2,344,000)
and Intangibles Assets
£2,293,000 (2018: £1,952,000).
in
Refer to the ARCC report, note
4 (Use of Judgements and
Estimates - Assumptions and
Estimation Uncertainties), note
25 (Intangible Assets), note 32
(Investment
Group
Undertakings), 38(A) (Basis for
Consolidation of Subsidiaries
Financial
and
the Parent
Statements of
Company),
38(K)
(Intangible Assets and Goodwill)
and note 38(L) (Impairment of
Non-Financial Assets)
Separate
note
VAT receivable
VAT receivable
VAT receivable
VAT receivable
Uncertainty over recoverability
Uncertainty over recoverability
Uncertainty over recoverability
Uncertainty over recoverability
VAT
£906,000 (2018: £1,049,000).
receivable
exposure
Refer to the ARCC report, note
4 (Use of Judgements and
Estimates - Assumptions and
Estimation Uncertainties) and
(Trade and Other
note 23
Receivables).
The VAT receivable exposure is significant and its
recoverability rests on the outcome of discussions
with the Isle of Man Government Customs and
Excise Division (“IOM C&E”), which in turn will take
into account the final assessment by UK Customs
and Excise of the impact of the recent European
Union Court of Justice ruling regarding the dispute
(UK)
between Volkswagen Financial Services
Limited (“VWFS”) v HM Revenue & Customs.
The effect of these matters is that, as part of our risk
assessment, we determined that the impact of the
final assessment of the amount of VAT to be
recovered has a high degree of estimation
uncertainty, with a potential range of reasonable
outcomes greater
for the
financial statements as a whole, and possibly many
times that amount.
than our materiality
Auditor’s
response
Auditor’s response
response
response
Auditor’s
Auditor’s
Our procedures included:
---- Control design:
Control design: Understanding the controls in
Control design:
Control design:
respect of the Group’s goodwill and intangibles
assets impairment review process such as the timely
recognition of
the
completeness and accuracy of reports used in the
impairment review process.
impairment provisions and
---- Our sector experience:
Our sector experience: Evaluating assumptions
Our sector experience:
Our sector experience:
used, in particular those relating to forecast revenue
growth and profit margins using our own valuation
specialist.
---- Benchmarking assumptions:
the
Benchmarking assumptions: Comparing
Benchmarking assumptions:
Benchmarking assumptions:
group’s assumptions to externally derived data in
relation to key inputs such as projected economic
growth, competition, cost inflation and discount
rates.
---- Indictors of impairment for intangible assets:
Indictors of impairment for intangible assets:
Indictors of impairment for intangible assets:
Indictors of impairment for intangible assets:
Analysing latest financial data for the business
related to the relevant intangible asset to assess
whether there are any indicators of impairment, such
as losses being made or downturn in sales.
---- Sensitivity analysis:
Sensitivity analysis: Performing breakeven analysis
Sensitivity analysis:
Sensitivity analysis:
on the assumptions noted above.
---- Assessing transparency:
Assessing transparency: Assessing the adequacy
Assessing transparency:
Assessing transparency:
of the Group’s disclosures about the sensitivity of the
outcome of the impairment assessment to changes
in key assumptions reflected in the risks inherent in
the valuation of goodwill and intangible assets.
Our procedures included:
---- Control design:
Control design: Understanding the controls in
Control design:
Control design:
respect of the assessment of the recoverability of the
VAT receivable.
---- Our tax expertise:
Our tax expertise: Use of our own tax specialists to
Our tax expertise:
Our tax expertise:
assist in testing the revised calculations and to
assess the latest position regarding both the VWFS
case and discussions between the Group and IOM
C&E using our knowledge and experience of the
application of relevant tax legislation.
---- Assessing transparency:
Assessing transparency: Assessing the adequacy
Assessing transparency:
Assessing transparency:
of the Group’s disclosures about the degree of
estimation uncertainty involved in assessing the
recoverability of this balance.
Page | 28
ANNUAL FINANCIAL STATEMENTS
INDEPENDENT AUDITOR’S REPORT, TO THE MEMBERS OF MANX FINANCIAL
GROUP PLC
misstatement (continued)
2 Key audit matters: our assessment of risks of material misstatement (continued)
2 Key audit matters: our assessment of risks of material
misstatement (continued)
misstatement (continued)
2 Key audit matters: our assessment of risks of material
2 Key audit matters: our assessment of risks of material
Key audit matter
Key audit matter
Key audit matter
Key audit matter
Recoverability
Parent
Parent
Recoverability
Parent
Parent
Recoverability
Recoverability
Company’s subordinated loans
Company’s subordinated loans
Company’s subordinated loans
Company’s subordinated loans
to
in
in
to
in
to
in
to
subsidiaries
subsidiaries
subsidiaries
subsidiaries
investment
investment
investment
investment
and
and
and
and
of
of
of
of
loans
Subordinated
to
subsidiaries £7,778,000 (2018:
£7,778,000) and investment in
subsidiaries £17,822,000 (2018:
£16,172,000)
(Investment
Refer to the ARCC report, note
in Group
32
Undertakings) and note 38(A)(v)
(Separate Financial Statements
of the Company).
The risk
The risk
The risk
The risk
igh value
Low risk, high value
Low risk, h
igh value
igh value
Low risk, h
Low risk, h
Auditor’s
response
Auditor’s response
response
response
Auditor’s
Auditor’s
procedures included:
OurOurOurOur procedures included:
procedures included:
procedures included:
The carrying value of
the Parent Company’s
subordinated loans to and investment in subsidiaries
represents 97.0% (2018: 93.0%) of the Parent
Company’s total assets. The assessment of carrying
value is not at a high risk of significant misstatement
or subject to significant judgement as the carrying
value is supported by the audited net asset value of
the subsidiaries. However, due to its materiality in
the context of
financial
statements, this is considered to be the area that had
the greatest effect on our overall Parent Company
audit.
the Parent Company
Tests of detail:
Tests of detail: Comparing the carrying amount of
Tests of detail:
Tests of detail:
100% of the Parent Company’s loans to and
investments
relevant
in subsidiaries with
subsidiaries’ draft balance sheet to identify whether
their net assets, being an approximation of their
the
minimum
carrying amount of the Parent Company’s loans to
and investments in those subsidiaries and assessing
whether those subsidiaries have historically been
profit-making
recoverable amount, supported
the
4 We have nothing to report on going concern (continued)
4 We have nothing to report on going concern (continued)
4 We have nothing to report on going concern (continued)
4 We have nothing to report on going concern (continued)
In our evaluation of the Directors’ conclusions, we considered the
inherent risks to the Group’s and Parent Company’s business model,
and analysed how those risks might affect the Group’s and Parent
Company’s financial resources or ability to continue operations over
the going concern period. We evaluated those risks and concluded
that they were not significant enough to require us to perform additional
audit procedures.
Based on this work, we are required to report to you if we have
concluded that the use of the going concern basis of accounting is
inappropriate or there is an undisclosed material uncertainty that may
cast significant doubt over the use of that basis for a period of at least
a year from the date of approval of the financial statements.
We have nothing to report in these respects, and we did not identify
going concern as a key audit matter.
5 We have nothing to report on the other information in the Annual
5 We have nothing to report on the other information in the Annual
5 We have nothing to report on the other information in the Annual
5 We have nothing to report on the other information in the Annual
Report
Report
Report
Report
The Directors are responsible for the other information presented in
the Annual Report together with the financial statements. Our opinion
on the financial statements does not cover the other information and,
accordingly, we do not express an audit opinion or, except as explicitly
stated below, any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so,
consider whether, based on our financial statements audit work, the
information therein is materially misstated or inconsistent with the
financial statements or our audit knowledge. Based solely on that work
we have not identified material misstatements in the other information.
3 Our application of materiality and an overview of the scope of our
3 Our application of materiality and an overview of the scope of our
3 Our application of materiality and an overview of the scope of our
3 Our application of materiality and an overview of the scope of our
audit
audit
audit
audit
Materiality for the Group financial statements as a whole was set at
£150,000 (2018: £130,000), determined with reference to a benchmark
of Group profit before tax, of which it represents approximately 5.0%.
Materiality for the Parent Company financial statements as a whole
was set at £150,000 (2018: £130,000), determined with reference to a
benchmark of Parent Company net assets, but reduced to align with
materiality for the Group financial statements.
We agreed to report to the Audit, Risk and Compliance Committee any
corrected or uncorrected identified misstatements exceeding £7,500
(2018: £7,000) for both the Group and Parent Company financial
statements, in addition to other identified misstatements that warranted
reporting on qualitative grounds.
The Group’s trading subsidiaries were subjected to full scope statutory
audit by the Group audit team and subject to a lower level of materiality
based on their individual financial statements. Certain non-trading
subsidiaries were not subject to full scope statutory audit, but were
audited by the Group audit team based on their materiality to the Group
financial statements.
4 We have nothing to report on going concern
4 We have nothing to report on going concern
4 We have nothing to report on going concern
4 We have nothing to report on going concern
The Directors have prepared the financial statements on the going
concern basis as they do not intend to liquidate the Company or the
Group or to cease their operations, and as they have concluded that
the Company’s and the Group’s financial position means that this is
realistic. They have also concluded that there are no material
uncertainties that could have cast significant doubt over their ability to
continue as a going concern for at least a year from the date of
approval of the financial statements (“the going concern period”).
Our responsibility is to conclude on the appropriateness of the
Directors’ conclusions and, had there been a material uncertainty
related to going concern, to make reference to that in this audit report.
However, as we cannot predict all future events or conditions and as
subsequent events may result in outcomes that are inconsistent with
judgements that were reasonable at the time they were made, the
absence of reference to a material uncertainty in this auditor's report is
not a guarantee that the group or the company will continue in
operation.
Page | 29
ANNUAL FINANCIAL STATEMENTS
INDEPENDENT AUDITOR’S REPORT, TO THE MEMBERS OF MANX FINANCIAL
GROUP PLC
6 Respective responsibilities
6 Respective responsibilities
6 Respective responsibilities
6 Respective responsibilities
Directors’ responsibilities
Directors’ responsibilities
Directors’ responsibilities
Directors’ responsibilities
As explained more fully in their statement set out on page 25, the
Directors are responsible for: the preparation of the financial
statements including being satisfied that they give a true and fair
view; such internal control as they determine is necessary to
enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error; assessing the
Group and Parent Company’s ability to continue as a going
concern, disclosing, as applicable, matters related to going
concern; and using the going concern basis of accounting unless
they either intend to liquidate the Group or the Parent Company or
to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities
Auditor’s responsibilities
Auditor’s responsibilities
Auditor’s responsibilities
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue our
opinion in an auditor’s report. Reasonable assurance is a high level
of assurance, but does not guarantee that an audit conducted in
ISAs (UK) will always detect a material
accordance with
misstatement when it exists. Misstatements can arise from fraud or
error and are considered material if, individually or in aggregate,
they could reasonably be expected to influence the economic
decisions of users taken on the basis of the financial statements.
A fuller description of our responsibilities is provided on the FRC’s
website at www.frc.org.uk/auditorsresponsibilities.
7 The purpose of our audit work and to whom we owe our
7 The purpose of our audit work and to whom we owe our
7 The purpose of our audit work and to whom we owe our
7 The purpose of our audit work and to whom we owe our
responsibilities
responsibilities
responsibilities
responsibilities
This report is made solely to the Company’s members, as a body, in
accordance with Section 80(c) of the Isle of Man Companies Act
2006. Our audit work has been undertaken so that we might state to
the Company’s members those matters we are required to state to
them in an auditor’s report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility
to anyone other than the Company and the Company’s members, as
a body, for our audit work, for this report, or for the opinions we have
formed.
KPMG Audit LLC
KPMG Audit LLC
KPMG Audit LLC
KPMG Audit LLC
Chartered Accountants
Heritage Court
41 Athol Street
Douglas
Isle of Man IM99 1HN
29 June 2020
Page | 30
ANNUAL FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER
COMPREHENSIVE INCOME
For the year ended 31 December
Notes
Interest income
Interest expense
Net interest income
Net interest income
Net interest income
Net interest income
Fee and commission income
Fee and commission expense
trading income
Net Net Net Net trading income
trading income
trading income
Other operating income
Loss on trading asset
Realised gains on debt securities
Terminal funding
Operating income
Operating income
Operating income
Operating income
Personnel expenses
Other expenses
Impairment on loans and advances to customers
Depreciation
Amortisation and impairment of intangibles
Share of profit of equity accounted investees, net of tax
VAT recovery
Profit before tax payable
Profit before tax payable
Profit before tax payable
Profit before tax payable
Income tax expense
Profit for the year
Profit for the year
Profit for the year
Profit for the year
Other comprehensive income:
Other comprehensive income:
Other comprehensive income:
Other comprehensive income:
Items that will be reclassified to profit or loss
Items that will be reclassified to profit or loss
Items that will be reclassified to profit or loss
Items that will be reclassified to profit or loss
Unrealised gains on debt securities
Items that will never be reclassified to profit or loss
Items that will never be reclassified to profit or loss
Items that will never be reclassified to profit or loss
Items that will never be reclassified to profit or loss
Actuarial loss on defined benefit pension scheme taken to equity
Total comprehensive income for the period attributable to owners
Total comprehensive income for the period attributable to owners
Total comprehensive income for the period attributable to owners
Total comprehensive income for the period attributable to owners
Earnings per share
year
Profit for the year
Earnings per share –––– Profit for the
year
year
Profit for the
Profit for the
Earnings per share
Earnings per share
Basic earnings per share (pence)
Diluted earnings per share (pence)
Earnings per share
for the year
Total comprehensive income for the year
Earnings per share –––– Total comprehensive income
for the year
for the year
Total comprehensive income
Total comprehensive income
Earnings per share
Earnings per share
Basic earnings per share (pence)
Diluted earnings per share (pence)
The notes on pages 38 to 80 form part of these financial statements.
The Directors believe that all results derive from continuing activities.
10
11
11
21
20
12
13
14
15
24
25
32
23
16
17
20
30
18
18
18
18
2012012012019999
£000
£000
£000£000
22,320
22,320
22,320
22,320
(4,391)
(4,391)
(4,391)
(4,391)
2018
£000
19,115
(3,547)
17,929
17,929
17,929
17,929
15,568
3,796
3,796
3,796
3,796
(5,(5,(5,(5,426426426426))))
3,371
(6,109)
16,299
16,299
16,299
16,299
12,830
308308308308
(1)(1)(1)(1)
179179179179
80808080
131
(4)
135
74
16,865
16,865
16,865
16,865
13,166
(6,7(6,7(6,7(6,762626262))))
(4,1(4,1(4,1(4,135353535))))
((((1,91,91,91,900000000))))
(638)
(638)
(638)
(638)
((((430430430430))))
124124124124
(101)
(101)
(101)
(101)
3,03,03,03,023232323
((((333350505050))))
2,2,2,2,673673673673
(5,703)
(3,465)
(857)
(184)
(396)
30
119
2,710
(243)
2,467
51515151
44
(1(1(1(128282828))))
(50)
2,2,2,2,596596596596
2,461
2.02.02.02.04444
1.61.61.61.66666
1.981.981.981.98
1.61.61.61.62222
1.88
1.54
1.88
1.54
Page | 31
ANNUAL FINANCIAL STATEMENTS
COMPANY STATEMENT OF PROFIT OR LOSS AND OTHER
COMPREHENSIVE INCOME
For the year ended 31 December
Notes
Dividend income
Interest income
Operating income
Operating income
Operating income
Operating income
Personnel expenses
Administration expenses
Depreciation expense
Profit before tax payable
Profit before tax payable
Profit before tax payable
Profit before tax payable
Tax payable
Profit for the year
Profit for the year
Profit for the year
Profit for the year
the year
Total comprehensive income for the year
Total comprehensive income for
the year
the year
Total comprehensive income for
Total comprehensive income for
The notes on pages 38 to 80 form part of these financial statements.
The Directors believe that all results derive from continuing activities.
16
2012012012019999
£000
£000
£000£000
1,466
1,466
1,466
1,466
564564564564
2,030
2,030
2,030
2,030
(14(14(14(146666))))
(100)
(100)
(100)
(100)
(101)
(101)
(101)
(101)
1,683
1,683
1,683
1,683
----
1,683
1,683
1,683
1,683
1,683
1,683
1,683
1,683
2018
£000
-
466
466
(177)
(132)
(41)
116
-
116
116
Page | 32
ANNUAL FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 December
Notes
2019
2019
20192019
££££000000000000
2018
£000
Assets
Assets
Assets
Assets
Cash and cash equivalents
Debt securities
Trading asset
Loans and advances to customers
Trade and other receivables
Property, plant and equipment
Intangible assets
Goodwill
Investment in associates
Total assets
Total assets
Total assets
Total assets
Liabilities
Liabilities
Liabilities
Liabilities
Deposits from customers
Creditors and accrued charges
Contingent consideration
Block creditors
Loan notes
Pension liability
Deferred tax liability
Total liabilities
Total liabilities
Total liabilities
Total liabilities
Equity
Equity
Equity
Equity
Called up share capital
Profit and loss account
Total equity
Total equity
Total equity
Total equity
Total liabilities and equity
Total liabilities and equity
Total liabilities and equity
Total liabilities and equity
19
20
21
22
23
24
25
32
32
26
27
32
28
29
30
17
31
14,620
14,620
14,620
14,620
46,792
46,792
46,792
46,792
19191919
179,370370370370
179,
179,179,
2,2,2,2,478478478478
3,299
3,299
3,299
3,299
2,293
2,293
2,293
2,293
3,73,73,73,734343434
282282282282
252,888888887777
252,
252,252,
209,933
209,933
209,933
209,933
2,92,92,92,972727272
863863863863
----
15,971
15,971
15,971
15,971
688688688688
141141141141
230,555568686868
230,
230,230,
20,732222
20,73
20,73
20,73
1,1,1,1,587587587587
22,322,322,322,319191919
9,753
30,534
20
148,278
2,491
1,384
1,952
2,344
158
196,914
158,500
2,010
-
138
15,871
584
88
177,191
20,732
(1,009)
19,723
252,888888887777
252,
252,252,
196,914
The financial statements were approved by the Board of Directors on 29 June 2020 and signed on its behalf by:
Jim Mellon
Jim Mellon
Jim Mellon
Jim Mellon
Executive Chairman
Denham Eke
Denham Eke
Denham Eke
Denham Eke
Chief Executive Officer
Douglas Grant
Douglas Grant
Douglas Grant
Douglas Grant
Group Finance Director
The notes on pages 38 to 80 form part of these financial statements.
Page | 33
ANNUAL FINANCIAL STATEMENTS
COMPANY STATEMENT OF FINANCIAL POSITION
As at 31 December
Notes
Assets
Assets
Assets
Assets
Cash and cash equivalents
Trade and other receivables
Amounts due from Group undertakings
Property, plant and equipment
Intangible assets
Investment in Group undertakings
Subordinated loans
Total assets
Total assets
Total assets
Total assets
Liabilities
Liabilities
Liabilities
Liabilities
Creditors and accrued charges
Amounts due to Group undertakings
Loan notes
Total liabilities
Total liabilities
Total liabilities
Total liabilities
Equity
Equity
Equity
Equity
Called up share capital
Profit and loss account
Total equity
Total equity
Total equity
Total equity
Total liabilities and equity
Total liabilities and equity
Total liabilities and equity
Total liabilities and equity
19
23
32
24
32
32
27
32
29
31
The notes on pages 38 to 80 form part of these financial statements.
2012012012019999
££££000000000000
119119119119
231231231231
1,016
1,016
1,016
1,016
450450450450
7777
17,822
17,822
17,822
17,822
7,778
7,778
7,778
7,778
27,423
27,423
27,423
27,423
575575575575
775775775775
15,971
15,971
15,971
15,971
17,321
17,321
17,321
17,321
2018
£000
1,646
32
-
126
-
16,172
7,778
25,754
94
1,370
15,871
17,335
20,732
20,732
20,732
20,732
(10,630)
(10,630)
(10,630)
(10,630)
10,102
10,102
10,102
10,102
27,423
27,423
27,423
27,423
20,732
(12,313)
8,419
25,754
Page | 34
ANNUAL FINANCIAL STATEMENTS
CONSOLIDATED AND COMPANY STATEMENTS OF CHANGES IN EQUITY
GroupGroupGroupGroup
Balance as at 1 January 2018
Profit for the year
Other comprehensive income
Transactions with owners
Balance as at 31 December 2018
Profit for the year
Profit for the year
Profit for the year
Profit for the year
income
Other comprehensive income
Other comprehensive
income
income
Other comprehensive
Other comprehensive
Transactions with owners
Transactions with owners
Transactions with owners
Transactions with owners
Balance as at 31 December 2019999
Balance as at 31 December 201
Balance as at 31 December 201
Balance as at 31 December 201
Share
Share
Share
Share
capital
capital
capital
capital
££££000000000000
20,732
-
-
-
20,732
----
----
----
Profit and
Profit and
Profit and
Profit and
loss account
loss account
loss account
loss account
££££000000000000
(3,470)
2,467
(6)
-
(1,009)
2,2,2,2,673673673673
((((77777777))))
----
Total
Total
Total
Total
equity
equity
equity
equity
£000
£000
£000£000
17,262
2,467
(6)
-
19,723
2,673
2,673
2,673
2,673
(77)
(77)
(77)
(77)
----
20,732
20,732
20,732
20,732
1,587
1,587
1,587
1,587
22,319
22,319
22,319
22,319
* The Group has initially applied IFRS 16 at 1 January 2019, using the modified retrospective approach. Under this approach,
comparative information is not restated and the cumulative effect of initially applying IFRS 16 is recognised in retained earnings at
the date of initial application. See Note 5 for further details.
Company
Company
Company
Company
Balance as at 1 January 2018
Profit for the year
Transactions with owners
Balance as at 31 December 2018
Profit for the year
Profit for the year
Profit for the year
Profit for the year
Transactions with owners
Transactions with owners
Transactions with owners
Transactions with owners
December 2019999
Balance as at 31 December 201
Balance as at 31
December 201
December 201
Balance as at 31
Balance as at 31
The notes on pages 38 to 80 form part of these financial statements.
Share
Share
Share
Share
Capital
Capital
Capital
Capital
££££000000000000
Profit and
Profit and
Profit and
Profit and
loss account
loss account
loss account
loss account
££££000000000000
20,732
(12,429)
-
-
116
-
20,732
(12,313)
----
----
1,683
1,683
1,683
1,683
----
Total
Total
Total
Total
equity
equity
equity
equity
££££000000000000
8,303
116
-
8,419
1,683
1,683
1,683
1,683
----
20,732
20,732
20,732
20,732
(10,630)
(10,630)
(10,630)
(10,630)
10,102
10,102
10,102
10,102
Page | 35
ANNUAL FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 December
RECONCILIATION OF PROFIT BEFORE TAXATION TO OPERATING CASH FLOWS
RECONCILIATION OF PROFIT BEFORE TAXATION TO OPERATING CASH FLOWS
RECONCILIATION OF PROFIT BEFORE TAXATION TO OPERATING CASH FLOWS
RECONCILIATION OF PROFIT BEFORE TAXATION TO OPERATING CASH FLOWS
Profit before tax
Adjustments for:
Depreciation
Amortisation and impairment of intangibles
Realised gains on debt securities
Share of profit of equity accounted investees
Contingent consideration interest expense
Pension charge included in personnel costs
Changes in:
Trading asset
Trade and other receivables
Creditors and accrued charges
Net cash flow from trading activities
Changes in:
Loans and advances to customers
Deposits from customers
Pension contribution
from operating activities
(outflow) from operating activities
Cash inflow / / / / (outflow)
Cash inflow
from operating activities
from operating activities
(outflow)
(outflow)
Cash inflow
Cash inflow
CASH FLOW STATEMENT
CASH FLOW STATEMENT
CASH FLOW STATEMENT
CASH FLOW STATEMENT
Cash
from operating activities
Cash from operating activities
from operating activities
from operating activities
Cash
Cash
Cash inflow / (outflow) from operating activities
Income taxes paid
from operating activities
(outflow) from operating activities
inflow / / / / (outflow)
Net cash inflow
Net cash
from operating activities
from operating activities
(outflow)
(outflow)
inflow
inflow
Net cash
Net cash
investing activities
Cash flows from investing activities
Cash flows from
investing activities
investing activities
Cash flows from
Cash flows from
Purchase of property, plant and equipment
Purchase of intangible assets
Sale of tangible fixed assets
Acquisition of subsidiary or associate, net of cash acquired
(Sale) / purchase of debt securities
from investing activities
/ inflow from investing activities
outflow) / inflow
Net cash ((((outflow)
Net cash
from investing activities
from investing activities
/ inflow
/ inflow
outflow)
outflow)
Net cash
Net cash
Cash flows from financing activities
Cash flows from financing activities
Cash flows from financing activities
Cash flows from financing activities
Receipt of loan notes
Payment of lease liabilities (capital)
Decrease in borrowings from block creditors
inflow from financing activities
(outflow) / inflow from financing activities
Net cash (outflow) /
Net cash
inflow from financing activities
inflow from financing activities
(outflow) /
(outflow) /
Net cash
Net cash
Net increase in cash and cash equivalents
Net increase in cash and cash equivalents
Net increase in cash and cash equivalents
Net increase in cash and cash equivalents
Cash and cash equivalents at 1 January
Cash and cash equivalents at 31 December
Cash and cash equivalents at 31 December
Cash and cash equivalents at 31 December
Cash and cash equivalents at 31 December
Included in cash flows are:
Included in cash flows are:
Included in cash flows are:
Included in cash flows are:
Interest received – cash amounts
Interest paid – cash amounts
The notes on pages 38 to 80 form part of these financial statements.
Notes
2012012012019999
£000
£000
£000£000
2018
£000
3,03,03,03,023232323
2,710
24
25
20
32
32
30
21
30
24
25
24
32
20
29
5
28
638638638638
430430430430
(1(1(1(179797979))))
((((124124124124))))
88888888
17171717
3,3,3,3,893893893893
1111
118118118118
141414144444
4,156
4,156
4,156
4,156
(3(3(3(31111,,,,000092)92)92)92)
51,433
51,433
51,433
51,433
((((41414141))))
24,424,424,424,456565656
24,424,424,424,456565656
((((379379379379))))
4,077
22224,077
4,077
4,077
1,634))))
((((1,634
1,634
1,634
((((132132132132))))
107107107107
((((1,31,31,31,337373737))))
16,028))))
((((16,028
16,028
16,028
(19,024242424))))
(19,0
(19,0
(19,0
100100100100
(1(1(1(148484848))))
((((138138138138))))
((((186186186186))))
4,867
4,867
4,867
4,867
9,753
9,753
9,753
9,753
14,620
14,620
14,620
14,620
21,421,421,421,441414141
(4,251)
(4,251)
(4,251)
(4,251)
184
396
(135)
(30)
-
15
3,140
4
(583)
(1,169)
1,392
(25,732)
16,228
(41)
(8,153)
(8,153)
(182)
(8,335)
(1,118)
(629)
-
(90)
3,917
2,080
6,876
-
(613)
6,263
8
9,745
9,753
18,362
(3,434)
Page | 36
ANNUAL FINANCIAL STATEMENTS
COMPANY STATEMENT OF CASH FLOWS
For the year ended 31 December
RECONCILIATION OF PROFIT BEFORE TAXATION TO OPERATING CASH FLOWS
RECONCILIATION OF PROFIT BEFORE TAXATION TO OPERATING CASH FLOWS
RECONCILIATION OF PROFIT BEFORE TAXATION TO OPERATING CASH FLOWS
RECONCILIATION OF PROFIT BEFORE TAXATION TO OPERATING CASH FLOWS
Notes
2012012012019999
£000
£000
£000£000
2018
£000
Profit before tax
Adjustments for:
Depreciation
Dividend declared
Changes in:
Amounts due from group undertakings
Trade and other receivables
Creditors and accrued charges
Amounts due to group undertakings
Cash outflow from operating activities
CASH FLOW STATEMENT
CASH FLOW STATEMENT
CASH FLOW STATEMENT
CASH FLOW STATEMENT
Cash from operating activities
Cash from operating activities
Cash from operating activities
Cash from operating activities
Cash outflow from operating activities
Income taxes paid
outflow from operating activities
Net cash outflow from operating activities
Net cash
outflow from operating activities
outflow from operating activities
Net cash
Net cash
Cash flows from investing activities
Cash flows from investing activities
Cash flows from investing activities
Cash flows from investing activities
Dividend received
Increase in investment in group undertakings
Issue of subordinated loans
Purchase of intangible assets
Net cash outflow from investing activities
Net cash outflow from investing activities
Net cash outflow from investing activities
Net cash outflow from investing activities
Cash flows from financing activities
Cash flows from financing activities
Cash flows from financing activities
Cash flows from financing activities
Receipt of loan notes
Payment of finance lease liability
Net cash inflow from financing activities
Net cash inflow from financing activities
Net cash inflow from financing activities
Net cash inflow from financing activities
increase in cash and cash equivalents
(decrease) / increase in cash and cash equivalents
Net Net Net Net (decrease) /
increase in cash and cash equivalents
increase in cash and cash equivalents
(decrease) /
(decrease) /
Cash and cash equivalents at 1 January
equivalents at 31 December
Cash and cash equivalents at 31 December
Cash and cash
equivalents at 31 December
equivalents at 31 December
Cash and cash
Cash and cash
The notes on pages 38 to 80 form part of these financial statements.
24
32
32
29
1,683
1,683
1,683
1,683
101101101101
1,466))))
((((1,466
1,466
1,466
318318318318
----
(199)
(199)
(199)
(199)
98989898
(595)
(595)
(595)
(595)
(378)
(378)
(378)
(378)
(378)
(378)
(378)
(378)
----
(378)
(378)
(378)
(378)
450450450450
(1,650)
(1,650)
(1,650)
(1,650)
----
(7)(7)(7)(7)
(1,207)
(1,207)
(1,207)
(1,207)
100100100100
(42)
(42)
(42)
(42)
58585858
(1,527)
(1,527)
(1,527)
(1,527)
1,646
1,646
1,646
1,646
119119119119
116
41
-
157
16
(10)
(45)
(1,147)
(1,029)
(1,029)
-
(1,029)
-
(2,400)
(2,000)
-
(4,400)
6,875
-
6,875
1,446
200
1,646
Page | 37
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2019
1.1.1.1. Reporting entity
Reporting entity
Reporting entity
Reporting entity
Manx Financial Group PLC is a company incorporated in the Isle of Man. The consolidated financial statements of Manx Financial
Group PLC (the “Company”) for the year ended 31 December 2019 comprise the Company and its subsidiaries (the “Group”).
2.2.2.2. Basis of
accounting
Basis of accounting
accounting
accounting
Basis of
Basis of
The consolidated and the separate financial statements of the Company have been prepared in accordance with International
Financial Reporting Standards (“IFRS”) as adopted by the European Union (“EU”) and International Financial Reporting
Interpretations Committee (“IFRIC”) interpretations applicable to companies reporting under IFRS, including International Accounting
Standards (“IAS”).
This is the first set of the Group’s annual financial statements in which IFRS 16 Leases has been applied. Changes to significant
accounting policies are described in Note 5.
3.3.3.3. Functional and presentation currency
Functional and presentation currency
Functional and presentation currency
Functional and presentation currency
These financial statements are presented in pounds sterling, which is the Group’s functional currency. All amounts have been rounded
to the nearest thousand, unless otherwise indicated. All subsidiaries of the Group have pounds sterling as their functional currency.
4.4.4.4. Use of judgements and estimates
Use of judgements and estimates
Use of judgements and estimates
Use of judgements and estimates
The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the
application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from
these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the
period in which the estimate is revised and in any future periods affected.
Assumptions and estimation uncertainties
Assumptions and estimation uncertainties
Assumptions and estimation uncertainties
Assumptions and estimation uncertainties
Information about assumptions and estimation uncertainties at year-end that have a significant risk of resulting in a material
adjustment to the carrying amounts of assets and liabilities in the next financial year is included in the following notes:-
Note 23 – measurement of VAT receivable: key assumptions underlying carrying amount;
Note 30 – measurement of defined benefit obligations: key actuarial assumptions;
Note 25 and 32 – impairment test of intangible assets and goodwill: key assumptions underlying recoverable amounts; and
Note 38(G)(vii) – measurement of Expected Credit Loss (“ECL”) allowance for loans and advances to customers and
assessment of specific impairment allowances where loans are in default or arrears: key assumptions in determining the
weighted-average loss rate;
Note 32 – Measurement of contingent consideration.
5.5.5.5. Changes in accounting policies
Changes in accounting policies
Changes in accounting policies
Changes in accounting policies
Except for the changes below, the Group has consistently applied the accounting policies as set out in Note 38 to all periods presented
in these financial statements.
Leaseseseses
IFRS 16161616 Leas
IFRS
IFRS
LeasLeas
IFRS
The Group has initially adopted IFRS 16 Leases from 1 January 2019. A number of other new standards are effective from 1 January
2019 but they do not have a material effect on the Group’s financial statements.
IFRS 16 introduced a single, on-balance sheet accounting model for lessees. As a result, the Group, as a lessee, has recognised
right-of-use assets representing its rights to use the underlying assets and lease liabilities representing its obligation to make lease
payments. Lessor accounting remains similar to previous accounting policies.
The Group has applied IFRS 16 using the modified retrospective approach, under which the cumulative effect of initial application is
recognised in retained earnings as at 1 January 2019. Accordingly, the comparative information presented for 2018 has not been
restated. Therefore it is presented as previously reported under IAS 17 and related interpretations. The details of the changes in
accounting policies are disclosed below.
A. Definition of a lease
A. Definition of a lease
A. Definition of a lease
A. Definition of a lease
Previously, the Group determined at contract inception whether an arrangement was or contained a lease under IFRIC 4 Determining
Whether an Arrangement contains a Lease. The Group now assesses whether a contract is, or contains, a lease based on the new
definition of a lease. Under IFRS 16, a contract is, or contains, a lease if the contract conveys a right to control the use of an identified
asset for a period of time in exchange for consideration.
On transition to IFRS 16, the Group elected to apply the practical expedient to grandfather the assessment of which transactions are
leases. It applied IFRS 16 only to contracts that were previously identified as leases. Contracts that were not identified as leases
under IAS 17 and IFRIC 4 were not reassessed. Therefore, the definition of a lease under IFRS 16 has been applied only to contracts
entered into or changed on or after 1 January 2019.
Page | 38
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2019
5.5.5.5. Changes in
(continued)
accounting policies (continued)
Changes in accounting policies
(continued)
(continued)
accounting policies
accounting policies
Changes in
Changes in
(continued)
IFRS 16 Leases (continued)
IFRS 16 Leases
(continued)
(continued)
IFRS 16 Leases
IFRS 16 Leases
B. As a lessee
B. As a lessee
B. As a lessee
B. As a lessee
The Group leases many assets, including properties and IT equipment.
As a lessee, the Group previously classified leases as operating or finance leases based on its assessment of whether the lease
transferred substantially all of the risks and rewards of ownership. Under IFRS 16, the Group recognises right-of-use assets and lease
liabilities for most leases, that is these leases are presented on the Statement of Financial Position.
However, the Group has elected not to recognise right-of-use assets and lease liabilities for some leases of low-value assets. The
Group recognises the lease payments associated with these leases as an expense on a straight-line basis over the lease term. The
Group presents right-of-use assets and lease liability separately on the Statement of Financial Position.
i. Significant accounting policies
i. Significant accounting policies
i. Significant accounting policies
i. Significant accounting policies
The Group recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially
measured at cost, and subsequently at cost less accumulated depreciation and impairment loss and adjusted for certain
remeasurements of the lease liability.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date,
discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group’s incremental borrowing
rate. Generally, the Group uses its incremental borrowing rate as the discount rate.
The lease liability is subsequently increased by the interest cost of the lease liability and decreased by the lease payment made. It is
remeasured when there is a change in future lease payments arising from a change in an index or rate, a change in the estimate of
the amount expected to be payable under a residual value guarantee, or as appropriate, changes in the assessment of whether a
purchase or extension option is reasonably certain to be exercised, or a termination option is reasonably certain not to be exercised.
The Group has applied judgment to determine the lease term for some lease contracts in which it is a lessee that include renewal
options. The assessment of whether the Group is reasonably certain to exercise such options impacts the lease term, which
significantly affects the amount of lease liabilities and right-of-use assets recognised.
iiiii. Impacts on transition
i. Impacts on transition
i. Impacts on transition
i. Impacts on transition
Previously, the Group classified property leases as operating leases under IAS 17. The leases typically run for a period of 10 years.
The operating lease commitment relating to these leases at 31 December 2018 as disclosed in the Group’s consolidated financial
statements was £1,166,000 (see note 34).
At transition, for leases classified as operating leases under IAS 17, lease liabilities were measured at the present value of the
remaining lease payments, discounted at the Group’s incremental borrowing rate as at 1 January 2019. The weighted average rate
applied is 5.5% per annum.
Right-of-use assets are measured at an amount equal to the lease liability, adjusted by the amount of net prepaid and accrued lease
payments of £118,234.
The impact on transition is summarised below.
As at 1 January 2019
As at 1 January 2019
As at 1 January 2019
As at 1 January 2019
Right-of-use assets
Net accrued operating lease payments
Lease liabilities
Retained earnings
year
ii. Impacts for the year
iiiiii. Impacts for the
year
year
ii. Impacts for the
ii. Impacts for the
RightRightRightRight----ofofofof----use assets
use assets
use assets
use assets
The carrying amount of right-of-use assets at the end of the year is as follows:
Balance at 1 January 2019
Depreciation expense
Balance at 31 December 2019
Balance at 31 December 2019
Balance at 31 December 2019
Balance at 31 December 2019
££££000000000000
737737737737
118118118118
(855)
(855)
(855)
(855)
----
Property
Property
Property
Property
££££000000000000
737737737737
(165)
(165)
(165)
(165)
572572572572
Right-of-use
assets
£000
737
(165)
572
Page | 39
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2019
5.5.5.5. Changes in accounting policies
(continued)
Changes in accounting policies (continued)
(continued)
(continued)
Changes in accounting policies
Changes in accounting policies
IFRS 16 Leases
(continued)
IFRS 16 Leases (continued)
(continued)
(continued)
IFRS 16 Leases
IFRS 16 Leases
B. As a lessee
(continued)
B. As a lessee (continued)
(continued)
(continued)
B. As a lessee
B. As a lessee
year (continued)
ii. Impacts for the year (continued)
iiiiii. Impacts for the
year (continued)
year (continued)
ii. Impacts for the
ii. Impacts for the
Lease liability
Lease liability
Lease liability
Lease liability
The carrying amount of lease liability at the end of the year is as follows:
Balance at 1 January 2019
Interest expense
Rent payment
Balance at 31 December 2019
Balance at 31 December 2019
Balance at 31 December 2019
Balance at 31 December 2019
Property
Property
Property
Property
££££000000000000
855855855855
47474747
(195)
(195)
(195)
(195)
707707707707
RightRightRightRight----ofofofof----use use use use
assets
assets
assets
assets
££££000000000000
855855855855
47474747
(195)
(195)
(195)
(195)
707707707707
The Group has classified cash payments for the principal portion of lease payments as financing activities.
iv. Exemptions taken
iv. Exemptions taken
iv. Exemptions taken
iv. Exemptions taken
The Group used the following practical expedients when applying IFRS 16 to leases previously classified as operating leases under
IAS 17:
Applied the exemption not to recognise right-of-use assets and liabilities for leases with less than 12 months of lease term;
and
Exclude initial direct costs from measuring the right-of-use asset at the date of initial application.
C. As a lessor
C. As a lessor
C. As a lessor
C. As a lessor
The accounting policies applicable to the Group as a lessor are not different from those under IAS 17.
The Group is not required to make any adjustments on transition to IFRS 16 for leases in which it acts as a lessor.
ification of financial assets and financial liabilities
6. Classification of financial assets and financial liabilities
6. Class
ification of financial assets and financial liabilities
ification of financial assets and financial liabilities
6. Class
6. Class
For description of how the Group classifies financial assets and liabilities, see Note 38(G)(ii).
The following table provides reconciliation between line items in the statement of financial position and categories of financial
instruments.
31 December 2019
31 December 2019
31 December 2019
31 December 2019
Cash and cash equivalents
Debt securities
Trading assets
Loans and advances to customers
Trade and other receivables
Total financial assets
Total financial assets
Total financial assets
Total financial assets
Deposits from customers
Creditor and accrued charges
Block creditors
Loan notes
Total financial liabilities
Total financial liabilities
Total financial liabilities
Total financial liabilities
Mandatorily
Mandatorily
Mandatorily
Mandatorily
at FVTPL
at FVTPL
at FVTPL
at FVTPL
£000
£000
£000£000
Designated
Designated
Designated
Designated
as at FVTPL
as at FVTPL
as at FVTPL
as at FVTPL
£000
£000
£000£000
FVOCI ––––
FVOCI
FVOCI
FVOCI
debt
debt
debt
debt
instruments
instruments
instruments
instruments
£000
£000
£000£000
FVOCI ––––
FVOCI
FVOCI
FVOCI
equity
equity
equity
equity
instruments
instruments
instruments
instruments
£000
£000
£000£000
----
----
19191919
----
----
19191919
----
----
----
----
----
----
----
----
----
----
----
----
----
----
----
----
----
46,792
46,792
46,792
46,792
----
----
----
46,792
46,792
46,792
46,792
----
----
----
----
----
----
----
----
----
----
----
----
----
----
----
----
Amortised
Amortised
Amortised
Amortised
cost
cost
cost
cost
£000
£000
£000£000
14,620
14,620
14,620
14,620
----
----
179,333370707070
179,
179,179,
2,2,2,2,444477778888
196,468888
196,46
196,46
196,46
209,933
209,933
209,933
209,933
2,2,2,2,972972972972
----
15,971
15,971
15,971
15,971
Total
Total
Total
Total
carrying
carrying
carrying
carrying
amount
amount
amount
amount
£000
£000
£000£000
14,620
14,620
14,620
14,620
46,792
46,792
46,792
46,792
19191919
179,333370707070
179,
179,179,
2,2,2,2,444477778888
243,279797979
243,2
243,2
243,2
209,933
209,933
209,933
209,933
2,2,2,2,972972972972
----
15,971
15,971
15,971
15,971
228,876876876876
228,
228,228,
228,876876876876
228,
228,228,
Page | 40
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2019
(continued)
6. Classification of financial assets and financial liabilities (continued)
6. Classification of financial assets and financial liabilities
(continued)
(continued)
6. Classification of financial assets and financial liabilities
6. Classification of financial assets and financial liabilities
31 December 2018
Cash and cash equivalents
Debt securities
Trading assets
Loans and advances to customers
Trade and other receivables
Total financial assets
Deposits from customers
Creditor and accrued charges
Block creditors
Loan notes
Total financial liabilities
Mandatorily
at FVTPL
£000
Designated
as at FVTPL
£000
FVOCI – debt
instruments
£000
FVOCI –
equity
instruments
£000
Amortised
cost
£000
-
-
20
-
-
20
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
30,534
-
-
-
30,534
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
9,753
-
-
148,278
2,491
160,522
158,500
2,010
138
15,871
176,519
176,519
Total
carrying
amount
£000
9,753
30,534
20
148,278
2,491
191,076
158,500
2,010
138
15,871
7. Fair value of financial instruments
7. Fair value of financial instruments
7. Fair value of financial instruments
7. Fair value of financial instruments
For description of the Group’s fair value measurement accounting policy, see Note 38(G)(vi).
The following table analyses financial instruments measured at fair value at the reporting date, by the level in the fair value hierarchy
into which the fair value measurement is categorised. The amounts are based on the values recognised in the statement of financial
position.
31 December 2019
31 December 2019
31 December 2019
31 December 2019
Debt securities
Trading assets
31 December 2018
Debt securities
Trading assets
Level 1
Level 1
Level 1
Level 1
££££000000000000
46,792
46,792
46,792
46,792
19191919
46,811
46,811
46,811
46,811
Level 1
£000
30,534
20
30,554
Level 2
Level 2
Level 2
Level 2
££££000000000000
Level 3
Level 3
Level 3
Level 3
££££000000000000
----
----
----
----
----
----
Level 2
£000
Level 3
£000
-
-
-
-
-
-
Total
Total
Total
Total
££££000000000000
46,792
46,792
46,792
46,792
19191919
46,811
46,811
46,811
46,811
Total
£000
30,534
20
30,554
Page | 41
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2019
(continued)
7. Fair value of financial instruments (continued)
7. Fair value of financial instruments
(continued)
(continued)
7. Fair value of financial instruments
7. Fair value of financial instruments
Financial instruments not measured at fair value
Financial instruments not measured at fair value
Financial instruments not measured at fair value
Financial instruments not measured at fair value
The following table sets out the fair values of financial instruments not measured at fair value and analyses them by the level in the
fair value hierarchy into which each fair value measurement is categorised:
31 December 2019
31 December 2019
31 December 2019
31 December 2019
Assets
Assets
Assets
Assets
Cash and cash equivalents
Loans and advances to customers
Trade and other receivables
Investment in associate
Liabilities
Liabilities
Liabilities
Liabilities
Deposits from customers
Creditors and accrued charges
Block creditors
Loan notes
31 December 2018
Assets
Cash and cash equivalents
Loans and advances to customers
Trade and other receivables
Investment in associate
Liabilities
Deposits from customers
Creditors and accrued charges
Block creditors
Loan notes
Level 1
Level 1
Level 1
Level 1
££££000000000000
Level 2
Level 2
Level 2
Level 2
££££000000000000
Level 3
Level 3
Level 3
Level 3
££££000000000000
----
----
----
----
----
----
----
----
----
----
14,620
14,620
14,620
14,620
----
----
----
14,620
14,620
14,620
14,620
209,933
209,933
209,933
209,933
----
----
----
209,933
209,933
209,933
209,933
----
179,333370707070
179,
179,179,
2,2,2,2,444477778888
282282282282
182,130
182,130
182,130
182,130
----
2,972
2,972
2,972
2,972
----
15,971
15,971
15,971
15,971
18,943
18,943
18,943
18,943
Level 1
£000
Level 2
£000
Level 3
£000
-
-
-
-
-
-
-
-
-
-
9,753
-
-
-
9,753
158,500
-
-
-
158,500
-
148,278
2,491
158
150,927
-
2,010
138
15,871
18,019
Total fair
Total fair
Total fair
Total fair
values
values
values
values
££££000000000000
14,620
14,620
14,620
14,620
179,333370707070
179,
179,179,
2,2,2,2,444477778888
282282282282
196,750
196,750
196,750
196,750
209,933
209,933
209,933
209,933
2,972
2,972
2,972
2,972
----
15,971
15,971
15,971
15,971
228,876
228,876
228,876
228,876
Total fair
values
£000
9,753
148,278
2,491
158
160,680
158,500
2,010
138
15,871
176,519
Total
Total
Total
Total
carrying
carrying
carrying
carrying
amount
amount
amount
amount
££££000000000000
14,620
14,620
14,620
14,620
179,333370707070
179,
179,179,
2,2,2,2,444477778888
282282282282
196,750
196,750
196,750
196,750
209,933
209,933
209,933
209,933
2,972
2,972
2,972
2,972
----
15,971
15,971
15,971
15,971
228,876
228,876
228,876
228,876
Total
carrying
amount
£000
9,753
148,278
2,491
158
160,680
158,500
2,010
138
15,871
176,519
The fair value of loans and advances is estimated using valuation models, such as discounted cash flow techniques. Input into the
valuation techniques includes expected lifetime credit losses, interest rates, prepayment rates. For collateral-dependent impaired
loans, the fair value is measured based on the value of the underlying collateral. Input into the models may include data from third
party brokers based on over-the-counter trading activity, and information obtained from other market participants, which includes
observed primary and secondary transactions.
Page | 42
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2019
8. Financial risk review
8. Financial risk review
8. Financial risk review
8. Financial risk review
Risk management
Risk management
Risk management
Risk management
This note presents information about the Group’s exposure to financial risks and the Group’s management of capital. For information
on the Group’s financial risk management framework, see Note 36.
A. Credit risk
A. Credit risk
A. Credit risk
A. Credit risk
For definition of credit risk and information on how credit risk is mitigated by the Group, see Note 36.
i. Credit quality analysis
i. Credit quality analysis
i. Credit quality analysis
i. Credit quality analysis
Loans and advances to customers
Loans and advances to customers
Loans and advances to customers
Loans and advances to customers
Explanation of the terms ‘Stage 1’, ‘Stage 2’ and ‘Stage 3’ is included in Note 38 (G)(vii).
An analysis of the credit risk on loans and advances to customers is as follows:
Grade A
Grade B
Grade C
Gross value
Allowance for impairment
Carrying value
Stage 1
Stage 1
Stage 1
Stage 1
£000
£000
£000£000
168,796
168,796
168,796
168,796
1,143
1,143
1,143
1,143
----
169,939
169,939
169,939
169,939
(116)
(116)
(116)
(116)
169,823
169,823
169,823
169,823
Stage 2
Stage 2
Stage 2
Stage 2
£000
£000
£000£000
----
1,675
1,675
1,675
1,675
1,985
1,985
1,985
1,985
3,660
3,660
3,660
3,660
(467)
(467)
(467)
(467)
3,193
3,193
3,193
3,193
Stage 3
Stage 3
Stage 3
Stage 3
£000
£000
£000£000
----
----
10,544
10,544
10,544
10,544
2012012012019999
£000
£000
£000£000
168,796
168,796
168,796
168,796
2,818
2,818
2,818
2,818
12,529
12,529
12,529
12,529
2018
£000
139,695
6,153
5,824
10,544
10,544
10,544
10,544
184,143
184,143
184,143
184,143
151,672
(4,(4,(4,(4,111190)90)90)90)
6,6,6,6,333354545454
(4,(4,(4,(4,777773)73)73)73)
179,333370707070
179,
179,179,
(3,394)
148,278
Loans are graded A to C depending on the level of risk. Grade C relates to agreements with the highest of risk, Grade B with medium
risk and Grade A relates to agreements with the lowest risk.
The following table sets out information about the overdue status of loans and advances to customers in Stage 1, 2 and 3:
31 December
Current
Overdue < 30 days
Overdue > 30 days
Stage 1
Stage 1
Stage 1
Stage 1
£000
£000
£000£000
145,373
145,373
145,373
145,373
24,259
24,259
24,259
24,259
307307307307
Stage 2
Stage 2
Stage 2
Stage 2
£000
£000
£000£000
----
----
3,660
3,660
3,660
3,660
Stage 3
Stage 3
Stage 3
Stage 3
£000
£000
£000£000
----
----
10,544
10,544
10,544
10,544
2019
2019
20192019
£000
£000
£000£000
145,373
145,373
145,373
145,373
24,259
24,259
24,259
24,259
14,511
14,511
14,511
14,511
2018
£000
137,196
2,499
11,977
151,672
For Stage 3 loans and advances that are overdue for more than 30 days, the Bank considers to hold collateral with a value of
£8,706,600 (2018: £6,946,660) representing security cover of 60 % (2018: 58%)
169,939
169,939
169,939
169,939
184,143
184,143
184,143
184,143
10,544
10,544
10,544
10,544
3,660
3,660
3,660
3,660
Page | 43
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2019
8. Financial risk review (continued)
8. Financial risk review (continued)
8. Financial risk review (continued)
8. Financial risk review (continued)
Risk management (continued)
Risk management (continued)
Risk management (continued)
Risk management (continued)
A. A. A. A. Credit risk (continued)
Credit risk (continued)
Credit risk (continued)
Credit risk (continued)
i. Credit quality analysis (continued)
i. Credit quality analysis (continued)
i. Credit quality analysis (continued)
i. Credit quality analysis (continued)
ash and cash equivalents
Debt securities, ccccash and cash equivalents
Debt securities,
ash and cash equivalents
ash and cash equivalents
Debt securities,
Debt securities,
The following table sets out the credit quality of liquid assets:
Government bonds and treasury bills
Government bonds and treasury bills
Government bonds and treasury bills
Government bonds and treasury bills
Rated A to A+
Floating rate notes
Floating rate notes
Floating rate notes
Floating rate notes
Rated A to A+
Cash and cash equivalents
Cash and cash equivalents
Cash and cash equivalents
Cash and cash equivalents
Rated A to A+
2019
2019
20192019
£000
£000
£000£000
2018
£000
44,690
44,690
44,690
44,690
30,534
2,102
2,102
2,102
2,102
-
14,620
14,620
14,620
14,620
61,412
61,412
61,412
61,412
9,753
40,287
The analysis has been based on Standard & Poor’s ratings.
ii. Collateral and other credit
enhancements
ii. Collateral and other credit enhancements
enhancements
enhancements
ii. Collateral and other credit
ii. Collateral and other credit
The Group holds collateral in the form of the underlying assets (typically private and commercial vehicles, plant and machinery) to
loan arrangements as security for HP, finances leases, vehicle stocking plans, block discounting, wholesale funding arrangements,
integrated wholesale funding arrangements and secured commercial loan balances, which are sub-categories of loans and advances
to customers. In addition, the commission share schemes have an element of capital indemnified. During 2019, 25.5% of loans and
advances fell into this category (2018: 37.9%).
Estimates of fair value are based on the value of collateral assessed at the time of borrowing, and generally are not updated except
when a loan is individually assessed as impaired. At the time of granting credit within the sub-categories listed above, the loan
balances due are secured over the underlying assets held as collateral.
iii. Amounts arising from ECL
iii. Amounts arising from ECL
iii. Amounts arising from ECL
iii. Amounts arising from ECL
See accounting policy in Note 38(G)(vii).
IFRS 9 significantly overhauled the requirements and methodology used to assess credit impairments by transitioning to a forward-
looking approach based on an expected credit loss model. The new impairment model applies to financial assets measured at
amortised cost, contract assets and debt investments at FVOCI, but not to investments in equity instruments. Under IFRS 9, credit
losses are recognised earlier than under IAS 39 – Financial Instruments: Recognition and Measurement.
After a detailed review, the Group devised and implemented an impairment methodology in light of the IFRS 9 requirements outlined
above noting the following:
A Significant Increase in Credit Risk (“SICR”) is always deemed to occur when the borrower is 30 days past due on its
contractual payments. If the Group becomes aware ahead of this time of non-compliance or financial difficulties of the
borrower, such as loss of employment, avoiding contact with the Group then a SICR has also deemed to occur.
Page | 44
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2019
8. Financial risk review (continued)
8. Financial risk review (continued)
8. Financial risk review (continued)
8. Financial risk review (continued)
Risk Risk Risk Risk management (continued)
management (continued)
management (continued)
management (continued)
A. Credit risk (continued)
A. Credit risk (continued)
A. Credit risk (continued)
A. Credit risk (continued)
iii. Amounts arising from ECL (continued)
iii. Amounts arising from ECL (continued)
iii. Amounts arising from ECL (continued)
iii. Amounts arising from ECL (continued)
A receivable is always deemed to be in default and credit-impaired when the borrower is 90 days past due on its contractual
payments or earlier if the Group becomes aware of severe financial difficulties such as bankruptcy, individual voluntary
arragements, abscond or disappearance, fraudulent activity or other similar events.
The ECL was derived by reviewing the Group’s loss rate and loss-given-default over the past 8 years by product and
geographical segment.
The Group has assumed that the future economic conditions will broadly mirror the current environment and therefore the
forecasted loss levels in the next 3 years will match the Group’s experience in recent years.
For portfolios where the Group has never had a default in its history or has robust credit enhancements such as credit
insurance or default indemnities for the entire portfolio, then no IFRS 9 provision is made.
If the Group holds objective evidence through specifically assessing a credit-impaired receivable and believes it will go on
to completely recover the debt due to the collateral held and cooperation with the borrower, then no IFRS 9 provision is
made.
There have been no significant changes to ECL assumptions from prior year.
iiiiv. Concentration of credit risk
v. Concentration of credit risk
v. Concentration of credit risk
v. Concentration of credit risk
Geographical
Lending is restricted to individuals and entities with Isle of Man, UK or Channel Islands addresses.
Segmental
The Bank is exposed to credit risk with regard to customer loan accounts, comprising HP and finance lease balances, unsecured
personal loans, secured commercial loans, block discounting, vehicle stocking plan loans and wholesale funding agreements. In
addition, the Bank lends via significant introducers into the UK. There was no introducer that accounted for more than 20% of the
Bank’s total lending portfolio at the end of 31 December 2019 (2018: one introducer).
B. Liquidity risk
B. Liquidity risk
B. Liquidity risk
B. Liquidity risk
For the definition of liquidity risk and information on how liquidity risk is manged by the Group, see Note 36.
i. Exposure to liquidity risk
i. Exposure to liquidity risk
i. Exposure to liquidity risk
i. Exposure to liquidity risk
The key measure used by the Group for managing liquidity risk is the ratio of net liquid assets to deposits from customers and short-
term funding. For this purpose, net liquid assets includes cash and cash equivalents and investment-grade debt securities for which
there is an active and liquid market.
Details of the reported Group ratio of net liquid assets to deposits from customers at the reporting date and during the reporting year
were as follows:
At 31 December
Average for the year
Maximum for the year
Minimum for the year
2012012012019999
29%29%29%29%
23%23%23%23%
29%29%29%29%
19%19%19%19%
2018
25%
32%
40%
25%
Page | 45
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2019
8. Financial risk review (continued)
8. Financial risk review (continued)
8. Financial risk review (continued)
8. Financial risk review (continued)
Risk management (continued)
Risk management (continued)
Risk management (continued)
Risk management (continued)
B. Liquidity risk (continued)
B. Liquidity risk (continued)
B. Liquidity risk (continued)
B. Liquidity risk (continued)
ii. Maturity analysis for financial
liabilities and financial assets
ii. Maturity analysis for financial liabilities and financial assets
liabilities and financial assets
liabilities and financial assets
ii. Maturity analysis for financial
ii. Maturity analysis for financial
The table below shows the Group’s financial liabilities classified by their earliest possible contractual maturity, on an undiscounted
basis including interest due at the end of the deposit term. Based on historical data, the Group’s expected actual cash flow from these
items vary from this analysis due to the expected re-investment of maturing customer deposits.
Residual contractual maturities of financial liabilities as at the reporting date (undiscounted)
Residual contractual maturities of financial liabilities as at the reporting date (undiscounted)
Residual contractual maturities of financial liabilities as at the reporting date (undiscounted)
Residual contractual maturities of financial liabilities as at the reporting date (undiscounted)
2019
31 December 2019
31 December
20192019
31 December
31 December
Deposits from
customers
Other liabilities
Total liabilities
Total liabilities
Total liabilities
Total liabilities
Sight----
Sight
SightSight
8 days
8 days
8 days
8 days
££££000000000000
>8 days
>8 days
>8 days
>8 days
---- 1 month
1 month
1 month
1 month
££££000000000000
>1 month
>1 month
>1 month
>1 month
---- 3 months
3 months
3 months
3 months
££££000000000000
>3 months
>3 months
>3 months
>3 months
---- 6 months
6 months
6 months
6 months
££££000000000000
>6 months
>6 months
>6 months
>6 months
---- 1 year
1 year
1 year
1 year
££££000000000000
>1 year
>1 year
>1 year
>1 year
---- 3 years
3 years
3 years
3 years
££££000000000000
>3 years
>3 years
>3 years
>3 years
---- 5 years
5 years
5 years
5 years
££££000000000000
>5 years
>5 years
>5 years
>5 years
££££000000000000
Total
Total
Total
Total
££££000000000000
2,900
2,900
2,900
2,900
5,212
5,212
5,212
5,212
8,112
8,112
8,112
8,112
5,127
5,127
5,127
5,127
----
5,127
5,127
5,127
5,127
19,670
19,670
19,670
19,670
4,765
4,765
4,765
4,765
24,435
24,435
24,435
24,435
40,315
40,315
40,315
40,315
16161616
40,331
40,331
40,331
40,331
43,792
43,792
43,792
43,792
7,281
7,281
7,281
7,281
51,073
51,073
51,073
51,073
77,746
77,746
77,746
77,746
1,274
1,274
1,274
1,274
79,020
79,020
79,020
79,020
22,397
22,397
22,397
22,397
1,444
1,444
1,444
1,444
23,841
23,841
23,841
23,841
----
2,180
2,180
2,180
2,180
2,180
2,180
2,180
2,180
211,947
211,947
211,947
211,947
22,172
22,172
22,172
22,172
234,119
234,119
234,119
234,119
31 December 2018
Sight-
8 days
£000
>8 days
- 1 month
£000
>1 month
- 3 months
£000
>3 months
- 6 months
£000
>6 months
- 1 year
£000
>1 year
- 3 years
£000
>3 years
- 5 years
£000
>5 years
£000
Total
£000
Deposits from
customers
Other liabilities
Total liabilities
1,754
2,061
3,815
5,012
200
5,212
14,397
230
14,627
34,028
216
34,244
35,032
928
35,960
56,643
8,705
65,348
11,634
8,063
19,697
-
584
584
158,500
20,987
179,487
Maturity of assets and liabilities at the reporting date::::
Maturity of assets and liabilities at the reporting date
Maturity of assets and liabilities at the reporting date
Maturity of assets and liabilities at the reporting date
Sight
Sight----
SightSight
8 days
8 days
8 days
8 days
££££000000000000
>8 days
>8 days
>8 days
>8 days
---- 1 month
1 month
1 month
1 month
££££000000000000
31 December 2019
31 December 2019
31 December 2019
31 December 2019
>1 month
>1 month
>1 month
>1 month
---- 3 months
3 months
3 months
3 months
££££000000000000
>3 months
>3 months
>3 months
>3 months
---- 6 months
6 months
6 months
6 months
££££000000000000
>6 months
>6 months
>6 months
>6 months
---- 1 year
1 year
1 year
1 year
££££000000000000
>1 year
>1 year
>1 year
>1 year
---- 3 years
3 years
3 years
3 years
££££000000000000
>3 >3 >3 >3 years
years
years
years
---- 5 years
5 years
5 years
5 years
££££000000000000
>5 >5 >5 >5
years
years
years
years
££££000000000000
Total
Total
Total
Total
££££000000000000
Assets
Assets
Assets
Assets
Cash & cash
equivalents
Debt securities
Loans and advances
to customers
Other assets
Total assets
Total assets
Total assets
Total assets
Liabilities
Liabilities
Liabilities
Liabilities
Deposits from
customers
Other liabilities
Total liabilities
Total liabilities
Total liabilities
Total liabilities
14,620
14,620
14,620
14,620
----
12,564
12,564
12,564
12,564
19191919
27,203
27,203
27,203
27,203
2,889
2,889
2,889
2,889
5,250
5,250
5,250
5,250
8,139
8,139
8,139
8,139
----
5,795
5,795
5,795
5,795
2,017
2,017
2,017
2,017
----
7,812
7,812
7,812
7,812
5,060
5,060
5,060
5,060
----
5,060
5,060
5,060
5,060
----
15,748
15,748
15,748
15,748
12,652
12,652
12,652
12,652
----
28,400
28,400
28,400
28,400
19,411
19,411
19,411
19,411
4,710
4,710
4,710
4,710
24,121
24,121
24,121
24,121
----
17,751
17,751
17,751
17,751
14,977
14,977
14,977
14,977
----
32,728
32,728
32,728
32,728
39,867
39,867
39,867
39,867
----
39,867
39,867
39,867
39,867
----
----
32,615
32,615
32,615
32,615
----
32,615
32,615
32,615
32,615
43,574
43,574
43,574
43,574
7,245
7,245
7,245
7,245
50,819
50,819
50,819
50,819
----
7,498
7,498
7,498
7,498
77,077
77,077
77,077
77,077
----
84,575
84,575
84,575
84,575
----
----
----
----
14,620
14,620
14,620
14,620
46,792
46,792
46,792
46,792
27,27,27,27,444461616161
----
7777
12,12,12,12,000088886666
179,333370707070
179,
179,179,
12,12,12,12,111105050505
27,27,27,27,444461616161
12,12,12,12,000099993333
252,888887777
252,8
252,8
252,8
76,953
76,953
76,953
76,953
900900900900
77,853
77,853
77,853
77,853
22,179
22,179
22,179
22,179
350350350350
22,529
22,529
22,529
22,529
----
2,180
2,180
2,180
2,180
2,180
2,180
2,180
2,180
209,933
209,933
209,933
209,933
20,635
20,635
20,635
20,635
230,568
230,568
230,568
230,568
Page | 46
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2019
8. Financial risk review (continued)
8. Financial risk review (continued)
8. Financial risk review (continued)
8. Financial risk review (continued)
Risk management (continued)
Risk management (continued)
Risk management (continued)
Risk management (continued)
B. Liquidity risk (continued)
B. Liquidity risk (continued)
B. Liquidity risk (continued)
B. Liquidity risk (continued)
ii. Maturity analysis for financial liabilities and financial assets (continued)
ii. Maturity analysis for financial liabilities and financial assets (continued)
ii. Maturity analysis for financial liabilities and financial assets (continued)
ii. Maturity analysis for financial liabilities and financial assets (continued)
liabilities at the reporting date (continued)
Maturity of assets and liabilities at the reporting date (continued)
Maturity of assets and
liabilities at the reporting date (continued)
liabilities at the reporting date (continued)
Maturity of assets and
Maturity of assets and
Sight-
8 days
£000
>1 month
- 3 months
£000
>8 days
- 1 month
£000
31 December 2018
>3 months
- 6 months
£000
>6 months
- 1 year
£000
>1 year
- 3 years
£000
>3 years
- 5 years
£000
>5 years
£000
Total
£000
Assets
Cash & cash
equivalents
Debt securities
Loans and advances
to customers
Other assets
9,753
-
5,273
20
-
17,995
1,047
225
-
5,989
9,724
145
Total assets
15,046
19,267
15,858
Liabilities
Deposits from
customers
Other liabilities
Total liabilities
1,754
2,098
3,852
5,012
146
5,158
14,397
92
14,489
-
-
15,977
-
15,977
34,028
-
34,028
-
-
35,246
-
35,246
35,032
500
35,532
-
-
64,099
-
64,099
-
6,550
16,910
-
23,460
-
-
2
7,959
7,961
9,753
30,534
148,278
8,349
196,914
56,643
7,690
64,333
11,634
7,581
19,215
-
584
584
158,500
18,691
177,191
iii. Liquidity reserves
iii. Liquidity reserves
iii. Liquidity reserves
iii. Liquidity reserves
The following table sets out the components of the Group’s liquidity reserves:
Balances with other banks
Unencumbered debt securities
Total liquidity reserves
2019
2019
20192019
Carrying
Carrying
Carrying
Carrying
amount
amount
amount
amount
£000
£000
£000£000
14,620
14,620
14,620
14,620
46,792
46,792
46,792
46,792
61,412
61,412
61,412
61,412
2019
2019
2019
2019
Fair Fair Fair Fair
value
value
value
value
£000
£000
£000£000
14,620
14,620
14,620
14,620
46,792
46,792
46,792
46,792
61,412
61,412
61,412
61,412
2018
Carrying
amount
£000
9,753
30,534
40,287
2018
Fair
value
£000
9,753
30,534
40,287
C. Market risk
C. Market risk
C. Market risk
C. Market risk
For the definition of market risk and information on how the Group manages the market risks of trading and non-trading portfolios,
see Note 36.
The following table sets out the allocation of assets and liabilities subject to market risk between trading and non-trading portfolios:
31 December 2019999
31 December 201
31 December 201
31 December 201
Assets subject to market risk
Assets subject to market risk
Assets subject to market risk
Assets subject to market risk
Trading assets
Debt securities
Total
Total
Total
Total
31 December 2018
Assets subject to market risk
Trading assets
Debt securities
Total
Carrying
Carrying
Carrying
Carrying
amount
amount
amount
amount
£000
£000
£000£000
19191919
46,792
46,792
46,792
46,792
46,811
46,811
46,811
46,811
Carrying
amount
£000
20
30,534
30,554
Market risk measure
Market risk measure
Market risk measure
Market risk measure
Trading
Trading
Trading
Trading
portfolios
portfolios
portfolios
portfolios
£000
£000
£000£000
NonNonNonNon----trading
trading
trading
trading
portfolios
portfolios
portfolios
portfolios
£000
£000
£000£000
19191919
----
19191919
----
46,792
46,792
46,792
46,792
46,792
46,792
46,792
46,792
Market risk measure
Trading
portfolios
£000
Non-trading
portfolios
£000
20
-
20
-
30,534
30,534
Page | 47
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2019
8. Financial risk review (continued)
8. Financial risk review (continued)
8. Financial risk review (continued)
8. Financial risk review (continued)
Risk management (continued)
Risk management (continued)
Risk management (continued)
Risk management (continued)
C. Market risk (continued)
C. Market risk (continued)
C. Market risk (continued)
C. Market risk (continued)
i. Exposure to interest rate risk
i. Exposure to interest rate risk
i. Exposure to interest rate risk
i. Exposure to interest rate risk
The following tables present the interest rate mismatch position between assets and liabilities over the respective maturity dates. The
maturity dates are presented on a worst-case basis, with assets being recorded at their latest maturity and deposits from customers
at their earliest.
31 December 2019999
31 December 201
31 December 201
31 December 201
Sight
Sight----
SightSight
1 month
1 month
1 month
1 month
££££000000000000
>1month
>1month
>1month
>1month
---- 3months
3months
3months
3months
££££000000000000
>3months
>3months
>3months
>3months
---- 6months
6months
6months
6months
££££000000000000
>6months
>6months
>6months
>6months
---- 1 year
1 year
1 year
1 year
££££000000000000
>1 year
>1 year
>1 year
>1 year
---- 3 years
3 years
3 years
3 years
££££000000000000
>3 years
>3 years
>3 years
>3 years
---- 5 years
5 years
5 years
5 years
££££000000000000
>5 years
>5 years
>5 years
>5 years
££££000000000000
NonNonNonNon----Int.
Int.
Int.
Int.
Bearing
Bearing
Bearing
Bearing
££££000000000000
Total
Total
Total
Total
££££000000000000
Assets
Assets
Assets
Assets
14,620
14,620
Cash & cash equivalents
14,620
14,620
5,795
Debt securities
5,795
5,795
5,795
Loans and advances to customers 14,581
14,581
14,581
14,581
----
Other assets
----
15,748
15,748
15,748
15,748
12,652
12,652
12,652
12,652
----
----
17,751
17,751
17,751
17,751
14,977
14,977
14,977
14,977
----
----
----
32,615
32,615
32,615
32,615
----
----
7,498
7,498
7,498
7,498
77,077
77,077
77,077
77,077
----
----
----
27,461
27,461
27,461
27,461
----
Total assets
Total assets
Total assets
Total assets
34,996
34,996
34,996
34,996
28,400
28,400
28,400
28,400
32,728
32,728
32,728
32,728
32,615
32,615
32,615
32,615
84,575
84,575
84,575
84,575
27,461
27,461
27,461
27,461
Liabilities and equity
Liabilities and equity
Liabilities and equity
Liabilities and equity
Deposits from customers
Other liabilities
Total equity
Total liabilities and equity
Total liabilities and equity
Total liabilities and equity
Total liabilities and equity
Interest rate sensitivity gap
Cumulative
Cumulative
Cumulative
Cumulative
7,949
7,949
7,949
7,949
586586586586
----
8,535
8,535
8,535
8,535
26,461
26,461
26,461
26,461
26,461
26,461
26,461
26,461
19,411
19,411
19,411
19,411
4,710
4,710
4,710
4,710
----
39,867
39,867
39,867
39,867
1,188
1,188
1,188
1,188
----
43,574
43,574
43,574
43,574
1,200
1,200
1,200
1,200
----
76,953
76,953
76,953
76,953
1,268
1,268
1,268
1,268
----
22,179
22,179
22,179
22,179
7,882
7,882
7,882
7,882
----
24,121
24,121
24,121
24,121
41,055
41,055
41,055
41,055
44,774
44,774
44,774
44,774
78,221
78,221
78,221
78,221
30,061
30,061
30,061
30,061
4,279
4,279
4,279
4,279
(8,327)
(8,327)
(8,327)
(8,327)
(12,159)
(12,159)
(12,159)
(12,159)
6,354
6,354
6,354
6,354
(2,(2,(2,(2,600600600600))))
31 December 2018
Sight-
1 month
£000
>1month
- 3months
£000
>3months
- 6months
£000
>6months
- 1 year
£000
>1 year
- 3 years
£000
>3 years
- 5 years
£000
>5 years
£000
Non-Int.
Bearing
£000
30,740
30,740
30,740
30,740
22,413
22,413
22,413
22,413
10,254
10,254
10,254
10,254
16,608888
16,60
16,60
16,60
14,014,014,014,008080808
14,015
14,015
14,015
14,015
----
----
----
7777
----
7777
----
----
----
----
7777
----
----
----
2,105
11112,105
2,105
2,105
14,620
14,620
14,620
14,620
44446,792
6,792
6,792
6,792
179,333370707070
179,
179,179,
2,105
11112,105
2,105
2,105
12,12,12,12,111105050505
252,888887777
252,8
252,8
252,8
----
3,803,803,803,801111
22,322,322,322,319191919
26,120
26,120
26,120
26,120
4,015))))
(1(1(1(14,015
4,015
4,015
209,933
209,933
209,933
209,933
20,20,20,20,635635635635
22,322,322,322,319191919
252,888887777
252,8
252,8
252,8
----
----
Total
£000
Assets
Cash & cash equivalents
Debt securities
Loans and advances to customers
Other assets
9,753
17,995
6,319
245
-
5,989
9,724
145
-
-
15,977
-
-
-
35,247
-
-
-
64,099
-
-
6,550
16,910
-
Total assets
34,312
15,858
15,977
35,247
64,099
23,460
Liabilities and equity
Deposits from customers
Other liabilities
Total equity
Total liabilities and equity
6,766
2,244
-
9,010
14,397
92
-
34,028
-
-
35,032
500
-
56,643
7,690
-
11,634
7,581
-
14,489
34,028
35,532
64,333
19,215
-
-
2
-
2
-
584
-
584
-
-
-
7,959
9,753
30,534
148,278
8,349
7,959
196,914
-
-
19,723
19,723
158,500
18,691
19,723
196,914
Interest rate sensitivity gap
25,302
1,369
(18,051)
(285)
(234)
4,245
(582)
(11,764)
Cumulative
25,302
26,671
8,620
8,335
8,101
12,346
11,764
-
-
-
The Bank monitors the impact of changes in interest rates on interest rate mismatch positions using a method consistent with the
FSA required reporting standard. The methodology applies weightings to the net interest rate sensitivity gap in order to quantify the
impact of an adverse change in interest rates of 2.0% per annum (2018: 2.0%). The following tables set out the estimated total impact
of such a change based on the mismatch at the reporting date:
31 December 2019999
31 December 201
31 December 201
31 December 201
Sight
Sight----
SightSight
1 month
1 month
1 month
1 month
>1month
>1month
>1month
>1month
3months
----3months
3months
3months
>3months
>3months
>3months
>3months
6months
---- 6months
6months
6months
>6months
>6months
>6months
>6months
1 year
---- 1 year
1 year
1 year
>1 year
>1 year
>1 year
>1 year
3 years
---- 3 years
3 years
3 years
>3 years
>3 years
>3 years
>3 years
5 years
---- 5 years
5 years
5 years
>5 years
>5 years
>5 years
>5 years
NonNonNonNon----Int.
Int.
Int.
Int.
Bearing
Bearing
Bearing
Bearing
26,461
Interest rate sensitivity gap £000 26,461
26,461
26,461
Weighting
£000
0.000
0.000
0.000
0.000
----
4,279
4,279
4,279
4,279
0.003
0.003
0.003
0.003
13131313
(8,327)
(8,327)
(8,327)
(8,327)
(12,159)
(12,159)
(12,159)
(12,159)
0.007
0.007
0.007
0.007
(58)
(58)
(58)
(58)
0.014
0.014
0.014
0.014
(170)
(170)
(170)
(170)
6,356,356,356,354444
0.027
0.027
0.027
0.027
172172172172
(2,(2,(2,(2,600600600600))))
0.054
0.054
0.054
0.054
(1(1(1(140404040))))
7777
(1(1(1(14444,,,,000011115555))))
0.115
0.115
0.115
0.115
0.000
0.000
0.000
0.000
Total
Total
Total
Total
----
----
1111
----
(18(18(18(182222))))
Page | 48
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2019
8. Financial risk review (continued)
8. Financial risk review (continued)
8. Financial risk review (continued)
8. Financial risk review (continued)
Risk management (continued)
Risk management (continued)
Risk management (continued)
Risk management (continued)
C. Market risk (continued)
C. Market risk (continued)
C. Market risk (continued)
C. Market risk (continued)
i. Exposure to interest rate risk (continued)
i. Exposure to interest rate risk (continued)
i. Exposure to interest rate risk (continued)
i. Exposure to interest rate risk (continued)
31 December 2018
Sight-
1 month
>1month
-3months
>3months
- 6months
>6months
- 1 year
>1 year
- 3 years
>3 years
- 5 years
>5 years
Non-Int.
Bearing
Total
Interest rate sensitivity gap £000
25,302
Weighting
£000
0.000
-
1,369
0.003
4
(18,051)
0.007
(126)
(285)
0.014
(4)
(234)
0.027
(6)
4,245
0.054
229
(582)
0.115
(67)
(11,764)
0.000
-
-
-
30
D. Capital Management
D. Capital Management
D. Capital Management
D. Capital Management
i. Regulatory capital
i. Regulatory capital
i. Regulatory capital
i. Regulatory capital
The lead regulator of the Group’s wholly owned subsidiary, Conister Bank Limited (“Bank”), is the Isle of Man Financial Services
Authority (“FSA”). The FSA sets and monitors capital requirements for the Bank.
The Bank’s regulatory capital consists of the following elements.
Common Equity Tier 1 (“CET1”) capital, which includes ordinary share capital, retained earnings and reserves after
adjustment for deductions for goodwill, intangible assets and intercompany receivable.
Tier 2 capital, which includes qualifying subordinated liabilities and any excess of impairment over expected losses.
The FSA’s approach to the measurement of capital adequacy is primarily based on monitoring the relationship of the capital resources
requirement to available capital resources. The FSA sets individual capital guidance (“ICG”) for the Bank in excess of the minimum
capital resources requirement. A key input to the ICG setting process is the Bank’s internal capital adequacy assessment process
(“ICAAP”).
The Bank is also regulated by the Financial Conduct Authority in the United Kingdom for credit and brokerage related activities.
ii. Capital allocation
ii. Capital allocation
ii. Capital allocation
ii. Capital allocation
Management uses regulatory capital ratios to monitor its capital base. The allocation of capital between specific operations and
activities is, to a large extent, driven by optimisation of the return achieved on the capital allocated. The amount of capital allocated
to each operation or activity is based primarily on regulatory capital requirements.
9. Operating segments
9. Operating segments
9. Operating segments
9. Operating segments
Segmental information is presented in respect of the Group’s business segments. The Directors consider that the Group currently
operates in one geographic segment comprising of the Isle of Man, UK and Channel Islands. The primary format, business segments,
is based on the Group’s management and internal reporting structure. The Directors consider that the Group operates in four (2018:
four) product orientated segments in addition to its investing activities: Asset and Personal Finance (including provision of HP
contracts, finance leases, personal loans, commercial loans, block discounting, vehicle stocking plans and wholesale funding
agreements); Manx Incahoot; Edgewater Associates; and Manx FX.
For the year ended 31 December 2019
For the year ended 31 December 2019
For the year ended 31 December 2019
For the year ended 31 December 2019
Net interest income
Fee and commission income / (loss)
Operating income / (loss)
Profit / (loss) before tax payable
Profit / (loss) before tax payable
Profit / (loss) before tax payable
Profit / (loss) before tax payable
Capital expenditure
Total assets
Total assets
Total assets
Total assets
Asset and
Asset and
Asset and
Asset and
Personal
Personal
Personal
Personal
Finance
Finance
Finance
Finance
££££000000000000
17,929999
17,92
17,92
17,92
439439439439
13,518888
13,51
13,51
13,51
2,92,92,92,944444444
1,744
1,744
1,744
1,744
249,444449999
249,4
249,4
249,4
Manx Manx Manx Manx
Incahoot
Incahoot
Incahoot
Incahoot
££££000000000000
Edgewater
Edgewater
Edgewater
Edgewater
Associates
Associates
Associates
Associates
££££000000000000
Manx FX
Manx FX
Manx FX
Manx FX
££££000000000000
Investing
Investing
Investing
Investing
Activities
Activities
Activities
Activities
££££000000000000
----
(9)(9)(9)(9)
(10)
(10)
(10)
(10)
(295)
(295)
(295)
(295)
----
14141414
----
2,529
2,529
2,529
2,529
2,529
2,529
2,529
2,529
219219219219
14141414
2,292
2,292
2,292
2,292
----
837837837837
828828828828
502502502502
----
321321321321
Total
Total
Total
Total
£000
£000
£000£000
17,929999
17,92
17,92
17,92
3,796
3,796
3,796
3,796
16,865555
16,86
16,86
16,86
3,03,03,03,023232323
1,766
1,766
1,766
1,766
----
----
----
(347)
(347)
(347)
(347)
8888
811811811811
252,888887777
252,8
252,8
252,8
Page | 49
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2019
9. Operating segments (continued)
9. Operating segments (continued)
9. Operating segments (continued)
9. Operating segments (continued)
For the year ended 31 December 2018
Net interest income
Fee and commission income
Operating income
Profit / (loss) before tax payable
Capital expenditure
Total assets
10. Net interest income
10. Net interest income
10. Net interest income
10. Net interest income
Asset and
Personal
Finance
£000
15,568
-
9,795
2,267
1,589
190,923
Interest income
Interest income
Interest income
Interest income
Loans and advances to customers
Total interest income calculated using the effective interest method
Total interest income calculated using the effective interest method
Total interest income calculated using the effective interest method
Total interest income calculated using the effective interest method
Other interest income
Total interest income
Total interest income
Total interest income
Total interest income
Interest expense
Interest expense
Interest expense
Interest expense
Deposits from customers
Loan note interest
Lease liability
Contingent consideration
Block funders
interest expense
Total interest expense
Total
interest expense
interest expense
Total
Total
Net interest income
Net interest income
Net interest income
Net interest income
11. Net fee and commission income
11. Net fee and commission income
11. Net fee and commission income
11. Net fee and commission income
Manx
Incahoot
£000
Edgewater
Associates
£000
Manx
FX
£000
Investing
Activities
£000
-
12
12
(189)
1
78
-
2,562
2,562
245
150
3,153
-
797
797
490
6
608
Total
£000
15,568
3,371
13,166
-
-
-
(103)
2,710
1
1,747
2,152
196,914
2019
2019
20192019
£000
£000
£000£000
21,824
21,824
21,824
21,824
21,824
21,824
21,824
21,824
496496496496
22,320
22,320
22,320
22,320
(3,383)
(3,383)
(3,383)
(3,383)
(873)
(873)
(873)
(873)
(47)
(47)
(47)
(47)
(88)
(88)
(88)
(88)
----
(4,391)
(4,391)
(4,391)
(4,391)
2018
£000
19,037
19,037
78
19,115
(2,744)
(773)
-
-
(30)
(3,547)
17,929999
17,92
17,92
17,92
15,568
A. Disaggregation of fee and commission income
A. Disaggregation of fee and commission income
A. Disaggregation of fee and commission income
A. Disaggregation of fee and commission income
In the following table, fee and commission income from contracts with customers in the scope of IFRS 15 – Revenue from Contracts
with Customers is disaggregated by major type of services. The table includes a reconciliation of the disaggregated fee and
commission income with the Group’s reportable segments.
Major
service lines
Major service lines
service lines
service lines
Major Major
Independent financial advice income
Foreign exchange trading income
Brokerage services income
Fee and commission income
Fee and commission income
Fee and commission income
Fee and commission income
Fee and commission expense
commission expense
Net fee and commission expense
Net fee and
commission expense
commission expense
Net fee and
Net fee and
2019
2019
20192019
£000
£000
£000£000
2,522,522,522,528888
837837837837
434343431111
3,796
3,796
3,796
3,796
2018
£000
2,547
824
-
3,371
(5,(5,(5,(5,426426426426))))
(6,109)
1,630))))
((((1,630
1,630
1,630
(2,738)
Page | 50
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2019
12. Terminal funding
12. Terminal funding
12. Terminal funding
12. Terminal funding
In September 2014, the Bank discontinued funding handheld payment devices (referred to as Terminal Funding) due to the volume
of write-offs. Ever since, the book is being run-off whilst the Bank vigorously pursues historical write-offs. A decision was made by
the Board during 2016 to cease funding and run-off the book upon the final repayment date of August 2019. Terminal funding
continues to generate secondary term rental income following the last repayment date.
Interest income
Fee and commission expense
Provision for impairment on loan assets
13. Personnel expenses
13. Personnel expenses
13. Personnel expenses
13. Personnel expenses
Gross salaries
Executive Directors’ remuneration
Non-executive Directors’ fees
Executive Directors’ pensions
Executive Directors’ performance related pay
Pension costs
National insurance and payroll taxes
Training and recruitment costs
14. Other expenses
14. Other expenses
14. Other expenses
14. Other expenses
Professional and legal fees
Marketing costs
IT costs
Establishment costs
Communication costs
Travel costs
Bank charges
Insurance
Irrecoverable VAT
Other costs
15. Impairment on loans and advances to customers
15. Impairment on loans and advances to customers
15. Impairment on loans and advances to customers
15. Impairment on loans and advances to customers
The charge in respect of specific allowances for impairment comprises:
Specific impairment allowances made
Reversal of allowances previously made
Total charge for specific provision for impairment
Total charge for specific provision for impairment
Total charge for specific provision for impairment
Total charge for specific provision for impairment
2019
2019
20192019
££££000000000000
78787878
----
2222
80808080
2019
2019
20192019
££££000000000000
(5,1(5,1(5,1(5,144442)2)2)2)
(259)
(259)
(259)
(259)
(1(1(1(155552)2)2)2)
(21)
(21)
(21)
(21)
(50)
(50)
(50)
(50)
(302)
(302)
(302)
(302)
(628)
(628)
(628)
(628)
(208)
(208)
(208)
(208)
(6,762)
(6,762)
(6,762)
(6,762)
2019
2019
20192019
££££000000000000
(1,559)
(1,559)
(1,559)
(1,559)
(261)
(261)
(261)
(261)
(6(6(6(633333333))))
(286)
(286)
(286)
(286)
(155)
(155)
(155)
(155)
(219)
(219)
(219)
(219)
(137)
(137)
(137)
(137)
(199)
(199)
(199)
(199)
(340)
(340)
(340)
(340)
(34(34(34(346666))))
(4,1(4,1(4,1(4,135353535))))
2019
2019
20192019
££££000000000000
((((2,2,2,2,091091091091))))
64646464
(2,(2,(2,(2,027027027027))))
2018
£000
181
(5)
(102)
74
2018
£000
(4,233)
(241)
(145)
(19)
(50)
(259)
(527)
(229)
(5,703)
2018
£000
(1,067)
(237)
(567)
(434)
(146)
(174)
(119)
(141)
(303)
(277)
(3,465)
2018
£000
(1,246)
410
(836)
Page | 51
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2019
(continued)
15. Impairment on loans and advances to customers (continued)
15. Impairment on loans and advances to customers
(continued)
(continued)
15. Impairment on loans and advances to customers
15. Impairment on loans and advances to customers
The credit / (charge) in respect of collective allowances for impairment comprises:
Collective impairment allowances made
Release of allowances previously made
collective allowances for impairment
for collective allowances for impairment
charge)))) for
credit / / / / ((((charge
Total credit
Total
collective allowances for impairment
collective allowances for impairment
for
for
charge
charge
credit
credit
Total
Total
Total charge for allowances for impairment
Total charge for allowances for impairment
Total charge for allowances for impairment
Total charge for allowances for impairment
16. Profit before tax payable
16. Profit before tax payable
16. Profit before tax payable
16. Profit before tax payable
The profit before tax payable for the year is stated after charging:
Auditor’s remuneration: -
as Auditor current year
non-audit services
Pension cost defined benefit scheme
Operating lease rentals for property
17. Income tax expense
17. Income tax expense
17. Income tax expense
17. Income tax expense
Current tax expense
Current tax expense
Current tax expense
Current tax expense
Current year
Changes to estimates for prior years
Deferred tax expense
Deferred tax expense
Deferred tax expense
Deferred tax expense
Origination and reversal of temporary differences
Utilisation of previously recognised tax losses
Changes to estimates for prior years
2019
2019
20192019
££££000000000000
(1(1(1(138383838))))
222265656565
127127127127
1,900))))
((((1,900
1,900
1,900
GroupGroupGroupGroup
Company
Company
Company
Company
2019
2019
20192019
££££000000000000
(110)
(110)
(110)
(110)
((((96969696))))
((((17171717))))
(117)
(117)
(117)
(117)
2018
£000
(108)
(7)
(15)
(251)
2019
2019
20192019
££££000000000000
----
----
----
----
2019
2019
20192019
££££000000000000
((((222297979797))))
----
((((222297979797))))
((((53535353))))
----
----
((((53535353))))
2018
£000
(49)
28
(21)
(857)
2018
£000
-
-
-
-
2018
£000
(197)
-
(197)
(46)
-
-
(46)
Tax expense
Tax expense
Tax expense
Tax expense
((((333350505050))))
(243)
Reconciliation of effective tax rate
Reconciliation of effective tax rate
Reconciliation of effective tax rate
Reconciliation of effective tax rate
Profit before tax
Tax using the Bank’s domestic tax rate
Effect of tax rates in foreign jurisdictions
Non-deductible expenses
Tax exempt income
Timing difference in current year
Origination and reversal of temporary differences in deferred tax
Tax expense
Tax expense
Tax expense
Tax expense
2019
2019
20192019
££££000000000000
3,03,03,03,023232323
((((303030302222))))
(23)
(23)
(23)
(23)
((((78787878))))
----
----
53535353
((((333350505050))))
(10.0)%
0.0 %
(1.2)%
0.3 %
0.3 %
1.7 %
(9.0)%
2018
£000
2,710
(271)
-
(33)
8
7
46
(243)
(10.0)%
(10.0)%
(10.0)%
(10.0)%
(0.8)%(0.8)%(0.8)%(0.8)%
((((2.62.62.62.6)%)%)%)%
0.00.00.00.0 %%%%
0.0.0.0.0000 %%%%
1.1.1.1.8888 %%%%
((((11111.61.61.61.6)%)%)%)%
Page | 52
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2019
(continued)
17. Income tax expense (continued)
17. Income tax expense
(continued)
(continued)
17. Income tax expense
17. Income tax expense
The main rate of corporation tax in the Isle of Man is 0.0% (2018: 0.0%). However the profits of the Group’s Isle of Man banking
activities are taxed at 10.0% (2018: 10.0%). The profits of the Group’s subsidiaries that are subject to UK corporation tax are taxed
at a rate of 19.0% (2018: 19.0%).
The value of tax losses carried forward reduced to nil and there is now a timing difference related to accelerated capital allowances
resulting in a £141,000 liability (2018: £88,000 liability). This resulted in an expense of £53,000 (2018: £50,000) to the Consolidated
Income Statement.
18. Earnings per share
18. Earnings per share
18. Earnings per share
18. Earnings per share
Profit for the year
Profit for the year
Profit for the year
Profit for the year
Weighted average number of ordinary shares in issue (basic)
Basic earnings per share (pence)
Diluted earnings per share (pence)
Total comprehensive income for the year
Total comprehensive income for the year
Total comprehensive income for the year
Total comprehensive income for the year
Weighted average number of ordinary shares in issue (basic)
Basic earnings per share (pence)
Diluted earnings per share (pence)
2019
2019
20192019
2018
,000
£2,£2,£2,£2,673673673673,000
,000,000
£2,467,000
131,096,235
131,096,235
131,096,235
131,096,235
2.02.02.02.04444
1.61.61.61.66666
131,096,235
1.88
1.54
,000
£2,£2,£2,£2,596596596596,000
,000,000
£2,461,000
131,096,235
131,096,235
131,096,235
131,096,235
1.981.981.981.98
1.61.61.61.62222
131,096,235
1.88
1.54
The basic earnings per share calculation is based upon the profit for the year after taxation and the weighted average of the number
of shares in issue throughout the year.
As at:
As at:
As at:
As at:
2019
2019
20192019
2018
number of ordinary shares in issue between
Reconciliation of weighted average number of ordinary shares in issue between
Reconciliation of weighted average
number of ordinary shares in issue between
number of ordinary shares in issue between
Reconciliation of weighted average
Reconciliation of weighted average
basic and diluted
basic and diluted
basic and diluted
basic and diluted
Weighted average number of ordinary shares (basic)
Number of shares issued if all convertible loan notes were exchanged for equity
Dilutive element of share options if exercised
Weighted average number of ordinary shares (diluted)
between basic and diluted
profit for the year between basic and diluted
Reconciliation of profit for the year
Reconciliation of
between basic and diluted
between basic and diluted
profit for the year
profit for the year
Reconciliation of
Reconciliation of
Profit for the year (basic)
Interest expense saved if all convertible loan notes were exchanged for equity
Profit for the year (diluted)
131,096,235
131,096,235
131,096,235
131,096,235
41,41,41,41,666666666666,,,,667667667667
----
131,096,235
41,666,667
10,366
172,762,902
172,762,902
172,762,902
172,762,902
172,773,268
673,000
££££2,2,2,2,673,000
673,000
673,000
196,150
££££196,150
196,150
196,150
£2,467,000
£196,000
869,150
££££2,2,2,2,869,150
869,150
869,150
£2,663,000
The diluted earnings per share calculation assumes that all convertible loan notes and share options have been converted / exercised
at the beginning of the year where they are dilutive.
As at:
As at:
As at:
As at:
2019
2019
20192019
2018
between basic
total comprehensive income for the year between basic
Reconciliation of total comprehensive income for the year
Reconciliation of
between basic
between basic
total comprehensive income for the year
total comprehensive income for the year
Reconciliation of
Reconciliation of
and diluted
and diluted
and diluted
and diluted
Total comprehensive income for the year (basic)
Interest expense saved if all convertible loan notes were exchanged for
equity
££££2,2,2,2,596596596596,000
,000
,000,000
196,150
££££196,150
196,150
196,150
£2,461,000
£196,000
Total comprehensive income for the year (diluted)
,150
££££2,2,2,2,792792792792,150
,150,150
£2,657,000
Page | 53
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2019
equivalents
19. Cash and cash equivalents
19. Cash and cash
equivalents
equivalents
19. Cash and cash
19. Cash and cash
Cash at bank and in hand
Group
Company
2019
2019
20192019
££££000000000000
14,620
14,620
14,620
14,620
14,620
14,620
14,620
14,620
2018
£000
9,753
9,753
2019
2019
20192019
££££000000000000
119119119119
119119119119
2018
£000
1,646
1,646
Cash at bank includes an amount of £1,060,000 (2018: £561,000) representing receipts which are in the course of transmission.
20. Debt securities
20. Debt securities
20. Debt securities
20. Debt securities
Financial assets at FVOCI:
Financial assets at FVOCI:
Financial assets at FVOCI:
Financial assets at FVOCI:
UK Government Treasury Bills
Floating Rate Notes
Group
Company
2012012012019999
££££000000000000
44,690
44,690
44,690
44,690
2,102
2,102
2,102
2,102
46,792
46,792
46,792
46,792
2018
£000
30,534
-
30,534
2012012012019999
££££000000000000
----
----
----
2018
£000
-
-
-
UK Government Treasury Bills are stated at fair value and unrealised changes in the fair value are reflected in other comprehensive
income. There were £179,000 (2018: £135,000) realised gains and £51,000 (2018: £44,000) unrealised gains during the year.
21. Trading asset
21. Trading asset
21. Trading asset
21. Trading asset
The investment represents shares in a UK quoted company, elected to be classified as a financial asset at fair value through profit or
loss. The investment is stated at market value and is classified as a level 1 investment in the IFRS 13 fair value hierarchy. The cost
of the shares was £471,000. The unrealised difference between cost and market value has been taken to the Consolidated Income
Statement. Dividend income of £360,500 (2018: £355,000) and £24,000 (2018: £24,000) of sale proceeds have been received from
this investment since it was made. The investment made a net loss of £1,000 (2018: £4,000) during the year.
22. Loans and advances to customers
22. Loans and advances to customers
22. Loans and advances to customers
22. Loans and advances to customers
GroupGroupGroupGroup
HP balances
Finance lease balances
Unsecured personal loans
Vehicle stocking plans
Wholesale funding arrangements
Block discounting
Secured commercial loans
Secured personal loans
GrossGrossGrossGross
Amount
Amount
Amount
Amount
££££000000000000
65,846
65,846
65,846
65,846
40,359
40,359
40,359
40,359
21,110
21,110
21,110
21,110
1,494
1,494
1,494
1,494
23,840
23,840
23,840
23,840
15,693
15,693
15,693
15,693
11,652
11,652
11,652
11,652
4,149
4,149
4,149
4,149
184,143
184,143
184,143
184,143
2019
2019
20192019
Impairment
Impairment
Impairment
Impairment
Allowance
Allowance
Allowance
Allowance
££££000000000000
(1,537)
(1,537)
(1,537)
(1,537)
(2,125)
(2,125)
(2,125)
(2,125)
(199)
(199)
(199)
(199)
(36)
(36)
(36)
(36)
((((333300)00)00)00)
(200)
(200)
(200)
(200)
(376)
(376)
(376)
(376)
----
(4,(4,(4,(4,777773)73)73)73)
Carrying
Carrying
Carrying
Carrying
Value
Value
ValueValue
££££000000000000
64,309
64,309
64,309
64,309
38,234
38,234
38,234
38,234
20,911
20,911
20,911
20,911
1,458
1,458
1,458
1,458
23,23,23,23,555540404040
15,493
15,493
15,493
15,493
11,276
11,276
11,276
11,276
4,149
4,149
4,149
4,149
179,333370707070
179,
179,179,
Gross
Amount
£000
59,038
27,238
14,806
1,486
22,944
17,316
1,967
6,877
151,672
2018
Impairment
Allowance
£000
(1,416)
(1,551)
(382)
-
-
-
(45)
-
(3,394)
Carrying
Value
£000
57,622
25,687
14,424
1,486
22,944
17,316
1,922
6,877
148,278
Collateral is held in the form of underlying assets for HP, finance leases, vehicles stocking plans, block discounting, secured
commercial and personal loans and wholesale funding arrangements.
Specific allowance for impairment
Specific allowance for impairment
Specific allowance for impairment
Specific allowance for impairment
Balance at 1 January
Specific allowance for impairment made
Release of allowances previously made
Write-offs
Balance at 31 December
Balance at 31 December
Balance at 31 December
Balance at 31 December
2012012012019999
££££000000000000
3,126
3,126
3,126
3,126
2,2,2,2,091091091091
((((64646464))))
((((521521521521))))
4,4,4,4,666632323232
2018
£000
2,440
1,291
(410)
(195)
3,126
Page | 54
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2019
(continued)
22. Loans and advances to customers (continued)
22. Loans and advances to customers
(continued)
(continued)
22. Loans and advances to customers
22. Loans and advances to customers
Collective allowance for impairment
Collective allowance for impairment
Collective allowance for impairment
Collective allowance for impairment
Balance at 1 January
Collective allowance for impairment made
Release of allowances previously made
Balance at 31 December
Balance at 31 December
Balance at 31 December
Balance at 31 December
Total allowances for impairment
Total allowances for impairment
Total allowances for impairment
Total allowances for impairment
2019
2019
20192019
££££000000000000
268268268268
111138383838
(2(2(2(265656565))))
141141141141
4,4,4,4,777773737373
2018
£000
247
49
(28)
268
3,394
Advances on preferential terms are available to all Directors, management and staff. As at 31 December 2019 £490,641 (2018:
£389,005) had been lent on this basis. In the Group’s ordinary course of business, advances may be made to Shareholders, but all
such advances are made on normal commercial terms.
At the end of the current financial year 5 loan exposures (2018: 9) exceeded 10.0% of the capital base of the Bank:
Exposure
Exposure
Exposure
Exposure
Block discounting facility
Wholesale funding agreement
Outstanding
Outstanding
Outstanding
Outstanding
Balance
Balance
Balance
Balance
2019
2019
20192019
£000
£000
£000£000
15,693
15,693
15,693
15,693
23,840
23,840
23,840
23,840
Outstanding
Balance
2018
£000
14,211
21,423
HP and finance lease receivables
HP and finance lease receivables
HP and finance lease receivables
HP and finance lease receivables
Loans and advances to customers include the following HP and finance lease receivables:
Less than one year
Between one and five years
Gross investment in HP and finance lease receivables
Gross investment in HP and finance lease receivables
Gross investment in HP and finance lease receivables
Gross investment in HP and finance lease receivables
The investment in HP and finance lease receivables net of unearned income comprises:
Facility
Facility
Facility
Facility
limit
limit
limit
limit
£000
£000
£000£000
28,235
28,235
28,235
28,235
28,119
28,119
28,119
28,119
2018
£000
42,532
60,184
102,716
2018
£000
37,508
48,768
86,276
2019
2019
20192019
££££000000000000
51,865
51,865
51,865
51,865
71,124
71,124
71,124
71,124
122,989
122,989
122,989
122,989
2019
2019
20192019
££££000000000000
44,787
44,787
44,787
44,787
61,418
61,418
61,418
61,418
106,205
106,205
106,205
106,205
Less than one year
Between one and five years
Net investment in HP and finance lease receivables
Net investment in HP and finance lease receivables
Net investment in HP and finance lease receivables
Net investment in HP and finance lease receivables
23. Trade and other receivables
23. Trade and other receivables
23. Trade and other receivables
23. Trade and other receivables
Prepayments
VAT recoverable
Other debtors
Group
Company
2019
2019
20192019
££££000000000000
333385858585
888835353535
1,21,21,21,258585858
2,2,2,2,444477778888
2018
£000
382
936
1,173
2,491
2019
2019
20192019
££££000000000000
44444444
187187187187
----
231231231231
2018
£000
32
-
-
32
Included in trade and other receivables is an amount of £835,000 (2018: £936,000) relating to a reclaim of VAT. The Bank, as the
Group VAT registered entity, has for some time considered the VAT recovery rate being obtained by the business was neither fair nor
reasonable, specifically regarding the attribution of part of the residual input tax relating to the HP business not being considered as
a taxable supply. Queries have been raised with the Isle of Man Government Customs & Excise Division (“C&E”), and several reviews
of the mechanics of the recovery process were undertaken by the Company’s professional advisors.
Page | 55
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2019
23. Trade and other receivables (continued)
23. Trade and other receivables (continued)
23. Trade and other receivables (continued)
23. Trade and other receivables (continued)
The Group’s position rests on the outcome of discussions with C&E which in turn will take into account the final assessment by UK
Her Majesty’s Revenue and Customs (“HMRC”) of the impact of the European Union’s ruling in favour of Volkswagen Financial
Services (UK) Limited (“VWFS”) vs HMRC. On the basis of the discussions and correspondence which have taken place between
the Bank, its professional advisors and C&E, in addition to the VWFS ruling, the VAT recovery has moved in the year. The Directors
are confident that the VAT claim will be secured.
The Bank’s total exposure in relation to this matter reduced to £906,000 (2018: £1,049,000), comprising the debtor balance referred
to above plus an additional £71,000 VAT reclaimed under the partial Exemption Special Method, in the period from Q4 2011 to Q3
2012 (from Q4 2012 the Bank reverted back to the previous method).
use assets
ight----ofofofof----use assets
and rrrright
24. Property, plant and equipment and
24. Property, plant and equipment
use assets
use assets
ight
ight
and and
24. Property, plant and equipment
24. Property, plant and equipment
GroupGroupGroupGroup
CostCostCostCost
As at 1 January 2019
Acquisition of subsidiary
Additions
Disposals
31 December 2019
As at 31 December 2019
As at
31 December 2019
31 December 2019
As atAs at
Accumulated depreciation
Accumulated depreciation
Accumulated depreciation
Accumulated depreciation
As at 1 January 2019
Charge for year
Disposals
As at 31 December 2019
As at 31 December 2019
As at 31 December 2019
As at 31 December 2019
December 2019
Carrying value at 31 December
December
December
2019
Carrying value at 31
20192019
Carrying value at 31
Carrying value at 31
Carrying value at 31 December 2018
Leasehold
Leasehold
Leasehold
Leasehold
Improvements
Improvements
Improvements
Improvements
££££000000000000
ITITITIT
Equipment
Equipment
Equipment
Equipment
££££000000000000
Furniture &
Furniture &
Furniture &
Furniture &
Equipment
Equipment
Equipment
Equipment
££££000000000000
MotorMotorMotorMotor
Vehicles1
Vehicles
Vehicles
Vehicles
££££000000000000
RightRightRightRight----ofofofof----
use assets2
use assets
use assets
use assets
££££000000000000
509509509509
160160160160
5555
----
674674674674
249249249249
66666666
----
315315315315
359359359359
260
335335335335
----
58585858
----
393393393393
213213213213
59595959
----
272272272272
121121121121
122
664664664664
22222222
----
----
686686686686
612612612612
10101010
----
622622622622
64646464
52
1,003
1,003
1,003
1,003
107107107107
1,571
1,571
1,571
1,571
(107)
(107)
(107)
(107)
2,574
2,574
2,574
2,574
53535353
338338338338
----
391391391391
2,183
2,183
2,183
2,183
950
----
----
737737737737
----
737737737737
----
165165165165
----
165165165165
572572572572
-
1Motor vehicles relate to operating leases with the Group as lessor.
2See Note 5 for implementation of IFRS 16 – Leases and recognition of right-of-use asset.
Total
Total
Total
Total
££££000000000000
2,511
2,511
2,511
2,511
289289289289
2,371
2,371
2,371
2,371
(107)
(107)
(107)
(107)
5,064
5,064
5,064
5,064
1,127
1,127
1,127
1,127
638638638638
----
1,765
1,765
1,765
1,765
3,299
3,299
3,299
3,299
1,384
Page | 56
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2019
(continued)
use assets (continued)
right----ofofofof----use assets
and right
24. Property, plant and equipment and
24. Property, plant and equipment
(continued)
(continued)
use assets
use assets
right
right
and and
24. Property, plant and equipment
24. Property, plant and equipment
Company
Company
Company
Company
CostCostCostCost
As at 1 January 2019
Additions
Disposals
As at 31 December 2019
As at 31 December 2019
As at 31 December 2019
As at 31 December 2019
Accumulated depreciation
Accumulated depreciation
Accumulated depreciation
Accumulated depreciation
As at 1 January 2019
Charge for year
Disposals
As at 31 December 2019
As at 31 December 2019
As at 31 December 2019
As at 31 December 2019
Carrying value at 31 December 2019
Carrying value at 31 December 2019
Carrying value at 31 December 2019
Carrying value at 31 December 2019
Carrying value at 31 December 2018
25. Intangible assets
25. Intangible assets
25. Intangible assets
25. Intangible assets
GroupGroupGroupGroup
CostCostCostCost
As at 1 January 2019
Acquisition of subsidiary (note 32)
Additions
Disposals
As at 31 December 2019999
As at 31 December 201
As at 31 December 201
As at 31 December 201
Accumulated amortisation
Accumulated amortisation
Accumulated amortisation
Accumulated amortisation
As at 1 January 2019
Charge for year / impairment
Disposals
As at 31 December 2019999
As at 31 December 201
As at 31 December 201
As at 31 December 201
Carrying value at 31 December 2019999
Carrying value at 31 December 201
Carrying value at 31 December 201
Carrying value at 31 December 201
Carrying value at 31 December 2018
26. Deposits from customers
26. Deposits from customers
26. Deposits from customers
26. Deposits from customers
Retail customers: term deposits
Corporate customers: term deposits
Leasehold
Leasehold
Leasehold
Leasehold
Improvements
Improvements
Improvements
Improvements
££££000000000000
ITITITIT
Equipment
Equipment
Equipment
Equipment
££££000000000000
Furniture &
Furniture &
Furniture &
Furniture &
Equipment
Equipment
Equipment
Equipment
££££000000000000
RightRightRightRight----of of of of
useuseuseuse----asset
asset
asset
asset
£000
£000
£000£000
234234234234
----
----
234234234234
131131131131
38383838
----
169169169169
65656565
103
13131313
----
----
13131313
3333
1111
----
4444
9999
10
16161616
1111
----
11117777
3333
2222
----
5555
11112222
13
----
424424424424
----
424424424424
----
60606060
----
60606060
364364364364
-
Customer
Customer
Customer
Customer
Contracts & Lists
Contracts & Lists
Contracts & Lists
Contracts & Lists
££££000000000000
Intellectual
Intellectual
Intellectual
Intellectual
Property Rights
Property Rights
Property Rights
Property Rights
££££000000000000
IT Software and
IT Software and
IT Software and
IT Software and
Website
Website
Website
Website
Development
Development
Development
Development
££££000000000000
1,417
1,417
1,417
1,417
496496496496
7777
----
1,920
1,920
1,920
1,920
195195195195
107107107107
----
302302302302
1,618
1,618
1,618
1,618
1,222
388388388388
143143143143
8888
----
539539539539
312312312312
131131131131
----
443443443443
96969696
76
2,046
2,046
2,046
2,046
----
117117117117
----
2,163
2,163
2,163
2,163
1,392
1,392
1,392
1,392
192192192192
----
1,584
1,584
1,584
1,584
579579579579
654
Total
Total
Total
Total
££££000000000000
263263263263
425425425425
----
688688688688
137137137137
101010101111
----
232323238888
450450450450
126
Total
Total
Total
Total
££££000000000000
3,851
3,851
3,851
3,851
639639639639
132132132132
----
4,622
4,622
4,622
4,622
1,899
1,899
1,899
1,899
430430430430
----
2,329
2,329
2,329
2,329
2,293
2,293
2,293
2,293
1,952
2019
2019
20192019
££££000000000000
203,241
203,241
203,241
203,241
6,692
6,692
6,692
6,692
209,933
209,933
209,933
209,933
2018
£000
153,735
4,765
158,500
Page | 57
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2019
27. Creditors and accrued charges
27. Creditors and accrued charges
27. Creditors and accrued charges
27. Creditors and accrued charges
Commission creditors
Other creditors and accruals
Lease liability (see note 5)
Taxation creditors
28. Block creditors
28. Block creditors
28. Block creditors
28. Block creditors
Group
Company
2019
2019
20192019
££££000000000000
1,044
1,044
1,044
1,044
898989893333
707707707707
328328328328
2,972
2,972
2,972
2,972
2018
£000
758
897
-
355
2,010
2019
2019
20192019
££££000000000000
----
66666666
509509509509
----
575575575575
2012012012019999
££££000000000000
----
----
2018
£000
-
94
-
-
94
2018
£000
138
138
2018
£000
1,750
1,200
460
3,410
12,461
15,871
Drawdown 3 – repayable 08/03/2019, interest payable at 6.5%, secured on assets of MFL
29. Loan notes
29. Loan notes
29. Loan notes
29. Loan notes
Related parties
Related parties
Related parties
Related parties
J Mellon
Burnbrae Limited
Southern Rock Insurance Company Limited
Unrelated parties
Unrelated parties
Unrelated parties
Unrelated parties
Group
Company
NotesNotesNotesNotes
JMJMJMJM
BLBLBLBL
SRSRSRSR
UPUPUPUP
2019
2019
20192019
££££000000000000
1,750
1,750
1,750
1,750
1,200
1,200
1,200
1,200
460460460460
3,410
3,410
3,410
3,410
12,561
12,561
12,561
12,561
15,15,15,15,999971717171
2018
£000
1,750
1,200
460
3,410
12,461
15,871
2019
2019
20192019
££££000000000000
1,750
1,750
1,750
1,750
1,200
1,200
1,200
1,200
460460460460
3,410
3,410
3,410
3,410
12,12,12,12,555561616161
15,15,15,15,999971717171
JMJMJMJM – Two loans, one of £1,250,000 maturing on 26 February 2020, paying interest of 6.5% per annum, and one of £500,000 maturing
on 31 July 2022 with interest payable of 5.0% per annum. Both loans are convertible at the rate of 7.5 pence and 9 pence respectively.
See note 35 for the terms of the renewal of the £1,250,000 loan.
BLBLBLBL – One loan consisting of £1,200,000 maturing on 31 July 2022 with interest payable of 5.0% per annum. Jim Mellon is the beneficial
owner of BL and Denham Eke is also a director. The loan is convertible at a rate of 7.5 pence.
SRSRSRSR – One loan consisting of £460,000 maturing on 26 February 2020 with interest payable of 6.5% per annum. The loan is convertible
at a rate of 9 pence. John Banks, a previous Non-executive Director, is also a director of SR.
UPUPUPUP – Thirty-three loans consisting of an average £380,636 with a average interest payable of 5.5% (2018: 5.4%) per annum. The
earliest maturity date is 20 January 2019 and the latest maturity is 10 October 2023.
With respect to the convertible loans, the interest rate applied was deemed by the Directors to be equivalent to the market rate at the
time with no conversion option.
30. Pension liability
30. Pension liability
30. Pension liability
30. Pension liability
The Conister Trust Pension and Life Assurance Scheme (“Scheme”) operated by the Bank is a funded defined benefit arrangement
which provides retirement benefits based on final pensionable salary. The Scheme is closed to new entrants and the last active
member of the Scheme left pensionable service in 2011.
The Scheme is approved in the Isle of Man by the Assessor of Income Tax under the Income Tax (Retirement Benefit Schemes) Act
1978 and must comply with the relevant legislation. In addition, it is registered as an authorised scheme with the FSA in the Isle of
Man under the Retirement Benefits Scheme Act 2000. The Scheme is subject to regulation by the FSA but there is no minimum
funding regime in the Isle of Man.
The Scheme is governed by two corporate trustees, Conister Bank Limited and Boal & Co (Pensions) Limited. The trustees are
responsible for the Scheme’s investment policy and for the exercise of discretionary powers in respect of the Scheme’s benefits.
Page | 58
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2019
(continued)
30. Pension liability (continued)
30. Pension liability
(continued)
(continued)
30. Pension liability
30. Pension liability
The rules of the Scheme state: - “Each Employer shall pay such sums in each Scheme Year as are estimated to be required to provide
the benefits of the Scheme in respect of the Members in its employ”.
Exposure to risk
Exposure to risk
Exposure to risk
Exposure to risk
The Company is exposed to the risk that additional contributions will be required in order to fund the Scheme as a result of poor
experience. Some of the key factors that could lead to shortfalls are:
investment performance – the return achieved on the Scheme’s assets may be lower than expected; and
mortality – members could live longer than foreseen. This would mean that benefits are paid for longer than expected, increasing
the value of the related liabilities.
In order to assess the sensitivity of the Scheme’s pension liability to these risks, sensitivity analyses have been carried out. Each
sensitivity analysis is based on changing one of the assumptions used in the calculations, with no change in the other assumptions.
The same method has been applied as was used to calculate the original pension liability and the results are presented in comparison
to that liability. It should be noted that in practice it is unlikely that one assumption will change without a movement in the other
assumptions; there may also be some correlation between some of these assumptions. It should also be noted that the value placed
on the liabilities does not change on a straight line basis when one of the assumptions is changed. For example, a 2.0% change in
an assumption will not necessarily produce twice the effect on the liabilities of a 1.0% change.
No changes have been made to the method or to the assumptions stress-tested for these sensitivity analyses compared to the
previous period. The investment strategy of the Scheme has been set with regard to the liability profile of the Scheme. However, there
are no explicit asset-liability matching strategies in place.
Restriction of assets
Restriction of assets
Restriction of assets
Restriction of assets
No adjustments have been made to the statement of financial position items as a result of the requirements of IFRIC 14 – IAS 19: The
Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction, issued by IASB’s International Financial
Reporting Interpretations Committee.
Scheme amendments
Scheme amendments
Scheme amendments
Scheme amendments
There have not been any past service costs or settlements in the financial year ending 31 December 2019 (2018: none).
Funding policy
Funding policy
Funding policy
Funding policy
The funding method employed to calculate the value of previously accrued benefits is the Projected Unit Method. Following the
cessation of accrual of benefits when the last active member left service in 2011, regular future service contributions to the Scheme
are no longer required. However, additional contributions will still be required to cover any shortfalls that might arise following each
funding valuation.
The most recent triennial full actuarial valuation was carried out at 1 April 2016, which showed that the market value of the Scheme’s
assets was £1,379,000 representing 80.7% of the benefits that had accrued to members, after allowing for expected future increases
in earnings. As required by IAS 19: Employee Benefits, this valuation has been updated by the actuary as at 31 December 2019.
The amounts recognised in the Consolidated Statement of Financial Position are as follows:
Total underfunding in funded plans recognised as a liability
Total underfunding in funded plans recognised as a liability
Total underfunding in funded plans recognised as a liability
Total underfunding in funded plans recognised as a liability
Fair value of plan assets
Present value of funded obligations
Movement in the liability for defined benefit obligations
Movement in the liability for defined benefit obligations
Movement in the liability for defined benefit obligations
Movement in the liability for defined benefit obligations
Opening defined benefit obligations at 1 January
Benefits paid by the plan
Interest on obligations
Actuarial loss / (gain)
Liability for defined benefit obligations at 31 December
Liability for defined benefit obligations at 31 December
Liability for defined benefit obligations at 31 December
Liability for defined benefit obligations at 31 December
2019
2019
20192019
££££000000000000
1,471
1,471
1,471
1,471
(2,159)
(2,159)
(2,159)
(2,159)
(688)
(688)
(688)
(688)
2019
2019
20192019
££££000000000000
1,945
1,945
1,945
1,945
(6(6(6(69999))))
55555555
222222228888
2,159
2,159
2,159
2,159
2018
£000
1,361
(1,945)
(584)
2018
£000
2,029
(65)
52
(71)
1,945
Page | 59
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2019
30. Pension liability (continued)
30. Pension liability (continued)
30. Pension liability (continued)
30. Pension liability (continued)
Movement in plan assets
Movement in plan assets
Movement in plan assets
Movement in plan assets
Opening fair value of plan assets at 1 January
Expected return on assets
Contribution by employer
Actuarial gain / (loss)
Benefits paid
plan assets at 31 December
Closing fair value of plan assets at 31 December
Closing fair value of
plan assets at 31 December
plan assets at 31 December
Closing fair value of
Closing fair value of
Expense recognised in income statement
Expense recognised in income statement
Expense recognised in income statement
Expense recognised in income statement
Interest on obligation
Expected return on plan assets
Total included in personnel costs
Total included in personnel costs
Total included in personnel costs
Total included in personnel costs
Actual return on plan assets
Actual return on plan assets
Actual return on plan assets
Actual return on plan assets
recognised in other comprehensive income
loss recognised in other comprehensive income
Actuarial loss
Actuarial
recognised in other comprehensive income
recognised in other comprehensive income
loss
loss
Actuarial
Actuarial
Actuarial gain / (loss) on plan assets
Actuarial (loss) / gain on defined benefit obligations
Plan assets consist of the following
Plan assets consist of the following
Plan assets consist of the following
Plan assets consist of the following
Equity securities
Corporate bonds
Government bonds
Cash
Other
2019
2019
20192019
££££000000000000
1,361
1,361
1,361
1,361
33338888
41414141
100100100100
(6(6(6(69999))))
1,471
1,471
1,471
1,471
2019
2019
20192019
££££000000000000
55555555
(3(3(3(38888))))
11117777
142142142142
2019
2019
20192019
££££000000000000
101010100000
(2(2(2(228282828))))
(128)
(128)
(128)
(128)
2019
2019
20192019
%%%%
50505050
11118888
30303030
2222
----
100100100100
2018
£000
1,469
37
41
(121)
(65)
1,361
2018
£000
52
(37)
15
(53)
2018
£000
(121)
71
(50)
2018
%
45
19
28
4
4
100
The actuarial assumptions used to calculate Scheme liabilities under IAS19 are as follows:
The actuarial assumptions used to calculate Scheme liabilities under IAS19 are as follows:
The actuarial assumptions used to calculate Scheme liabilities under IAS19 are as follows:
The actuarial assumptions used to calculate Scheme liabilities under IAS19 are as follows:
Rate of increase in pension in payment:
Service up to 5 April 1997
Service from 6 April 1997 to 13 September 2005
Service from 14 September 2005
Rate of increase in deferred pensions
Discount rate applied to scheme liabilities
Inflation
2012012012019999
%%%%
2018
%
2017
%
----
3.03.03.03.0
2.12.12.12.1
5.05.05.05.0
2.92.92.92.9
3.13.13.13.1
-
3.0
2.1
5.0
2.6
3.1
-
3.0
2.1
5.0
2.6
3.1
The assumptions used by the actuary are best estimates chosen from a range of possible assumptions, which due to the timescale
covered, may not necessarily be borne out in practice.
Page | 60
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2019
31. Called up share capital
31. Called up share capital
31. Called up share capital
31. Called up share capital
Ordinary shares of no par value available for issue
Ordinary shares of no par value available for issue
Ordinary shares of no par value available for issue
Ordinary shares of no par value available for issue
At 31 December 2019999
At 31 December 201
At 31 December 201
At 31 December 201
At 31 December 2018
Ordinary shares of no par value
Issued and fully paid: ---- Ordinary shares of no par value
Issued and fully paid:
Ordinary shares of no par value
Ordinary shares of no par value
Issued and fully paid:
Issued and fully paid:
December 2019999
At 31 December 201
At 31
December 201
December 201
At 31
At 31
At 31 December 2018
Number
Number
Number
Number
200,200,000
200,200,000
200,200,000
200,200,000
200,200,000
££££000000000000
20,732
20,732
20,732
20,732
20,732
Number
Number
Number
Number
131,096,235
131,096,235
131,096,235
131,096,235
131,096,235
There are four convertible loans of £3,410,000 (2018: £3,410,000).
On 23 June 2014, 1,750,000 share options were issued to Executive Directors and senior management within the Group at an
exercise price of 14 pence. The options vest over three years with a charge based on the fair value of 8 pence per option at the date
of grant. The period of grant is for 10 years less 1 day ending 22 June 2024. Of the 1,750,000 share options issued, 1,050,000
(2018:1,050,000) remain outstanding; the balance lapsed during 2017.
Performance and service conditions attached to share options that have not fully vested are as follows:
(a) The options granted on 25 June 2010 (1,056,000 options) will vest if the mid-market share price of £0.30 is achieved during the
period of grant (10 years ending 25 June 2020); and
(b) The options granted on 25 June 2010 and 23 June 2014 require a minimum of three years’ continuous employment service in
order to exercise upon the vesting date.
The fair value of services received in return for share options granted is based on the fair value of share options granted, measured
using a binomial probability model with the following inputs for each award:
Fair value at date of grant
Share price
Exercise price
Expected volatility
Option life
Risk-free interest rate (based on government bonds)
Forfeiture rate
The charge for the year for share options granted was £nil (2018: £nil).
Analysis of changes in financing during the year
Analysis of changes in financing during the year
Analysis of changes in financing during the year
Analysis of changes in financing during the year
Analysis of changes in financing during the year
Analysis of changes in financing during the year
Analysis of changes in financing during the year
Analysis of changes in financing during the year
Balance at 1 January
Issue of loan notes
23 June
2014
£0.08
£0.14
£0.14
55.0%
3
0.5%
33.3%
25 June
2010
£0.03
£0.11
£0.11
47.0%
3
2.2%
0.0%
2019
2019
20192019
££££000000000000
36,603
36,603
36,603
36,603
100100100100
36,703333
36,70
36,70
36,70
2018
£000
29,727
6,876
36,603
The 2019 closing balance is represented by £20,732,000 share capital (2018: £20,732,000) and £15,971,000 of loan notes (2018:
£15,871,000).
Page | 61
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2019
undertakings
32. Investment in Group undertakings
32. Investment in Group
undertakings
undertakings
32. Investment in Group
32. Investment in Group
Subsidiaries
Subsidiaries
Subsidiaries
Subsidiaries
The Company has the following investments in subsidiaries incorporated in the Isle of Man:
Carrying value of investments
Carrying value of investments
Carrying value of investments
Carrying value of investments
Nature of
Business
31 December
31 December
31 December
31 December
2019
2019
20192019
% Holding
% Holding
% Holding
% Holding
Date of
Incorporation
Conister Bank Limited
Edgewater Associates Limited
TransSend Holdings Limited
Bradburn Limited
Asset and Personal Finance
Wealth Management
Holding Company for Prepaid Card Division
Holding Company
100100100100
100100100100
100100100100
100100100100
05/12/1935
24/12/1996
05/11/2007
15/05/2009
Total
Total
Total
Total
2019
2019
20192019
££££000000000000
15,817
15,817
15,817
15,817
2,005
2,005
2,005
2,005
----
----
17,822
17,822
17,822
17,822
Total
2018
£000
14,167
2,005
-
-
16,172
Blue Star Business Solutions Limited
Blue Star Business Solutions Limited
Blue Star Business Solutions Limited
Blue Star Business Solutions Limited
On 16 April 2019, the Group (through Bradburn Limited) acquired 100% of the shares and voting interest in Blue Star Business
Solutions Limited (“BBSL”), obtaining control of BBSL. This acquisition is part of the Group's strategy to increase its distribution in the
UK broker market. BBSL was formed in 2004 and is based in Hampshire. The business is a niche brokerage which focuses on
delivering excellent customer service to small and medium sized businesses in the UK that require funding for IT equipment amongst
other assets. The Group invested in BBSL to allow it to grow profitably by gaining market share and through its banking subsidiary,
Conister Bank Limited, writing the majority of its funding requests.
For the 9 months ended 31 December 2019, BBSL contributed revenue of £719,115 and a consolidated profit of £346,241 including
its lending contribution to the Group. If the acquisition had occurred on 1 January 2019, management estimates that the consolidated
revenue would have been £922,345 and consolidated profit for the year would have been £361,348. Individual results for the 9 months
ended 31 December 2019 recorded a loss of £24,378.
A. Consideration transferred
A. Consideration transferred
A. Consideration transferred
A. Consideration transferred
The following table summarises the acquisition-date fair value of each major class of consideration transferred:
Cash
Contingent consideration
£000
£000
£000£000
1,500
1,500
1,500
1,500
775775775775
2,275
2,275
2,275
2,275
i. Contingent consideration transferred
i. Contingent consideration transferred
i. Contingent consideration transferred
i. Contingent consideration transferred
The Group has agreed to pay the selling shareholders:
50% of net profits in BBSL for 3 years post completion; and
50% of the incremental net profit that the Group benefits from as a result of taking up BBSL loan proposals post completion
up until the third anniversary.
This is to be paid on each anniversary with a final payment in year 4 for the unrealised lending profit. The total consideration is to
have a cap of £4,000,000 in total. The contingent consideration is calculated by forecasting 3 years of net profits discounted using an
interest rate of 16.0% per annum. Unwinding the discount up to 31 December 2019 has created an £88,000 of interest expense in
the Consolidated Income Statement, bringing the balance to £863,000. The range of contingent consideration payable is £nil -
£2,500,000.
related costs
B. Acquisition----related costs
B. Acquisition
related costs
related costs
B. Acquisition
B. Acquisition
In the current year, the Group incurred acquisition-related costs of £20,000 relating to external legal fees and due diligence costs.
These costs have been included in ‘administrative expenses’ in the Condensed Consolidated Statement of Profit or Loss and Other
Comprehensive Income.
C. Identifiable assets acquired and liabilities assumed
C. Identifiable assets acquired and liabilities assumed
C. Identifiable assets acquired and liabilities assumed
C. Identifiable assets acquired and liabilities assumed
The following table summarises the recognised amounts of assets acquired, and liabilities assumed at the date of acquisition:
Property, plant and equipment
Intangible assets
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Loans and borrowings
acquired
Total identifiable net assets acquired
Total identifiable net assets
acquired
acquired
Total identifiable net assets
Total identifiable net assets
The trade receivables comprise gross contractual amounts due of £114,000.
£000
£000
£000£000
289289289289
639639639639
114114114114
111163636363
(2(2(2(203030303))))
(11(11(11(117777))))
888885858585
Page | 62
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2019
(continued)
32. Investment in Group undertakings (continued)
32. Investment in Group undertakings
(continued)
(continued)
32. Investment in Group undertakings
32. Investment in Group undertakings
(continued)
Blue Star Business Solutions Limited (continued)
Blue Star Business Solutions Limited
(continued)
(continued)
Blue Star Business Solutions Limited
Blue Star Business Solutions Limited
D. Goodwill
D. Goodwill
D. Goodwill
D. Goodwill
The goodwill arising from the acquisition has been recognised as follows:
Total consideration transferred
Fair value of identifiable net assets
oodwill
GGGGoodwill
oodwill
oodwill
Amounts owed to Group undertakings
Amounts owed to Group undertakings
Amounts owed to Group undertakings
Amounts owed to Group undertakings
Amounts owed to Group undertakings are unsecured, interest-free and repayable on demand.
Subordinated loans
Subordinated loans
Subordinated loans
Subordinated loans
MFG has issued several subordinated loans as part of its equity funding into the Bank and EAL.
Creation
Maturity
Interest rate
Limited
Conister Bank Limited
Conister Bank
Conister Bank
Limited
Limited
Conister Bank
11 February 2014
27 May 2014
9 July 2014
17 September 2014
22 July 2013
25 October 2013
23 September 2016
14 June 2017
12 June 2018
Edgewater Associates Limited
Edgewater Associates Limited
Edgewater Associates Limited
Edgewater Associates Limited
14 May 2012
28 February 2013
21 February 2017
14 May 2017
11 February 2024
27 May 2024
9 July 2024
17 September 2026
22 July 2033
22 October 2033
23 September 2036
14 June 2037
12 June 2038
14 May 2017
28 February 2018
21 February 2027
14 May 2027
7.0%
7.0%
7.0%
7.0%
7.0%
7.0%
7.0%
7.0%
7.0%
7.0%
7.0%
7.0%
7.0%
£000
£000
£000£000
2,275
2,275
2,275
2,275
(8(8(8(885858585))))
1,31,31,31,390909090
2018
£000
500
500
500
400
1,000
1,000
1,100
450
2,000
-
50
150
128
7,778
2019
2019
20192019
££££000000000000
500500500500
500500500500
500500500500
400400400400
1,000
1,000
1,000
1,000
1,000
1,000
1,000
1,000
1,100
1,100
1,100
1,100
450450450450
2,000
2,000
2,000
2,000
----
50505050
150150150150
128128128128
7,778
7,778
7,778
7,778
EAL’s subordinated loan that matured on 28 February 2018 continues in existence and has not been called for payment by MFG.
Goodwill
Goodwill
Goodwill
Goodwill
EAL
BBSL
ECF Asset Finance PLC (“ECF”)
Three Spires Insurance Services Limited (“Three Spires”)
GroupGroupGroupGroup
2019
2019
20192019
££££000000000000
1,849
1,849
1,849
1,849
1,31,31,31,390909090
454454454454
41414141
3,73,73,73,734343434
Group
2018
£000
1,849
-
454
41
2,344
Goodwill impairment
Goodwill impairment
Goodwill impairment
Goodwill impairment
The goodwill is considered to have an indefinite life and is reviewed on an annual basis by comparing its estimated recoverable
amount with its carrying value.
The estimated recoverable amount in relation to the goodwill generated on the purchase of EAL is based on the forecasted 3 year
cash flow projections, extrapolated to 10 years using a 2.0% annual increment, and then discounted using a 11.0% discount factor.
The sensitivity of the analysis was tested using additional discount factors of 15.0% and 20.0% on stable profit levels.
Page | 63
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2019
(continued)
32. Investment in Group undertakings (continued)
32. Investment in Group undertakings
(continued)
(continued)
32. Investment in Group undertakings
32. Investment in Group undertakings
Goodwill impairment
(continued)
Goodwill impairment (continued)
(continued)
(continued)
Goodwill impairment
Goodwill impairment
The estimated recoverable amount in relation to the goodwill generated on the purchase of BBSL is based on forecasted 3 year
interest income calculated at an average yield of 8%, with a terminal value calculated using a 3.0% growth rate of net income and
then discounted using a 16.0% discount factor. The sensitivity of the analysis was tested using additional discount factors of up to
20.0% on varying interest income growth rates.
The estimated recoverable amount in relation to the goodwill generated on the purchase of ECF is based on forecasted 3 year sales
interest income calculated at 5.0% margin, extrapolated to 10 years using a 2.0% annual increment, and then discounted using a
11.0% discount factor. The sensitivity of the analysis was tested using additional discount factors of 15.0% and 20.0% on varying
sales volumes.
There has been no change in the detailed method of measurement for EAL and ECF when compared to 2018. The goodwill generated
on the purchase of Three Spires has been reviewed at the current year end and is considered adequate given its income streams
referred to EAL. Based on the above reviews no impairment to goodwill has been made in the current year.
AcqAcqAcqAcquisition of Incahoot Limited
uisition of Incahoot Limited
uisition of Incahoot Limited
uisition of Incahoot Limited
On 6 March 2015, the business of Incahoot Limited was acquired by Manx Incahoot Limited, a subsidiary of the Group.
On 9 December 2016, a valuation was conducted by an independent firm of professional advisers on the intellectual property rights
acquired for the purpose of including within these financial statements. The independent firm addressed the three levels of the IFRS
fair value hierarchy and concluded that level 3 was most appropriate as the intellectual property rights acquired had no active markets
(Level 1), or comparable assets against which to index prices (Level 2). Therefore, the report valued the intellectual property rights
acquired based on internally generated data (Level 3) being: costs incurred to date and cash flow projections. The report averaged
two valuation approaches, the replacement cost approach and the income approach using a discount factor of 42.5%, to arrive at a
final valuation of £262,474. This created an impairment of £48,026. On 2 February 2018, the valuation was again updated which lead
to a reduced valuation of £154,427. This created an additional impairment of £108,047.
The Directors performed an internal impairment assessment and consider the recoverable amount of the intellectual property rights
to be £nil (2018: £76,000) at 31 December 2019. This created an impairment charge of £76,000 for intellectual property rights and
£32,047 for the website during the current year.
Investment in associates
Investment in associates
Investment in associates
Investment in associates
The Business Lending Exchange (“BLX”)
Beer Swaps Limited (“BSL”)
Payitmonthly Ltd (“PIML”)
GroupGroupGroupGroup
2012012012019999
££££000000000000
166166166166
20202020
96969696
282282282282
Group
2018
£000
56
10
92
158
On December 2017, 40.0% of the share capital of BLX was acquired for nil consideration. The Group’s share of the associate’s total
comprehensive income during the year was £110,000 (2018: £18,000).
On April 2018, 20% of the share capital of BSL was acquired for nil consideration. The Group’s share of the associate’s total
comprehensive income during the year was £10,000 (2018: £10,000).
On August 2018, 30% of the share capital of PIML was acquired for £90,000 consideration. The Group’s resulting share of the
associates total comprehensive income during the year was £4,000 (2018: £2,000).
Page | 64
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2019
33. Related party transactions
33. Related party transactions
33. Related party transactions
33. Related party transactions
Cash deposits
Cash deposits
Cash deposits
Cash deposits
During the year, the Bank held cash on deposit on behalf of Jim Mellon (Executive Chairman of MFG) and companies related to Jim
Mellon and Denham Eke (Chief Executive Officer of MFG). Total deposits amounted to £446,366 (2018: £173,157), at normal
commercial interest rates in accordance with the standard rates offered by the Bank.
Staff and commercial loans
Staff and commercial loans
Staff and commercial loans
Staff and commercial loans
Details of staff loans are given in note 22.
Commercial loans have been made to various companies connected to Jim Mellon and Denham Eke on normal commercial terms.
As at 31 December 2019, £62,746 of capital and interest was outstanding (2018: £113,328).
Intercompany recharges
Intercompany recharges
Intercompany recharges
Intercompany recharges
Various intercompany recharges are made during the course of the year as a result of the Bank settling debts in other Group
companies. EAL provides services to the Group in arranging its insurance and defined contribution pension arrangements.
Loan advance to EA
Loan advance to EALLLL
Loan advance to EA
Loan advance to EA
On 14 December 2016, a loan advance was made to EAL by the Bank in order to provide the finance required to acquire MBL. The
advance was for £700,000 at an interest rate of 8% per annum repayable over 6 years. A negative pledge was given by EAL to not
encumber any property or assets or enter into an arrangement to borrow any further monies. The balance as at 31 December 2019
was £395,172 (2018: £508,000).
Loan advance to BLX
Loan advance to BLX
Loan advance to BLX
Loan advance to BLX
On 11 October 2017, a £4,000,000 loan facility was made available to BLX by the Bank in order to provide the finance required to
expand its operations. The facility is for 12 months, followed by a 3 year amortisation period. Interest is charged at commercial rates.
At 31 December 2019, £4,000,000 (2018: £2,520,000) had been advanced to BLX.
Loan advance to BSL
Loan advance to BSL
Loan advance to BSL
Loan advance to BSL
On 27 April 2018, a £1,000,000 loan facility was made available to BSL by the Bank in order to provide the finance required to expand
its leasing portfolio. On 10 October 2018, this facility was increased to £1,500,000. The facility is for 12 months. Interest is charged
at commercial rates. During the year, the facility was increased to £2,250,000. At 31 December 2019, £2,250,000 (2018: £1,099,000)
had been advanced to BSL.
Loan advance to PIML
Loan advance to PIML
Loan advance to PIML
Loan advance to PIML
On 24 May 2018, a £500,000 loan facility was made available to PIML by the Bank in order to provide the finance required to expand
its operations. The facility is for 12 months. Interest is charged at commercial rates. During the year, the facility was increased to
£1,500,000. At 31 December 2019, £1,424,000 (2018: £322,000) had been advanced to PIML.
Investments
Investments
Investments
Investments
The Bank holds less than 1% equity in the share capital of an investment of which Jim Mellon is a Shareholder (note 21). Denham
Eke acts as co-chairman.
Subordi
nated loans
Subordinated loans
nated loans
nated loans
Subordi
Subordi
The Company has advanced £7,450,000 (2018: £7,450,000) of subordinated loans to the Bank and £328,000 (2018: £328,000) to
EAL at 31 December 2019. See note 32 for more details.
Loan notes
Loan notes
Loan notes
Loan notes
See note 29 for a list of related party loan notes as at 31 December 2019 and 2018.
Key management remuneration including Executive Directors
Key management remuneration including Executive Directors
Key management remuneration including Executive Directors
Key management remuneration including Executive Directors
Short-term employee benefits
2012012012019999
££££000000000000
309309309309
2018
£000
297
Page | 65
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2019
34. Operating leases
34. Operating leases
34. Operating leases
34. Operating leases
Non-cancellable lease rentals are payable in respect of property and motor vehicles as follows:
Less than one year
Between one and five years
Over five years
35. Subsequent events
35. Subsequent events
35. Subsequent events
35. Subsequent events
2019
2019
20192019
Leasehold
Leasehold
Leasehold
Leasehold
Property
Property
Property
Property
££££000000000000
101101101101
----
----
101101101101
2018
Leasehold
Property
£000
214
790
162
1,166
Acquisition of subsidiary
Acquisition of subsidiary
Acquisition of subsidiary
Acquisition of subsidiary
On 28 February 2020, the Group announced that it has entered into an agreement to acquire (through its subsidiary, the Bank)
additional ordinary shares in BSL (see note 32) for a cash consideration of £506,824. The Bank’s shareholding in BSL will increase
to 75% (31 December 2019: 20%) on completion of the purchase. Further the Bank will simplify the capital structure of BSL by
repaying all issued preference shares, being £200,000, as part of the transaction plus repayment of Director loans of £100,000..
Loan notes
ote 29)
(see nnnnote 29)
Loan notes (see
ote 29)
ote 29)
(see
(see
Loan notes
Loan notes
The £1,250,000 loan note due to mature on 26 February 2020 and paying interest of 6.5% per annum has been renewed at an interest
rate of 5.4% and for a term of 5 years.
The £460,000 loan note due to mature on 26 February 2020 and paying interest of 6.5% per annum was renewed for a further 2
months with no change to other terms.
COVID
COVID----19191919
COVID
COVID
In late February 2020, the UK recorded its first case of the coronavirus “COVID-19”, which shortly spread to the IOM in the following
month. In an attempt to contain the outbreak, both the UK and Manx Governments, in line with action taken by other Governments
throughout the world, introduced a number of significant restrictions on businesses, human movement and social interactions,
including shutting down a wide range of economic sectors in which the Group has significant interest.
Both the UK and Manx Governments launched various financial support measures to provide vital liquidity and relief to both individuals
and businesses struggling to trade through this global economic crisis.
The Group is closely monitoring the coronavirus pandemic and its potential impacts on its business. The extent to which COVID-19
impacts the Group’s business will depend on future developments, which are highly uncertain and cannot be predicted, including new
information that may emerge on the severity of COVID-19 and the success of efforts to contain or treat COVID-19.
In line with the Financial Reporting Council’s joint statement on 26 March 2020, the Group does not consider COVID-19 to be an
adjusting event and as such any impacts are not reflected within this Annual Report.
The Group assessed the changes in the environment on its capital and liquidity positions and is comfortable that it can keep a solid
financial standing. Management will continue to monitor the developments and update its strategy and course of actions as necessary
in the circumstances.
OtherOtherOtherOther
There were no other significant subsequent events identified after 31 December 2019.
Page | 66
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2019
36. Financial risk management
36. Financial risk management
36. Financial risk management
36. Financial risk management
A. Introduction and overview
A. Introduction and overview
A. Introduction and overview
A. Introduction and overview
The Group has exposure to the following risks from financial instruments:
credit risk;
liquidity risk;
market risks; and
operational risks.
i. Risk management framework
i. Risk management framework
i. Risk management framework
i. Risk management framework
The Company’s Board have overall responsibility for the establishment and oversight of the Group’s risk management framework.
The Board of Directors have established the Group Audit, Risk and Compliance Committee (‘ARCC’), which is responsible for
approving and monitoring Group risk management policies. ARCC is assisted in its oversight role by Internal Audit. Internal Audit
undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the
ARCC.
The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk
limits and controls, and to monitor risks and adherence to limits. The risk management policies and systems are reviewed regularly
to reflect changes in market conditions and the Group’s activities. The Group, though its training and management standards and
procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and
obligations.
B.B.B.B. Credit risk
Credit risk
Credit risk
Credit risk
‘Credit risk’ is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual
obligations, and arises principally from the Group’s loans and advances to customers and investment debt securities. Credit risk
includes counterparty, concentration, underwriting and credit mitigation risks.
Management of credit risk
Management of credit risk
Management of credit risk
Management of credit risk
The Bank’s Board of Directors created the Credit Committee which is responsible for managing credit risk, including the following:
Formulating credit policies in consultation with business units, covering collateral requirements, credit assessments, risk
grading and reporting, documentary and legal procedures, and compliance with regulatory and statutory requirements.
Establishing the authorisation structure for the approval and renewal of credit facilities. Authorisation limits are allocated to
in line with credit policy.
Reviewing and assessing credit risk: The Credit Committee assesses all credit exposures in excess of designated limits,
before facilities are committed to customers. Renewals and reviews of facilities are subject to the same review process.
Management of credit risk (continued)
Management of credit risk (continued)
Management of credit risk (continued)
Management of credit risk (continued)
Limiting concentrations of exposures to counterparties, geographies and industries, by issuer, credit rating band, market
liquidity and country (for debt securities).
Developing and maintaining risk grading’s to categorise exposures according to the degree of risk of default. The current
risk grading consists of 3 grades reflecting varying degrees of risk of default.
Developing and maintaining the Group’s process for measuring ECL: This includes processes for:
o
o
o
initial approval, regular validation and back-testing of the models used;
determining and monitoring significant increase in credit risk; and
incorporation of forward-looking information.
Reviewing compliance with agreed exposure limits. Regular reports on the credit quality of portfolios are provided to the
Credit Committee which may require corrective action to be taken.
C. Liquidity risk
C. Liquidity risk
C. Liquidity risk
C. Liquidity risk
‘Liquidity risk’ is the risk that the Group will encounter difficulty in meeting obligations associated with its financial liabilities that are
settled by delivering cash or another financial asset. Liquidity risk arises from mismatches in the timing and amounts of cash flows,
which is inherent to the Group’s operations and investments.
Management of liquidity risk
Management of liquidity risk
Management of liquidity risk
Management of liquidity risk
The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have enough liquidity to meet its
liabilities when they are due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to
the Group’s reputation. The key elements of the Group’s liquidity strategy are as follows:
Funding base: offering six-months to five-year fixed term deposit structure with no early redemption option. This means the
Bank is not subject to optionality risk where customers redeem fixed rate products where there may be a better rate available
within the market;
Funding profile: the Bank has a matched funding profile and does not engage in maturity transformation which means that
on a cumulative mismatch position the Bank is forecast to be able to meet all liabilities as they fall due;
Page | 67
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2019
ent (continued)
36. Financial risk management (continued)
36. Financial risk managem
ent (continued)
ent (continued)
36. Financial risk managem
36. Financial risk managem
C. Liquidity risk (continued)
C. Liquidity risk (continued)
C. Liquidity risk (continued)
C. Liquidity risk (continued)
(continued)
Management of liquidity risk (continued)
Management of liquidity risk
(continued)
(continued)
Management of liquidity risk
Management of liquidity risk
Monitoring maturity mismatches, behavioural characteristics of the Group’s financial assets and financial liabilities, and the
extent to which the Group’s assets are encumbered and so not available as potential collateral for obtaining funding.
Liquidity buffer: the Bank maintains a liquidity buffer of 10.0% of its deposit liabilities, with strict short-term mismatch limits
of 0.0% for sight to three months and -5.0% for sight to six months. This ensures that the Bank is able to withstand any short-
term liquidity shock; and
Interbank market: the Bank has no exposure to the interbank lending market. The Bank has no reliance on liquidity via the
wholesale markets. In turn, if market conditions meant access to the wholesale funding was constrained as per the 2008
credit crisis, this would have no foreseeable effect on the Bank.
The Bank’s liquidity position is monitored daily against internal and external limits agreed with the FSA and according to the Bank’s
Liquidity Policy. The Bank also has a Liquidity Contingency Policy and Liquidity Contingency Committee in the event of a liquidity
crisis or potential liquidity disruption event occur.
The Treasury department receives information from other business units regarding the liquidity profile of their financial assets and
financial liabilities and details of other projected cash flows arising from projected future business. Treasury then maintains a portfolio
of short-term liquid assets, largely made up of short-term liquid investment securities, loans and advances to banks and other inter-
bank facilities, to ensure that sufficient liquidity is maintained within the Group as a whole.
Regular liquidity stress testing is conducted under a variety of scenarios covering both normal and more severe market conditions.
The scenarios are developed considering both Group-specific events and market-related events (e.g. prolonged market illiquidity).
D. Market risk
D. Market risk
D. Market risk
D. Market risk
‘Market risk’ is the risk that changes in market prices – e.g. interest rates, equity prices, foreign exchange rates and credit spreads
(not relating to changes in the obligor’s/issuer’s credit standing) will affect the Group’s income or value of its holdings of financial
instruments. The objective of the Group’s market risk management is to manage and control market risk exposures within acceptable
parameters to ensure the Group’s solvency while optimising the return on risk.
Management of market risks
Management of market risks
Management of market risks
Management of market risks
Overall authority for market risk is vested in the Assets and Liabilities Committee (“ALCO”) who sets up limits for each type of risk.
Group finance is responsible for the development of risk management policies (subject to review and approval by the ALCO) and for
the day-to-day review of their implementation.
Foreign exchange risk
Foreign exchange risk
Foreign exchange risk
Foreign exchange risk
The Bank is not subject to foreign exchange risks and its business is conducted in pounds sterling.
Equity risk
Equity risk
Equity risk
Equity risk
The Group has investment in associates of £282,000 (2018: £158,000) which are carried at cost adjusted for the Group’s share of net
asset value. The investment is audited annually and the Bank has access to these accounts. The Bank’s exposure to market risk is
not considered significant given the low carrying amount of the investment.
The Group’s investment in listed equities is not considered significant.
Interest rate risk
Interest rate risk
Interest rate risk
Interest rate risk
The principal potential interest rate risk that the Bank is exposed to is the risk that the fixed interest rate and term profile of its deposit
base differs materially from the fixed interest rate and term profile of its asset base, or basis and term structure risk.
Additional interest rate risk may arise for banks where (a) customers are able to react to market sensitivity and redeem fixed rate
products and (b) where a bank has taken out interest rate derivate hedges especially against longer term interest rate risk, where the
hedge moves against the bank.
Interest rate risk for the Bank is not deemed to be currently material due to the Bank’s matched funding profile. Any interest rate risk
assumed by the Bank will arise from a reduction in interest rates, in a rising environment due to the nature of the Bank’s products and
its matched funded profile. The Bank should be able to increase its lending rate to match any corresponding rise in its cost of funds,
notwithstanding its inability to vary rates on its existing loan book. The Bank attempts to efficiently match its deposit taking to its
funding requirements.
Page | 68
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2019
(continued)
36. Financial risk management (continued)
36. Financial risk management
(continued)
(continued)
36. Financial risk management
36. Financial risk management
E. Operational risk
E. Operational risk
E. Operational risk
E. Operational risk
‘Operational risk’ is the risk of direct or indirect loss arising from a wide variety of causes associated with the Group’s processes,
personnel, technology and infrastructure, and from external factors other than credit, market and liquidity risks – e.g. those arising
from legal and regulatory requirements and generally accepted standards of corporate behaviour. Operational risks arise from all of
the Group’s operations.
Management of operational risk
Management of operational risk
Management of operational risk
Management of operational risk
The Group’s objective is to manage operational risk so as to balance the avoidance of financial losses and damage to the Group’s
reputation with overall cost effectiveness and innovation. In all cases, Group policy requires compliance with all applicable legal and
regulatory requirements.
The Group has developed standards for the management of operational risk in the following areas:
requirements for appropriate segregation of duties, including the independent authorisation of transactions;
requirements for the reconciliation and monitoring of transactions;
business continuity planning;
compliance with regulatory and other legal requirements;
documentation of controls and procedures;
periodic assessment of operational risks faced, and the adequacy of controls and procedures to address the risks identified;
development of contingency plans;
requirements for the reporting of operational losses and proposed remedial action;
Management of operational risk (continued)
Management of operational risk (continued)
Management of operational risk (continued)
Management of operational risk (continued)
training and professional development;
ethical and business standards;
information technology and cyber risks; and
risk mitigation, including insurance where this is cost-effective.
Compliance with Group standards is supported by a programme of periodic reviews undertaken by Internal Audit. The results of
Internal Audit reviews are discussed with ARCC.
37. Basis of measurement
37. Basis of measurement
37. Basis of measurement
37. Basis of measurement
The financial statements are prepared on a historical cost basis, except for the following material items:
Items
Items
Items
Items
Measurement basis
Measurement basis
Measurement basis
Measurement basis
Financial instruments at fair value through profit and loss
(“FVTPL”)
Financial assets at fair value through other comprehensive income
(“FVOCI”)
Net defined benefit asset/liability
Fair value
Fair value
Fair value of plan assets less the present value of the
defined benefit obligation
Page | 69
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2019
38. Significant accounting policies
38. Significant accounting policies
38. Significant accounting policies
38. Significant accounting policies
Except for the changes explained in Note 5, the Group has consistently applied the following accounting policies to all periods
presented in these financial statements.
Set out below is an index of the significant accounting policies, the details of which are available on the pages that follow:
Ref.Ref.Ref.Ref.
Note description
Note description
Note description
Note description
A.
B.
C.
D.
E.
F.
G.
H.
I.
J.
K.
L.
M.
N.
O.
P.
Q.
Basis of consolidation of subsidiaries and separate financial statements of the Company
Interest in equity accounted investees
Interest
Fee and commission income
Leases
Income tax
Financial assets and financial liabilities
i. Recognition and initial measurement
ii. Classification
iii. Derecognition
iv. Modifications of financial assets and financial liabilities
v. Offsetting
vi. Fair value measurement
vii. Impairment
Cash and cash equivalents
Loans and advances
Property, plant and equipment
Intangibles assets and goodwill
Impairment of non-financial assets
Deposits, debt securities issued and subordinated liabilities
Employee benefits
i. Long-term employee benefits
ii. Share-based compensation
Share capital and reserves
Earnings per share (“EPS”)
Segmental reporting
No.No.No.No.
71
71
71
72
72
72
72
73
73
74
74
74
75
77
77
77
77
78
78
79
79
79
79
79
79
Page | 70
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2019
38. Significant accounting policies (continued)
38. Significant accounting policies (continued)
38. Significant accounting policies (continued)
38. Significant accounting policies (continued)
Company
A. Basis of consolidation of subsidiaries and separate financial statements of the Company
A. Basis of consolidation of subsidiaries and separate financial statements of the
Company
Company
A. Basis of consolidation of subsidiaries and separate financial statements of the
A. Basis of consolidation of subsidiaries and separate financial statements of the
i. Business combinations
i. Business combinations
i. Business combinations
i. Business combinations
The Group accounts for business combinations using the acquisition method when control is transferred to the Group. The
consideration transferred in the acquisition is generally measured at fair value, as are the identifiable net assets acquired. Any goodwill
that arises is tested annually for impairment. Any gain on a bargain purchase is recognised in profit or loss immediately. Transaction
costs are expensed as incurred, except if they are related to issue of debt or equity securities.
ii. Subsidiaries
ii. Subsidiaries
ii. Subsidiaries
ii. Subsidiaries
Subsidiaries are entities controlled by the Group. The Group controls an entity if it is exposed to, or has rights to, variable returns from
its involvement with the entity and has the ability to affect those returns through its power over the entity. The Group reassesses
whether it has control if there are changes to one or more of the elements of control. This includes circumstances in which protective
rights held (e.g. those resulting from a lending relationship) become substantive and lead to the Group having power over an investee.
The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control
commences until the date on which control ceases.
iii. Loss of con
trol
iii. Loss of control
trol
trol
iii. Loss of con
iii. Loss of con
When the Group loses control over a subsidiary, it derecognises the assets and liabilities of the subsidiary, and any related Non-
Controlling Interest (“NCI”) and other components of equity. Any resulting gain or loss is recognised in profit or loss. Any interest
retained in the former subsidiary is measured at fair value when control is lost.
iv. Transactions eliminated on consolidation
iv. Transactions eliminated on consolidation
iv. Transactions eliminated on consolidation
iv. Transactions eliminated on consolidation
Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated
in preparing the consolidated financial statements. Unrealised losses are eliminated in the same way as unrealised gains, but only to
the extent that there is no evidence of impairment.
v. Separate financial statements of the Company
v. Separate financial statements of the Company
v. Separate financial statements of the Company
v. Separate financial statements of the Company
In the separate financial statements of the Company, interests in subsidiaries, associates and joint ventures are accounted for at cost.
B. Interests in equity accounted investees
B. Interests in equity accounted investees
B. Interests in equity accounted investees
B. Interests in equity accounted investees
The Group’s interests in equity accounted investees may comprise interests in associates and joint ventures.
Associates are those entities in which the Group has significant influence, but not control or joint control, over the financial and
operating policies. A joint venture is an arrangement in which the Group has joint control, whereby the Group has rights to the net
assets of the arrangement, rather than rights to its assets and obligations for its liabilities.
Interests in associates and joint ventures are accounted for using the equity method. They are initially recognised at cost, which
includes transaction costs. Subsequent to initial recognition, the consolidated financial statements include the Group’s share of the
profit or loss and OCI of equity accounted investees, until the date on which significant influence or joint control ceases.
CCCC. Interest
. Interest
. Interest
. Interest
Interest income and expense are recognised in profit or loss using the effective interest rate method.
Effective interest rate
The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts of the financial instrument to
the net carrying amount of the financial asset or financial liability. The discount period is the expected life or, where appropriate, a
shorter period. The calculation includes all amounts receivable or payable by the Group that are an integral part of the overall return,
including origination fees, loan incentives, broker fees payable, estimated early repayment charges, balloon payments and all other
premiums and discounts. It also includes direct incremental transaction costs related to the acquisition or issue of the financial
instrument. The calculation does not consider future credit losses.
Page | 71
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2019
38. Significant accounting policies (continued)
38. Significant accounting policies (continued)
38. Significant accounting policies (continued)
38. Significant accounting policies (continued)
. Interest (continued)
CCCC. Interest (continued)
. Interest (continued)
. Interest (continued)
Effective interest rate (continued)
Once a financial asset or a group of similar financial assets has been written down as a result of impairment, subsequent interest
income continues to be recognised using the original effective interest rate applied to the reduced carrying value of the financial
instrument.
DDDD. Fee and commission income
. Fee and commission income
. Fee and commission income
. Fee and commission income
The Group generates fee and commission income through provision of independent financial advice, insurance brokerage agency,
introducer of foreign exchange services and commissions from brokering business finance for small and medium sized enterprises.
Independent financial advice
e agency
insurance brokerage agency
Independent financial advice andandandand insurance brokerag
e agency
e agency
insurance brokerag
insurance brokerag
Independent financial advice
Independent financial advice
Income represents commission arising on services and premiums relating to policies and other investment products committed during
the year, as well as renewal commissions having arisen on services and premiums relating to policies and other investment products
committed during the year and previous years and effective at the balance sheet date. Income is recognised on the date that policies
are submitted to product providers with an appropriate discount being applied for policies not completed. As a way to estimate what
is due at the year end, a “not proceeded with” rate of 10.0% for pipeline life insurance products and 0.0% for non-life insurance
pipeline is assumed. Renewal commissions are estimated by taking the historical amount written pro-rata to 3 months.
ther
OOOOther
ther
ther
Income other than that directly related to the loans is recognised over the period for which service has been provided or on completion
of an act to which the fee relates.
. Leases
EEEE. Leases
. Leases
. Leases
Leases in which the Group is a lessor
Leases in which the Group is a lessor
Leases in which the Group is a lessor
Leases in which the Group is a lessor
Finance leases and HP contracts
Finance leases and HP contracts
Finance leases and HP contracts
Finance leases and HP contracts
When assets are subject to a finance lease or HP contract, the present fair value of the lease payments is recognised as a receivable.
The difference between the gross receivable and the present value of the receivable is recognised as unearned finance income. HP
and lease income is recognised over the term of the contract or lease reflecting a constant periodic rate of return on the net investment
in the contract or lease. Initial direct costs, which may include commissions and legal fees directly attributable to negotiating and
arranging the contract or lease, are included in the measurement of the net investment of the contract or lease at inception.
Operating leases
Operating leases
Operating leases
Operating leases
Assets held for operating leases are presented on the Statement of Financial Position according to the nature of the asset. Lease
income is recognised over the lease term on a straight-line basis.
Leases in which the Group is a lessee
Leases in which the Group is a lessee
Leases in which the Group is a lessee
Leases in which the Group is a lessee
Operating leases
Operating leases
Operating leases
Operating leases
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating
leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement
on a straight-line basis over the period of the lease.
. Income tax
FFFF. Income tax
. Income tax
. Income tax
Current and def
erred taxation
Current and deferred taxation
erred taxation
erred taxation
Current and def
Current and def
Current taxation relates to the estimated corporation tax payable in the current financial year. Deferred taxation is provided in full,
using the liability method, on timing differences arising between the tax bases of assets and liabilities and their carrying amounts in
the consolidated financial statements. Deferred taxation is determined using tax rates (and laws) that have been enacted or
substantially enacted by the reporting date and are expected to apply when the related deferred tax is realised. Deferred taxation
assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences
can be utilised.
GGGG. Financial
financial liabilities
assets and financial liabilities
. Financial assets and
financial liabilities
financial liabilities
assets and
assets and
. Financial
. Financial
initial measurement
i. Recognition and initial measurement
i. Recognition and
initial measurement
initial measurement
i. Recognition and
i. Recognition and
The Group initially recognises loans and advances, deposits, debt securities issued and subordinated liabilities on the date on which
they are originated. All other financial instruments including regular-way purchases and sales of financial assets are recognised on
the trade date, which is the date on which the Group becomes party to the contractual provisions of the instrument.
A financial asset or financial liability is measured initially at fair value plus, for an item not at FVTPL, transaction costs that are directly
attributable to its acquisition or issue.
Page | 72
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2019
38. Significant accounting policies (continued)
38. Significant accounting policies (continued)
38. Significant accounting policies (continued)
38. Significant accounting policies (continued)
financial liabilities (continued)
assets and financial liabilities (continued)
. Financial assets and
GGGG. Financial
financial liabilities (continued)
financial liabilities (continued)
assets and
assets and
. Financial
. Financial
ii. Classification
ii. Classification
ii. Classification
ii. Classification
Financial assets
Financial assets
Financial assets
Financial assets
On initial recognition, a financial asset is classified as measured at amortised cost, FVOCI or FVTPL.
A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at FVTPL:
the asset is held within a business model whose objective is to hold assets to collect contractual cash flows; and
the contractual terms of the financial asset give rise on specified dates to cash flows that are SPPI.
A debt instrument is measured at FVOCI only if it meets both of the following conditions and is not designated as FVTPL:
the asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling
financial assets; and
the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal
and interest (“SPPI”).
On initial recognition of an equity investment that is not held for trading, the Group may irrevocably elect to present subsequent
changes in fair value in OCI. This election is made on an investment-by-investment basis.
All other financial assets are classified as measured at FVTPL.
In addition, on initial recognition, the Group may irrevocably designate a financial asset that otherwise meets the requirements to be
measured at amortised cost or at FVOCI as at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that
would otherwise arise.
Business model assessment
Business model assessment
Business model assessment
Business model assessment
The Group makes an assessment of the objective of a business model in which an asset is held at a portfolio level because this best
reflects the way the business is managed and information provided to management.
Assessment of whether contractual cash flows ar
e solely payments of principal and interest
Assessment of whether contractual cash flows are solely payments of principal and interest
e solely payments of principal and interest
e solely payments of principal and interest
Assessment of whether contractual cash flows ar
Assessment of whether contractual cash flows ar
For the purposes of this assessment, ‘principal’ is defined as the fair value of the financial asset on initial recognition. ‘Interest’ is
defined as consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a
particular period of time and for other basic lending risks and costs (e.g. liquidity risk and administrative costs), as well as profit margin.
In assessing whether the contractual cash flows are SPPI, the Group considers the contractual terms of the instrument. This includes
assessing whether the financial asset contains a contractual term that could change the timing or amount of contractual cash flows
such that it would not meet this condition.
Reclassifications
Reclassifications
Reclassifications
Reclassifications
Financial assets are not reclassified subsequent to their initial recognition, except in the period after the Group changes its business
model for managing financial assets.
Financial liabilities
Financial liabilities
Financial liabilities
Financial liabilities
The Group classifies its financial liabilities, other than financial guarantees and loan commitments, as measured at amortised cost.
iii. Derecognition
iii. Derecognition
iii. Derecognition
iii. Derecognition
Financial assets
Financial assets
Financial assets
Financial assets
The Group derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire, or when it
transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership
of the financial asset are transferred or in which the Group neither transfers nor retains substantially all of the risks and rewards of
ownership and it does not retain control of the financial asset.
On derecognition of a financial asset, the difference between the carrying amount of the asset (or the carrying amount allocated to
the portion of the asset derecognised) and the sum of (i) the consideration received (including any new asset obtained less any new
liability assumed) and (ii) any cumulative gain or loss that had been recognised in OCI is recognised in profit or loss.
Page | 73
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2019
38. Significant accounting policies (continued)
38. Significant accounting policies (continued)
38. Significant accounting policies (continued)
38. Significant accounting policies (continued)
GGGG. Financial
financial liabilities (continued)
assets and financial liabilities (continued)
. Financial assets and
financial liabilities (continued)
financial liabilities (continued)
assets and
assets and
. Financial
. Financial
iii. Derecognition (continued)
iii. Derecognition (continued)
iii. Derecognition (continued)
iii. Derecognition (continued)
Financial liabilities
Financial liabilities
Financial liabilities
Financial liabilities
The Group derecognises a financial liability when its contractual obligations are discharged or cancelled, or expire.
iv. Modifications
of financial assets and financial liabilities
iv. Modifications of financial assets and financial liabilities
of financial assets and financial liabilities
of financial assets and financial liabilities
iv. Modifications
iv. Modifications
Financial assets
Financial assets
Financial assets
Financial assets
If the terms of a financial asset are modified, then the Group evaluates whether the cash flows of the modified asset are substantially
different.
If the cash flows are substantially different, the contractual rights to cash flows from the original financial asset are deemed to have
expired. In this case, the original financial asset is derecognised and a new financial asset is recognised at fair value plus any eligible
transaction costs.
If the cash flows are modified when the borrower is in financial difficulties, then the objective of the modification is usually to maximise
recovery of the original contractual terms rather than to originate a new asset with substantially different terms. If the Group plans to
modify a financial asset in a way that would result in forgiveness of cash flows, then it first considers whether a portion of the asset
should be written off before the modification takes place. This approach impacts the result of the quantitative evaluation and means
that the derecognition criteria are not usually met in such cases.
If the modification of a financial asset measured at amortised cost or FVOCI does not result in derecognition of the financial asset,
then the Group first recalculates the gross carrying amount of the financial asset using the original effective interest rate of the asset
and recognises the resulting adjustment as a modification gain or loss in profit or loss. Any costs or fees incurred and fees received
as part of the modification adjust the gross carrying amount of the modified financial asset and are amortised over the remaining term
of the modified financial asset. If such modification is carried out because of financial difficulties of the borrower, then the gain or loss
is presented together with impairment losses. In other cases, it is presented as interest income calculated using the effective interest
rate method.
Financial liabilities
Financial liabilities
Financial liabilities
Financial liabilities
The Group derecognises a financial liability when its terms are modified and the cash flows of the modified liability are substantially
different. In this case, a new financial liability based on the modified terms is recognised at fair value. The difference between the
carrying amount of the financial liability derecognised and consideration paid is recognised in profit or loss. Consideration paid
includes non-financial assets transferred, if any, and the assumption of liabilities, including the new modified financial liability.
If the modification of a financial liability is not accounted for as derecognition, then the amortised cost of the liability is recalculated by
discounting the modified cash flows at the original effective interest rate and the resulting gain or losses recognised in profit or loss.
Any costs and fee incurred are recognised as an adjustment of the carrying amount of the liability and amortised over the remaining
term of the modified financial liability by re-computing the effective interest rate on the instrument.
v. Offsetting
v. Offsetting
v. Offsetting
v. Offsetting
Financial assets and financial liabilities are offset and the net amount presented in the statement of financial position when, and only
when, the Group currently has a legally enforceable right to set off the amounts and it intends either to settle them on a net basis or
to realise the asset and settle the liability simultaneously.
Income and expenses are presented on a net basis only when permitted under IFRS, or for gains and losses arising from a group of
similar transactions such as in the Group’s trading activity.
vi. Fair value measurement
vi. Fair value measurement
vi. Fair value measurement
vi. Fair value measurement
‘Fair value’ is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date in the principal or, in its absence, the most advantageous market to which the Group has access
at the date. The fair value of a liability reflects its non-performance risk.
The Group recognises transfers between levels of the fair value hierarchy as of the end of the reporting period during which the
change has occurred.
The Group measures fair values using the following fair value hierarchy, which reflects the significance of the inputs used in making
the measurements:
Level 1: inputs that are quoted market prices (unadjusted) in active markets for identical instruments;
Page | 74
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2019
38. Significant accounting policies (continued)
38. Significant accounting policies (continued)
38. Significant accounting policies (continued)
38. Significant accounting policies (continued)
financial liabilities (continued)
assets and financial liabilities (continued)
ial assets and
. Financial
GGGG. Financ
financial liabilities (continued)
financial liabilities (continued)
assets and
assets and
ial
ial
. Financ
. Financ
vi. Fair value measurement (continued)
vi. Fair value measurement (continued)
vi. Fair value measurement (continued)
vi. Fair value measurement (continued)
Level 2: inputs other than quoted prices included within Level 1 that are observable either directly (i.e. as prices) or indirectly (i.e.
derived from prices). This category includes instruments valued using: quoted market prices in active markets for similar
instruments; quoted prices for identical or similar instruments in markets that are considered less than active; or other valuation
techniques in which all significant inputs are directly or indirectly observable from market data; and
Level 3: inputs that are unobservable. This category includes all instruments for which the valuation technique includes inputs not
based on observable data and the unobservable inputs have a significant effect on the instrument’s valuation. This category
includes instruments that are valued based on quoted prices for similar instruments for which significant unobservable adjustments
or assumptions are required to reflect differences between the instruments.
The fair values of financial assets and financial liabilities that are traded in active markets are based on quoted market prices or dealer
price quotations. For all other financial instruments, the Group determines fair values using other valuation techniques.
For financial instruments that trade infrequently and have little price transparency, fair value is less objective, and requires varying
degrees of judgement depending on liquidity, concentration, uncertainty of market factors, pricing assumptions and other risks
affecting the specific instrument.
vii. Impairment
vii. Impairment
vii. Impairment
vii. Impairment
A financial instrument that is not credit-impaired on initial recognition is classified in ‘Stage 1’ and has its credit risk continuously monitored by
the Group.
If a significant increase in credit risk (“SICR”) since initial recognition is identified, the financial instrument is moved to ‘Stage 2’ but is not yet
deemed to be credit-impaired.
An SICR is always deemed to occur when the borrower is 30 days past due on its contractual payments. If the Group becomes
aware ahead of this time of non-compliance or financial difficulties of the borrower, such as loss of employment, avoiding contact
with the Group then an SICR has also deemed to occur; and
A receivable is always deemed to be in default and credit-impaired when the borrower is 90 days past due on its contractual
payments or earlier if the Group becomes aware of severe financial difficulties such as bankruptcy, IVA, abscond or disappearance,
fraudulent activity and other similar events.
If the financial instrument is credit-impaired, the financial instrument is then moved to ‘Stage 3’. Financial instruments in Stage 3 have their
Expected Credit Loss (“ECL”) measured based on expected credit losses on an undiscounted lifetime basis.
The Group measures loss allowances at an amount equal to lifetime ECL, except for debt investment securities that are determined to have
low credit risk at the reporting date for which they are measured as a 12-month ECL. Loss allowances for lease receivables are always
measured at an amount equal to lifetime ECL.
12-month ECL are the portion of ECL that result from default events on a financial instrument that are possible within the 12 months after the
reporting date. Financial instruments for which a 12-month ECL is recognised are referred to as ‘Stage 1 financial instruments’.
Life-time ECL are the ECL that result from all possible default events over the expected life of a financial instrument. Financial instruments for
which a lifetime ECL is recognised but which are not credit-impaired are referred to as ‘Stage 2 financial instruments’.
Measurement of ECL
Measurement of ECL
Measurement of ECL
Measurement of ECL
After a detailed review, the Group devised and implemented an impairment methodology in light of the IFRS 9 requirements outlined
above noting the following:
The ECL was derived by reviewing the Group’s loss rate and loss given default over the past 8 years by product and geographical
segment;
The Group has assumed that the future economic conditions will broadly mirror the current environment and therefore the forecasted
loss levels in the next 3 years will match the Group’s experience in recent years;
For portfolios where the Group has never had a default in its history or has robust credit enhancements such as credit insurance or
default indemnities for the entire portfolio, then no IFRS 9 provision is made. At 2019 year-end, 37.9% had such credit enhancements
(2018: 41.7%); and
If the Group holds objective evidence through specifically assessing a credit-impaired receivable and believes it will go on to
completely recover the debt due to the collateral held and cooperation with the borrower, then no IFRS 9 provision is made.
Page | 75
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2019
(continued)
38. Significant accounting policies (continued)
38. Significant accounting policies
(continued)
(continued)
38. Significant accounting policies
38. Significant accounting policies
GGGG. Financial
financial liabilities (continued)
assets and financial liabilities (continued)
. Financial assets and
financial liabilities (continued)
financial liabilities (continued)
assets and
assets and
. Financial
. Financial
vii. Impairment (continued)
vii. Impairment (continued)
vii. Impairment (continued)
vii. Impairment (continued)
Measurement of ECL (continued)
Measurement of ECL (continued)
Measurement of ECL (continued)
Measurement of ECL (continued)
ECL are probability-weighted estimates of credit losses. They are measured as follows:
financial assets that are not credit-impaired at the reporting date: as the present value of all cash shortfalls (i.e. the difference between
the cash flows due to the entity in accordance with the contract and the cash flows that the Group expects to receive);
financial assets that are credit-impaired at the reporting date: as the difference between the gross carrying amount and the present
value of estimated future cash flows; and
undrawn loan commitments: as the present value of the difference between the contractual cash flows that are due to the Group if
the commitment is drawn down and the cash flows that the Group expects to receive.
Credit
impaired financial assets
Credit----impaired financial assets
impaired financial assets
impaired financial assets
Credit
Credit
At each reporting date, the Group assesses whether financial assets carried at amortised cost and debt financial assets carried at
FVOCI, and finance lease receivables are credit-impaired (referred to as ‘Stage 3 financial assets’). A financial asset is ‘credit-
impaired’ when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have
occurred.
Evidence that a financial asset is credit-impaired includes the following observable date:
significant financial difficulty of the borrower or issuer;
a breach of contract such as a default or past due event;
the restructuring of a loan or advance by the Group on terms that the Group would not consider otherwise;
it is becoming probable that the borrower will enter bankruptcy or other financial reorganisation; or
the disappearance of an active market for a security because of financial difficulties.
A loan that has been renegotiated due to a deterioration in the borrower’s condition is usually considered to be credit-impaired unless
there is evidence that the risk of not receiving contractual cash flows has reduced significantly and there are no other indicators of
impairment. In addition, a retail loan that is overdue for 90 days or more is considered credit-impaired even when the regulatory
definition of default is different.
In making an assessment of whether an investment in sovereign debt is credit impaired, the Group considers the following factors:
the market’s assessment of creditworthiness as reflected in the bond yields;
the rating agencies’ assessments of creditworthiness;
the country’s ability to access the capital markets for new debt issuance;
the probability of debt being restructured, resulting in holders suffering losses through voluntary or mandatory debt
forgiveness; and
The international support mechanisms in place to provide the necessary support as ‘lender of last resort’ to that country, as
well as the intention, reflected in public statements, of governments and agencies to use those mechanisms. This includes
an assessment of the depth of those mechanisms and, irrespective of the political intent, whether there is the capacity to
fulfil the required criteria.
Presentation of allowance for ECL
in the statement of financial position
Presentation of allowance for ECL in the statement of financial position
in the statement of financial position
in the statement of financial position
Presentation of allowance for ECL
Presentation of allowance for ECL
Loss allowances for ECL are presented in the statement of financial position as follows:
financial assets measured at amortised cost: as a deduction from the gross carrying amount of the assets;
loan commitments: generally, as a provision; and
debt instruments measured at FVOCI: no loss allowance is recognised in the statement of financial position because the
carrying amount of these assets is their fair value. However, the loss allowance is disclosed and is recognised in the fair
value reserve.
WriteWriteWriteWrite----offoffoffoff
Loans and debt securities are written off (either partially or in full) when there is no reasonable expectation of recovering a financial
asset in its entirety or a portion thereof. This is generally the case when the Group determines that the borrower does not have assets
or sources of income that could generate sufficient cash flows to repay the amounts subject to the write-off. This assessment is carried
out at the individual asset level.
Recoveries of amounts previously written off are included in ‘impairment losses on financial instruments’ in the statement of profit or
loss and OCI.
Financial assets that are written off could still be subject to enforcement activities in order to comply with the Group’s procedures for
recovery of amounts due.
Page | 76
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2019
38. Significant accounting policies (continued)
38. Significant accounting policies (continued)
38. Significant accounting policies (continued)
38. Significant accounting policies (continued)
HHHH. Cash and cash equivalents
. Cash and cash equivalents
. Cash and cash equivalents
. Cash and cash equivalents
For the purpose of the statement of cash flows, cash and cash equivalents comprise cash and deposit balances with an original
maturity date of three months or less.
IIII. Loans and advances
. Loans and advances
. Loans and advances
. Loans and advances
Loans and advances’ captions in the statement of financial position include:
loans and advances measured at amortised cost (see 38 (I)). They are initially measured at fair value plus incremental direct
transaction costs, and subsequently at their amortised cost using the effective interest method; and
finance lease receivables (see 38 (G)).
JJJJ. Property, plant and equipment
. Property, plant and equipment
. Property, plant and equipment
. Property, plant and equipment
Items of property, plant and equipment are stated at historical cost less accumulated depreciation (see below). Historical cost includes
expenditure that is directly attributable to the acquisition of the items.
The assets’ residual values and useful economic lives are reviewed, and adjusted if appropriate, at each reporting date. An asset’s
carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated
recoverable amount.
When parts of an item of property, plant and equipment have different useful lives, those components are accounted for as separate
items of property, plant and equipment.
Depreciation and amortisation
Depreciation and amortisation
Depreciation and amortisation
Depreciation and amortisation
Assets are depreciated or amortised on a straight-line basis, so as to write off the book value over their estimated useful lives. The
useful lives of property, plant and equipment and intangibles are as follows:
Property, plant and equipment
Leasehold improvements
IT equipment
Motor vehicles
Furniture and equipment
to expiration of the lease
4-5 years
2.5 years
4 -10 years
KKKK. Intangible assets and goodwill
. Intangible assets and goodwill
. Intangible assets and goodwill
. Intangible assets and goodwill
i. Goodwill
i. Goodwill
i. Goodwill
i. Goodwill
Goodwill that arises on the acquisition of subsidiaries is measured at cost less accumulated impairment losses.
ii. Software
ii. Software
ii. Software
ii. Software
Software acquired by the Group is measured at cost less accumulated amortisation and any accumulated impairment losses.
Expenditure on internally developed software is recognised as an asset when the Group is able to demonstrate: that the product is
technically feasible, its intention and ability to complete the development and use the software in a manner that will generate future
economic benefits, and that it can reliably measure the costs to complete the development. The capitalised costs of internally
developed software include all costs directly attributable to developing the software and capitalised borrowing costs, and are
amortised over its useful life. Internally developed software is stated at capitalised cost less accumulated amortisation and any
accumulated impairment losses.
Software is amortised on a straight-line basis in profit or loss over its estimated useful life, from the date on which it is available for
use. Amortisation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.
iii. Other
iii. Other
iii. Other
iii. Other
Intangible assets that are acquired by an entity and having finite useful lives are measured at cost less accumulated amortisation and
any accumulated impairment losses.
Intangible assets acquired as part of a business combination, with an indefinite useful live are measured at fair value. Intangible
assets with indefinite useful lives are not amortised but instead are subject to impairment testing at least annually.
Page | 77
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2019
Significant accounting policies (continued)
38.38.38.38. Significant accounting policies (continued)
Significant accounting policies (continued)
Significant accounting policies (continued)
. Intangible assets and goodwill (continued)
KKKK. Intangible assets and goodwill (continued)
. Intangible assets and goodwill (continued)
. Intangible assets and goodwill (continued)
iii. Other (continued)
iii. Other (continued)
iii. Other (continued)
iii. Other (continued)
The useful lives of intangibles are as follows:
Customer contracts and lists
Business intellectual property rights
Website development costs
Software
to expiration of the agreement
4 years - indefinite
indefinite
5 years
LLLL. Impairment of non
financial assets
. Impairment of non----financial assets
financial assets
financial assets
. Impairment of non
. Impairment of non
At each reporting date, the Group reviews the carrying amounts of its non-financial assets (other than deferred tax assets) to
determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated.
Goodwill is tested annually for impairment.
For impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing
use that is largely independent of the cash inflows of other assets or Cash Generating Units (“CGUs”). Goodwill arising from a
business combination is allocated to CGUs or groups of CGUs that are expected to benefit from the synergies of the combination.
The ‘recoverable amount’ of an asset or CGU is the greater of its value in use and its fair value less cost to sell. ‘Value in use’ is based
on the estimated future cash flows, discounted to their present value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset or CGU.
An impairment loss is recognised if the carrying amount of an asset or CGU exceeds its recoverable amount.
The Group’s corporate assets do not generate separate cash inflows and are used by more than one CGU. Corporate assets are
allocated to CGUs on a reasonable and consistent basis and tested for impairment as part of the testing of the CGUs to which the
corporate assets are located.
Impairment losses are recognised in profit or loss. They are allocated first to reduce the carrying amount of any goodwill allocated to
the CGU, and then to reduce the carrying amounts of the other assets in the CGU on a pro rata basis.
An impairment loss in respect of goodwill is not reversed. For other assets, an impairment loss is reversed only to the extent that the
asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation,
if no impairment loss had been recognised.
MMMM. Deposits, debt securities issued and subordinated liabilities
. Deposits, debt securities issued and subordinated liabilities
. Deposits, debt securities issued and subordinated liabilities
. Deposits, debt securities issued and subordinated liabilities
Deposits, debt securities issued and subordinated liabilities are the Group’s sources of debt funding.
The Group classifies capital instruments as financial liabilities or equity instruments in accordance with the substance of the
contractual terms of the instruments.
Deposits, debt securities issued and subordinated liabilities are initially measured at fair value minus incremental direct transaction
costs, and subsequently measured at their amortised cost using the effective interest method.
Page | 78
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2019
nt accounting policies (continued)
38. Significant accounting policies (continued)
38. Significa
nt accounting policies (continued)
nt accounting policies (continued)
38. Significa
38. Significa
NNNN. Employee benefits
. Employee benefits
. Employee benefits
. Employee benefits
i. Long term employee benefits
i. Long term employee benefits
i. Long term employee benefits
i. Long term employee benefits
Pension obligations
Pension obligations
Pension obligations
Pension obligations
The Group has pension obligations arising from both defined benefit and defined contribution pension plans.
A defined contribution pension plan is one under which the Group pays fixed contributions into a separate fund and has no legal or
constructive obligations to pay further contributions. Defined benefit pension plans define an amount of pension benefit that an
employee will receive on retirement, usually dependent on one or more factors such as age, years of service and remuneration.
Under the defined benefit pension plan, in accordance with IAS 19 Employee benefits, the full service cost for the period, adjusted for
any changes to the plan, is charged to the income statement. A charge equal to the expected increase in the present value of the
plan liabilities, as a result of the plan liabilities being one year closer to settlement, and a credit reflecting the long-term expected
return on assets based on the market value of the scheme assets at the beginning of the period, is included in the income statement.
The statement of financial position records as an asset or liability as appropriate, the difference between the market value of the plan
assets and the present value of the accrued plan liabilities. The difference between the expected return on assets and that achieved
in the period, is recognised in the income statement in the year in which they arise. The defined benefit pension plan obligation is
calculated by independent actuaries using the projected unit credit method and a discount rate based on the yield on high quality
rated corporate bonds.
The Group’s defined contribution pension obligations arise from contributions paid to a Group personal pension plan, an ex gratia
pension plan, employee personal pension plans and employee co-operative insurance plans. For these pension plans, the amounts
charged to the income statement represent the contributions payable during the year.
ii. Share
based compensation
ii. Share----based compensation
based compensation
based compensation
ii. Share
ii. Share
The Group maintains a share option programme which allows certain Group employees to acquire shares of the Group. The change
in the fair value of options granted is recognised as an employee expense with a corresponding change in equity. The fair value of
the options is measured at grant date and spread over the period during which the employees become unconditionally entitled to the
options.
At each reporting date, the Group revises its estimate of the number of options that are expected to vest and recognises the impact
of the revision to original estimates, if any, in the income statement, with a corresponding adjustment to equity.
The fair value is estimated using a proprietary binomial probability model. The proceeds received, net of any directly attributable
transaction costs, are credited to share capital (nominal value) and share premium when the options are exercised.
. Share capital and reserves
OOOO. Share capital and reserves
. Share capital and reserves
. Share capital and reserves
Share issue costs
Share issue costs
Share issue costs
Share issue costs
Incremental costs that are directly attributable to the issue of an equity instrument are deducted from the initial measurement of the
equity instruments.
(“EPS”)
. Earnings per share (“EPS”)
PPPP. Earnings per share
(“EPS”)
(“EPS”)
. Earnings per share
. Earnings per share
The Group presents basic and diluted EPS data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss that is
attributable to ordinary shareholders of MFG by the weighted-average number of ordinary shares outstanding during the period.
Diluted EPS is determined by adjusting profit or loss that is attributable to ordinary shareholders and the weighted-average number
of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, which comprise share options granted
employees.
QQQQ. Segmental reporting
. Segmental reporting
. Segmental reporting
. Segmental reporting
A segment is a distinguishable component of the Group that is engaged either in providing products or services (business segment),
or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and
rewards that are different from those of other segments. The Group’s primary format for segmental reporting is based on business
segments.
Page | 79
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2019
tinued)
38. Significant accounting policies (continued)
38. Significant accounting policies (con
tinued)
tinued)
38. Significant accounting policies (con
38. Significant accounting policies (con
QQQQ. Segmental reporting (continued)
. Segmental reporting (continued)
. Segmental reporting (continued)
. Segmental reporting (continued)
An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur
expenses, including revenues and expenses relating to transactions with any of the Group’s other components, whose operating
results are regularly reviewed by the Group’s chief operating decision maker (“CODM”) to make decisions about resources to be
allocated to the segment and assess its performance, and for which discrete financial information is available.
Segment results reported to the Group’s CEO (being the CODM) include items that are directly attributable to a segment as well as
those that can be allocated on a reasonable basis.
39. Standards issued but not yet
effective
39. Standards issued but not yet effective
effective
effective
39. Standards issued but not yet
39. Standards issued but not yet
A number of new standards are effective for annual periods beginning after 1 January 2020 and earlier application is permitted;
however, the Group has not early adopted the new or amended standards in preparing these consolidated financial statements.
Standards
Standards
Standards
Standards
Amendments to IFRS 9, IAS 39 and IFRS 7: Interest Rate Benchmark Reform (issued on 26 September
2019)
Amendments to IAS 1 and IAS 8: Definition of Material (issued on 31 October 2018)
Amendments to References to the Conceptual Framework in IFRS Standards (issued on 29 March 2018)
Effective date
Effective date
Effective date
Effective date
(accounting periods
commencing on or
after)
1 January 2020
1 January 2020
1 January 2020
Page | 80
ANNUAL FINANCIAL STATEMENTS
SHAREHOLDER NOTES
Page | 81
Clarendon House
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Douglas
Isle of Man
IM1 2LN
Tel: (01624) 694694
Fax: (01624) 624278
www.mfg.im
www.mfg.im
www.mfg.im
www.mfg.im