Banking for the real world. 20
21
Annual Report
& Accounts
A
Strategic ReportCorporate GovernanceRisk ReportFinancial Statements Our platform in numbers
Deep expertise in a
broad range of carefully
selected markets which
allows us to continue to
deliver strong growth
26%1
Annual loan book
growth at £8.6 billion
(2020: £7.1 billion)
40.8%2
Cost to income ratio
(2020: 53.6%)
40 bps
Cost of risk
(2020: 80 bps)
Combining technology
and data with human
talent and judgement
£197.2
million
Profit before tax
(2020: £73.5 million)
Continued profitability
through growing and
engaged customer base
c.350k
Customers served
4.6/5
Trustpilot score
20.1%
Return on tangible
equity
(2020:8.0%)
6.0%
Gross asset yield
(2020: 5.8%)
93 bps
Stock cost
of retail deposits
(2020: 121 bps)
12.7%
CET1 capital ratio
(2020: 12.6%)
16.2%
Total capital ratio
(2020: 16.8%)
Track record of
superior returns
Conservative capital
management
Skilled and
experienced colleagues
working towards an
ambitious vision
80%
Employee engagement
score
1 When adjusted to add back in the structured asset sale completed in September 2021 of The Mortgage Lender Limited (TML)
buy-to-let loans, which had a carrying amount at the point of derecognition of £342.6 million.
2 When adjusted for movement in other provisions, cost to income ratio is 42.6% (2020: 46.5%).
Contents
Strategic Report
1
About Shawbrook
6
8
10
14
28
Chairman’s statement
Chief Executive Officer’s statement
Financial review
Business reviews
Environmental, Social and Governance (ESG)
Report
Corporate Governance Report
Chairman’s introduction
50
52
54
58
68
74
79
87
90
Board of Directors
Creating value for our stakeholders
Corporate Governance Report
Audit Committee Report
Risk Committee Report
Directors’ Remuneration Report
Nomination and Governance Committee Report
Directors’ Report
Risk Report
94
Approach to risk management
97
101
112
Risk governance and oversight
Top and emerging risks
Principal risks
156 Capital risk and management
163
ICAAP, ILAAP and stress testing
163 Recovery Plan and Resolution Pack
164 Group viability statement
Financial Statements
166
Independent Auditor’s Report
175 Consolidated statement of profit and loss
and other comprehensive income
176 Consolidated and Company statement
of financial position
177 Consolidated statement of changes in equity
178 Company statement of changes in equity
179 Consolidated and Company statement
of cash flows
180 Notes to the financial statements
Other information
248 Abbreviations
249 Performance indicators
250 Country-by-country reporting
shawbrook.co.uk
twitter.com/shawbrookbank
twitter.com/shawbrookbroker
linkedin.com/company/shawbrook-bank
About Shawbrook
Banking for the real world
In the wake of significant societal and economic shifts,
the need to understand the unique realities of people
and businesses to deliver practical solutions at speed
is rapidly becoming the new normal: as the fabric of
our world changes, the notion of ‘standard’ is vanishing.
Over the last decade we have built a new type of
bank that is designed to accommodate individuality,
diversity and the dynamics of the modern world.
Our ability to provide highly personalised finance
solutions to help our customers achieve their immediate
ambitions is enabled by our unique platform, which
combines and integrates modular technology with
human expertise, judgment and ingenuity.
Unencumbered by legacy infrastructure, we are able
to move swiftly into carefully chosen markets where we
can best deliver highly valued, differentiated products
and services - with precision and at scale.
Operating in multiple segments and with an active and
highly engaged customer base, we are well positioned to
meet the evolving needs of people and businesses in the
face of societal and economic shifts – from the future of
housing to the green and self-employed economies.
To meet the scale of our potential, we will continue to
deliver on our purpose: to power up ingenuity to create
opportunity, every single day.
1
Shawbrook Group plc | Annual Report and Accounts 2021
Strategic Report
Corporate Governance
Risk Report
Financial Statements
The best-of-both
Shawbrook is the “best-of-both”: uniquely combining the agility and customer service of a FinTech
with human expertise and ingenuity to deliver market-leading profitability.
Driven by a strong sense of purpose, we have a relentless focus on delivering maximum value to our customers. Our
efficient and highly scalable model allows us to continuously expand our customer reach and to deliver individualised
customer experiences. Our differentiated proposition, alongside our established and scalable multi-channel
origination and distribution model, results in proven, strong and sustainable profitability.
s
e
s
s
e
FinTech B u sin
Relentless focus on customer
service and user experience,
driving growth
Efficient,
highly scalable,
cloud-based
technology platform
Agile and
innovative culture
UK S
p
e
cia
li
s
t
L
e
n
d
e
r
s
Differentiated lending
expertise in
niche segments
Highly attractive growth
and leading profitability
Low-cost delivery
Trustpilot
score
Growth
4.4 1
40%+ 3
4.6 2
37% 4
3.5 1
10% 5
Profitability
Not yet profitable
20.1% RoTE 6
c.17% RoTE 7
Differentiated customer
proposition with a
focus on improving user
experience at all stages
of the relationship
Multi-channel
distribution with strong
relationships and
partnerships with leading
FinTech brands
Scalable FinTech
lending and savings
platform with end-to-end
digital capabilities
Highly profitable
banking franchise that
is deep and broad
across our chosen
lending markets
1 The average Trustpilot score for a selection of lending focused FinTech businesses and UK specialist lenders as at January 2022.
2 As at January 2022 for Shawbrook Bank Limited.
3 Represents year-on-year growth for selected lending focused FinTech businesses as at their respective latest reported
historical financial period.
4 Net operating income increase for the Group from FY 2020 to FY 2021.
5 Represents year-on-year growth for a selection of UK based specialist lenders as at their respective latest reported
historical financial period.
6 Return on tangible equity for the year ended 31 December 2021.
7 Represents the median return on tangible equity for a selection of UK based specialist lenders as at their respective latest
reported historical financial period.
2
About Shawbrook
Our business model: next generation banking platform
We have a proven and scalable business model providing many avenues for growth through
a diverse product portfolio and multi-channel distribution.
Our diverse banking platform leverages deep data-
driven customer insight and understanding to efficiently
acquire, manage and retain both assets and liabilities
at scale through three customer franchises.
To meet the needs of our defined customer segments,
we deploy an ever-evolving suite of products through
our distribution model, including both offline and
digital as well as direct and indirect channels. This
multi-channel approach to origination enables the
efficient delivery of bespoke services to our expanding
customer base.
Pricing, underwriting, product configuration and
portfolio management are enabled through the smart
use of data analytics, automated where appropriate
and augmented with expert human judgment
when necessary. Alongside significant investment in
technology and data infrastructure, our people and
culture remain at the heart of our model. The ingenuity
of our teams drives innovation and growth, and we
are focused on attracting, developing and retaining
top talent, as we continuously work to improve the
customer journey throughout the entire lifecycle.
Our business model offers diverse revenue opportunities,
including interest income from balance sheet lending
as well as non-interest income from structured asset
sales, marketplace and asset management, whilst also
providing a significant competitive advantage through
our stable and diversified funding base.
3
Shawbrook Group plc | Annual Report and Accounts 2021
Strategic Report
Corporate Governance
Risk Report
Financial Statements
Our key differentiators
Deep expertise in a broad range of carefully
selected markets which allows us to continue
to deliver strong growth
We operate across multiple product verticals, and through
our ability to respond to constantly evolving customer needs
and to provide highly-personalised and valued financial
products we expect to further expand our growth potential
across all our current and future markets.
26%1
Loan book growth
Continued profitability through a growing
and engaged customer base
We served c.350k customers in 2021, with an average LTV /
CAC of >8x and a Trustpilot score of 4.6 out of 5, in-line with
many FinTechs and reflecting our customer-centric approach.
£197.2
million
Profit before tax
350k
Customers
served
4.6/5
TrustPilot score
Conservative capital management
We have a robust capital management strategy,
demonstrated by our strong capital ratios which remain
comfortably above regulatory minimum requirements.
12.7%
CET1 capital
ratio
16.2%
Total capital ratio
Combining technology and data with human talent
and judgement
We have a platform which is highly flexible meaning that we can
scale and enter new markets quickly. Our automated processes
are supported by partnerships with over 30 FinTech and data
providers and we continue to leverage our human expertise to
deliver a frictionless customer experience and attractively price
risk. We have more than 40 years of proprietary data across a
number of asset classes.
40.8%2
40bps
Cost to income ratio
Cost of risk
Track record of superior returns
Shawbrook has a long and established track record of
strong profitability, driven by proven scalability and robust
risk management which is supported by a diverse and
stable funding base.
20.1%
6.0%
93 bps
RoTE
Gross asset yield
Stock cost of deposits
Skilled and experienced colleagues working towards
an ambitious vision
We are powered by a talented workforce, driven by our
purpose and ambition to further extend the Shawbrook vision
of creating a truly customer-centric platform built to deliver
banking for the real world.
80%
Employee engagement score
1 When adjusted to add back in the structured asset sale completed in September 2021 of TML buy-to-let loans,
which had a carrying amount at the point of derecognition of £342.6 million.
2 When adjusted for movement in other provisions, cost to income ratio is 42.6% (2020: 46.5%)
4
Our business model: next generation banking platform
Powering up ingenuity to create opportunity, every single day
Customer
Franchises
Diversified
Product Offering
■ Flexible
business model
■ Selectively participate
along value chain
■ Focused on
optimising returns
■ Test and learn
approach
■ Rich data and
analytics capability
informing decisions
on what to offer
and how
■ Competitive funding
advantage through
low cost, stable
deposit base
Megatrends
Driving growth
across markets
Enterprise Franchise
Consumer Franchise
TML
Property
Finance
Business
Finance
Consumer
Lending
Savings
TML
c.350k Customers Served in 2021
4.6
Trustpilot Score 1
70% Repeat Lending 2
■ Bridging Finance
■ Asset Finance
■ Unsecured Personal Loans
■ Personal Savings
■ Flexible Residential Mortgages
■ Buy-to-let
■ Corporate Lending
■ Partner Finance
■ Business Savings
■ Buy-to-let
■ Commercial Investment
■ Structured Finance
■ Digital Second Charge
■ Residential Second Charge
■ Development Finance
Origination
Multi-Channel Distribution,
Leveraging Digital
Core Capabilities
Using Technology Intelligently to Enhance Human Judgement.
Automating Where it Makes Sense
Direct Digital
Ecosystem
of FinTech
Partners
Partners
(Forward flow,
embedded
finance)
Intermediaries
(Brokers, digital
platforms)
> 2,000 Broker
partners
M&A
(Loan portfolios,
businesses)
Market Expertise
A
n
a
l
y
t
i
c
s
ata
D
Attractively Pricing Risk
Customer Service and
Digital Systems
Flexible Cloud Platform
Efficient Automation
Marketplace
Huma n
Stable Funding Base With a Conservative Approach to Capital Management
Shifting Housing / Rental Dynamics Green Economy / Renewables Self Employed Economy Embedded Finance
5
Shawbrook Group plc | Annual Report and Accounts 2021
Shawbrook Group plc | Annual Report and Accounts 2021
Strategic Report
Corporate Governance
Risk Report
Financial Statements
Our business model: next generation banking platform
Powering up ingenuity to create opportunity, every single day
Customer
Franchises
Enterprise Franchise
Consumer Franchise
TML
Property
Finance
Business
Finance
Consumer
Lending
Savings
TO LET
TML
c.350k Customers Served in 2021
4.6
Trustpilot Score 1
70% Repeat Lending 2
Diversified
Product Offering
■ Buy-to-let
■ Bridging Finance
■ Asset Finance
■ Unsecured Personal Loans
■ Personal Savings
■ Flexible Residential Mortgages
■ Corporate Lending
■ Partner Finance
■ Business Savings
■ Buy-to-let
■ Commercial Investment
■ Structured Finance
■ Digital Second Charge
■ Residential Second Charge
■ Development Finance
Core Capabilities
Using Technology Intelligently to Enhance Human Judgement.
Automating Where it Makes Sense
Revenue Model
Optionality Around Multiple
Revenue Streams
A
n
a
l
y
t
i
c
s
D
ata
Market Expertise
Attractively Pricing Risk
Customer Service and
Digital Systems
Flexible Cloud Platform
Efficient Automation
Marketplace
Huma n
Stable Funding Base With a Conservative Approach to Capital Management
Balance Sheet
(Interest Income)
Asset
Management
(Service Income)
Structured
asset sales
(Gain)
Marketplace
(Commission,
License)
Shifting Housing / Rental Dynamics Green Economy / Renewables Self Employed Economy Embedded Finance
1 For the year ended 31 December 2021.
2 Repeat lending for the year 2021 across Business Finance.
■ Flexible
business model
■ Selectively participate
along value chain
■ Focused on
optimising returns
■ Test and learn
approach
■ Rich data and
analytics capability
informing decisions
on what to offer
and how
■ Competitive funding
advantage through
low cost, stable
deposit base
Megatrends
Driving growth
across markets
Chairman’s statement
John Callender
Continuing to build a stronger business
2021 was a pivotal year for Shawbrook as we continued
to evolve our purpose, deploy new innovative digital
products for our customers and invest in data and
people to enhance our diverse banking proposition.
A great deal has been achieved whilst at the same
time delivering record financial results.
In the first half of the year, the impact of the COVID-19
pandemic was prevalent, bringing disruption and
uncertainty to many of our customers and markets.
In response to these challenges, we demonstrated
incredible resilience and agility, and focused our efforts
on providing our customers and employees with the
support they needed, including the introduction of
several employee wellbeing initiatives. Looking back
on 2021, I am incredibly proud of how we successfully
navigated our way into the new normal, all while
strengthening our relationships with our customers
and exceeding performance targets. Our ability to
build a stronger business throughout a difficult year
is testament to the hard work of our employees, and I
would therefore like to take this opportunity to thank
them all.
In June 2021, we welcomed our new Chief Executive
Officer, Marcelino Castrillo. Despite leading the Group for
only a short period, Marcelino has already paved the way
for Shawbrook’s next chapter, having rapidly progressed
our digital agenda, re-organised the business to ensure
an even greater customer focus, and invigorated the
organisation with a more aspirational sense of purpose.
Ian Cowie, who previously led the business, made an
impressive and lasting contribution to Shawbrook,
working tirelessly to lay the strong foundations the
Group builds upon today.
As the Board continues its natural evolution, Robin
Ashton will be retiring from his role as Non-Executive
Director in June 2022. Having been with the Group
for more than 10 years, Robin has played an integral
role in the Group’s development as well as being a
tremendous support to me during my tenure.
I would like to personally thank both Ian and Robin
for their dedicated service and wish them well for
the future.
On 10 March 2022, we were delighted to welcome
Lan Tu to the Board. Lan brings a wealth of experience
and (subject to regulatory approval) will succeed
Robin in the role of Senior Independent Director. I am
also pleased to announce that Janet Connor will be
joining the Board as a Non-Executive Director during
Q2 2022. Our new Board members will help to ensure we
maintain a strong and robust approach to governance
and continue to bring a diverse range of skills,
experience and perspectives to the Board.
6
Shawbrook Group plc | Annual Report and Accounts 2021 Driven by a clear purpose
This year, Shawbrook celebrated its 10th anniversary.
Launched in 2011 with a founding principle to “serve the
underserved”, we set out to make a difference in the
financial services market. As we continue to establish
a unique position in the market, this year we have also
stretched the scale and ambition of our purpose which
perfectly encapsulates how Shawbrook has been built
to respond to the trends currently shaping our society
and economy.
Our growing ESG impact
We are an organisation that cares deeply and takes
its responsibilities seriously, so a natural extension and
by-product of our purpose is an impactful ESG agenda.
The Board fully recognises and embraces our role to
champion our ESG strategy and I am pleased with the
accelerated progress made during 2021, with ESG-
related topics featuring prominently on Board agendas
throughout the year. Our ambition to encourage
and enable equality, diversity and inclusion was
demonstrated with the launch of the ‘Empower Her’
project in September 2021. Working in partnership with
the Saracens Foundation, the project provides young
women playing grassroots and professional sport with
opportunities to gain qualifications and experience to
develop their leadership potential. To read more about
the project see page 44.
While COVID-19 has been the defining issue of the
last two years, climate change is one of the biggest
challenges of our time. As a responsible business, we
understand we have a critical role to play in tackling
climate change and we have made good progress in
understanding the risks presented across our portfolio.
Important steps have been taken over the last year,
however, much more needs to be done. Moving into
2022 and beyond, we are well positioned to support our
customers to take advantage of the many opportunities
associated with the transition to a sustainable low-
carbon future. Demonstrating our commitment to
enhanced transparency, our ESG report includes our first
alignment to the recommendations of the Task Force on
Climate-Related Financial Disclosures (TCFD). We plan
to deliver a standalone set of TCFD disclosures alongside
our 2022 Annual Report and Accounts.
Evolving customer needs
To keep up with evolving customer needs and
expectations, we recognise that our organisation must
continue to adapt. As a result, during the year we made
several changes to the Group’s organisational structure
to ensure we remain connected to our customers and to
further improve our ability to meet their individual needs.
Open and transparent relationships with
stakeholders
Continued dialogue with all of our stakeholders was
maintained throughout the year, as we engaged on key
topics to bring valuable perspectives into the business.
This included open and transparent dialogue with
our regulators on areas of strategic and operational
importance. Details of our stakeholder engagements
can be found in the Group’s Section 172 Statement
contained in the Corporate Governance Report on
page 54.
Outlook
The Russian invasion of Ukraine alongside the pre-
existing inflationary pressures and reductions in real
income levels have created further macroeconomic
uncertainty during the early part of 2022, with the return
to more normalised conditions uncertain. Supported by
our strong capital and liquidity base, diverse business
model and the ability to react quickly during uncertain
times, I am confident that we are well placed to adapt
to these emerging market conditions and support our
colleagues and customers.
With a strong sense of purpose running through the
DNA of the organisation, we now occupy a unique
position within the market. Through technology,
data, collaboration with like-minded partners and
the expertise of our people, we are well placed to
deal with the complex issues of tomorrow and create
opportunities for our customers and wider society.
The last decade has given us the opportunity to
demonstrate how this approach is not only sustainable
and resilient but also capable of delivering consistently
impressive financial returns. As we look ahead, I am
excited for what the future holds for Shawbrook and
I look forward to continuing to build a successful and
sustainable business with a differentiated proposition.
John Callender
Chairman
7
Strategic ReportCorporate GovernanceRisk ReportFinancial Statements Chief Executive Officer’s statement
Marcelino Castrillo
I’m proud to present Shawbrook’s 2021
Annual Report and Accounts, showcasing
the outstanding performance the business
continued to deliver and the impressive
milestones achieved throughout the year.
On joining Shawbrook as Chief Executive
Officer in June 2021, it was clear that its
proposition, business model and strong
sense of purpose have combined to deliver
consistently high growth and market-
leading returns. The combination of
modular technology and best of human
expertise in markets powered by data has
placed Shawbrook in a class of its own
within the UK financial services landscape.
Delivering exceptional performance
Our tech-enabled model continued to provide
operational leverage and balance sheet optimisation
during 2021. This has enabled us to deliver exceptional
performance, including record levels of profitability,
with profit before tax increasing to £197.2 million
(2020: £73.5 million), record origination levels and loan
book growth of 26%1 .
The acquisition of The Mortgage Lender Limited
(TML) in February 2021 has provided opportunities
in adjacent markets and distribution channels and
further extended our originate to distribute model,
which continues to give us a sustainable competitive
advantage, increasing our non-interest income
and creating balance sheet flexibility. The excellent
performance contributed by TML to date further
demonstrates our ability to identify and integrate
bolt on acquisitions and accelerate growth.
Our financial performance was coupled with strong
customer and employee satisfaction scores, as we
made further improvements to our propositions,
achieving a 4.6 out of 5 Trustpilot score and an 80%
employee engagement score respectively. Our ability
to provide strong customer service and foster customer
loyalty, achieve market-leading growth along with
best-in-class profitability amid the uncertainty of the
pandemic is testament to the strength of our model.
Constantly innovating to adapt and deliver
for our customers
Societal change increases demand for personalised
financial services as the shift towards non-standard
forms of employment, the rapid growth of both the
green and digital economies, as well as heightened
customer expectations and technological
advancements continue to reshape the UK banking
landscape. Our focus on innovation, along with the
scalability of our platform, gives us numerous avenues
of growth where we have a proven ability to win and
we continue to adapt to the changing world around us.
Reinvigorating our purpose
As the fabric of society and the economy continues
to change at pace, we believe the path to success
for people and businesses is no longer a straight-line
as they become less homogenous and increasingly
idiosyncratic. The need for personalised solutions
is becoming the new normal and the concept of
‘standard’ is increasingly redundant. Shawbrook has
been built to serve these needs, seeing opportunity
where others find challenge and complexity, and for
over a decade we have proven our ability to power
up ingenuity to create opportunity, every single day.
As we enter the next decade of our story, this is the
purpose that will continue to drive everything we do.
8
Shawbrook Group plc | Annual Report and Accounts 2021
to provide more powerful insights into our loan book
risk and performance has enabled us to enrich our
customer understanding, offer additional lending where
appropriate and identify potential issues sooner.
Accelerating into the future
2021 was a significant year for Shawbrook, as
we continued to build on the foundations of our
exceptional business and accelerated the next phase
of our growth journey, establishing our unique position
in the market. We have pioneered an entirely new breed
of financial services business by combining the agility,
innovation, customer focus and scalability of a FinTech
with deep sector expertise to deliver market-leading
profitability. We would not stand as the strong business
we are today without working together as a powerful
team. Therefore, I want to take this opportunity to
extend my heartfelt thanks to all our 1,101 talented
employees2. I would also like to say thank you to our
customers and wider stakeholder base for the trust you
have placed in us; we will continue to do everything we
can to earn your continued support.
Looking forward, we will continue to respond to
opportunities created by evolving economic and
societal trends by leveraging our multi-channel
origination and diversified revenue model to support
our customers. I am confident that by building on the
foundations we have created over the last decade,
including continued investment in technology and
data, our market-leading growth is set to continue.
We are uniquely placed to deal with the current
macroeconomic and geopolitical challenges, creating
opportunities for our customers, every single day.
Marcelino Castrillo
Chief Executive Officer
Increasing our customer focus
To set us up for further success, during the year
we deployed a series of organisational changes,
consolidating our offering into three customer
franchises (Enterprise, Consumer and TML) to ensure
we remain closely connected to our customers.
We also continue to attract and retain exceptional
talent, with a specific focus on technology, data and
customer experience to enhance our capabilities.
This included the appointment of Sue Saville onto
the Executive Committee in the newly created role of
Customer Service and Experience Director. In February
2022 we also welcomed Arthur Leung, our new Chief
Product Officer. These changes will give us the speed
and flexibility to maximise our opportunity, further
improving our ability to adapt to external trends and
changing customer needs.
Disciplined but ambitious roadmap of
future opportunities
Realising the significant potential for expansion into
new and adjacent markets, throughout the year we
further diversified our product offering and multi-
channel distribution. Building on our proven track
record of deploying innovative products into adjacent
markets, in December 2021 we extended our existing
proposition with the launch of the Shawbrook Zero
product: a first to market, fully digital and non-advised
second charge mortgage.
Modular technology and partnerships
Our proprietary technology and data capabilities are
focused on delivering excellent customer outcomes
and maximising flexibility through the evolution of our
modular architecture, enabling us to grow efficiently
and avoid the build-up of expensive legacy.
Throughout the year, we continued to invest in and
strengthen our data capabilities and deploy innovative
technology solutions across the business to further
scale-up capacity and extend distribution.
The roll-out of the My Shawbrook Portal to our buy-to-
let property broker network during the year is a great
example of this. Featuring application programme
interface (API), access to external data sources and
instant, integrated valuations led to a material reduction
in time to offer and overall completion times for eligible
buy-to-let cases, improving both customer experience
and efficiency of the Group’s operations. We also worked
with our partner FundingXchange to co-develop and
roll out a proactive portfolio monitoring tool within
Business Finance. Embracing data and technology
1 When adjusted to add back in the structured asset sale completed in September 2021 of TML buy-to-let loans,
which had a carrying amount at the point of derecognition of £342.6 million.
2 Group-wide total headcount as at 31 December 2021.
9
Strategic ReportCorporate GovernanceRisk ReportFinancial Statements Financial review
Our full year results delivered our best
performance to date with profit before tax
increasing to £197.2 million (2020: £73.5 million),
delivering record origination levels and
increasing our loan book to £8.6 billion (2020:
£7.1 billion). Our strong capital position,
supported by high levels of liquidity, was also
maintained across the year and we delivered a
return on tangible equity of 20.1% (2020: 8.0%).
Our investments in automation and process
simplification helped to deliver further
efficiencies and, even with the acquisition of TML
in February 2021 and full recognition of its cost
base, the management expenses ratio reduced
by 0.2% to 2.0% and the cost to income ratio to
40.8% (2020: 53.6%)1.
Looking forward, there are challenges facing
the UK economy and our customers through
increased geopolitical risk, rising energy prices,
cost of living, inflation and potential supply chain
issues but we are well positioned to support the
challenges and opportunities our customers and
communities face as societal and macro-trends
continue to evolve. With the ongoing investment
in our people, platforms and data, we are
confident in our ability to flex and adapt
and provide innovative solutions to meet
our customers’ needs.”
Dylan Minto
Chief Financial Officer
“ As the economy continued to recover from the
pandemic and confidence returned to our
chosen lending markets, we were well placed to
support our customers. This support has been
underpinned by our ongoing digitalisation
journey as we invest in our customer proposition
to deliver quality service, ensure operational
resilience and realise operational efficiency.
Performance indicators
Definitions of all metrics set out in the tables below are provided on page 249.
Financial performance metrics
Gross asset yield
Liability yield
Net interest margin
Management expenses ratio
Cost to income ratio
Cost of risk
Return on lending assets before tax
Return on tangible equity
2021
%
6.0
(1.1)
4.9
(2.0)
40.8
(0.40)
2.5
20.1
2020
%
5.8
(1.7)
4.1
(2.2)
53.6
(0.80)
1.1
8.0
Change
0.2%
0.6%
0.8%
0.2%
12.8%
0.40%
1.4%
12.1%
1 When adjusted for movement in other provisions cost to income ratio is 42.6% (2020: 46.5%)
10
Shawbrook Group plc | Annual Report and Accounts 2021 Financial position metrics
Assets and liabilities
Loan book (£m)
Average principal employed (£m)
Customer deposits (£m)
Stock cost of retail deposits (%)
Wholesale funding (£m)
Liquidity
Liquidity coverage ratio (%)
Capital and leverage 1
Common Equity Tier 1 capital ratio (%)
Total Tier 1 capital ratio (%)
Total capital ratio (%)
Leverage ratio (%)
Risk-weighted assets (£m)
Summary of statutory results for the year
Operating income 2
Interest expense and similar charges
Net operating income
Administrative expenses
Impairment losses on financial instruments
Provisions
Total operating expenses
Net share of results and impairment of associate
Statutory profit before tax
2021
2020
Change
8,607.9
7,869.8
8,358.6
0.9
1,519.9
7,102.8
6,825.7
6,894.1
1.2
1,020.3
21.2%
15.3%
21.2%
0.3%
49.0%
247.8
229.7
18.1%
12.7
14.7
16.2
8.0
12.6
15.0
16.8
8.7
6,137.6
5,271.7
2021
£m
475.2
(89.1)
386.1
(164.5)
(31.4)
7.0
(188.9)
-
197.2
2020
£m
398.2
(115.6)
282.6
(131.3)
(54.9)
(20.3)
(206.5)
(2.6)
73.5
0.1%
(0.3%)
(0.6%)
(0.7%)
16.4%
Change
19.3%
22.9%
36.6%
(25.3%)
42.8%
134.5%
8.5%
n/a
168.3%
Tax
(47.9)
(15.4)
(211.0%)
Statutory profit after tax, attributable to owners
149.3
58.1
157.0%
1 Capital and leverage metrics are shown on a transitional basis after applying IFRS 9 transitional arrangements.
A comparison of the Group’s reported capital metrics (including transitional adjustments) to the capital metrics
as if IFRS 9 transitional arrangements had not been applied (the ‘fully loaded’ basis) is provided on page 162.
2 Includes interest income calculated using the effective interest rate method, other interest and similar income, net operating
lease income, net fee and commission income, net gains on derecognition of financial assets measured at amortised cost,
net gains/(losses) on derivative financial instruments and hedge accounting and net other operating income.
11
Strategic ReportCorporate GovernanceRisk ReportFinancial Statements Financial review
Expanding market opportunities and
digitalisation innovation delivered
significant lending growth of 26%1
All asset classes experienced growth during the year,
resulting in the total loan book growing to £8.6 billion
(2020: £7.1 billion). During the year we successfully
completed a £343 million structured asset sale of TML buy-
to-let loans, supporting our originate to distribute strategy
and balance sheet diversification. Loan book growth in
the year totalled £1.5 billion (£1.8 billion when adjusted for
the structured asset sale), driven by record originations as
the demand for our customer-centric lending proposition
grew in our core SME and property markets.
Record levels of profitability driven by
enhanced net interest margin, careful cost
management and prudent risk appetite
Profit before tax increased to £197.2 million for the
year (2020: £73.5 million), with net operating income
increasing by 36.6%, administrative expenses
increasing by 25.3%, impairment losses reducing by
42.8% and provisions charges reducing by 134.5%.
Net operating income increased by 36.6% to
£386.1 million (2020: £282.6 million) and net interest
margin increased to 4.9% (2020: 4.1%), as we increased
gross yield to 6.0% (2020: 5.8%) whilst materially
reducing interest expense by 22.9% to £89.1 million
(2020: £115.6 million) by managing down the cost of
retail deposits to 0.9% (2020: 1.2%). Whilst competition
intensified in the deposit market in anticipation of base
rate rises, our strong savings proposition continued
to attract customer deposits, with growth of 21.2%,
increasing our deposit book by £1.5 billion during
the year. We continue to diversify our funding base,
but remain predominantly funded by retail and SME
customers, supplemented with wholesale funding
primarily through the Bank of England’s TFSME
programme, with drawn balances increasing to
£1.2 billion (2020: £0.8 billion).
Careful cost management remains a core focus,
with the cost to income ratio (when adjusted for
the conduct related provision charges) improved to
42.6% (2020: 46.5%), but we continue to invest in talent
and innovative technology solutions to support and
enhance our customer proposition. Administrative
expenses increased 25.3% to £164.5 million (2020:
£131.3 million) and is partly attributable to the
acquisition of TML in February 2021 and the inclusion
of their operating costs.
If TML costs were excluded, the increase would be
16% and reflects the continued investment in our
digitalisation journey, increased operational costs as
lockdowns were lifted and higher employee costs as we
resource appropriately to meet our business needs.
The careful and robust management of loan
books remained a strategic priority throughout
the pandemic. The Group’s overall arrears rate,
at 1.7% (December 2020: 1.9%), is trending back to
pre-pandemic levels (December 2019: 1.6%) following
a peak of 3.6% in June 2020.
As the economic backdrop has improved, the economic
scenarios used in the ECL calculations have been
re-weighted, with the severe downside scenario
reducing from 15% to 5%, the downside scenario
reducing from 35% to 25%, the central view changing
from 40% to 60% and the upside scenario remaining
at 10%. The underlying IFRS 9 modelled results show an
improving trend, reflecting the more positive economic
outlook as the economy recovers, resulting in a net
ECL release for the year. Offsetting this, is a write-off of
£35.2 million relating to a customer of the Group, that
became insolvent during the year. Overall a net £31.4
million impairment charge was reported for the year
(2020: £54.9 million), with the cost of risk at 0.40% (2020:
0.80%) and the total loss allowance coverage reducing
to pre-pandemic levels at 0.9% (2020: 1.3%).
We continue to hold a provision for customer remediation
and conduct issues of £13.5 million (2020: £14.8 million)
and review its adequacy regularly. During the year we
received further payments totalling £14.1 million (2020:
£2.0 million), representing the final settlement under
our insurance claim relating to solar panels financed
by our Consumer franchise. This was partially offset by
additional provisions made during the year of £7.1 million,
resulting in an overall net credit for the year of £7.0 million
(2020: £20.3 million net charge). We continue to engage
proactively with the Financial Ombudsman Service and
defend our position where claims are assessed as being
without merit.
1 When adjusted to add back in the structured asset sale completed in September 2021 of TML buy-to-let loans, which
had a carrying amount at the point of derecognition of £342.6 million.
12
Shawbrook Group plc | Annual Report and Accounts 2021 Outlook
Since the year end, geopolitical risk has escalated
with the Russian invasion of Ukraine and the economic
response by the international community which, in
turn, has created economic uncertainty for the global
economy. Whilst we do not have any direct exposure
to Russia, Ukraine or Belarus, we continue to monitor
the situation and in response have updated our
affordability policy to ensure risk appetite remains
appropriate and are closely monitoring the cyber
perimeter and information security risks within the
Group. Whilst we have seen the UK economy recover
throughout 2021, with confidence returning to our
key markets, the increasing inflationary pressure and
the possibility of new COVID-19 variants means the
UK economic outlook remains uncertain, but we will
continue to monitor and adapt to these emerging
market conditions supported by our strong capital
and liquidity base.
Our proven track record in successfully supporting our
customers through challenging times and expanding
into new segments and products provides confidence
that we will continue to meet the changing needs of
our customers, colleagues and business partners in
the future.
Conservative capital and liquidity levels
provide the foundation for future growth
Our Common Equity Tier 1 capital ratio was 12.7%
(2020: 12.6%) and our total capital ratio was 16.2%
(2020: 16.8%). The slight movement in the capital ratios
over the year reflects the retained profit after tax of
£149.3 million, offset by growth in risk-weighted assets
of £865.9 million, the coupon paid on Additional Tier
1 capital securities and a reduction in the transitional
IFRS 9 relief. The transitional arrangements for IFRS 9
provide a benefit of 0.3% (2020: 0.7%) to the Common
Equity Tier 1 capital ratio and 0.2% (2020: 0.7%) to the
total capital ratio.
The Group’s current Total Capital Requirement is
9.07% (Pillar 2A requirement of 1.07%) and with total
regulatory capital of £996.4 million, the Group remains
comfortably above regulatory requirements. The Group
is well-capitalised to take advantage of the significant
market opportunity we have identified in our chosen
specialist lending markets. We continue to optimise
our capital resources while maintaining a robust and
prudent risk appetite.
The Group is not required to comply with the Prudential
Regulation Authority (PRA) leverage ratio framework,
however we maintain our returns with prudent levels of
leverage. The leverage ratio for the Group is 8.0% (2020:
8.7%), compared to the minimum requirement of 3.0%,
with risk-weighted assets as a proportion of the loan
book having reduced slightly to 71% (2020: 74%).
The liquidity coverage ratio remains prudently
positioned at 247.8% (2020: 229.7%).
13
Strategic ReportCorporate GovernanceRisk ReportFinancial Statements Business reviews
Enterprise franchise
The Group’s Enterprise franchise serves UK SMEs, FinTechs,
property professionals and property owners with a range
of specialist lending products:
■ Property Finance - supports the UK property sector
through a range of diverse commercial and residential
mortgage products to professional landlords, investors,
and homeowners. Within these broad markets, we provide,
(1) buy-to-let, (2) non-regulated bridging finance, and (3)
commercial investment. Our owner-occupied proposition
offers (4) regulated bridging and (5) residential second
charge mortgages for a range of purposes.
■ Business Finance - supports UK SMEs by providing a
range of debt-based financing solutions, delivered
through the following four distinct business units: (1) asset
finance, (2) corporate lending, (3) structured finance
and (4) development finance.
14
Shawbrook Group plc | Annual Report and Accounts 2021
Strategic Report
Corporate Governance
Risk Report
Financial Statements
Property Finance
Performance
Throughout 2021, our continuous innovation in
technology and data gave us the scalability required
to underpin our ambitious growth trajectory. Emphasis
was on increasing the efficiency of our application
journeys, streamlining our product set, and increasing
our sales and service-focused talent to enhance broker
and customer experience. This enabled us to continue
to deliver consistently impressive performance, with our
property-related loan book exceeding £5 billion.
Technology and data
During the year, we continued to deploy new
technology solutions to scale-up capacity, increase
agility and digitalise our customer journeys. To support
our buy-to-let broker community, we successfully
launched and rolled-out the My Shawbrook Buy-to-Let
Portal, deploying advanced decisioning capability and
sophisticated insights to provide a slicker and more
intuitive application journey. In Q3 2021, we enhanced
the My Shawbrook Buy-to-Let Portal by integrating
with real-time data service providers to further
automate our customer journeys. My Shawbrook uses
multiple APIs with access to hundreds of data sources
and trillions of data points to give our customers
greater certainty earlier in the process and to deliver
an exceptional experience. The new platform has
produced formal offers in as little as three hours and
completions within seven days of the initial enquiry,
delivering real value to our brokers and customers. The
My Shawbrook Bridging addition was also launched to
our brokers in March 2022.
Access to our online self-service product switch
platform was extended to our commercial investment
customers during the year. This also benefited from
a programme of continuous improvement, enriching
functionality and the user experience to offer a more
seamless product switch process to a wider audience.
Customers
Throughout 2021 we sought regular feedback from our
partners to help evolve our proposition in a way that
best served their needs and those of our end customers.
In addition to conducting feedback sessions attended
by Senior Management, direct feedback sessions were
held between the Group’s new Chief Executive Officer
and our broker partners. These provided opportunities
for the partners to share first-hand their valuable
experiences with us.
We also continued to focus on delivering carefully
tailored customer outcomes. Our guiding principles
were to simplify the product proposition, improve the
customer experience, and develop enhanced lending
criteria. To create a simpler and more streamlined
offering for our customers, during the year we reduced
the product count across all assets. We also restored
pre-COVID-19 products and criteria such as our
‘lending for refurbishment costs’ product, following
its temporary withdrawal due to the impacts of the
pandemic. The reintroduction of this product - that
allows us to offer 85% LTV on residential buy-to-let
properties when lending for refurbishment costs – was
a strong statement to the market and demonstrated
our commitment to adapt to and offer more optionality
to our brokers and customers.
The initial development of buy-to-let and bridging
initiatives in support of the Group’s sustainable lending
strategy was also undertaken in 2021, ahead of a
planned launch in 2022. As a result, customers are set
to benefit from favourable terms where the property is
already energy efficient or where funds are to be used
for that purpose. This is being supported internally by
enhanced management information capability.
We continue to underpin this activity by investing in our
exceptional talent across the organisation, most notably
within customer experience and technology. This will
help deliver new products and services into the market,
embed customer-centricity and design within the
organisation, and allow for seamless collaboration with
all our partners by leveraging the digital connectivity we
have enabled in response to rapidly changing demand
and expectations.
15
Business reviews
Enterprise franchise
Property Finance case study
Shawbrook’s Property Finance team
successfully supported a customer with a
£14.5 million bridging loan, allowing them
to refinance a large, self-contained office
building near Uxbridge town centre.
16
Shawbrook Group plc | Annual Report and Accounts 2021
Strategic Report
Corporate Governance
Risk Report
Financial Statements
After being approached at the end of June 2021
Shawbrook’s strategic partner, West Rock Capital,
whose client had purchased the property in 2019 and
obtained pre-application consent to convert the
building into residential units, with a considerable
uplift in value expected.
We worked closely with the broker to understand their
client’s strategy, which was to either sell the property
once planning permission had been obtained or to
carry out the works themselves. With both options
showing real potential, we agreed an 18-month term,
allowing adequate time for either eventuality.
After receiving the property valuation on a Tuesday
afternoon, the Property team reacted quickly and
completed the £14.5 million Bridging loan, at 69%
LTV, just two days later.
“ There are few lenders in the market
that can turn around such complex
funding requirements in such a short
timeframe. Despite the time
pressure, Shawbrook was able to
demonstrate its ability to understand
the borrower’s business plan and
structured a bespoke loan facility
to suit their requirements. The strong
relationship between Shawbrook,
West Rock Capital and the borrower
meant that all potential issues were
identified and resolved early. We are
delighted to continue growing this
relationship and I look forward to
working with Shawbrook again in
the near future.”
Westley Richards, Director at West Rock Capital
“ This case is a prime example of how
bridging can be used to support an
investor’s strategy and help them
maximise their returns.
At Shawbrook, we’re committed to
supporting investors requiring large
transactions which, in most cases,
requires a specialist team. Our
expertise and experience of this
loan type, combined with the
in-depth knowledge of West Rock
Capital, meant we were able to
deliver a fantastic outcome for
their client and a seamless broker
experience. We look forward to
watching their plans for this
property unfold and to supporting
them into the future.”
Emma Cox, Managing Director for Shawbrook
Real Estate
17
Business reviews
Enterprise franchise
Business Finance
Performance
2021 was a year of exceptional performance for our
SME Finance business. Our relationship-led approach,
diverse product offering, and multi-channel distribution
continues to power a differentiated proposition in
the market. As a result, we delivered record levels of
origination volumes across all core business areas,
which enabled us to maintain the diversity of the asset
portfolio. This growth contributed to a 23% increase in
the loan book, with our SME-focused assets surpassing
the £2 billion milestone for the first time.
Technology and data
In 2021, we continued to evolve our modular
architecture to deliver seamless digital journeys for
our customers and increased operational efficiencies.
In Q1 2021, our entire development finance portfolio,
including the acquired RateSetter book, was migrated
onto our new cloud-based loan booking platform
enabling all new deals to be booked, restructured
and managed on the fully integrated cloud-based
system. The new platform has led to increased
operational efficiency and enhanced portfolio business
management reporting. The remaining structured
finance and corporate lending portfolios will be
migrated in 2022.
The first end-to-end asset finance transactions
were also successfully completed in 2021 via our
new digital origination engine, from initial enquiry,
credit approval, customer due diligence through to
document generation and account activation. With
the full roll-out of our broker portal, we anticipate 100%
of qualifying intermediary-sourced asset finance to
be originated digitally in 2022 and benefit from our
decisioning enhancements in Q2 2022.
The rapid development and successful deployment of
these capabilities has been facilitated and enhanced
using several third-party tools including ConnectedFI
for lean software development on portals.
To enhance our already strong monitoring capabilities,
during 2021 we continued to leverage proprietary
and third-party data to help our move towards a
more technology-driven risk management model
with higher levels of automation. Collaborating with
FundingXchange to co-develop a new portfolio
monitoring tool has given us the ability to generate
dynamic actionable customer insights, by combining
our own data with multiple external sources including
credit bureau. As a result, we are now positioned to
predict issues significantly earlier than previously,
which complements other advances we have made
in automating our broader portfolio monitoring and
watchlist activities, giving us a more dynamic view into
the risk we manage.
18
Shawbrook Group plc | Annual Report and Accounts 2021
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Corporate Governance
Risk Report
Financial Statements
The performance of our development finance loan
book also benefited from our growing presence in the
market and the close relationships with key brokers
and developers, which saw the loan book exceed
the £1 billion of facilities milestone for the first time.
Outlook
Looking ahead, we have the opportunity to expand into
other fast growing adjacent markets that closely align
with our existing enterprise offering. As we build our agile
approach, we will continue to identify specialist market
opportunities and develop new products at speed, whilst
leveraging our deep underwriting expertise.
This also requires us to further strengthen our existing
distribution channels into new and meaningful broker
segments, with changing broker behaviour also
creating opportunity to extend digital distribution
and drive new product development.
Climate change concerns and an increasingly
environmentally conscious society are creating an
emerging green economy that we are well-placed to
support with a range of initiatives, emphasising the role
we will play in helping to reduce society’s impact on our
environment. Tactical initiatives are already underway
to support our customers with their net zero transition
including the recently delivered Energy Performance
Certificate (EPC) thought-leadership paper, with the
broader ESG strategy acting as a tangible expression
of our purpose driven model.
The pace of change across society continues to
accelerate, driving greater need to truly understand
our customer needs in real time, with the relentless
advance of digital interaction creating more
demanding and better-informed customers. In turn this
results in higher expectations of service and a need to
constantly monitor and improve our existing offering to
deliver the best possible outcomes for our customers.
Customers
Our proposition is focused on the needs of our
customers, driven by technology-enabled processes
and overlaid with a tenured underwriting team to
support us with the complexity of deals. To get closer
to our customers and ensure we continue to actively
mould our proposition with their interests at the
forefront, during the year we commissioned a dedicated
direct-to-customer survey for our SME audience.
The research sought customer feedback on
performance and delivered meaningful insights
including validation that our intention to improve
customer experience through digitalisation aligns
to expectations. The set of performance indicators
collected will act as a benchmark to measure customer
sentiment moving forward, ensuring we continuously
improve our proposition.
Our relentless focus on customers and subsequent high
levels of customer satisfaction received across our SME
product verticals was solidified by the significant number
of prestigious awards won throughout 2021, including
the Dealmakers Bank of the Year Award, Top Technology
Funder at the Leasing World Awards and Specialist
Lender and Development Lender of the Year National
Association of Commercial Finance Brokers Awards.
During the year we looked for opportunities to evolve
our proposition to meet the changing needs of the
FinTech and non-bank lender sector. For example, in
Q1 2021 we launched our evolved Speciality Finance
proposition, incorporating our existing block discounting
and wholesale finance teams into a single consultative
proposition, creating a coherent and compelling offering
to a broad segment of non-bank lenders. The move has
stimulated interest from new clients and strengthened
existing relationships, while also enabling improved
coordination of risk and increased commercial appetite.
Within the healthcare market we have continued to
strengthen our presence, earning recognition for our
expertise and proposition with the LaingBuisson Award
for Lender of the Year. Building on our reputation to
attract new customers and increasing engagement
with existing clients to deliver more repeat business,
we achieved record performance in 2021 – a truly
challenging year across the sector.
Our flexible and highly configurable Commercial Loan
product continues to demonstrate its versatility and
potential for accessing new opportunities. Not only has
it powered our Coronavirus Business Interruption Loan
Scheme and Recovery Loan Scheme propositions,
but it also offers a compelling solution to business
owners seeking to exit through an Employee Ownership
Trust. Recognising the growing demand for Employee
Ownership Trusts, the proposition was rapidly
developed and taken to market by our Corporate
Lending team.
19
Business reviews
Enterprise franchise
Business Finance case study
Employee Ownership
Trust takes the
wheel at F1 supplier
A leading UK precision engineering firm has transferred
ownership to an Employee Ownership Trust in an eight-
figure deal as the business targets future growth, with
support from Shawbrook. Retrac Group’s new Employee
Ownership Trust takes full equity of the Swindon-based
company from chairman Andy Carter, whose father
established the business in 1972.
The move follows a sharp increase in appetite for the
ownership model across the UK. Introduced by the
Government in 2014, the number of employee-owned
businesses grew by 28% in 2019 alone1.
Retrac Group, which supplies highly complex parts and
components to Formula 1 teams and major manufacturers
in automotive and aerospace, is targeting revenue growth
of 50% by 2023 under its new ownership.
The Swindon-based firm, which employs 122 staff from its
base in Wiltshire, turned to Shawbrook to help finance the
acquisition, securing a multi-million-pound commercial
loan with ICON Corporate Finance acting as advisor to
the company.
The trust will be led by newly appointed Chief Executive
Officer Dan Walmsley, who joins the company after four
years as McLaren’s motorsport director and four years
as team principle at GT team, Strakka Racing.
1 According to the White Rose Centre for Employee Ownership
survey published in June 2020.
20
Shawbrook Group plc | Annual Report and Accounts 2021
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Corporate Governance
Risk Report
Financial Statements
“ In 50 years, the family and employees
behind Retrac have earned an excellent
reputation for working with leading
names in manufacturing to solve critical
engineering and design challenges.
The new Employee Ownership Trust
gives our team full security for
safeguarding this legacy, and over the
firm’s bright future as we target growth
by helping clients realise tomorrow’s
technologies, like electric-powered flight
and motorsports. As a specialist lender,
Shawbrook proved itself as a
dependable partner throughout this
process and its support has been
instrumental in helping us to begin
this new chapter for the business.”
Dan Walmsley, Chief Executive Officer
at Retrac Group
“ We’re seeing Employee Ownership Trusts
become increasingly popular with
exiting business owners who want to
protect the legacy of what they’ve built,
while leaving it in experienced and
knowledgeable hands.
This Employee Ownership Trusts will
recognise and reward the loyal and
ambitious workforce at Retrac. Together
with Dan bringing unparalleled industry
insight and expertise to the business as
Chief Executive Officer, the company
has an excellent footing for growth as it
supports clients rise to new challenges.
At Shawbrook, we’re specialists in
supporting SMEs, providing businesses with
the funding they need to facilitate their
succession planning to ensure a
sustainable and successful future.”
Oliver Jenkins, Relationship Director for the
South West and Wales at Shawbrook
21
Business reviews
Consumer franchise
The Group’s Consumer franchise serves UK consumer
and micro business owners with a range of lending and
savings products:
■ Consumer Lending: provides (1) unsecured personal
loans across several key partners and direct to consumer,
(2) partner finance offers unsecured loans through a
network of partners, to finance purchases specifically in
the home improvement market and (3) digital second
charge mortgages, our non-advised, real rate, fully digital
application via marketplace partners.
■ Savings: provides a wide range of (1) personal savings
products, including easy access, notice and fixed term
accounts and easy access and fixed cash ISAs and (2)
business savings products to SMEs and charities including
easy access, notice and fixed term bonds.
22
Shawbrook Group plc | Annual Report and Accounts 2021
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Corporate Governance
Risk Report
Financial Statements
Consumer Lending
Performance
Despite taking a cautious approach to lending in
the early part of the pandemic, investments made
during this time positioned us well to capitalise on
the recovery within the consumer credit market. We
saw total quotes received across our digital platform
rapidly increase throughout H2 2021.
Technology and data
Throughout 2021, focus remained on enhancing
our customer journeys through digitalisation and
simplification. Progressing our digital agenda,
we further evolved our API-led consumer FinTech
platform with the use of new data sources, including
the integration of Open Banking data more widely
across our customer journeys. In partnership with key
marketplaces, work is ongoing to understand how we
can utilise output data to create more meaningful
propositions, tailor our risk strategies and build
innovative products for our customers and partners.
Our commitment to offering a best-in-class customer
experience, as seen through our auto decisioning
capability, was enhanced further by the development
of a new artificial intelligence enabled pricing
environment which came online in late 2021, giving us
the ability to make pricing decisions five times quicker
when compared to its previous local server-based
environment. It allows us to be more agile in response
to changes in the market to improve competitiveness
and deliver transparent, guaranteed offers to the right
customers at the right time.
In addition, our focus on offering excellent customer
experience, from onboarding through to lifetime
servicing, was bolstered by the transition to a new
third-party service provider in December. It boasts
a self-serve customer portal alongside many other
servicing capabilities across our product suite, putting
control in our customers’ hands so they can manage
their account online, at ease, as and when they please.
Markets
Despite the challenges presented in 2021, we continued
to expand our footprint in the unsecured personal loans
market through collaboration with new partners who
presented significant opportunities against a proven,
innovative and customer centric offering.
We also leveraged our digital marketplace distribution
network to expand our presence into new and adjacent
markets to create opportunities and broaden product
scope. In December 2021, this led to the launch of the
UK’s first non-advised, digital second charge mortgage
product. Leading the way in this space, the product’s
real rate, zero upfront fees and digital end-to-end
journey fills a gap in the market.
Risk management
As we evolved our capabilities across the organisation,
it was important we continued to tailor and refine our
risk appetite to ensure it aligned with our offering. Using
our ever-expanding data library, throughout the year
we continued to optimise our pricing and risk strategies
and further enhance our product offering. We also
made several enhancements to our credit decisioning,
including the implementation of an improved
homeowner scorecard, which better assesses the risk of
applicants leading to more accurate lending decisions.
Additionally, we introduced a new customer financial
crime decisioning platform that aligns with the Group’s
Customer Due Diligence standards for origination.
The new platform, as well as offering a more auditable
financial crime assessment of our customers, enables
greater customer self-service by digitising the process
of validating identity.
In our Partner Finance business, we further embedded
our robust oversight frameworks and integrated our
customer management tool. The tool, launched in May
2021, introduced more effective operational processes
and a more consistent approach to communicating
with our partners.
23
Business reviews
Business reviews
Consumer franchise
Savings
Performance
As we moved into 2021, we faced a backdrop of
customers emerging into a ‘new normal’, which
impacted their savings habits. The focus for the first
half of the year was to build the fixed deposit base,
achieved through thoughtful pricing management,
ensuring rates remained competitive while managing
the Group’s costs of deposits. In Q3 2021, we saw market
competition increase with the speculation of a base
rate rise as inflation increased, however we continued to
build our deposit base which saw us reach the £8 billion
in deposits milestone in August 2021, ending the year
with a deposit base of £8.4 billion (2020: £6.9 billion), an
increase of £1.5 billion. Alongside this, the Group also
successfully reduced its average cost of retail deposits
significantly to 0.9% at 31 December 2021 (31 December
2020: 1.2%).
Technology and data
As well as growing the book and reducing our cost
of funding, throughout the year focus remained on
deploying innovative technology solutions to further
digitalise the customer experience. To provide a stable
platform for our customers and servicing teams,
we continued to enhance the savings application
and servicing journey through better accessibility,
functionality and speed.
The first of these improvements came in January
2021 through the implementation of secure customer
authentication, offering increased security measures
for customers when logging in via their mobile phone
or other digital device. In November 2021, alongside
the Consumer Lending business, we also integrated
a digital solution into the online customer application
to automate the customer due diligence process for
new customers, speeding up and reducing friction
within the online application process. Not only did the
enhancement make for a more fluid user journey, but it
also introduced a standardised and consistent way for us
to process, store and report on the information needed
to manage the risk of financial crime. This tool will also
be rolled out across the Group’s other franchises.
In addition to these changes, our priority was on
structuring the major upgrade and cloud migration
of our core savings system. Completed in Q1 2022,
the upgrade provides greater system stability and
scalability to more reliably service our customers as
well as a standardised core system that’s more flexible
to innovation and automated data management.
Customers
Overall customer satisfaction levels remained high
throughout 2021, reflecting our dedication to providing
an excellent service to our customers. To get even
closer to our customers, we are extending our ‘real time’
satisfaction tool onto our digital platform. Following
the successful launch of the tool in 2020, the extension
to digital will encourage feedback from a wider
audience, providing customers with increased
opportunities to rate the Shawbrook experience.
While customer comments received to date have
been overwhelmingly positive, key performance
indicators have been established to encourage
a culture of continuous improvement.
24
Shawbrook Group plc | Annual Report and Accounts 2021
Strategic Report
Corporate Governance
Risk Report
Financial Statements
“ At Freedom Finance we work closely
with our partners to bring to market
financial products that meet the
growing needs of our customers. When
Shawbrook shared their plans around
the product development of a digital
second charge mortgage that offered
applicants a guaranteed personalised
rate on quote and no admin fees, we
jumped at the chance to work with
them in bringing this to market. Having
an innovative lender like Shawbrook
on our panel means we can continue
to better serve our customers’ needs.”
Andy Fisher, Chief Commercial Officer,
Freedom Finance
“ We’ve worked with the Personal Loans
team at Shawbrook for many years.
Since the start, we’ve been able to build
on our relationship, creating and
developing opportunities to better serve
our customers. Working together, we’ve
harnessed our expertise to enable us to
provide the right kind of products, to the
right customers, at the right time via
ClearScore, a place that is easily
accessible to all.
When we began working with
Shawbrook, they were one of the first
in the market to offer a rate for risk
personal loan product which is based
on an individual’s credit profile via a
direct integration. Their approach has
helped shape the market, with more
lenders now promoting the value of
transparency within their propositions,
creating long-term value for customers
and lenders alike.
We look forward to continuing our work
with the team and are excited to see
what other opportunities we can work
on together in the future.”
Andy Sleigh, Chief Executive Officer, ClearScore
25
Partnerships
To introduce greater operational capacity to the
business, during H2 2021 we further strengthened
our outsourced partnerships, to support with those
tasks that do not lend themselves to automation.
To date the partnerships have delivered incremental
improvements, flexibility and scalability to
the business.
To ensure we continue to work with like-minded
partners that adopt the same principles and are
strategically aligned to our digital vision, during
the year we conducted a review of our distribution
partners. This process also enabled us to identify
new opportunities to extend both our distribution
reach and product offering, partnering with new
innovative partners such as Moneybox.
Outlook
Looking ahead, we will continue to maintain a sharp
focus on delivering excellent customer experiences.
The upgrade of our digital platform and reboot
of our digital customer journey, including the
implementation of a mobile application, will be
instrumental to this. The unique combination of our
data driven approach and technical capabilities
allows us to create meaningful and valuable
financial propositions for consumers in the UK.
Business reviews
The Mortgage Lender (TML)
Activity
TML provides a range of:
■ Flexible residential mortgages designed for
those customers with more complex income
profiles, including self-employed, entrepreneurs
and first-time buyers; and
■ Buy-to-let mortgages.
Following the return to the residential mortgage
market in January 2021, with two and five-year
residential fixed rate products, TML continued to
listen to its customers and adapt its criteria to provide
the choice, flexibility and agility that is important to
them. As a result, in November 2021, taking onboard
feedback received from a market survey suggesting
the pandemic had significantly impacted the ability
for the self-employed to secure a mortgage, TML
launched a new residential product. Aimed at
supporting the self-employed and borrowers with
complex incomes who may traditionally struggle to
access finance on the high street, the customer centric
product has been well received in the market to date,
and interest continues to grow.
In December 2021 TML launched a new evolved
brand and website, reflecting its aim to offer “real life
lending”. The new website has been well received and
has significantly enhanced functionality following
feedback from intermediaries.
Outlook
Looking ahead, TML will continue to invest heavily in
talent and products as the business grows. By listening
to its customers and adapting its criteria, TML will
continue to provide the choice, flexibility and agility
that customers and brokers have come to expect in a
very dynamic market.
Following the full acquisition in February 2021,
TML continued to demonstrate excellent financial
performance, exceeding its annual completions
target and positively contributing to the Group’s
performance. Application flow remained buoyant
and at record levels, with c.£1.3 billion of applications
received in the year and a strong new business pipeline
going into 2022.
The acquisition of TML is a clear example of the
Group’s ability to identify and integrate bolt-on
acquisitions to support growth in new segments. The
combination of the two businesses is a good strategic
and cultural fit, enabling TML to scale its operation
whilst meaning the combined Group is relevant to the
majority of mortgage intermediaries in the UK. The
extension of the existing relationship helped accelerate
the Group’s growth throughout 2021 through a
widened distribution network, additional underwriting
capabilities in residential mortgages and extension of
the Group’s product range to support capitalisation
of megatrends in fast growth and traditionally poorly
served segments.
The Group’s successful track record of executing
mergers and acquisitions encouraged a smooth
integration process, with all TML employees formally
part of the Group and aligned to Shawbrook’s
overall technology strategy, encouraging increased
automation of low value add tasks. A strong funding
synergy was also introduced, with TML able to leverage
the Group’s deposit base, whilst offering flexibility
through wholesale funding.
In response to the competitive buy-to-let market,
TML made changes to its buy-to-let range during
the year, helping landlords who were keen to add to
their portfolios and diversify where they identified
opportunities to do so. By increasing its maximum loan
size and taking a portfolio view on risk, TML was able
to provide a number of lending options to support its
landlord customer base.
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Shawbrook Group plc | Annual Report and Accounts 2021
Strategic Report
Corporate Governance
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Financial Statements
Central
Activity
The Group’s central functions include our treasury
operations as well as costs which are not directly
attributable to the operating segments. Central
function costs include, amongst other things, finance,
IT, marketing, legal, risk and human resources.
We continue to make smart investments in technology
solutions to digitalise our proposition, to improve
the end-to-end customer experience and enhance
the Group’s risk management. Throughout the year
we also continued to invest in talent to grow our
workforce. As a result, our technology team focused
heavily on ensuring both our new and existing
employees had the equipment required to efficiently
serve our customers remotely.
27
Environmental, Social
and Governance Report
Welcome to the Group’s inaugural ESG disclosures
report. This report provides further insights into how
we are embedding sustainability across the Group
and discloses our actions across our key areas of
focus. Our strategic ESG priorities include supporting
our customers through their climate related transition
whilst reducing our carbon footprint and developing
our climate related disclosures. We are committed to
delivering socially focused products and promoting
equality, diversity, inclusion and social mobility; all
within strong and transparent governance and risk
management frameworks.
“ We are acutely aware of our responsibilities as
an active and positive participant within our
communities. Driven by our strong sense of
purpose, we are taking action to play our part
in tackling climate change and protecting
the environment, contributing positively to
society and operating as an open, honest
and transparent organisation.”
Marcelino Castrillo
Chief Executive Officer
28
28
Shawbrook Group plc | Annual Report and Accounts 2021
Shawbrook Group plc | Annual Report and Accounts 2021
Strategic Report
Corporate Governance
Risk Report
Financial Statements
Shawbrook is driven by a strong purpose, evolved from a powerful founding principle (“to serve the
underserved”) which is manifest throughout the Group and drives our strategy and business activity.
In 2021, we reinvigorated our purpose to reflect our ability and ambition to address the rapidly changing
needs of our customers and communities. Driven to power up ingenuity to create opportunity every
single day, our ESG strategy is not just aligned to but has become a tangible expression of our purpose.
Our purpose
Our ESG strategy aligns to
and is a tangible expression
of our Purpose
We are driven to power up ingenuity to
create opportunity, every single day
We apply ingenuity to find practical
solutions to complex problems
We make it personal, addressing immediate
realities with empathy
We are creative, committed to finding the
best way forward and to inspire others
Our priorities
ESG initiatives are identified,
prioritised and actioned
Environmental
Social
Carbon reduction
strategy
Equality, diversity
and Inclusion
Governance
ESG linked
executive pay
Sustainability
linked products
Socially focused
products
Climate risk
strategy
Social partnerships
and charitable
commitments
Risk management/
other governance
frameworks
Board
effectiveness
Aligned with UN’s Sustainable Development Goals
Alignment
Progress is reported in alignment
with recognised frameworks
Our 2021 Annual Report climate disclosures
are aligned to TCFD, with a standalone report
planned to accompany our 2022 Annual Report.
2929
Environmental, Social
and Governance Report
Our strategic ESG priorities
During 2021, we identified our strategic ESG priorities, focusing
on the issues where we can have the biggest impact.
As well as aligning to TCFD, we have aligned our priorities to a
selection of the United Nations’ Sustainable Development Goals
which offer a framework to aid comparability and understanding.
Environment
Climate Transition
Supporting our
customers through
their climate transition
Carbon Footprint
Reducing our carbon
footprint and becoming
a net zero business
Climate Disclosures
Improving our
climate disclosures
■ Continued to offer bespoke lending solutions to customers investing in
their sustainability-related goals.
■ Developing EPC-linked mortgage products which are due to launch in 2022.
■ 91% of our buy-to-let portfolio has a potential EPC rating of C or above.
■ Measured our 2021 carbon footprint and developed our initial carbon
reduction strategy.
■ Committed to being carbon neutral for our 2021 operations.
■ Aligned our climate disclosures to the latest TCFD recommendations
which are included in this report.
■ Started development of a standalone TCFD report, to be published
with our 2022 Annual Report.
30
Shawbrook Group plc | Annual Report and Accounts 2021 Social
Socially-Focused Products
Supporting the development
and growth of individuals
and SMEs’ economic activity
■ Delivered finance solutions to enable the provision of housing
to communities.
■ Through our TML franchise, supported the self-employed and
entrepreneurs with ‘real-life lending’.
Equality, Diversity
and Inclusion
Championing a diverse
and inclusive community
■ Provided wholesale funding to non-bank specialist lenders, powering
competition in the lending market and enabling provision of finance
to underserved groups.
■ 25% of our senior managers are female, against an aspirational target
of 30%1 by December 2022.
■ Supported 30 young women in sport through the Empower Her leadership
project, in partnership with the Saracens Foundation.
■ Increased diversity disclosures (gender, ethnicity, sexual identity and
religion) recorded by our employees from 26% in January 2021 to 54% by
December 2021.
Social Mobility
Improving social mobility
and creating opportunities
■ In February 2022, launched Thrive, an apprenticeship programme
supporting young people from disadvantaged backgrounds into
financial services careers.
Governance
Board Effectiveness
Strong and transparent
governance
Risk Management
Robust risk model
■ >20% of our Board members are female.2
■ People Engagement Forum contributed to key business issues
(e.g. future ways of working and Group purpose).
■ 100% of Board members trained in climate risk.
■ Invested in technology and data to enhance our control environment.
1 The Group is a signatory of Her Majesty’s Treasury Women in Finance Charter.
2 As at 31 December 2021; excluding Lan Tu, who joined the Board on 10 March 2022.
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Strategic ReportCorporate GovernanceRisk ReportFinancial Statements Environmental, Social
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Environment
Climate change is one of the most pressing issues
of our time and, as well as taking action to reduce our
own carbon footprint, our ambition is to play a crucial
role in supporting our customers’ climate transition
by leveraging our data insights and expertise.
We recognise the need for climate disclosures and
this report includes our first alignment to the TCFD
recommendations1. We will deliver a standalone
TCFD report to accompany our 2022 Annual Report
which will include a further set of measures and
targets to monitor our progress.
Climate governance
The Board provides oversight of climate-related risks
and opportunities which is supported by management
reporting on climate, climate strategy and risk
management activities. The Board received
climate-focused updates throughout 2021 and:
■ reviewed the Climate Change Implementation
Plan at the Risk Committee together with a Climate
Risk standard to support the effective embedding
of climate risk within the Group’s key governance
processes;
■ received an update on the 2021 United Nations
Climate Change Conference including outcomes
and the impact on the Group; and
■ reviewed data-driven insights from scenario analysis
and priority climate related actions for 2022.
This includes supporting our buy-to-let customers
in understanding the impact of changes in letting
regulation and providing financing support to enable
the transition to a low carbon environment.
The Chief Executive Officer is responsible for the delivery
of sustainable performance, purpose and consideration
of ESG trends. The Chief Executive Officer, supported by
the Executive Committee, is responsible for assessing
and managing climate-related risks and opportunities.
The Chief Risk Officer is the designated Senior Manager
Function (SMF) holder with accountability for the
oversight of climate risk. Executive monitoring and
oversight of climate-related risks and opportunities is
supported by escalation from the sub committees of
the Executive Committee.
A centralised climate risk mandatory training
module was provided to all colleagues in Q4 2021.
1002
% of staff trained in Climate Risk
1003
% of board trained in Climate Risk
(within previous 18 months)
1 2021 Annex aligned.
2 As at 8 March 2022.
3 As at 24 January 2022.
32
Shawbrook Group plc | Annual Report and Accounts 2021 Our governance structure
We have embedded climate risk within our existing Group governance and risk management structure:
Shawbrook Group Board
Responsible for setting the strategic aims and promoting the long-term sustainable success of the Group.
Audit Committee
Responsible for
internal controls and
financial reporting
including
non-financial
disclosures impacting
financial statements.
Chief Executive
Responsible for the
delivery of sustainable
performance, purpose
and consideration
of ESG trends.
Remuneration
Committee
Responsible for
reviewing and
approving
performance
measures including
those relating to
purpose and climate.
Risk Committee
Responsible for
advising the Board
on current and
future risks and
determination
of risk appetite
including climate
and strategic risk.
Executive Committee
Supports the Chief Executive Officer in discharging
individual accountabilities including consideration
of material emerging issues including ESG
trends and commitments.
Group Risk Management Committee
Chaired by Chief Risk Officer. Responsible for
considering group-wide risks including climate risk
reporting and delivery against regulatory plans.
Chief Risk Officer
Responsible for Group-wide risk frameworks and policies. SMF accountability for identifying and managing
financial risks from Climate Change, under the oversight of the Board and Risk Committee.
ESG Working Group
We are establishing an ESG Working Group to support the Chief Executive Officer and Chief Risk Officer
in discharging their individual accountabilities either delegated to them or allocated through regulatory
requirements. It will also act as the principal forum overseeing the activities of the Group-wide
Climate Change Working Group.
Climate Change Working Group
The Climate Change Working Group supports the Chief Risk Officer in discharging their individual
accountabilities either delegated to them or allocated through regulatory requirements.
The Working Group has delivered SS3/19 compliance.
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Environment
Climate strategy
Our lending business
We utilise a suite of tools and processes to identify risks
and opportunities presented by climate change relating
to our lending business; qualitative scenario analysis,
physical risk assessments and EPC data gathering.
During 2021, we completed a qualitative scenario
analysis using the 2021 Climate Biennial Exploratory
Scenario scenarios that are based on three scenarios
taken from the Network for Greening the Financial
System dataset. These include an Early, Late, and
No Action scenario applied over a span of 30 years
reflecting the longer-term nature of climate related risks.
The Early and Late policy scenarios have significantly
higher carbon prices, resulting in lower demand for oil,
gas and coal, and higher demand for electricity than in
a No Action scenario.
This process led to us identifying the sectors most
impacted; property and construction, financial
services, manufacturing / supply chain, and transport
and storage. In total, these sectors made up c.90% of
the Group’s portfolio. There are inherent risks in not
recognising the technological advancements and
changes in customer expectations and demands, which
may lead to adverse selection and a portfolio of loans
that is harder to refinance and at risk of lower collateral
prices and increased customer defaults. Where
customers come under pressure from transition and
physical risks, this impacts credit risk through difficulties
in repaying loans and decreased asset valuations which
are held as collateral. This assessment has helped the
Group prioritise strategic actions aimed at supporting
customers. A key focus is the property sector, where
we will use our expertise to help buy-to-let customers
understand the impact of changes in letting regulation.
The accelerating growth of the green economy
and regulation to tackle climate change presents
a significant opportunity to support our customers
with financing the transition. The opportunity lies in
two main areas: supporting customers who want to
reduce their Greenhouse Gas (GHG) emissions with
funding for activity such as energy efficiency measures
and supporting customers who are driving transition
solutions such as renewable technology providers with
financing for capital expenditure. These opportunities
are particularly acute for real estate investors, where
policy interventions have already come into force;
new lettings from 2025 will require an EPC rating of C
or better and from 2028 will be required for all lettings
except where an exemption is in place from the local
authority. As part of supporting customers in their
transition to a low carbon future, we commissioned
research into EPCs to help landlords and tenants
navigate the complex regulatory environment around
energy labelling. In addition to discussing this with
customers, we also published it shawbrook.co.uk/
media/4498/epc-report-20220203.pdf.
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Shawbrook Group plc | Annual Report and Accounts 2021 TO LET
91%
of our buy-to-let book has
the potential for an EPC or
equivalent rating of C or above.
36%
of the buy-to-let book has an EPC
or equivalent rating of C or above.
Products and services
We are developing a suite of financing products that
will enable SMEs, real estate investors and consumers to
make more considered choices and invest in making their
business or assets more sustainable and environmentally
friendly. These include a mortgage product to support
buy-to-let customers in their transition to making a
property an EPC rating of C or above.
In 2021, we utilised our short-term bridging product
to provide a viable route for landlords looking to make
the first move in improving their rating. Bridging loans
support landlords in developing properties to latest
building regulations which will improve the EPC rating
and support sale or refinance to a term loan.
We provide finance to a range of businesses seeking
to invest in sustainable energy generation or services.
Our specialist Sustainable Energy team has extensive
experience in the sector and has delivered finance
to providers of sustainable energy equipment and
services as well as businesses in the agricultural and
horticultural sectors investing to become energy
self-sufficient. With the rapid expansion of the green
economy, we will continue to develop our specialist
proposition in this market to meet growing demand
and to tackle the inherent complexities of the sector.
Case Study
Shawbrook supports sustainability-focused Private Equity firm’s
investment in UK LED lighting leader
In February 2021, Shawbrook supported Ambienta’s acquisition
of Collingwood Lighting Technology Group through the provision
of a Unitranche debt facility. Ambienta is one of the largest and most
experienced sustainability investors with more than €1.5bn in assets
under management globally. Collingwood is a leader in the design,
manufacture and distribution of energy-efficient LED luminaries in
the UK and France.
“ In supporting this investment, Shawbrook impressed
us with their quick understanding of the business,
commercial approach and ability to move in a fast and
efficient way to help support us in delivering the deal.”
Matthew Norrington, principal at Ambienta
“ This is an exciting opportunity to support one of Europe’s
leading sustainability focused PE investors in its backing
of a great UK business.
As demonstrated through their approach to this
investment and dedicated sustainability focus, they
are exactly the type of equity house we have built
the Shawbrook Financial Sponsors team to support
and work with.”
James Salmon, a Director within Shawbrook’s Financial
Sponsors team
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Strategic ReportCorporate GovernanceRisk ReportFinancial Statements Environmental, Social
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Environment
Our own operations
To identify climate risks and opportunities relating to
our own operations, we measure our carbon footprint.
(see climate metrics and targets section on page 38).
The risks to our business are carbon taxes for our own
emissions, increased regulatory requirements and
reputational damage from not having responded
appropriately to climate challenges. In 2021, the
emissions from our operations (i.e. excluding purchased
goods and services and loans and investments), were
1,166 tonnes of carbon dioxide equivalent (tCO2e).
We have started to develop our carbon reduction
strategy which will see us engage with landlords
to implement improvements, such as a switch to
renewable tariffs, improved lighting efficiency and a
better understanding of water usage. We will also build
in energy efficiency objectives into the procurement
process for any new sites. We are also making good
progress in the migration of our on-premises data
centres to the cloud which will contribute to a net
reduction in emissions.
We are committed to developing a credible net zero
strategy, which includes setting a net zero1 target date
within 2022 and agreeing interim milestones that we
will set out in our ongoing disclosures.
As part of our net zero strategy, our plan is to take
actions to reduce emissions as far as we can and then
offset our remaining emissions by purchasing carbon
offset and sequestration credits. To help reduce our
impact in the short term, we have committed to being
carbon neutral2 for our 2021 operational emissions
(excluding purchased goods and services and loans
and investments) and will invest in carbon removal and
off-setting projects that align to our wider ESG strategy.
This is the first year of offsetting our emissions and
we intend to broaden the scope as the data quality
improves in future years.
Climate-related inputs into the financial plan
Qualitative horizon scanning relating to climate
change forms part of our macro trends analysis that
accompanies the financial plan. In 2022, we will use
the outputs from quantitative scenario analysis as an
input into the financial planning process which spans
five years. This analysis will influence key financial
metrics such as revenue and capital. Our investment
in data and technology, which will be a key enabler
for our response to climate change, is factored into
operational budgets out to 2024.
Net zero alliances
Recognising the benefits of joining forces with others,
in March 2022 we joined Tech Zero, a climate action
group for tech companies of all sizes who
are committed to fighting the climate crisis.
As a condition of joining, we will commit to:
■ Annually measure and publish all Scope 1, 2 and 3
greenhouse gas emissions.
■ Publish more details about how we plan to reach
net zero within a year of joining, including setting a
net zero target date, and interim targets.
■ Appoint a member of the executive team to
be responsible and accountable for our net
zero target.
■ Communicate climate commitments in other
meaningful ways, including to customers.
■ Report progress on short and medium term targets
to the Board annually, and on our website.
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Shawbrook Group plc | Annual Report and Accounts 2021 Climate risk management
Climate change represents an inherent risk to the Group, including the impact on the UK economy, asset values,
customer affordability, and operational risks. We recognise the cross-cutting nature of climate risk and during 2021
continued to integrate climate risk within our Risk Management Framework in line with market practice. This is key to
ensuring that each relevant principal risk owner is responsible for embedding climate risk within the control framework
for their principal risk. The Group has assessed that the principal risks that are impacted within its climate risk
assessment are credit risk, strategic risk, operational risk and conduct risk.
We have also undertaken preliminary qualitative scenario analysis using the scenarios published as part of
the Climate Biennial Exploratory Scenario and have considered approaches to embed the impact of climate
change quantitatively within our next Internal Capital Adequacy Assessment Process (ICAAP). We have taken a
proportionate approach (based on our size and loan book profile) to climate change, focusing on term loans
within the customer franchises.
Risk terminology
The Group classifies climate-related risks as either:
■ Physical risks – acute or chronic risks. Acute physical
risks refer to those that are event-driven, including
increased severity of extreme weather events, such
as cyclones, hurricanes, or floods. Chronic physical
risks refer to longer-term shifts in climate patterns
(e.g., sustained higher temperatures) that may
cause sea level rise or chronic heat waves; or
■ Transition risks - regulatory risks, technology risks,
legal risks which are those that may arise from
the shift to a low carbon economy.
Integrating climate risk
Some examples of work completed during 2021
to incorporate climate risk into existing principal
risks include:
■ Climate risk embedded within the terms of reference
for each key Executive Committee sub-committee.
■ Climate risk embedded in 20 policies to promote
the embedding of climate risk in each division and
central function.
■ An enhancement to the origination journey was
implemented for buy-to-let to assess the transition
risk by reviewing energy efficiency of properties
including the EPC rating to support both climate
assessment and legal / regulatory requirements.
■ For lending secured on residential and commercial
property, loans to SMEs and home improvement
portfolios within our Consumer franchise an
analysis of the energy efficiency of the property
was undertaken together with an assessment of
exposure to flood, coastal erosion, and subsidence.
Here we are working with D-Risk and CLS Data to
support our integration of climate risk considerations
into our lending and risk framework.
■ For Business Finance, an analysis of the business
continuity score was assessed. Data intelligence
provided by D-Risk and CLS Data is playing a vital
role in identifying and mitigating risks associated with
climate change, allowing us to determine data driven
opportunities to support SME customers in their
climate transition.
■ Within operational risk, enhanced guidance was
provided to support the assessment of climate
risk within the Risk and Control Self-Assessment.
1 We use the term ‘net zero’ to describe a reduction in GHG emissions coupled with carbon removal (e.g. carbon capture through
nature-based solutions or technology) for residual emissions.
2 We use the term ‘carbon neutral’ to describe a state where any emissions released in operations or production processes
of a company are balanced by an equivalent amount of GHG emissions being removed or avoided via offsetting projects
over the same period of time.
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Environment
Climate metrics and targets
In 2021, we commissioned BeZero
Carbon to measure our carbon
footprint1. We measured our Scope 1
and 2 greenhouse gas emissions as well
as partial Scope 3 emissions (detailed
in the table below). Our emissions
relating to loans and investments
(Scope 3, category 15) are not currently
included but we have started planning
for their measurement during 2022.
The estimated emissions for purchased
goods and services are based on very
high-level assumptions (from category-
based expenditure).
In 2021, our total measured emissions
were 15,793 tCO2e.
Emissions
from our own
operations
1,159 tCO2e
Other
Waste
Business Travel
Employee commuting
Reporting Period: 1 January 2021 - 31 December 20212
Purchased Goods
and Services
14,634 tCO2e
2021
2020
% change
Energy
Total energy use for Scope 1 and 2 emissions (kWh)
1,796,510
1,703,243
5.5%
Emissions from heating and own transport (Scope 1)
-
Emissions from the use of purchased electricity (Scope 2)
336.7
Emissions
(tCO2e)
Total emissions (Scope 1 and 2)
Scope 3 emissions from business travel
Total Scope 1, 2 and 3 emissions
Intensity
metrics
Scope 1 and 2 emissions (kgCO2e) per sq ft
Scope 1 and 2 emissions (kgCO2e) per FTE
336.7
110.4
447.1
4.8
378.1
-
123.4
123.4
-
172.8%
172.8%
326.1
(66.2%)
449.5
(0.5%)
1.8
n/m3
n/a
n/a
1 To calculate our carbon emissions, we follow the GHG Reporting Protocol framework, which identifies three scopes of
emissions. Scope 1 represents the direct emissions from owned or controlled sources. Scope 2 represents the indirect emissions
from the generation of purchased electricity. Scope 3 represents other indirect emissions across our value chain, including
upstream and downstream emissions.
2 The Group’s 2020 SECR report has been restated to include 3 additional office locations that were previously excluded.
3 Not measured.
38
Shawbrook Group plc | Annual Report and Accounts 2021 Purchased Goods and Services
Fuel- and Energy-Related Activities Not Included in Scope 1 or Scope 2
Additional
disclosure:
Scope 3
emissions
(tCO2e)
Waste Generated in Operations
Employee Commuting including Work from Home
Downstream Transportation and Distribution
Total emissions (Scope 3)
Total emissions (Scope 1, 2 and partial 3)
2021
2020
14,633.5
29.8
59.6
622.3
0.2
n/m
n/m
n/m
n/m
n/m
15,345.4
n/m
15,792.5
449.5
Comparison to 2020 SECR
The total electricity use increased by 93,267 kWh.
This increase is in part due to the extra office location
(TML’s office in Glasgow). Additionally, the 2021
reporting year included restrictions and guidance
on work from home during COVID-19 lockdown
periods. It is expected that, overall, employees worked
more frequently in the office during 2021 than in
2020, leading to higher energy consumption in
office locations.
Of the mandatory SECR reporting metrics, the Group’s
gross emissions decreased by 2.4 tCO2e. Despite an
overall increase in electricity consumption in 2021, the
decrease in business travel emissions of 215.7 in the year
led to an overall decrease.
Despite the varying COVID-19 lockdown periods, the
total mileage claimed on grey fleet cars was very similar
between both years. Therefore, the decrease in travel
emissions is expected to be due to use of different
data sources and calculation methodology (based on
spending) in the 2021 report.
Streamlined Energy and Carbon Reporting
(SECR)
The total emissions attributable to the Group in
compliance with the SECR guidelines were calculated
to be 447.1 tCO2e between the reporting period of
1 January 2021 and 31 December 2021.
The COVID-19 pandemic led to significant changes
in business operations during both 2020 and 2021,
including work from home policies and travel
restrictions, leading to a different emission profile
than would be expected during a typical
operating year.
Methodology
The SECR methodology follows the GHG Reporting
Protocol, specifically under the operational control
approach for all facilities controlled by the Group.
All energy and GHG calculations were completed
using the 2020 and 2021 UK Government GHG
Conversion Factors for Company Reporting1.
Data used was based on operational data consisting
of monthly and quarterly energy consumption
breakdowns for all office sites and employee mileage
that was later reimbursed by the Group. Where. the
energy consumption was only provided by the amount
of the utility bills paid, the office floor area was used to
estimate energy consumption.
In February 2021, the Group acquired TML. The
2021 SECR disclosure accounts for TML’s energy
use and GHG emissions.
1 Department for Business, Energy and Industrial Strategy.
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and Governance Report
Social
As an organisation focused on creating opportunity for
individuals and businesses across the UK, we strive to
encourage sustainable improvements. We want to boost
social mobility, champion equality and diversity and create
an inclusive environment for everyone by leveraging our
capabilities, networks and people.
Socially-focused products
We have a set of socially-focused products that enable the development and
growth of SMEs’ economic activity. Through our property finance propositions we
lend to regional developers and landlords to enable them to provide quality and
sustainable housing to communities.
The acquisition of TML in February 2021 served to expand our proposition
and reach. Focused on “real life lending” TML supports home ownership by
providing mortgages to self-employed workers, business owners, or customers
with complex income profiles.
Through our Speciality Finance team, we also provide wholesale funding to
non-bank specialist lenders, further enabling the provision of finance to
underserved groups.
“ TML’s purpose is strongly aligned to the wider Group’s purpose
of using ingenuity to solve real world problems that are
important to customers today and our ESG aspirations of
promoting social mobility.”
Peter Beaumont, Chief Executive Officer The Mortgage Lender
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Social
People
Our success would not be possible
without our team. Our people drive
innovation and deliver the best value for
our customers through their ingenuity,
expertise and by embracing the culture
we have. Across the organisation, three
key principles define the experience of
working with and within Shawbrook:
practical, personal and creative. These
principles not only shape the way in
which we work but also how we wish
to be perceived and experienced by
our partners and customers.
Our experience principles have
been developed by listening to and
in consultation with our people.
Engagement is critical and we listen to
employee sentiment on an ongoing basis
through a range of employee feedback
tools and networks, such as formal
staff engagement surveys, our People
Engagement Forum, all-staff meetings
including question and answer sessions,
and more informal team ‘town halls’.
In our latest 2021 employee engagement
survey, we achieved an engagement score
of 80%, with improvements in almost all
segments of the survey including growth,
recognition, management support and
health and wellbeing. Despite our score
being above benchmark for financial
services, we are continually looking for
ways to improve. The outcomes of our
survey provide us with rich insights to help
us improve our employee experience,
with all feedback reviewed and plans put
in place to optimise our opportunity to
be an even better place to work. Indeed,
many of our initiatives developed in 2021,
such as our evolving approach to hybrid
working, were borne out of feedback
from the survey.
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Shawbrook Group plc | Annual Report and Accounts 2021 Equality, diversity and inclusion (EDI)
We recognise that having an equal, diverse and
inclusive workplace helps us move faster towards
achieving our goals. Creating a diverse and inclusive
working environment, where everyone feels comfortable
to be themselves is a priority.
To support industry and social change, we have
committed to diversity charters such as HM Treasury’s
Women in Finance Charter and the Business in the
Community Race at Work Charter.
As part of our commitment as a signatory of the Women
in Finance Charter, we’ve set ourselves an aspirational
target of 30% female senior managers by the end
of 2022. Whilst we still have some way to go, we are
pleased to report progress against this target in 2021.
We also continue to monitor our gender pay gap.
Our 2021 outcomes remain broadly consistent with prior
year, influenced by the proportionately higher number
of males in senior management roles at present.
However, we believe we will make sustainable change
happen in the long term by placing focus on this today.
2021
2020
2021
2020
Gender Pay
Gap
38.7% 38.6% 44.5% 43.1%
Mean
Median
In 2021, we enhanced our family friendly approach to
support employee attraction and retention including
day 1 eligibility for paternity and maternity leave and
6 months full maternity pay. We also introduced a new
digital healthcare benefit that offers our employees and
their partners personalised support through some of life’s
big transitions such as going through a fertility journey,
becoming a parent or going through menopause.
We also have a strong, established employee-led
inclusion network, with executive sponsorship, and over
340 active members. This is supported by a dedicated
EDI Steering Group responsible for increasing
awareness of EDI themes and developing and
promoting our EDI strategy, polices and initiatives.
In 2022, we will continue to drive and progress our
EDI agenda from its current position of equality of
opportunity to one of equity of outcomes. Our objective
is to create and drive opportunities which help us play
a positive role in society and within the communities
we serve whilst supporting the wider levelling up
agenda and addressing social mobility issues. We
will do this via a series of programmes and initiatives
driven by our EDI Steering Group. The first of these is
the Thrive Shawbrook apprenticeship programme,
creating a platform from which we can build on and
offer underrepresented groups access to working
within financial services. Alongside Thrive, we will also
enhance access for all employees to meaningfully
volunteer in the communities they serve.
See our full 2021 Gender Pay Gap Report here:
shawbrook.co.uk/media/4409/gender-pay-gap-
report-2021.pdf
Female staff as %
of total workforce
2021
2020
44.4%
43.5%
Female staff as % of
total senior management
24.6%
23.3%
Female members as %
of Executive Committee
22%
10%
85%
Participation rate in our
latest engagement survey
80%
Employee engagement score
28%
Vacancies filled with internal
applicants during 2021
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Social
Social partnerships
We recognise that we can often make a greater impact
when joining forces with like-minded partners whose
purpose and values are aligned to our own. The aim of
our social partnerships is to work together on shared
priorities, leveraging our combined expertise and
capabilities to expand our reach and impact.
This year we have been proud to actively contribute to
the inspiring work of the Saracens Foundation. We have
worked in conjunction with the Foundation to develop
‘Empower Her’, a new leadership programme designed
to inspire the next generation of female leaders through
sport. Shawbrook provided financial support and is also
playing an active role in developing and delivering the
project with the enthusiastic and committed support of
colleagues from across the Group including members
of the Executive Committee and Board.
“ This project allows Saracens women’s
players and young people from local
community sports clubs to build
networks, create memories and
encourages individual growth towards
positions of leadership in the future.
Saracens Foundation has been
overwhelmed by the support and
kindness of Shawbrook; thank
you for continuing to be an advocate
for female empowerment!!”
Charlie White – Development Manager,
Saracens Foundation
44
Shawbrook Group plc | Annual Report and Accounts 2021 Other charitable commitments
Throughout 2021, we continued to demonstrate our
strong charitable commitments and made donations
to 20 individual nominated charities. The Group’s
charitable activity is managed by our employee-run
charity committee, consisting of 12 volunteer committee
members and over 240 employee representatives.
Each year, we ask all Shawbrook employees to
nominate their preferred charities, providing everyone
with the opportunity to support those causes close to
their hearts. Following a Group-wide vote in July 2021,
Papyrus, a charity established to support the prevention
of young suicide, was chosen as our national charity to
support for a year. The Group’s £10,000 donation will be
put towards the running of the helpline, HOPELINEUK,
which provides confidential support and advice to
young people 365 days of the year.
20
Individual charities supported
45
Strategic ReportCorporate GovernanceRisk ReportFinancial Statements Environmental, Social
and Governance Report
Governance
We recognise both our duty to operate under, and the direct benefits of,
a robust governance and a strong culture, which underpins our purpose
and values. We remain committed to high standards of governance and
place importance on ensuring our governance framework serves our
colleagues, our customers and our communities. We have an established
risk management framework including a clearly defined risk appetite
and employ a three lines of defence model.
Board effectiveness
The Board is responsible for our strong and transparent
governance which enables us to achieve our purpose,
drive improvement and ensure that all our stakeholders
have a fair, balanced and understandable assessment
of the way we do business. We complete an annual
review of our Board’s effectiveness and in 2021
instigated a number of changes following the
2020 review. Please see page 60 of the Corporate
Governance Report for further details on the outcomes
of our most recent Board effectiveness review.
All appointments to the Board are based on merit
with candidates assessed against objective criteria.
However, the Board recognises the importance of
having a diverse range of skills, knowledge, experience
and perspectives and any appointments seek to
increase its diversity whilst not compromising on
the quality of the Board. The Board operates in an
environment that values the input of every director
and where bias and discrimination are not tolerated.
In December 2020, our People Engagement Forum was
established to create a formal way for the feedback
and insights of our employees to be shared with our
Board and vice versa. Today, the People Engagement
Forum, which is comprised of a diverse group of
self-nominated employees, is well established and
continues to contribute as the voice of Shawbrook
employees on key business issues and help to shape
Shawbrook’s strategy. Topics considered by the People
Engagement Forum during 2021 included ways of
working as the Group transitioned to a hybrid model,
our purpose and our reward offering.
ESG-linked executive pay
We calculate our executive pay using a balanced
business scorecard approach. This includes all three
ESG factors, for example delivery of our climate
implementation plan and metrics linked to diversity
and inclusion. The Group’s enhanced focus on its
broader ESG strategy features in the bonus
scheme design for 2022.
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Shawbrook Group plc | Annual Report and Accounts 2021 Board gender balance
Independent Board member balance
22%
>55%
Board members female
Independent Board members
Risk management
Data protection
We take our obligation to safeguard personal data
seriously and take appropriate measures to ensure
that information is processed and handled properly
throughout its lifecycle, so that individuals can have
trust and maintain confidence in how we handle
their personal information.
We have introduced a privacy management framework
that covers all aspects of privacy and data protection
and designated a Data Protection Officer to manage
this. We have appointed senior leaders as Privacy
Champions to support the tasks undertaken by
our front-line teams.
Individuals’ rights are a core foundation of data
protection and in December 2020 we introduced
a secure on-line portal, via our website, to enable
individuals to easily submit rights requests. We have
further integrated privacy and data protection into our
decisions as part of our change management and third-
party supplier processes. All employees that handle data
undertake regular training and we continue to introduce
targeted training programmes aimed at focusing on
specific areas of privacy and data protection.
Cyber security
We take a holistic approach to information security
controls. Our controls are aligned to the ‘Adaptive
Security Architecture’ framework and its key activities
of prevent, detect, respond and predict. Combined,
these controls provide multiple layers of protection to
mitigate the cyber and information security risks and
maintain the ongoing security posture of the Group.
The ‘Adaptive Security Architecture’ has 4 key pillars:
1. PREVENT – Harden systems, isolate systems,
prevent attacks
2. DETECT – Detect incidents, confirm and prioritise,
contain incidents
3. RESPOND – Remediation, design, forensic
investigation
4. PREDICT – Vulnerability assessment,
predict attacks, baseline systems
The Group’s internal information security team, led by
the Chief Information Security Officer is operationally
supported by a key security partner who provides
our security operations centre and cyber threat
intelligence, with 24x7 monitoring and alerting.
In 2021, we continued to invest in cyber security,
including awareness training and upgrades to our
detection and monitoring capabilities which enhance
our overall posture. Cyber incident response plans
are tested regularly and National Cyber Security
Centre advice and guidance reviewed on an ongoing
basis. The Board is fully engaged in our cyber risk
management strategy, receiving regular cyber
briefings and training.
Financial crime risk management
During 2021, we invested in new technology systems
and resources, to enhance the control framework
for the prevention of financial crime against us, our
customers and the industries we operate in. This
included strategic enhancements made to automated
due diligence measures and ongoing monitoring
of suspicious transactions and behaviours, as well
as integral oversight of the Group’s relationships
with associated persons such as outsourced service
providers, brokers and intermediaries.
Operational resilience
Our operational resilience approach ensures the
continuity of the most important services our customers
rely upon. We assess, plan and test our approach to
minimise disruption and work hard to ensure agreed
service levels are met. Throughout 2021, we focused
on ensuring our approach complied with the new
operational resilience regulations, which saw a
dedicated Risk Committee working group established
to ensure key deliverables were achieved, including our
agreed important business services, impact tolerances
and self-assessment document.
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Governance
Third party approach
We only contract with third party suppliers who
subscribe to, operate on and promote similar principles
and values to the Group. We also require our suppliers
to meet our compliance and ethical requirements as
part of any new onboarding.
The procurement policy incorporates both the PRA’s
Supervisory Statement SS2/21 on Outsourcing and Third
Party Risk Management and the European Banking
Authority Guidelines on outsourcing arrangements
to ensure that any new procurement complies with
the latest regulatory requirements, facilitates greater
resilience and ensures that the Group has suitable
controls in place to manage our supply chain.
Training
All of our employees take part in structured learning
throughout the year on topics including (but not limited
to) anti bribery and corruption, anti-money laundering,
conduct, climate change awareness, financial
crime and understanding vulnerable customers. To
complement our mandatory training, we encourage
all employees to undertake 35 hours of continuing
professional development each year. Employees are
provided with the opportunity to sign up to courses
and bite size learning through a learning bank. Study
support for external training and development is
also made available on a case-by-case basis.
Human rights and Modern Slavery Act
The Group has zero-tolerance to any modern slavery and
by having the correct tools and regularly reviewing our
policies, we can ensure that any occurrences are swiftly
addressed. In 2021, we continued to take the appropriate
steps to prevent slavery and human trafficking from both
our business and supply chain. A full copy of our modern
slavery statement can be found on the Group’s website
at: shawbrook.co.uk/modern-slavery-act/
Anti-bribery and corruption
It is the Group’s policy to conduct all of our business in
an honest and ethical manner. We take a zero-tolerance
approach to bribery and corruption. We are committed
to acting professionally, fairly and with integrity in all
of our business dealings and relationships wherever
we operate by implementing and enforcing effective
systems to counter bribery. Our policy applies to all
individuals working at all levels, including the Board,
as well as outsourced partners and intermediaries,
and is reviewed and approved annually by the Board.
The Strategic Report was approved by the Board and
signed on its behalf by the Chief Executive Officer.
Marcelino Castrillo
Chief Executive Officer
48
Shawbrook Group plc | Annual Report and Accounts 2021 Corporate Governance Report
Chairman’s introduction
50
52
54
58
68
74
79
87
90
Board of Directors
Creating value for our stakeholders
Corporate Governance Report
Audit Committee Report
Risk Committee Report
Directors’ Remuneration Report
Nomination and Governance Committee Report
Directors’ Report
Corporate
Governance
49
Strategic ReportCorporate GovernanceRisk ReportFinancial Statements Chairman’s introduction
On behalf of the Board, I am pleased to present
the Corporate Governance Report for the year
ended 31 December 2021.
Our Commitment to good corporate
governance
We remain committed to maintaining high standards
of corporate governance within the Group. There are
a comprehensive range of policies and procedures in
place designed to help ensure that it is well managed
with effective oversight and controls. This report
explains how the Board and its committees have dealt
with ensuring that the Group’s corporate governance
is effective and continues to help support the creation
of long-term sustainable value for our shareholder and
wider stakeholders.
The Board endorses the Financial Reporting Council’s
UK Corporate Governance Code 2018 (the ‘Code’),
which we have applied to our 2021 financial year. We
seek to ensure that our governance framework remains
aligned with best practice and is consistent with
the Code where appropriate. Further details on our
compliance with the Code can be found on page 58.
Succession planning and Board changes
With the planned departure of Robin Ashton in June
2022, the Nomination and Governance Committee
has focused on the recruitment of a new Senior
Independent Director and the composition of the
Board’s Committees. During the search for a new
Senior Independent Director, a new Non-Executive
Director was also found. Please see the Nomination
and Governance Committee Report on page 87
for further details.
Board meetings and activity
In 2021, the Board considered several key areas, which
can broadly be categorised into the following themes:
strategy and execution, financial performance, risk
management, regulatory and corporate governance.
Further details on how the Board operated during 2021,
including the areas of Board focus can be found on
page 64.
The Board’s committees also continued to play a
critical role in the governance and oversight of the
Group by ensuring adherence to strong governance
practice and principles. This section contains a report
from the Board’s principal committees, which sets out
their approach and considerations.
50
Shawbrook Group plc | Annual Report and Accounts 2021 Effectiveness and evaluation
The annual review of the Group’s Board was carried
out in-house (next year the review will be undertaken
by an independent consultant), with the assistance of
the Company Secretariat. Effectiveness Reviews were
also carried out internally for the Audit, Remuneration
and Risk Committees. The reviews concluded that the
Board and its committees operated effectively. Further
details of the findings from the review can be found on
page 60.
Purpose, culture, and experience principles
The Group’s success depends on our commitment
to high corporate governance standards, as well
as a strong purpose and healthy culture both in
the boardroom and across the Group. The Board is
committed to promoting a strong purpose and positive
culture and helping to uphold its core experience
principles (practical, personal and creative) that
underpin how we run our business.
The Board receives updates throughout the year
regarding stakeholder issues and concerns including
details of our Group-wide employee engagement
surveys. The Board and Senior Management continue
to work closely with the People Engagement Forum to
further enhance the voice of our employees within the
boardroom so that better, more informed decisions
are made taking into account the interests of the
Group and its stakeholders.
Looking forward
Our corporate governance priorities for the year ahead
will be focused on ensuring the successful transition
of our Senior Independent Director, induction of our
new Non-Executive Director, and the embedding
of our evolved purpose throughout our governance
framework.
John Callender
Chairman
51
Strategic ReportCorporate GovernanceRisk ReportFinancial Statements Board of Directors
A
RI
R
N
Audit Committee
Risk Committee
Remuneration Committee
Nomination and Governance Committee
Committee Chair
John
Callender
Chairman
NR
Marcelino
Castrillo
Chief Executive
Officer
Appointed to the Board in March 2018.
Appointed to the Board in June 2021.
Skills and experience
John was appointed to the Board as
Chairman in March 2018. John brings
extensive financial services experience
to the Board, gained through both his
Executive and Non-Executive careers.
John has previously served as Non-
Executive Director of Aldermore Group
plc, Non-Executive Director of Motability
Operations plc, Non-Executive Chair of
ANZ Bank Europe Ltd for a 10-year term
retiring in 2019 and Senior Independent
Director and Chair of the Risk Committee
of FCE Bank plc retiring in 2020. John
also sat on the Regulatory Decisions
Committee for the Financial Conduct
Authority for 6 years finishing his two
statutory terms in January 2020.
External appointments
John is currently a Director of Inglewood
Amenity Management Company Limited.
Dylan Minto
Chief Financial
Officer
Skills and experience
Marcelino joined Shawbrook as Chief
Executive Officer in June 2021. He brings
a wealth of experience in financial
services, most recently he was Managing
Director, Customer Engagement and
Distribution at NatWest Group where
he led 9,000 employees through an
ambitious transformation programme.
Prior to that he held senior roles at RBS and
Santander leading Commercial Banking
franchises. He started his career at The
Boston Consulting Group working across
a number of industries and countries.
Marcelino holds an MBA from MIT Sloan
School of Management, MS Industrial
Engineering (ETSII, Madrid) and a Bachelor
in Physics (U. Complutense, Madrid).
External appointments
None.
Robin Ashton
Senior
Independent
Director
A
RI R
N
Appointed to the Board in February 2017.
Appointed to the Board in March 2015.
Skills and experience
Dylan joined Shawbrook in 2013 from
KPMG LLP where he spent 11 years in
their Financial Services practice advising
large UK and European banks. Dylan was
appointed permanent Chief Financial
Officer in February 2017 having been
Interim Chief Financial Officer from
June 2016. He is a Fellow of the ICAEW
and holds a dual BA Honours degree
in German and Business Studies from
Sheffield University.
External appointments
None.
Skills and experience
Robin has comprehensive experience
of retail financial services both in the UK
and internationally. He is a chartered
accountant and holds a Bachelor of Arts
(Hons) degree in Economics and Law
from Durham University.
External appointments
Robin is a Non-Executive Director
of Domestic and General Limited.
52
Shawbrook Group plc | Annual Report and Accounts 2021 Andrew
Didham
Independent
Non-Executive
Director
Paul
Lawrence
Independent
Non-Executive
Director
Michele
Turmore
Independent
Non-Executive
Director
A
RI R
A
RI
R N
R
A RI
Appointed to the Board in February 2017.
Appointed to the Board in August 2015.
Appointed to the Board in October 2019.
Skills and experience
Andrew has extensive financial services
experience. He is a fellow of the Institute
of Chartered Accountants, having
enjoyed a successful career at KPMG
LLP, becoming a partner in 1990,
and subsequently as Group Finance
Director of the international Rothschild
investment banking group.
External appointments
Andrew is currently an Executive Vice-
Chairman for Rothschild and is also a
Non-Executive Director of NM Rothschild
and Sons Ltd, Chairman of NMR Pension
Trustee Ltd, Non-Executive Director of
each of IG Group Holdings plc, IG Index
Limited and IG Markets Limited and
Non-Executive Director and Chairman
designate of GCP Infrastructure Ltd.
Skills and experience
Paul has considerable experience
in financial services having had a
successful career within HSBC Group.
Paul has particular strengths in
managing risk and internal audit
across a number of business lines and
previously served as a member on
the IIA Committee for Internal Audit
Guidance for Financial Services.
External appointments
Paul is currently the Chairman of HSBC
Bank Turkey and Chairman of Uley
Community Stores Limited.
Skills and experience
Michele has comprehensive experience
in operations, transformation, IT and
distribution leadership, with focus on the
customer. She has operated across blue
chip, mid-scale and start-up entities,
including Private Equity backed banks.
Most recently Michele held the position of
Chief Operating Officer at Allica Limited.
External appointments
Michele is currently a Director and
the Risk Committee Chair of Ambant
Limited, Davies MGA Services Limited
(formerly Ambant Underwriting Services
Limited) and Davies Intermediary
Support Services Limited.
Lindsey
McMurray
Institutional
Director
Cédric
Dubourdieu
Institutional
Director
Daniel
Rushbrook
General Counsel
and Company
Secretary
A
RI
R
N
A
RI
R
N
Appointed to the Board in April 2010.
Appointed to the Board in September 2017.
Skills and experience
Lindsey has been a private equity investor
for 25 years with a particular focus on
the financial services sector. She has a
First-Class Honours degree in Accounting
and Finance and studied for an MPhil in
Finance from Strathclyde University.
External appointments
Lindsey is Managing Partner of Pollen
Street Capital and is Chairman of their
Investment Committee. Lindsey is also
a Non-Executive Director of several
portfolio companies including Cashflows
Europe and BidX1.
Skills and experience
Cédric has close to 20 years of private
equity experience, having led a number
of investments in a variety of sectors
across Europe. He holds a degree from
Ecole Polytechnique, Paris.
External appointments
Cédric is a Partner of private equity firm
BC Partners and sits on BC Partners’
Investment Committee. BC Partners is an
affiliate of Marlin Bidco Limited of which
Cédric is also a Director. Cédric is also
a board member of iQera, the French
leader of credit management services,
and a Director of Davies group, a leading
provider of professional services to the
insurance industry.
Appointed Company Secretary
to the Board in March 2015.
Skills and experience
Daniel has over 25 years of legal
experience. He has experience in
private practice having worked for both
Linklaters LLP and Macfarlanes LLP.
Daniel became the first in-house lawyer
for Commercial First Mortgages Limited,
later joining its Board as Legal Director
in 2005. In 2011, Daniel transferred to
Shawbrook becoming General Counsel
and Company Secretary. Daniel holds
a first-class law degree from Oxford
University and a Masters in Law from
the University of Pennsylvania.
External appointments
None.
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(S172 / Corporate Governance Report)
This section describes how the Directors have had regard to the matters set out in Section 172(1) (a) to (f)
of the Companies Act 2006.
Effective stakeholder engagement is central to the formulation and execution of our strategy and is critical
to us achieving our purpose and long-term sustainable success. Throughout the year, the Board continued
to consider the needs of all our stakeholders and the impact of decisions taken. The principles underpinning
Section 172 are not only considered at Board level but are embedded throughout the organisation. Further
details on how the Board has engaged with the Group’s stakeholders is set out below.
Customers
The interests of our customers sit at the centre of all the
decisions we make, so understanding what is important
to them is key to our long-term success. We use insights
gained through regular engagement to enhance our
proposition to attract new and retain loyal customers.
During 2021, we extended the reach of our real time
customer satisfaction tool across additional teams
and channels, including our digital savings platform.
The Board takes account of customer interests by
monitoring these outputs and other customer conduct
measures included within regular reports. We have
also introduced ‘voice of customer’ forums across our
franchises, analysing data such as complaints metrics
and individual feedback to identify root causes.
Customer considerations sit at the heart of the Group’s
new product development activity, as we continue to
introduce innovative products to meet the evolving
needs of our customers. During 2021, we conducted
detailed customer research which suggested that there
was a gap in the market for a new lending product that
offered flexibility and a digital offering. Following Board
review and approval, we subsequently launched our
non-advised digital second charge mortgage product,
the first product of its kind in the UK.
During the year, we evolved our technology strategy to
further enhance the customer experience. The Board
was engaged throughout the development process,
including the review of strategic presentations, live
demonstrations, and regular progress updates with
select Non-Executive Directors.
Distribution partners
To deploy our capabilities into our markets, we work with
a range of like-minded distribution partners, including
brokers and networks, key business introducers,
platform lending partners and digital marketplace
partners. These relationships are essential to the
successful delivery of our strategy and, by working in
partnership, offer us greater access and insight into our
markets, driving better customer outcomes.
Regular dialogue with our distribution partners
facilitates our ability to ensure a continued
understanding of their needs. Throughout the year,
we sought regular feedback from our partners to help
evolve our proposition in a way which best served their
needs and those of our end customers.
As well as conducting feedback sessions attended by
senior management, direct feedback sessions were
held between the Group’s new Chief Executive Officer
and our broker partners. These provided opportunities
for the partners to share first-hand their valuable
experiences with us. The insights gained are used to
drive continuous improvement.
Over the course of the year, feedback from our partners
continued to play an essential part in shaping new
and innovative digital solutions to provide significantly
improved user experience. In our Enterprise franchise,
feedback from our brokers was critical to the
development of the My Shawbrook Portal, with insights
received throughout the staged roll out to a select
group of brokers and used ahead of the full launch. The
Board received regular status updates on the project
including the feedback received.
54
Shawbrook Group plc | Annual Report and Accounts 2021 Suppliers
Supported by more than c.1,000 third parties, our
supplier network provides us with the goods and
services which we rely on to deliver the best outcomes
for our stakeholders.
To improve cultural alignment, we regularly review our
supply chain and engage with our supplier community to
help ensure they are acting responsibly and continue to
align to our core standards and regulatory requirements.
Regular updates concerning performance of the
Group’s material outsourcers are also provided to
the Board. These include management information,
performance measures to drive continuous
improvement and ad hoc reports.
The Board also oversees the Group’s outsourcing
strategy. During the year, this included a detailed
review of the current loan servicing strategy, which
resulted in changes being agreed to further enhance
our customer proposition.
Every year, the Board approves the Group’s Modern
Slavery Statement and as a result we expect all of our
suppliers to be compliant with the Modern Slavery Act.
We have expectations of high business standards and
extend them to the suppliers we work with by requiring
them to uphold human rights, health and safety and
legal compliance, and include these requirements
within our contractual agreements with all suppliers.
We perform due diligence on all suppliers at the start of
any contractual relationship which includes screening
checks for criminal and regulatory breaches, including
the Modern Slavery Act specifically.
Employees
Our Board believes that our employees’ dedication to
our stakeholders is core to the successful delivery of our
strategic ambitions. As a result, we are committed to
creating an environment that is truly inclusive in which
our employees feel part of our overall purpose, are
encouraged to develop, and are supported to reach
their full potential.
Over the year, we continued to offer our employees a
platform to have their say and then used the feedback
provided to make changes to enhance our value
proposition. Feedback obtained from staff engagement
surveys are presented and discussed at Board level, to
ensure continued understanding of employee sentiment
and to help determine future focus areas.
Since the launch of the Group’s first People
Engagement Forum in December 2020, designed to
bring the employee voice into the Boardroom, the
employee represented forum has contributed to key
strategic topics including the future ways of working,
our approach to reward and our purpose. Throughout
the year, a number of the Group’s Directors attended
face to face meetings to gain a clearer understanding
of the employee viewpoint on key topics.
During 2021, we hosted a range of employee events to
ensure our people continued to feel connected and
engaged. These included regular all staff calls and
our annual all staff conference, which were used as
opportunities to celebrate strategic developments
and share updates on Group performance and future
plans. The Group’s Chairman presented at the all-staff
conference, while members of the Board also attended.
Our commitment to employee wellbeing continued to
be endorsed by the Board, demonstrated through a full
programme of wellbeing activity deployed throughout
the year. Activities included the introduction of a new
digital healthcare benefit to offer all employees and
their families personalised support through some of
life’s big transitions. We also continued to leverage the
expertise of trusted partners to support our employees
with physical, mental, and financial wellbeing.
As a business, we recognise the importance of a
diverse workforce and are committed to ensuring that
Shawbrook is a fair, inclusive, and diverse organisation.
Throughout 2021, we progressed our diversity and
inclusion agenda to drive positive change. The Board
was actively engaged in the Group’s approach to
diversity and inclusion, reviewing relevant insights
and agreeing areas of focus and strategy.
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(S172 / Corporate Governance Report)
Regulators
Shawbrook is regulated by both the Prudential
Regulation Authority (PRA) and the Financial Conduct
Authority (FCA) and the Board is committed to further
developing relationships with both, engaging regularly
on a range of topics.
As we continued to take steps to scale and evolve our
business throughout the year, we ensured that open
and transparent dialogue continued.
Update meetings on key strategic topics were held
with the Chairman and Executive Directors, supported
by regular engagement with senior management,
covering prudential and conduct aspects, such
as organisational design change and operational
resilience. We also actively engaged with the FCA
throughout the design phase of the Group’s new digital
second charge product to ensure they were aware of
the proposition ahead of its launch.
The Group’s Chief Risk Officer provides regular updates
to the Risk Committee on regulatory engagement to
ensure all key messages are cascaded effectively.
Investors
Our investors include both our private equity backed
shareholder and our debt investors.
Our Shareholder’s interests are represented at Board by
two appointed Non-Executive Directors. We regularly
engage with our Shareholder and, throughout 2021,
they and their expert teams continued to be engaged
on key strategic topics and performance updates.
We also continued to progress our debt investor
communications programme, to increase transparency
and develop our relationships with our debt investor
community. Following the release of our half year results,
we hosted an investor roadshow, giving our investors
an opportunity to meet with the Group’s Executive
Directors to discuss business performance. We also
continued to release our quarterly statements to provide
updates on developments through the quarter.
Community
Our community stakeholder group includes both the
local community and wider environment.
As an organisation focused on unlocking opportunities
for individuals and businesses across the UK, we are
passionate about supporting those communities that
we touch. Further details of how we do so are set out in
our ESG Report on pages 40 to 45.
Consideration of how we can increase the positive
impact we have on our communities forms a core part
of the Group’s ESG strategy that was developed and
approved by the Board during the year. A spotlight
session on our key charitable partnerships was also
held, providing an opportunity for the Board to input
into these critical relationships.
56
Shawbrook Group plc | Annual Report and Accounts 2021
Strategic Report
Corporate Governance
Risk Report
Financial Statements
Case studies
TML
The Board played a critical role in the Group’s
acquisition of TML, which has provided Shawbrook
with a significant growth opportunity via a widened
intermediary audience and enhanced product range.
The acquisition was a natural extension of the strong
relationship built with TML over three years after
Shawbrook took a minority share in the business in 2018.
Customer considerations were central to the Board’s
approval of the acquisition, acknowledging the benefits
which the broadened product proposition, increased
certainty of funding and combined market reach would
bring to our customers.
The Group’s shareholder also played a key role in the
acquisition process.
Ahead of the formal acquisition in February 2021,
we maintained ongoing dialogue with the regulator
ahead of approval, with regular updates to the Board.
Following the acquisition, we adopted a harmonisation
approach to efficiently integrate the TML business into
the wider Group. All TML employees are now formally
part of the Group and are aligned to HR policies, use
the same communication platforms to encourage
open dialogue and join employee meetings and
events. To optimise existing operations throughout the
harmonisation process we also ensured that technology
integration was a key consideration to ensure that all
possible technology synergies were identified.
TML’s Chief Executive Officer, Peter Beaumont, attends
the Group Executive Committee meetings and engages
directly with the Board, encouraging a consistent
approach and cascade of key strategic messaging.
Reinvigorating our purpose – Powering up ingenuity
to create opportunity, every single day.
Shawbrook was launched 10 years ago with a powerful
founding principle to “serve the underserved”, a
principle which has continued to permeate through
the organisation. As the business has grown and our
culture developed, the Board agreed that there was
an opportunity to evolve and reinvigorate our purpose
and related experience principles, to help to better
articulate what drives us as a business and provides
a competitive advantage.
The Group’s Board, Shareholder and Senior Management
were actively engaged throughout, exploring what it
means to be a purpose-led business and providing their
perspectives and insights. This included attendance at
several externally facilitated workshops.
To ensure a strong connection between our purpose
and workplace culture, perspectives from c.100
employees were obtained through dedicated
workshops. Insights provided on Shawbrook’s
differentiators and what we want to stand for
provided a central building block in the work.
More formal working sessions were also held with
the People Engagement Forum, with feedback
provided enabling the Board to listen to the employee
perspective. All feedback received was considered
and helped produce the final output.
To maintain engagement and share developments
regular updates were provided to all employees
through internal communications and updates
from the Chief Executive Officer.
57
Corporate Governance Report
This report explains the Board’s role and activities, and how corporate governance operates throughout the Group.
The UK Corporate Governance Code
The Company is no longer considered a listed entity
(since delisting in 2017) and is not required to adopt the
‘comply or explain’ approach of the Code published
by the Financial Reporting Council. However, the
Company recognises the value of a strong approach
to corporate governance and has therefore elected
to report against the Code for the financial year.
The Company has complied with all the principles
and provisions of the Code throughout the financial
year and up until the date of this report, except as
explained below.
Purpose (Principle 1B)
The Group was created in 2011 with the strong purpose
“to serve the underserved” and this purpose has
underpinned the Group’s strategy and values ever
since. During the financial year the Group commenced
work to review and update its purpose and to more
explicitly link its purpose to the Group’s strategy,
business, culture and values.
Executive remuneration (Principle 5P)
The remuneration policies and practices of the Group
have been designed to support the delivery of the
strategy and long-term sustainable success of the
business. While remuneration policies and practices are
clearly aligned to the Group’s values, there has been
no explicit reference to “purpose” in those policies and
practices (although the Group believes that this linkage
has been implicit). In 2022 the Group will consider
introducing a specific component to its remuneration
policies and practices to make this linkage more explicit.
Audit, Risk and Remuneration Committee
Membership (Code Provisions 24, 25 and 32)
The membership of these Committees comprises
a majority of independent directors, however two
investor directors are also members. A Memorandum of
Understanding between the Group and its Shareholder
makes it clear that the Shareholder expects these
Committees to retain the independence and autonomy
necessary to carry out their respective responsibilities
under their applicable terms of reference.
Shareholding requirement for Directors (Code
Provision 36)
The Group has not adopted a formal policy regarding
post-employment shareholding requirements for
Directors given leaver provisions in existing incentive
arrangements.
Executive Pensions (Code Provision 36)
Executive Directors may participate in the Group’s
workplace pension arrangement or receive a cash
allowance in lieu (in full or part) of pension contributions.
Each Executive Director currently receives a pension
contribution and/or allowance to a combined value
of 15% (8% wider workforce with no cash equivalent)
of salary per annum. The remuneration approach
is reviewed each year and consideration is given
to market practice and industry guidance.
Where required, sections of the FCA’s Disclosure and
Transparency Rules have been applied in line with
obligations in relation to the Group’s listed debt.
The Board
The Board takes account of the views of the Company’s
Shareholder, Marlin Bidco Limited, and has regard to
wider stakeholder interests and other relevant matters
in its discussions and decision-making. The Board
recognises that stakeholders’ interests are integral to
the promotion of the Company’s long-term sustainable
success. Further information about how the Board
considers the interests of its stakeholders can be found
on pages 54 to 57.
A Framework Agreement is in place with the Shareholder
which includes a formal schedule of matters reserved
for the Board and those matters which require
recommendation to the Shareholder for approval.
This document is supported by a Memorandum
of Understanding, which preserves the Board’s
independence when making significant decisions. The
Board delegates specific powers for some matters
to Board committees, with the outputs from each
committee meeting reported to the Board regularly, thus
ensuring the Board maintains the necessary oversight.
More detail on the committees and their work is described
in the separate committee reports on pages 68 to 89.
Composition, Board balance and time commitment
The Board currently consists of nine members1, namely
the Chairman, four Independent Non-Executive
Directors, two Executive Directors and two Institutional
Directors. Biographical details of all Directors are on
pages 52 to 53.
The Independent Non-Executive Directors have
substantial experience across all aspects of banking,
including relevant skills in financial management,
regulatory matters, credit assessment and pricing,
liability management, technology, operational and
conduct matters. The Independent Non-Executive
Directors are considered to be of sufficient calibre
and experience to bring significant influence to bear
on the decision-making process.
1 Excluding Lan Tu, who was appointed on 10 March 2022.
58
Shawbrook Group plc | Annual Report and Accounts 2021 The Board considers that the balance of skills and
experience is appropriate to the requirements of
the Group’s business and that the balance between
Executive and Independent Non-Executive Directors
allows it to exercise objectivity in decision-making and
proper control. Each member of the Board has had
access to all information relating to the Group, the
advice and services of the Company Secretary (who is
responsible for ensuring that governance procedures
are followed) and, as required, external advice at the
expense of the Group.
The Board with the assistance of the Nomination
and Governance Committee keeps under review the
structure, size, and composition of the Board (and
undertakes regular evaluations to ensure it retains
an appropriate balance of skills, knowledge, and
experience). The membership of the various Board
committees and the expected time commitment
of the Directors is closely monitored.
The terms of appointment of the Independent Non-
Executive Directors specify the amount of time they
are expected to devote to the Group’s business. They
are currently required to commit at least four days per
month which is calculated based on the time required
to prepare for and attend Board and committee
meetings, meetings with the Shareholder and with
Executive Management and training.
Meetings and attendance
The Board holds joint meetings of Shawbrook Group
plc and Shawbrook Bank Limited at regular intervals,
at which standing items such as the Group’s financial
and business performance, risk, compliance, human
resources, and strategic matters are reviewed and
discussed. There is a comprehensive Board pack
and agenda which is circulated beforehand so that
Directors have the opportunity to consider the issues to
be discussed. Detailed minutes and any actions arising
out of discussions are documented.
The Board and Board committees held a number of
scheduled meetings in 2021 at which senior executives,
external advisors and independent advisors were
invited, as required, to attend and present on business
developments and governance matters. The Company
Secretary and/or his deputy attended all Board
meetings and he, or his nominated deputy, attended
all Board committee meetings.
Number of scheduled meetings attended*
Board
Audit
Committee
Risk
Committee
Remuneration
Committee
Nomination and
Governance
Committee
John Callender (Chair)1
Marcelino Castrillo2
Ian Cowie3
Dylan Minto
Robin Ashton4
Lindsey McMurray5
Cédric Dubourdieu6
Paul Lawrence7
Andrew Didham8
Michele Turmore9
8/8
4/4
4/4
8/8
8/8
7/8
8/8
7/8
8/8
8/8
4/4
3/3
6/6
5/6
5/6
6/6
6/6
6/6
6/7
7/7
7/7
7/7
7/7
7/7
4/4
4/4
4/4
3/4
3/3
1/1
3/3
2/3
3/3
3/3
The attendance above reflects the number of scheduled Board and
committee meetings held during 2021. During the year, there were also a
number of ad-hoc Board and committee meetings to deal with matters
arising outside of the usual meeting schedule. The majority of Directors
made themselves available at short notice for these meetings.
Notes
* Meetings were held from January to December 2021.
1. John Calendar attended all Risk and Audit Committee meetings in 2021.
4. Due to prior commitments, Robin Ashton was unable to attend the
13 May 2021 Risk Committee meeting.
5. Due to prior commitments, Lindsey McMurray was unable to attend the
25 February 2021 Audit Committee meeting and the 16 December 2021
Board and Nomination and Governance Committee meetings.
6. Due to prior commitments, Cédric Dubourdieu was unable to attend
the 25 February 2021 Audit Committee meeting.
7. Due to prior commitments, Paul Lawrence was unable to attend
the 20 October 2021 Board and Remuneration Committee meetings.
2. Marcelino Castrillo was appointed as a Director of the Board on 7 June
8. Andrew Didham stepped down as a member of the Remuneration
2021.
Committee on 1 August 2021.
3.
Ian Cowie resigned as a Director of the Board on 7 June 2021.
9. Michele Turmore was appointed as a member of the Remuneration
Committee on 1 August 2021.
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Strategic ReportCorporate GovernanceRisk ReportFinancial Statements Corporate Governance Report
Board effectiveness review
The Board carries out a review of the effectiveness of its performance every year. The evaluation is externally
facilitated every three years. The next external evaluation will be in respect of the year ended 31 December 2022.
Progress against 2020-21 actions
Set out below is the progress made against actions identified through the 2020 internal Board effectiveness review:
Action
Additional scheduled breaks are to be built
into Board and committee meetings to mitigate
meeting fatigue.
Progress
Scheduled breaks have been built into Board
and committee meetings.
Action
A review of Board packs is to be undertaken
and paper writing training to be developed for
all individuals preparing papers for Board and
committees, focusing on the quality of summaries,
timeliness of papers and reducing duplication
between Board and committee meetings.
Progress
A review of the Board packs was completed. Board
and committee paper templates have been updated
and paper authors have been provided with guidance
and feedback on the content of their papers.
2021-22 internal evaluation
At the beginning of 2022, an internal evaluation was led by the Chairman, with the support of the Company
Secretariat, using an online questionnaire to capture the views of each Director and Executive Committee
member. The evaluation was carefully structured to bring about a genuine debate on issues that were relevant
and assist in identifying any potential for improvement.
Internal evaluation themes
Behaviours
Purpose, Culture, Equality, Diversity and Inclusion
Composition, Skills and Performance
Meetings
Role of Company Secretary and Minutes
Board Packs (Scope and Content)
The internal evaluation concluded that the Board
continues to be effective with high scores being
recorded across each of the themes. Board and
Executive Committee members feel that there is
good collaboration and participation in a supportive
environment but one in which there is constructive
challenge.
The internal effectiveness review identified some
opportunities for the Board and the resulting areas
of focus are summarised below:
■ The Board agreed that more demonstrations
in respect of the customer journey including the
onboarding and underwriting approach should
be added to the Board training schedule.
■ Work will continue with the People Engagement
Forum to help ensure that the ‘Employees’ Voice’
is heard in the Boardroom in respect of Purpose,
Culture and Equality, Diversity and Inclusion.
■ Work will continue to further refine the Board and
committee papers to ensure even greater clarity.
60
Shawbrook Group plc | Annual Report and Accounts 2021 Structure of the Board, Board Committees and Executive Management
The diagrams on pages 61 to 64 summarise the role of the Board, its committees and the responsibilities
of the Chairman, the Senior Independent Director, the Non-Executive Directors, the Chief Executive
Officer, and the Executive Committee. The Board and Board committees have unrestricted access to
Executive Management and external advisors to help discharge their responsibilities. The Board and Board
committees are satisfied that, in 2021, sufficient, reliable, and timely information was received to enable
them to perform their responsibilities effectively. Each committee plays a vital role in helping the Board to
operate efficiently and consider matters appropriately. The Board committees’ terms of reference can be
found at: shawbrook.co.uk/investors/
Board
Leadership
■ The Board has clear divisions of
responsibility and seeks the long-term
sustainable success of the Group.
Stakeholder engagement
■ The Board organises and directs the
Group’s affairs in a way that it believes will
help the Group succeed for the benefit
of its Shareholder and in consideration
of the Group’s wider stakeholders. More
information about the Group’s stakeholders
can be found on pages 54 to 57.
Operations
■ The Board supervises the Group’s
operations, with a view to ensuring that
they are effectively managed, that effective
controls and IT systems are in place, and
that risks and operational resiliency are
assessed and monitored appropriately.
Financial performance
■ The Board sets the financial plans, annual
budgets and key performance indicators
and monitors the Group’s results and levels
of capital and liquidity against them.
Strategy
■ The Board oversees the development
of the Group’s strategy, and monitors
performance and progress against the
strategic aims and objectives.
Culture
■ The Board develops and promotes the
collective vision of the Group’s purpose,
culture, values, and behaviours.
Information and support
■ The Board accesses assistance and
advice from the Company Secretary. The
Board may seek external independent
professional advice at the Company’s
expense, if required to discharge its duties.
Board Committees
The Audit Committee
■ Monitors the integrity of the Group’s external financial
reporting, including review and challenge of the
critical accounting estimates and judgements.
■ Oversees and challenges the effectiveness of the
Group’s financial controls.
■ Monitors the work and effectiveness of the Group’s
internal and external auditors.
■ Ensures whistleblowing policies remain adequate and
effective to support and encourage employees to
raise confidentially any concerns of impropriety.
The Risk Committee
■ Provides oversight and advice to the Board in relation
to current and potential future risk exposures of
the Group and the future risk strategy, including
determination of risk appetite and tolerance.
■ Responsible for reviewing and approving various
formal reporting requirements and promoting a risk
awareness culture within the Group.
The Remuneration Committee
■ Oversees how the Group implements its
remuneration policy.
■ Monitors the level and structure of remuneration
arrangements for the Board, Executive and material
risk takers, approves share incentive plans, and
recommends them to the Board and Shareholder.
The Nomination and Governance Committee
■ Reviews the Board’s structure, size, composition,
and balance of skills, experience, independence,
and knowledge of the Directors.
■ Leads the process for Board appointments and
Senior Management Function holder appointments
and makes recommendations to the Board.
■ Oversees and ensures that adequate provision
is made for succession planning.
■ Oversees and monitors the corporate governance
framework of the Group.
■ Reviews and monitors the Group’s approach to
subsidiary governance.
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Strategic ReportCorporate GovernanceRisk ReportFinancial Statements Corporate Governance Report
Board and Executive Management roles
Each Director brings different skills, experience, and knowledge of the Company, with the Non-Executive
Directors contributing additional independent thought and judgement. There is a clear division of responsibilities
between the Chairman, Chief Executive Officer and Senior Independent Director. Their roles have been clearly
defined in writing and agreed by the Board. Depending on business needs, the Non-Executive Directors and the
Chairman commit at least four days per month to discharge their duties effectively in accordance with their
letters of appointment.
The Chairman
■ Guides, develops, and leads the Board,
ensuring its effectiveness in all aspects of
its role as well as being responsible for its
governance.
■ Helps to ensure effective communication and
information flows with key stakeholders (such
as employees, regulators, and investors).
■ Sets the tone for the Group and ensures
effective relationships between Management,
the Board, and stakeholders.
■ Helps to ensure effective communication
and flow of information between Executive
and Non-Executive Directors.
■ Chairs the Board and Nomination and
Governance Committee.
The Senior Independent Director
■ Acts as a sounding board for the Chairman
and serves as an intermediary for the other
Directors when necessary.
■ Is available to the Shareholder if they have
any concerns, which the normal channels of
Chairman, Chief Executive Officer or other
Executive have failed to resolve, or for which
such contact is appropriate.
■ Leads the planning for the succession
of the Chairman of Board.
■ Meets with the other members of the Board
to appraise the Chairman’s performance.
■ Provides feedback to the Chairman,
Shareholder and Executive Directors
on the Non-Executive Directors’ views.
The Non-Executive Directors
■ Provide constructive challenge to Executive
Management and bring experience to the
Board’s discussions and decision-making.
■ Monitor the delivery of the Group’s strategy
against the governance, risk and control
framework established by the Board.
■ Ensure the integrity of financial information
and ensure that the financial controls and
systems of risk management are effective.
■ Led by the Senior Independent Director, the
Non-Executive Directors are also responsible
for evaluating the performance of the
Chairman and Senior Management.
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Shawbrook Group plc | Annual Report and Accounts 2021 The Chief Executive Officer
As authorised by the Board, the Chief Executive Officer manages the Group’s day-to-day operations and
delivers its strategy. The Chief Executive Officer delegates certain elements of his authority to members of the
Executive Committee to help ensure that senior executives are accountable and responsible for managing their
respective businesses and functional units. The Chief Executive Officer chairs the Executive Committee, which
meets no less than three times a month.
The Executive Committee
The Executive Committee is responsible
for developing the business and delivering
against a Board approved strategy,
putting in place effective monitoring,
control mechanisms and setting out a
framework for reporting to the Board.
Customer
Service and
Experience
Director
Chief Risk
Officer
Chief Product
Officer
Managing
Director,
Consumer
Chief People
and Marketing
Officer
Chief
Financial
Officer
Chief
Technology
Officer
Head of
Enterprise
General
Counsel and
Company
Secretary
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Strategic ReportCorporate GovernanceRisk ReportFinancial Statements Corporate Governance Report
The Executive Committee
The Board delegates daily management responsibility for the Group to the Chief Executive Officer who discharges
this responsibility through the Executive Committee. The Executive Committee is responsible for developing
the business and delivering against a Board approved strategy, putting in place effective monitoring, control
mechanisms and setting out a framework for reporting to the Board.
There are currently ten (including the Chief Executive Officer) members of the Executive Committee
and their biographical details can be viewed on the Group’s website at shawbrook.co.uk/investors/
To discharge its duties, the Executive Committee operates three executive level committees. Details of these
executive level committees and their responsibilities are set out below.
Group Risk Management
Committee
Group Product
Committee
Purpose
The Group Risk Management
Committee has oversight
responsibility for all operational
aspects of risk identification,
management, monitoring
and reporting as set out in the
Group’s Risk Management
Framework (RMF).
Frequency and membership
The Group Risk Management
Committee meets four times
a month and is chaired by
the Chief Risk Officer or their
alternate. Other key members
are the Chief Executive
Officer, Chief Financial Officer,
Chief Prudential Risk Officer,
Chief Credit Officer, Chief
Compliance Officer and the
Franchise Risk Directors.
Purpose
The Group Product Committee
is responsible for all aspects of
product governance including
approval of new, and changes
to existing products and the
regular review of all products.
Frequency and membership
The Group Product Committee
meets monthly and is chaired
by the Chief Risk Officer, with
the other members comprising
the Chief Executive Officer,
Chief Financial Officer, General
Counsel and Company
Secretary, Chief Compliance
Officer and the Franchise
Directors.
Asset and Liability
Committee
Purpose
The Asset and Liability
Committee oversees asset,
liability, and other solvency
risks, specifically market risk,
treasury wholesale credit risk
and liquidity risk.
Frequency and membership
The Asset and Liability
Committee meets monthly and
is chaired by the Chief Financial
Officer, or either of the Chief
Executive Officer or Chief Risk
Officer as their alternate, each
of whom are members, with
the other members comprising
the Deputy Chief Financial
Officer, Group Treasurer, Head
of Financial Planning and
Analysis, Head of Financial
Control and Head of Market
and Liquidity Risk.
Board meetings and activity in 2021
Board meetings
The activities undertaken by the Board in 2021 were
intended to help promote the long-term sustainable
success of the Company.
The scheduled Board meetings focused on five main
themes in 2021:
i. Strategy and execution, including approving and
overseeing the Group’s key strategic targets and
monitoring the Group’s performance against these
targets; reviewing and approving key projects aimed
at developing the business; reviewing the strategy of
individual franchises.
ii. Financial performance, including setting financial
plans, annual budgets and key performance indicators
and monitoring the Group’s results against them;
approving financial results for publication; and
monitoring and approving the approach to the Internal
Capital Adequacy Assessment Process (ICAAP) and
Internal Liquidity Adequacy Assessment Process (ILAAP).
iii. Risk management, regulatory and other related
governance, including reviewing and agreeing the
Group’s key policies; scanning for future risks; setting
risk appetites; reviewing the Group’s solvency position
and forecast and monitoring the Group’s approach
to financial crime and climate change.
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Shawbrook Group plc | Annual Report and Accounts 2021 iv. Spotlights, including deep dive sessions on franchise
strategy, Information Security, funding strategy,
developing talent and agile ways of working, digital
platforms and ESG.
v. Board and Board Committee governance, including
receiving reports from the Board’s committees;
updating terms of reference for the committees;
approving the search for a new Senior Independent
Director and implementing an internally facilitated
annual review of Board and committee effectiveness.
In addition to routine business, the Board considers
and discusses key issues that impact on the business
as they arise. Members of the Executive team spend a
considerable amount of time with the different franchises
and business functions ensuring that the Board’s strategy
is being implemented effectively throughout the Group,
and that our employees’ views and opinions are reported
back to the Board and Board committees.
Board Strategy Day
The Board sets aside time each year outside the
annual Board calendar to give the Directors the
opportunity to focus solely on strategic matters relating
to the Group. In October 2021, the Board, Executive
Management, and representatives of the Shareholder
met to discuss key themes on the financial plans of the
Group, the competitive landscape, purpose, inorganic
opportunities and the Group’s future strategy.
Board effectiveness review
During the reporting period, an internal Board
effectiveness review was conducted, focusing on
Board performance in 2021. More information about
the nature and outcomes of this review are on page 60.
Conflicts of interest
All Directors have a duty to avoid situations that may give
rise to a conflict of interest (in accordance with Section
175 of Companies Act 2006). Formal procedures are
in place to deal with this. Directors are responsible for
notifying the Chairman and the Company Secretary as
soon as they become aware of any actual or potential
conflict of interest for discussion. This will then be
considered by the Board, which will take into account
the circumstances of the conflict when deciding whether
to permit it (and whether to impose any conditions). Any
actual or potential conflicts of interest are recorded in
a central register and Directors are also required, on
an annual basis, to confirm that they are not aware of
any circumstances which may affect their fitness and
propriety and therefore their ability to continue to serve
on the Board. In addition, Directors are required to
seek the Board’s approval of any new appointments
or material changes in external commitments.
Induction, training, and professional
development
On appointment, all new Directors receive a
comprehensive and tailored induction, having regard to
any previous experience they may have as a Director of
a financial services company. The Group also provides
additional induction materials and training for those
Directors who are also committee Chairs. The content
of our Director induction programmes is tailored, with
input from the new Director. The induction information is
delivered in a variety of formats, including face to face
meetings with the Chairman, Board Directors, Executive
Management and key members of staff, and input from
external advisers as appropriate. This is supplemented
by the provision of key governance documents as
reading material, including policies, procedures, Board
and committee minutes, the Board meeting schedule,
the Group structure chart, the FCA Handbook,
regulatory codes/requirements and information
on Directors’ duties and responsibilities under the
Companies Act 2006 and other relevant legislation.
An ongoing programme of training is available to all
members of the Board which includes professional
external training and bespoke Board training on relevant
topics such as regulatory and governance developments,
changes to the Companies Act 2006 or accounting
requirements. Directors are also encouraged to devote
an element of their time to self-development, including
attendance at relevant external seminars and events.
This is in addition to any guidance that may be given
from time to time by the Company Secretary.
Each year an annual Board training schedule is
agreed. In 2021, the Board received training in respect
of Directors’ and Officers’ insurance, Interest Rate
Risk in Banking Book, Purpose, Senior Managers and
Certification Regime and an update on the regulatory
landscape. During 2022, the Board has received
training in respect of cyber security and capital
optimisation and hybrid capital instruments. Further
sessions on Directors’ duties, Culture, EDI and IRR and
Hedging are scheduled to take place throughout the
remainder of the year.
The Chairman is responsible for reviewing the training
needs of each Director, and for ensuring that Directors
continually update their skills and knowledge of the
Group. All Directors are advised of changes in relevant
legislation, regulations, and evolving risks, with the
assistance of the Group’s advisers where appropriate.
The Board receives detailed reports from Executive
Management on the performance of the Group at its
meetings and other information as necessary. Regular
updates are provided on relevant legal, corporate
governance and financial reporting developments.
The Board frequently reviews the actual and forecast
performance of the business compared against the
annual plan, as well as other key performance indicators.
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The Group’s system of internal controls is designed to
manage, rather than eliminate, the risk of failure to
achieve the Group’s objectives and can only provide
reasonable, and not absolute, assurance against
material misstatement or loss. In assessing what
constitutes reasonable assurance, the Board considers
the materiality of financial and non-financial risks and
the relationship between the cost of, and benefit from,
the system of internal controls. During 2021, the Group
continued to strengthen its risk management and
internal controls capability to ensure that it remained
relevant, appropriate, and scalable to support the
Group’s objectives over the duration of the strategic
plan and continued to embed improvements into the
Group’s RMF. These included the appointment of a new
Head of Financial Crime / Money Laundering Reporting
Officer and investment in the Group’s understanding of
the physical and transition risks associated with climate
change.
Lines of responsibility and delegated authorities are
clearly defined. The Group’s policies and procedures
are regularly updated and distributed throughout the
Group. The Audit Committee and Risk Committee
receive reports on a regular basis on compliance with
the Group’s policies and procedures.
Shawbrook Bank Limited (the principal operating
subsidiary of the Group) is subject to regulation by the
PRA and the FCA and as such undertakes an ILAAP
and ICAAP on an annual basis. The ICAAP process
benefited from ongoing improvements during 2021. The
process involves an assessment of all the risks that the
Group faces in its operating environment, the likelihood
of those risks crystallising and their potential materiality
and the effectiveness of the control framework
in mitigating each risk. This includes a thorough
evaluation of how the Group would be impacted by
severe, but plausible, periods of stress in its stress
testing programme.
The purpose of the process is to establish the level
and quality of capital resources that the business
should maintain, both under current market conditions
and under a range of stressed scenarios, to ensure
that financial resources are sufficient to successfully
manage the effects of any risks that may crystallise.
Risk management and internal control systems
The Board has overall responsibility for the Group’s
system of internal control and for monitoring its
effectiveness. The Audit Committee and Risk
Committee have been in operation throughout the
relevant period and oversee the Group’s systems of
internal control. Material risk or control matters are
reported by the Audit Committee and Risk Committee
to the Board. The Board monitors the ongoing
process by which ‘top risks’ affecting the Group are
identified, measured, managed, monitored, reported
and challenged. This process is consistent with both
the Group RMF and with internal control and related
financial and business reporting guidance issued by
the Financial Reporting Council. The key elements
of the Group’s systems of internal control include
regular meetings of the Executive Management and
risk governance committees, together with annual
budgeting, and monthly financial and operational
reporting for all businesses within the Group. Conduct
and compliance are monitored by Management, the
Group risk function, internal audit and, to the extent
it considers necessary to support its audit report, the
external auditor.
The Board assesses the effectiveness of the Group’s
system of internal controls (including financial,
operational and compliance controls and risk
management systems) based on:
■ established procedures, including those already
described, which are in place to manage perceived
risks;
■ reports by Executive Management to the Audit
Committee and Risk Committee on the adequacy
and effectiveness of the Group’s system of internal
control and significant control issues;
■ under the direction of the Chief Risk Officer, the
continuous Group-wide process for formally identifying,
evaluating, and managing the significant risks to the
achievement of the Group’s objectives; and
■ reports from the Audit Committee on the results
of internal audit reviews and work undertaken
by other departments.
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Shawbrook Group plc | Annual Report and Accounts 2021 Cyber resilience
The Group recognises the importance of cyber
resilience. The Board oversees the Group’s cyber
resilience approach and the level of investment into
cyber security, providing robust challenge and scrutiny
to ensure that the Group is adequately mitigating the
threats it faces. The Board recognises that specialist
knowledge is required in this area and therefore seeks
relevant advice from third parties where appropriate.
The cyber resilience strategy is routinely monitored
by the Risk Committee and reviewed by the Board on
an annual basis. The review considers the latest cyber
threat intelligence assessment, the specialist nature
of cyber threats and any outsourcing risks faced by
the Group in this area. This ensures that the strategy
remains fit for purpose to combat the potential cyber
threats the Group may face.
Remuneration
The Board has delegated responsibility to the
Remuneration Committee for the remuneration
arrangements of the Group’s Executive Directors,
certain individuals considered to be ‘material risk
takers’ and the Group’s Chairman. You can find out
more about this in the Directors’ Remuneration Report
which starts on page 79.
Relationship with Marlin Bidco Limited (the
‘Shareholder’)
The Group is committed to maintaining a constructive
relationship with the Shareholder whilst not
compromising the independence of the Board.
The Chief Executive Officer, Chief Financial Officer and
other members of the Executive Committee meet with
the Shareholder and their representatives on a regular
basis outside of Board and committee meetings. The
Shareholder also meets with the Chairman and has
the option to meet with other Non-Executive Directors
on request.
To ensure that governance arrangements with the
Shareholder are formalised, a Framework Agreement
and Memorandum of Understanding outlining the
responsibilities of each party was established following
the change in ownership. The Framework Agreement
ensures that information flows are clear, that the
independent judgement of the Board is not impacted
and that the Board retains its oversight of the business
in respect of strategy, performance, risk appetite and
assessment of the control framework and governance
arrangements. The Memorandum of Understanding
seeks to support and protect the independence of the
Board, particularly in relation to the appointment of Non-
Executive Directors to the Board and its committees. As
set out in the Framework Agreement, the Shareholder
has appointed two Directors to the Board, both of whom
are considered Institutional Directors.
The Group recognises the importance of ensuring
effective communication with all of its stakeholders.
This report, together with a wide range of other
information, including financial reports and regulatory
announcements are made available on the Investor
section of the Group’s website at shawbrook.co.uk/
investors/.
Other Committees
The Board has delegated authority to its principal
committees to carry out certain tasks as defined in
each committee’s respective terms of reference. The
written terms of reference in respect of the Audit,
Risk, Remuneration and Nomination and Governance
Committees are available on the Group’s website.
In addition to the principal committees, the Board is
supported by the work of the Disclosure Committee
and the Acquisitions and Divestments Committee,
which meet on an as-needed basis.
Annual General Meeting
Shawbrook Group plc’s Annual General Meeting
will be held on 26 May 2022.
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I am pleased to present the Audit Committee
Report which describes the work undertaken by
the Committee to discharge its responsibilities. The
Committee and its members bring together a diverse
range of experience across disciplines including
finance, audit, risk, and business with many years of
experience operating across the financial services
sector in line with the Code.
As part of its standing agenda, the Committee
undertakes an annual review of its effectiveness
and terms of reference. This ensures the Committee
continues to fulfil its duties and activities and that
the terms of reference remain relevant and include
any changes or updates in respect of appropriate
regulatory requirements. The review concluded that
the Committee continued to operate effectively.
The Committee’s annual work plan is framed around
the Group’s financial reporting cycle, which ensures
that the Committee considers all matters delegated
to it by the Board.
In discharging these responsibilities, the Committee
has spent time considering the impacts of increased
credit risk arising from COVID-19, the post-Brexit trade
relationship with the EU, as well as rising inflation and
interest rates on the critical accounting and auditing
judgements, particularly IFRS 9. The Committee has
considered the Group’s governance of its expected
credit losses model and continues to review all new
guidance issued to ensure transparency in the financial
statements. The Committee has also considered
the accounting treatment of a number of significant
transactions entered by the Group during the year,
including the £343m structured asset sale of TML
originated loans, which completed in September 2021.
The Committee continues to focus on the issues
relevant to the Group’s financial reporting and
considers emerging trends and best practice. This
includes overseeing the effectiveness of the Group’s
internal control framework to ensure it remains robust
and fit for purpose, with particular focus given to its
IT control environment. In addition, the Committee
has considered and continues to closely monitor
developments relating to future audit and corporate
governance reform.
Andrew Didham
Chair of the Audit Committee
30 March 2022
Membership, attendance, and responsibilities of the
Committee can be found on pages 59 and 61.
The terms of reference for the Committee can be
found on the Group’s website at: shawbrook.co.uk/
investors/
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Shawbrook Group plc | Annual Report and Accounts 2021 Main activities during the year
Throughout the year, the Committee discussed a range of topics including financial reporting, internal controls
and risk management, internal audit, external audit and whistleblowing. You can find out more about this in the
following sections.
Financial reporting
The Committee considered the integrity of the Group’s financial statements and all external announcements
in relation to its financial performance. In 2021, this included the Group’s 2020 Annual Report and Accounts
and the 2021 Interim Financial Report. Significant financial reporting issues and judgements were considered
together with any significant accounting policies and proposed changes to them.
Significant areas of judgement
During 2021, the key judgement areas were largely unchanged from the previous year. This reflects the consistency
of the Group’s approach to financial reporting and that there were no significant changes to the business model.
The main areas of focus were as follows:
Significant
financial and
reporting
issue
Impairment
of financial
assets
How the Committee addressed the issue
During the year, the Committee met and challenged the IFRS 9 judgements and models used
to calculate the underlying expected credit losses and impairment recognition. This included
reviewing the IFRS 9 judgements and macroeconomic assumptions used in the model
alongside the regulatory guidance issued to ensure that all government support measures
were included, where relevant, to ensure that the modelled outcomes were reasonable
and in line with guidance. The regulatory and accounting guidance issued also extends to
transparency for external reporting and the Committee reviewed all external disclosure
notes. The Committee also discussed reporting disclosures and best practice with the
external auditor.
The Committee also reviewed the movements in impairment coverage ratios and
non-performing loan ratios throughout the year and concluded that these had been
appropriately monitored during the year.
The Committee concluded that the impairment provisions, including Executive
Management’s judgements, were appropriate.
Refer to Note 9(a) of the Financial Statements for further details.
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Significant
financial and
reporting issue
Provisions
for customer
remediation
and conduct
risk
How the Committee addressed the issue
The Group’s Consumer Lending franchise is exposed to risk under Sections 75 and 140 of the
Consumer Credit Act, in relation to any misrepresentations, breaches of contract or other
failings by suppliers of goods and services to customers where the purchase of those goods
and services is financed by the Group.
The Committee considered and reviewed papers from Executive Management at each
meeting which detailed actual complaints received on the sale of solar panels financed by
the Group. The Committee reviewed the key judgements that could impact the provision
including whether the original supplier remained solvent, the uphold rate of complaints
made, the current complaint rate against a final expected complaint rate taking into
consideration the residual exposure of the portfolio and the average cost of redress.
Additionally, the Committee considered the latest communications and publications
by the Financial Ombudsman Service.
The Committee also reviewed complaints in relation to Timeshare loans and, after
consideration, concluded that whilst no provision was required, it should be noted as
a contingent liability on the basis that a decision by the Financial Ombudsman Service
is being challenged by way of judicial review.
The Committee concluded that the provision was appropriate as at 31 December 2021.
Refer to Note 9(b) of the Financial Statements for further details and Note 49 of the Financial
Statements for details regarding contingent liability disclosures.
Securitisations Securitisations involve the transfer of customer loans to structured entities. In determining
the accounting treatment to be applied for each securitisation transaction, complex
assessments must be performed, which necessitates the application of judgement.
The Committee received accounting opinion papers from Executive Management on
each securitisation transacted during the year, noting that the regulators and external
auditor were engaged as part of this process. The papers outlined each transaction and
its structure and compared this to the relevant accounting standards to confirm whether
each transaction met the requirements to be de-consolidated or, if not, whether it would
be consolidated into the Group Financial Statements.
The Committee concluded that the securitisations were accounted for appropriately based
on the structure of each transaction.
Refer to Note 9(c) of the Financial Statements for further details.
Acquisition of
subsidiary
On 26 February 2021, the Group’s equity interest in TML increased from 19.99% to 100%
and TML became a subsidiary of Shawbrook Bank Limited from that date.
The Committee considered and reviewed the accounting paper which detailed the
transaction and accounting considerations, considering the purchase price, net assets
acquired, goodwill and capital contribution.
The Committee concluded that the accounting treatment as a subsidiary was appropriate.
Refer to Note 9(c) of the Financial Statements for further details.
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Shawbrook Group plc | Annual Report and Accounts 2021 Significant
financial and
reporting issue
Reliability of
regulatory
reporting
How the Committee addressed the issue
On 10 September 2021, the PRA issued a Dear CEO letter regarding ‘Thematic findings on the
reliability of regulatory reporting’ after concluding their review across a number of financial
institutions. The letter highlighted areas of deficiencies across governance and ownership,
controls over models and a lack of investment in process and data. This followed on from an
earlier Dear CEO letter dated 31 October 2019 which reiterated the PRA’s expectation that all
banks and building societies should submit complete, timely and accurate returns.
Whilst Shawbrook was not part of the PRA’s review, in response to this letter, Executive
Management provided a report to the Committee which highlighted the improvements
made to regulatory reporting. This included investment in automation of the reports by
utilising an external software provider, enhancing control and oversight, increasing the
regulatory reporting team, the introduction of a Board-approved regulatory reporting
framework policy, enhanced internal second line assurance testing and governance of the
process through the Regulatory Reporting Committee and Asset and Liability Committee.
The Committee noted that this is a continuing area of focus for the Regulator and that
Executive Management is continuing to enhance the process but believe that the concerns
raised in the letter have and are being addressed.
Trust in audit
and corporate
governance
The Department of Business, Energy and Industrial Strategy (BEIS) launched their
consultation on ‘Restoring trust in audit and corporate governance’ in March 2021 which
brought together all 150+ recommendations from the three previous independent reviews.
Executive Management reviewed the proposals and assessed them against the current
requirements and disclosures and presented a recommendation to the Committee that this
should be reassessed in 2022 once the proposals and implementation timing become clearer.
Latest industry guidance suggests that the earliest implementation for premium listed
companies will occur in 2024, with implementation for Public Interest Entities likely to take
place two years thereafter (2026).
The Committee noted the paper, timing of implementation and agreed with Executive
Management’s recommendation.
In addition to the matters described above, the Committee considered papers on effective interest rate
accounting, goodwill impairment, hedge accounting, recommended disclosures on expected credit losses
(DECL), review of fixed asset values and the performance of the external auditor.
Going concern and long-term viability
The Committee reviewed a paper from Executive Management setting out the assumptions underlying the going
concern and viability statement as detailed in the statement on page 164. The Committee considered a wide
range of information relating to present and future conditions, including the Group’s current financial position,
future projections of profitability, cash flows and capital resources. In addition, the Directors have considered the
Group’s risk assessment framework and the possible impacts from the top and emerging risks, as highlighted in
the Risk Report, on the longer-term strategy and financial position of the business.
The Committee concluded that, over the going concern period of 12 months from the date of approval of the
financial statements, it is appropriate to adopt the going concern basis in preparing the Annual Report and
Accounts. The Committee reported accordingly to the Board and recommended the viability statement for
approval as set out on page 164.
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Fair, balanced, and understandable
The Committee reviewed and concluded that the
Annual Report and Accounts taken as a whole is fair,
balanced, and understandable, and provides enough
information to enable the reader to assess the Group’s
position and performance, business model and
strategy. When considering the Annual Report and
Accounts, the Committee focused on the significant
judgements and issues that could be material to the
financial statements. This included the matters set
out in the table on pages 69 to 71. The Committee
challenged the judgements being made and discussed
these matters with the external auditor.
Internal audit delivered 24 audits from the 2021 internal
audit plan of varying size and complexity. Internal audit
reports are circulated to the Committee members, with
the Chief Internal Auditor reporting at each Committee
and the Committee monitoring progress against
actions identified in those reports.
The Committee monitors and reviews internal audit’s
effectiveness and independence using feedback
obtained from the Board and other stakeholders. The
Chief Internal Auditor confirms to the Committee, on an
annual basis, that internal audit remains independent.
Following each audit engagement, client feedback is
obtained to assess the function’s performance.
Internal controls and risk management
The Committee annually assesses principal risks and
uncertainties on a financial control basis. Details of the
risk management systems in place and principal risks
and uncertainties are provided within the Risk Report
which starts on page 93. The Group’s system of internal
control has been designed to manage risk and, whilst
risk cannot be eliminated, the systems assist with the
provision of reasonable assurance against material
misstatement or loss.
The risk and internal audit functions review the extent
to which the system of internal control is effective;
is adequate to manage the Group’s principal risks;
safeguards the Group’s assets; and, in conjunction with
the Company Secretary and the Group’s legal and
compliance functions, ensures compliance with legal
and regulatory requirements.
Internal audit
The Committee reviews, challenges and approves the
annual audit plan and audit methodology for internal
audit and monitors progress against the plan during the
year. The Chief Internal Auditor agrees the programme
of work and reports directly to the Committee on
its outcomes. The Committee also oversees that
internal audit has unrestricted access to all Group
documentation, premises, functions, and employees as
required to enable it to perform its functions.
On behalf of the Board, the Committee undertakes
regular reviews of the effectiveness of the Group’s
systems of internal control. The internal audit function
has continued to mature during the year, with additional
headcount supplementing its co-sourced model.
The Committee reviewed, challenged and approved
the internal audit plan for the year and continues
to support the co-sourced model with Deloitte LLP
to ensure that the specialist nature of the Group’s
activities could be fully assessed.
Additionally, the Committee ensures that there are
sufficient resources available to internal audit to
complete its remit. The appointment and removal of
the Chief Internal Auditor is the responsibility of the
Audit Committee.
External audit
The Committee oversees the relationship with
its external auditor, KPMG LLP, and this includes
the engagement terms, remuneration, the audit
effectiveness and auditor independence and
objectivity. The Committee also considers the audit
plan and audit strategy (including the planned levels
of materiality). The external auditor attends Committee
meetings as appropriate. The Committee members
have the opportunity to meet privately with the external
auditor upon request.
KPMG LLP was first appointed as the Group’s external
auditor in 2011. The Committee acknowledges the
provisions contained in the Code in respect of audit
tendering and, following a tender process for external
audit services undertaken in 2017, the Committee
concluded that KPMG LLP should be retained as the
Group’s external auditor. As at the date of this report,
there are currently no plans to conduct a tender for
external audit services.
During the year, the Committee received regular
detailed reports from the external auditor, including
formal written reports dealing with the audit objectives,
and reports on the auditor’s qualifications, expertise,
and resources; the effectiveness of the audit process;
procedures and policies for maintaining independence;
and compliance with the ethical standards issued by
the Auditing Practices Board. The external auditor’s
management letter is reviewed, as is Executive
Management’s response to issues raised and progress
is monitored against actions identified in those reports.
The Committee monitors the provision of non-audit
services by the external auditor throughout the year to
ensure compliance with the non-audit services policy.
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Shawbrook Group plc | Annual Report and Accounts 2021 The Committee is responsible for reviewing the
independence of the Group’s external auditor and
monitors the latest ethical guidance regarding audit
partner rotation. KPMG LLP has a policy of partner
rotation which complies with regulatory standards.
Simon Ryder has been the Group’s lead audit partner
since the financial year ended 31 December 2017.
Therefore, a new lead audit partner will assume
responsibility for the financial year ending 31 December
2022, in line with audit standards.
Maintaining an independent relationship with the
Group’s external auditor is a critical part of assessing
the effectiveness of the audit process. The Committee
has a formal policy on the use of the auditor for non-
audit services. It ensures that work is only awarded
when permissible and if the external auditor’s
knowledge, skills, or experience are a decisive factor
and therefore clearly preferred over alternative
suppliers. Each year, the Committee receives and
reviews an analysis of all non-audit work and reviews
the level of audit and non-audit fees paid to KPMG LLP.
This oversight ensures that significant assignments are
not awarded without first being subject to the scrutiny
of the Committee. The fees paid to KPMG LLP for audit
and non-audit services are set out in Note 16 of the
Financial Statements.
The Committee is satisfied with the performance
of the external auditor in 2021 and the policies and
procedures in place to maintain their objectivity and
independence.
The effectiveness of the external auditor was assessed
by way of a questionnaire during the reporting period.
The questionnaire, which sought the views of members
of both the Committee and Executive Management,
focused on, amongst other things, the scope of the
audit, as well as the external auditor’s technical
expertise, governance and independence. This
assessment concluded that the external audit process
was effective.
The Committee has recommended to the Board that
KPMG LLP be re-appointed as the Group’s external
auditor at the forthcoming 2022 Annual General
Meeting, at which resolutions concerning the re-
appointment of KPMG LLP and its audit fee for 2022 will
be proposed to our Shareholder.
Whistleblowing
The Committee annually reviews the arrangements
by which employees may, in confidence, raise
concerns about possible improprieties in matters of
financial reporting or other matters (whistleblowing)
and the whistleblowing policy. Where appropriate,
the Committee also reviews reports relating to
whistleblowing including anonymised cases to ensure
arrangements are in place for the proportionate
and independent investigation of such matters and
for appropriate follow-up action. The Committee
considered the whistleblowing awareness of employees
and the effectiveness of efforts to maintain a
psychologically safe culture. The Committee probed
Executive Management and was satisfied that the
whistleblowing process met the necessary standards
and that it was adequately designed, operated
effectively, and adhered to regulatory requirements.
Priorities for 2022
The key priorities in 2022 include:
■ reviewing the effectiveness of the co-sourced internal
audit model;
■ oversight and review of the 2022 internal audit plan
including IT effectiveness and third-party audits;
■ ongoing review and monitoring of all conduct issues
and provision adequacy; and
■ ensuring that the Group’s financial reporting
complies with all legislative changes.
Additional information
The Committee has unrestricted access to Executive
Management and external advisors to help discharge
its duties. It is satisfied that in 2021 it received sufficient,
reliable, and timely information to perform its
responsibilities effectively.
The Chair reports on matters dealt with at each
Committee meeting to the subsequent Board meeting.
The Board reviewed and approved this report on
30 March 2022.
Andrew Didham
Chair of the Audit Committee
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I am pleased to present the Risk Committee Report
for the financial year ended 31 December 2021. The
Committee’s key role is to provide oversight of, and
advice to, the Board on the management of risk
across the Group, balancing the agenda between
risk exposure, emerging risks, and the future risk
strategy. The Committee provided oversight of
the ongoing development and operation of the
Group’s Risk Management Framework (RMF) and the
continued collaboration between the first and second
line risk management teams with regular updates
on progress against respective deliverables. This
includes the oversight of performance against risk
appetite and any resulting actions required through
the year. Additionally, the Committee reviewed the
second line review of the annual Budget, informed
the development of the broader Group Strategy, and
ensured that the risk function was suitably resourced
to meet its requirements.
As part of the oversight of the impact of the external
economic environment, additional Committee Working
Groups were held in the year with these meetings
ensuring sufficient time was allocated to meet both the
regulatory agenda and oversee the risk management
response to both existing and emerging risks. In 2021,
the Committee reviewed the actions arising from a
write-off of £35.2 million relating to a customer of the
Group that became insolvent during the year.
As part of the standing agenda, the Committee
undertakes an annual review of its effectiveness and
adherence to its terms of reference. This ensures the
Committee continues to fulfil its responsibilities and
activities and that the terms of reference remain
relevant and include any changes or updates in respect
of appropriate regulatory requirements.
During the year, the Committee continued to focus
on the oversight of existing risks whilst also ensuring
emerging risks were appropriately identified and
addressed. The RMF continues to evolve and embeds
an appropriate culture across the Group by providing
consistent challenge to the suitability of scenarios and
stress testing given the challenging macroeconomic
environment and resultant impact on the Group’s
risk profile and appetite. The Committee, as part of
its continued oversight of the COVID-19 pandemic,
monitored the credit impact of payment holidays, the
off-ramping of COVID-19 concessions and provided the
Board with recommendations, where appropriate, to
re-open asset classes suspended due to COVID-19.
Membership, attendance, and responsibilities of the
Committee can be found on pages 59 and 61.
The terms of reference for the Committee can be
found on the Group’s website at: shawbrook.co.uk/
investors/
74
Shawbrook Group plc | Annual Report and Accounts 2021 The Committee also considered the Vulnerable
Customers Policy, formalisation of the Group’s risk
appetite for Basis Risk following the LIBOR transition,
the delivery against various regulatory priorities as well
as the oversight the Group’s Climate Change Plan.
The Committee continues to oversee the impact of
the continuing economic uncertainty, primarily in
relation to trading conditions following the end of
the transition period in relation to the UK’s exit from
the European Union, the COVID-19 pandemic and,
more recently, the situation in Ukraine. As a result,
the Committee continues to keep under review the
more immediate risks arising from the UK’s economic
recovery which could have a material impact on
the Group. In 2022, the Committee will monitor
and assess the risks facing the Group and provide
guidance in what continues to be a challenging
economic environment.
Paul Lawrence
Chair of the Risk Committee
30 March 2022
The Committee also monitored the performance of
the Asset and Liability Committee ensuring the Group
maintained appropriate levels of liquidity through 2021,
and the Vulnerable Customer Policy which amongst
other things supports the needs of customers during the
COVID-19 pandemic. The approach to cyber resilience
was reviewed to ensure it was suitable for the size and
scale of the Group and the prevailing risks.
The Committee reviewed and recommended to the
Board for approval the annual review of the RMF and
considered the 2021 risk deliverables across both
the first and second Lines of Defence risk teams and
reviewed progress against the risk deliverables during
the year. The Committee regularly considered external
challenges including those arising from climate risk, the
development of a climate strategy within the broader
ESG agenda, the transition of LIBOR-linked assets
to alternative reference rates, the UK’s post-Brexit
landscape and regulatory changes. The Committee
recommended to the Board for approval: the annual
Money Laundering Reporting Officer report, the annual
report from the Group’s Data Protection Officer, the
annual review of the Group Risk Appetite, and both the
ICAAP and ILAAP.
The Committee continues to focus on enhancing
financial crime controls and the performance of,
and reporting from, the Money Laundering Reporting
Officer who oversees the Group’s financial crime
controls. The Committee also regularly received
updates on the operational resiliency framework
with Working Groups arranged to review the delivery
of the requirements in associated regulatory
policy statements. The Committee also reviewed
and recommended to the Board for approval, the
operational resiliency framework, list of important
business services and associated impact tolerances.
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Main activities during the year
Risk monitoring and oversight
During 2021, the Committee considered a wide range of risks facing the Group, both existing and emerging,
across all areas of risk management. At each scheduled meeting, the Committee received regular reports
from the Chief Risk Officer detailing the key activities undertaken by the Group Risk function to oversee the
embedding of risk management across the Group, and was provided with outputs of regular risk monitoring
and details of specific risk issues, received details of the Group’s current and forward-looking capital solvency
position, and monitored performance against the Group’s risk appetite statement.
Risk management and controls
Throughout the year, the Committee monitored the effectiveness of the Group’s risk management and
internal control systems and reviewed their effectiveness through the RMF. The RMF sits across the business
with a particular focus on quality assurance and control. The Committee received and reviewed an
attestation of compliance with the RMF from the Chief Risk Officer, divisions, and functions.
Top and emerging risks
The Group’s top and emerging risks are considered regularly by the Committee. Further information
about the Group’s top and emerging risks can be seen in the Risk Report starting on page 101.
Significant risks and primary areas of focus
During 2021, the following significant risks and primary areas of focus were considered by the Committee:
Significant risks and
primary areas of focus
Risk Committee review
Group risk management
■ The Committee reviewed the 2021 Annual Risk Plan which included
the key areas of focus for the first and second line risk functions.
■ The Committee received regular summaries of the overall risk profile
of the Group through the Chief Risk Officer’s Report.
■ The Committee reviewed the top and emerging risks for the Group prior
to the Annual Report and Accounts.
■ The Committee reviewed the effectiveness of the RMF throughout the year
through the Chief Risk Officer’s Report.
■ The Committee oversaw progress of the Climate Risk Implementation Plan.
Board risk appetite
■ The Committee reviewed progress on the annual review of the Board’s
risk appetite including material risk appetite limits.
■ The Committee received regular updates on the evolving risk appetite
framework, including the provision of a monthly risk appetite dashboard
which accompanies the Chief Risk Officer’s Report at each meeting.
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Shawbrook Group plc | Annual Report and Accounts 2021 Significant risks and
primary areas of focus
Risk Committee review
Credit risk
■ The Committee received updates on a significant defaulted borrower
exposure and agreed that the following actions would be undertaken: the
Asset Finance asset class policy would be reviewed to confirm risk appetite
and credit limits; in-life asset inspections on existing facilities would be
undertaken to confirm no further risk exposure and enhanced management
information and procedures would be implemented. Further reporting to
the Committee on these actions is expected in 2022.
■ The Committee reviewed updates to Credit Risk Appetite during the
COVID-19 pandemic.
■ The Committee reviewed updates from the Regulatory Change Working
Group including those related to the planned implementation of the new
Standardised Approach to Credit Risk which according to the November 2021
Regulatory Initiatives Grid is not expected to be implemented before H2 2023.
Operational risk
■ The Committee received regular reports across the spectrum of operational
risks, information security and Cyber risk resilience.
■ The Committee reviewed and recommended to the Board a list of Important
Business Services and associated Impact Tolerances and the Group’s
2021 Operational Resilience framework as part of the Group’s operational
resiliency programme.
■ The Committee also received updated policies in relation to the risk
management approach to third parties.
Conduct, legal and
compliance risk
■ The Committee continually reviews the Group’s risk management approach
to reflect the regulatory and legal environment in which the Group operates.
■ The Committee received updates on various conduct risk and legal liability
risk matters.
■ The Committee received regular updates on the Group’s investment
in financial crime controls and received the annual Money Laundering
Reporting Officer’s report and the annual Data Protection Officer’s report.
■ The Committee reviewed enhancements to the Group’s Vulnerable
Customers Policy and associated management information.
Liquidity and market risk
■ The Committee eviewed and recommended the ILAAP to the Board
for approval.
■ The Committee received regular updates on the Group’s programme
to support the transition from LIBOR.
Stress testing and capital
■ The Committee reviewed and recommended the ICAAP to the Board
for approval.
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Priorities for 2022
The key projects which the Group risk function is accountable for delivering in 2022 include:
■ implementation of additional sources of data and technology to further enhance risk management;
■ enhancements to management information ensuring the Group is forward looking in risk management;
■ oversight of the response to the evolving macroeconomic environment given inflationary pressures
and the emerging situation in Ukraine;
■ oversight of enhancements to the Cyber resilience infrastructure;
■ implementation of any changes arising from the FCA consultation on The Consumer Duty;
■ the ongoing enhancement of the Group’s financial crime controls;
■ further embedding of Outsourcing controls and associated 3rd Party Risk Management;
■ delivery of Operational Resiliency enhancements; and
■ delivery of the Climate Risk Implementation Plan.
Other matters considered in detail by the
Committee in 2021
■ Brexit
■ LIBOR transition
■ Operational readiness for negative interest rates
■ PRA fast growing firms thematic review associated
actions
■ Top and emerging risks
Additional information
The Committee has unrestricted access to Executive
Management and external advisors to help discharge
its duties. It is satisfied that in 2021 it received sufficient,
reliable and timely information to perform
its responsibilities effectively.
During the year, the Committee held at least one
scheduled meeting with the Chief Risk Officer without
Executive Management being present.
■ Managing and assessing the key risks to the business
and our customers from COVID-19
The Chair reports on matters dealt with at each
Committee meeting to the subsequent Board meeting.
■ Operational Resiliency framework and design
■ Climate Risk Implementation Plan
■ Implementation of the actions arising from the
Group’s Annual RMF Attestations
■ Implementation of enhanced financial crime controls
The Board reviewed and approved this report
on 30 March 2022.
Paul Lawrence
Chair of the Risk Committee
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Shawbrook Group plc | Annual Report and Accounts 2021 Directors’ Remuneration Report
Membership, attendance, and responsibilities of the
Committee can be found on pages 59 and 61.
The terms of reference for the Committee
can be found on the Group’s website at:
shawbrook.co.uk/investors/
On behalf of the Remuneration Committee, I am
pleased to present the Directors’ Remuneration Report
for the 2021 financial year.
As outlined in the Chairman’s and Chief Executive’s
Statements, 2021 was an excellent year for Shawbrook
which saw the Group deliver record profitability levels,
strong customer outcomes and continued operational
resilience despite the ongoing uncertainty arising
from the COVID-19 pandemic. Following the end of the
financial year, the Committee reviewed performance
against the Group’s 2021 financial and non-financial
objectives, as well as business area performance and
risk alignment, in order to determine the overall bonus
pool for 2021. Reflective of the strong performance,
the Committee approved a bonus pool at a level
which was above target. This, as well as the individual’s
contribution to the business during the year, were taken
into consideration when determining awards at an
individual level.
During 2021, the Group announced that Ian Cowie
would step down from the Chief Executive Officer role
with Marcelino Castrillo appointed as his successor. The
Committee considered and approved remuneration
terms associated with this change in Chief Executive
Officer, which were managed in line with the Group’s
remuneration policy and are disclosed within this
Directors’ Remuneration Report. In keeping with its
terms of reference, the Committee also continued to
oversee Shawbrook’s approach to reward for other
material risk takers and the wider workforce, and took
into account the views of the People Engagement
Forum. The Committee also approved an increase in
the Chairman’s fee.
The Committee continued to monitor progress
against the Group’s diversity and inclusion initiatives,
including gender pay gap outcomes and progress
towards commitments made in line with the Women
in Finance Charter. Whilst our gender pay outcomes
have remained broadly consistent year on year, we
are pleased to note progress towards our target of
30% female senior management representation by
December 2022, increasing from 23% in 2020 to 25%
in 2021.
In line with normal practice, the Committee undertook
a review of the bonus arrangements and ensured that
the financial and non-financial performance measures
were fully aligned with the Group’s ongoing strategy.
Alongside existing measures, the Group’s enhanced
focus on its broader ESG strategy will feature in the
bonus scheme design for 2022.
Having reflected the required regulatory changes
under the Capital Requirements Directive (CRD V),
including the introduction of the new variable pay ratio
which was approved at the Group’s Annual General
Meeting in May 2021, the Committee is comfortable
that the remuneration policy operated as intended
during the year.
Robin Ashton
Chair of the Remuneration Committee
30 March 2022
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Main activities during the year
The Committee met on four occasions during 2021.
In addition to cyclical agenda items, the Committee
considered and approved remuneration arrangements
in respect of the change in Chief Executive Officer
and finalised changes to its remuneration policies to
reflect the required regulatory amendments under
CRD V. This included the adoption of the new variable
pay ratio, the development of a formal risk adjustment
framework and updates to the malus and clawback
provisions embedded within the rules of the variable
remuneration arrangements.
Deloitte LLP provided independent advice to the
Committee on all executive remuneration matters.
Deloitte LLP is a member of the Remuneration
Consultants Group and is a signatory to its Code of
Conduct. During 2021, Deloitte LLP also provided
internal audit, risk advisory, share plan advisory
and financial advisory services to the Group. The
Committee is satisfied that the advice received from
Deloitte LLP was objective and independent.
In line with the Framework Agreement and
Memorandum of Understanding, the Shareholder has
representation on the Committee. Where applicable,
decisions are escalated through the Board to the
Shareholder for approval.
Guiding reward principles
The Group seeks to reward its employees fairly for their contribution and motivate them to deliver the best
outcomes for all stakeholders. This is underpinned by the following principles:
■ Remuneration arrangements are designed
to attract, retain, and motivate high calibre
individuals who will assist the Group in meeting
its strategy.
■ Reward structures will be developed in alignment
with the Group’s strategy and promote long-term
sustainable success, while meeting appropriate
regulatory requirements.
■ Remuneration will be determined within
the Group’s stated risk appetite defined as
‘maintaining a balanced strategy to reward
our employees for appropriate conduct and
performance’. Safeguarding the right outcomes
for customers is at the heart of this.
■ There will be an appropriate mix of long-term and
short-term variable pay arrangements in place,
which will assist in driving the long-term security,
soundness, and success of the Group.
■ The long-term and short-term variable pay
plans will be subject to appropriate performance
measures, ensuring the right balance between
these elements of the reward package.
■ Remuneration outcomes will be determined
with reference to total reward principles. For
example, when making bonus decisions, the
Group will take into account an employee’s
total aggregate remuneration.
■ Eligibility for, and payment of, any remuneration will
be communicated in a clear and transparent way
for all colleagues and in a timely manner.
■ Reward structures will be designed to avoid any
conflicts of interests as set out in the Group’s
conflicts of interest policy. In this regard,
employees in control functions will be remunerated
independently from the performance of the
business areas that they oversee. Furthermore, the
Committee will be constituted in a way that avoids
conflicts of interests and provides independent
oversight of remuneration matters within the
Group. No individual will be permitted to be present
at the Committee when decisions are taken which
concern their own remuneration.
80
Shawbrook Group plc | Annual Report and Accounts 2021 The Group keeps its reward strategy, including the guiding reward principles, under regular review to ensure it
continues to support the delivery of its strategic priorities. The Committee considers that the current framework
appropriately addresses the following factors as set out in the UK Corporate Governance Code.
Clarity and simplicity
As a private company, Shawbrook is not required to produce a full Directors’
Remuneration Report aligned to that of a UK-listed company. However, in the
interests of transparency, the Committee provides voluntary disclosure of our
remuneration policy and how this applies to Executive Directors.
Risk
As a financial institution, one of our guiding reward principles ensures that
remuneration is determined within the Group’s stated risk appetite defined
as ‘maintaining a balanced strategy to reward our employees for appropriate
conduct and performance’. Safeguarding the right outcomes for customers
is at the heart of this.
Deferral under the annual bonus and participation in the Management Incentive
Plan (MIP) encourage a long-term focus.
All incentive arrangements for material risk takers, including Executive Directors,
are subject to malus and clawback provisions. This year, following the internal audit
review of remuneration arrangements, Shawbrook developed and adopted a formal
risk adjustment policy which outlines how any risk adjustments (including through the
application of malus and / or clawback) would be determined and applied.
Predictability
The remuneration policy table contains details of maximum annual bonus
opportunity levels for Executive Directors, with actual bonus outcomes varying
depending on the level of performance achieved.
In terms of the MIP, value will only be delivered to participants if the value of the
Group grows by reference to the achievement of stretching hurdles set relative
to the Group’s business plan.
Payment under our incentive arrangements will be subject to the Committee’s
discretion.
Proportionality and
alignment to culture
All eligible permanent and fixed-term employees are considered for an annual
bonus, aligning reward to the overall financial and non-financial performance
of the Group.
Under the annual bonus, the Committee assesses performance against a range
of objectives, including ones related to our customers, risk, ESG and our people.
This ensures that reward is not determined solely on financial performance but
also drives behaviours consistent with Shawbrook’s culture.
From 2021, the maximum ratio of total variable remuneration to fixed
remuneration for all material risk takers, including Executive Directors,
will be capped at 200% in line with regulatory requirements.
The Committee has the discretion in circumstances of poor financial performance
to reduce the bonus outcome, including potentially to zero.
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Directors’ remuneration policy
Shawbrook is not required to produce a Directors’ Remuneration Report in accordance with Schedule 8 of the
Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (as amended).
However, for transparency the Board has produced the table below which summarises the key components
of the Group’s reward package and how these apply to the Executive Directors.
Several changes were made to the remuneration framework for 2021 to ensure it is fully aligned to revised
regulatory requirements under CRD V. This included, from 2021, the introduction of a maximum ratio of total
variable remuneration to fixed remuneration for all material risk takers, including Executive Directors, capped
at 200%. For 2022, following a review of bonus arrangements and market practice, the normal maximum bonus
opportunity for Executive Directors has been increased to 120% of salary per annum.
Element
Purpose and link
to strategy
Operation
Fixed elements of remuneration
Salary
To provide a
competitive level of
base pay to attract
and retain talent.
Pension
Benefits
To provide a
competitive post-
retirement benefit
supporting the
long-term financial
wellbeing of
employees.
To provide a suite
of competitive
benefits to support
the wellbeing of
employees.
Base salaries are set with reference to the size and scope of
the role, the external market as well as the skills and experience
of the individual.
Salaries are normally reviewed on an annual basis, with any changes
effective 1 March each year.
Where salary increases are awarded to Executive Directors, these
are typically in line with the wider workforce.
Executive Directors may participate in the Group’s workplace pension
arrangement or receive a cash allowance in lieu (in full or part) of
pension contributions.
Each Executive Director currently receives a pension contribution
and/or allowance to a combined value of 15% of salary per annum.
The Group offers a wide range of benefits to support our employees’
health, financial and lifestyle needs.
Benefits provided to our Executive Directors include (but are not
limited to) private medical cover, life assurance and permanent
health insurance.
Additional benefits may be provided as reasonably required.
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Shawbrook Group plc | Annual Report and Accounts 2021 Element
Purpose and link
to strategy
Operation
Variable elements of remuneration
Annual
discretionary
bonus
To incentivise
and reward the
achievement of
short-term financial
and non-financial
objectives which are
closely linked to the
Group’s strategy.
Deferral encourages
long-term focus and
risk alignment.
Long-term
incentives
To incentivise and
reward the delivery
of the Group’s
long-term strategy
and growth over a
sustained period.
Annual bonus awards are determined with reference to financial,
non-financial and individual objectives. Specific performance
measures and objectives are reviewed on an annual basis to ensure
they appropriately align to the Group’s ongoing strategy.
When finalising individual award levels, consideration is given to
the overall performance of the Group, business area performance
and individual performance against agreed objectives, including
alignment with our purpose and experience principles, as well as the
outcome of the independent risk adjustment process. Poor financial
performance can result in the bonus being reduced, including
potentially to zero.
The on-target opportunity for Executive Directors will be 60% of
salary per annum with a normal maximum opportunity of 120% of
salary per annum (previously 100% of salary per annum in 2021).
Awards over a threshold level (set by the Committee each year) are
subject to deferral. Deferred awards will normally be released in
equal tranches after one, two and three years, subject to continued
employment.
Annual bonus awards are subject to the Group’s malus and
clawback provisions.
Executive Directors are eligible to participate in the MIP, which has
been designed to incentivise senior management to deliver and
execute the Group’s long-term strategy as well as aligning their
interests with those of our Shareholder.
Typically, from 2021, any awards granted under the MIP will be subject
to an assessment of prior performance at both an individual and
Group level. This assessment of performance will be typically no less
than 12 months pre-grant of award.
The MIP will deliver value to participants for growth in the value of
the Group by reference to the achievement of stretching hurdles set
relative to the Group’s business plan. The value accrued under the MIP
will ordinarily be released to participants at an exit event, i.e. the sale
of the Group, the majority of its assets or an Initial Public Offering. The
MIP includes customary lock-up provisions.
While the hurdles are financial in nature, the value of the Group, and
therefore any value delivered under the MIP, will depend not only on
financial performance but also on the overall health of the business
which will consider other non-financial factors.
Awards will be subject to the Group’s malus and clawback provisions.
Separately, participants in the MIP, which include Executive Directors,
have the opportunity to co-invest in the Group using their own funds.
Any shares acquired via this co-investment will also be released at an
exit event and will enable participants to share in the growth in value
of the Group on a similar basis to the Shareholder.
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Non-Executive Director Fees
The Chairman of the Board and Non-Executive Directors are entitled to an annual fee, with additional fees
payable to the Senior Independent Director, the Chairs and members of the respective committees of the Board.
Fee levels are reviewed periodically and are set out within this report.
Reasonable expenses incurred in the performance of Non-Executive duties may also be reimbursed or paid
directly by the Group, as appropriate.
Directors’ remuneration in 2021
The tables below set out the remuneration received by Executive and Non-Executive Directors during 2021.
The numbers included in the table below have been audited.
Total
3,100
1,804
Executive Directors1
Salary
Taxable benefits
Pension
Annual bonus
Subtotal
Buy-out award made on appointment
Payments for loss of office
Non-Executive Directors2
Fees
Additional information regarding the components of
Directors’ remuneration, as set out in the above tables,
is provided below:
Pension: all Executive Directors received their pension
contributions during 2021 by way of a cash allowance,
with the exception of Marcelino Castrillo who received
part of his pension contribution by way of a contribution
into the Group’s workplace pension arrangement and
part by way of a cash allowance.
Annual bonus: all Executive Directors were eligible
to participate in the annual bonus in 2021, with an
on-target annual opportunity of 60% of salary and
a maximum annual opportunity of 100% of salary.
2021
Highest paid
Executive
Director
£000
All Executive
Directors
£000
2020
Highest paid
Executive
Director
£000
All Executive
Directors
£000
957
5
143
668
1,773
912
415
427
1
64
400
892
912
–
785
4
118
278
1,185
–
–
1,185
2021
£000
592
450
2
68
158
678
–
–
678
2020
£000
555
The bonus pool outcome for the Group was determined
through a rounded assessment of performance against
a range of the Group’s objectives for 2021. This included
objectives relating to:
■ Financial performance
■ Customer
■ Risk
■ People
■ Strategy and culture
1 Marcelino Castrillo was appointed to the Board of the Company and, following regulatory approval, formally appointed
as Chief Executive Officer in June 2021. Ian Cowie stepped down from the Board in June 2021.
2 Whilst not paid directly to the individual, the Group incurs fees of £50,000 plus VAT per annum in relation to each Institutional
Director appointed to the Board by the ultimate parent company, as set out and agreed within the Framework Agreement.
The Institutional Directors are not employed by the Group and their fees are not included in the above table.
84
Shawbrook Group plc | Annual Report and Accounts 2021 When determining the bonus pool outcome, the
Committee carefully reviewed performance for each of
the relevant objectives, whilst also taking into account
broader considerations relating to overall Group and
business area performance. The Committee also
considered the outcomes of the Chief Risk Officer’s
independent report.
Overall, the Committee considered that the Group had
demonstrated excellent financial and non-financial
performance over the course of 2021. As a result, the
Committee approved a bonus pool at a level which was
above target.
The overall value of awards for the Executive Directors,
which also took into account their strong individual
performance during the year, are included in
aggregate in the emoluments table. In line with policy,
50% of any amount in excess of £100,000 payable to
an individual will be subject to deferral in cash and
released in three equal tranches after one, two and
three years.
Share related benefits: no share related benefits were
exercised during 2021. Marcelino Castrillo was granted
an award under the MIP during the year following his
appointment as Chief Executive Officer. Further details
on the MIP are provided in the remuneration policy table.
Buyout award made on appointment: on
appointment, Marcelino Castrillo was granted a buyout
award as compensation for the forfeiture of deferred
remuneration awarded by his previous employer. The
award was no more generous in terms of value than the
awards forgone. The full value of this award is included
in the emoluments table.
Payments for loss of office: Ian Cowie ceased to be an
Executive Director during 2021, stepping down from the
Board in June 2021. Payments in respect of loss of office
are included in the emoluments table. Ian Cowie’s
allocation under the MIP was also reduced on cessation
of employment.
Wider workforce remuneration
In line with our guiding reward principles, the Group
seeks to reward all its employees fairly for their
contribution and motivate them to deliver the best
outcomes for all our stakeholders.
The remuneration approach applied for the Executive
Directors is closely aligned to the reward framework for
all employees. All employees receive a salary, pension
contribution and benefits set at a level considered
appropriate for their role and experience. Fixed pay is
set at a competitive level to attract and retain talent.
In terms of variable pay, all permanent and fixed-
term employees are eligible to be considered for an
annual bonus as appropriate to their role. The Group
also operates a long-term incentive plan, which was
introduced in 2019, to reward other selected senior
individuals who do not participate in the MIP for their
contribution to the delivery of the long-term strategy.
The Committee receives and considers internal and
external information as appropriate to guide decisions
on remuneration, including but not limited to, the
results of employee engagement surveys as well as
feedback sought from the People Engagement Forum
and other internal (such as the Chief People and
Marketing Officer and Group Head of Reward) and
external stakeholders. The Committee also considers
progress against the Group’s diversity and inclusion
initiatives, including gender pay gap outcomes for the
year, details of which can be found on our website, and
progress towards commitments made in line with the
Women in Finance Charter.
As a private company, Shawbrook is not required
to disclose the Chief Executive Officer pay ratio.
However, in line with the Board’s commitment to give
due consideration to the spirit of the UK Corporate
Governance Code and in the interests of transparency,
the Committee has chosen to voluntarily disclose the
ratio of the Chief Executive Officer’s total remuneration
to the median total remuneration of our employees.
Total remuneration1
Median ratio
2021
2020
17:1
11:1
1
Includes salary, taxable benefits, pension, and annual bonus awards earned in respect of the financial year ended 2021. It
does not include buyout awards, payments for loss of office or any awards granted under the MIP and long-term incentive
plan. The total remuneration for the Chief Executive Officer is a combined figure reflecting Ian Cowie’s and Marcelino
Castrillo’s tenure as Chief Executive Officer during the year. In reaching the median total remuneration of our employees,
the Group has considered the full time equivalent total remuneration of all individuals employed by the Group for the
entirety of 2021 where such earnings have not been impacted by notable periods of absence.
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Directors’ remuneration in 2022
The Committee has determined that, for 2022, the remuneration policy will be implemented as follows for
Executive Directors.
Executive Director salaries: the Committee reviewed Executive Director salaries on an individual basis in line with
the normal annual salary review. An increase was awarded to one Executive Director. This increase is in line with
those awarded to the wider workforce.
Pension and benefits will continue to operate in line with the remuneration policy.
Annual bonus: the normal maximum annual bonus opportunity for Executive Directors will be 120% of salary.
When determining the annual bonus outcomes for 2022, the Committee will give consideration to performance
based on a range of key financial and non-financial measures, as well as the individual’s overall performance and
the outcome of the Chief Risk Officer’s independent risk review.
Long-term incentive: Executive Directors participate in the MIP, as detailed in the remuneration policy table. This
is the only long-term incentive arrangement in which the Executive Directors participate.
Non-Executive Director fees
Fees for Non-Executive Directors were reviewed ahead of 2022. Changes, which are effective from 1 January 2022,
are as set out in the table below.
Chairman fee
Non-Executive Director base fee 1
Senior Independent Director fee
Audit and Risk Committee Chair fee
Remuneration Committee Chair fee
Audit and Risk Committee membership fee
Remuneration and Nomination and Governance Committee membership fee
Fee from
1 January 2021
Fee from
1 January 2022
£235,000
£235,000
£65,000
£10,000
£20,000
£5,000
£5,000
£2,500
£70,000
£20,000
£20,000
£20,000
£5,000
£2,500
Additional information
The Committee has unrestricted access to Executive Management and external advisors to help discharge
its duties. It is satisfied that in 2021 it received sufficient, reliable and timely information to perform its
responsibilities effectively.
The Chair reports on matters dealt with at each Committee meeting to the subsequent Board meeting.
The Board reviewed and approved this report on 30 March 2022.
Robin Ashton
Chair of the Remuneration Committee
1 Whilst not paid directly to the individual, the Group incurs fees of £50,000 plus VAT per annum in relation to each Institutional
Director appointed to the Board by the ultimate parent company, as set out and agreed within the Framework Agreement.
86
Shawbrook Group plc | Annual Report and Accounts 2021 Nomination and Governance
Committee Report
I am pleased to present the 2021 report as Chair of
the Nomination and Governance Committee. The
Committee played a central role during the year
in ensuring adequate succession planning to help
contribute to the delivery of the Group’s strategy
by ensuring the desired mix of skills and expertise
of the Board, its Committees, the Executive, and the
Senior Management.
Marcelino Castrillo joined the Board in June 2021,
replacing Ian Cowie as Chief Executive Officer. Marcelino
undertook an extensive induction in line with the Group’s
programme and this was completed in August 2021.
With the planned departure of Robin Ashton in June
2022, Michele Turmore (with the Board’s approval)
agreed to become a member of the Remuneration
Committee from August 2021. This has allowed time
for Michele to become familiar with the workings of
the Committee in preparation for her becoming
Chair in May 2022.
At the request of the Board, having given due
consideration to the workloads of its members, it
was agreed that an external replacement for the
Senior Independent Director would be sought. Further
information about the recruitment process has been
provided in the following report.
This year an internal annual effectiveness review was
carried out in respect of the Committee and I am
pleased to confirm that the results of the review showed
that the Committee is effective.
The Committee remains committed to equality,
diversity and inclusion (EDI) and continues to be a
signatory of the Business in the Community Race
at Work and Women in Finance Charters. Both are
sponsored by a member of the Executive team who
helps to drive positive action with the support of the EDI
Working Group and our employee inclusion network.
Looking forward to 2022, the Committee will continue to
keep under review the structure, size and composition
of the Board and its committees, as well as overseeing
succession of the Executive and senior leadership team
and the Group’s Corporate Governance arrangements.
Work will also continue to embed the learnings from the
2021 Board and committees’ effectiveness reviews.
Further information about the activities of the
Committee is provided in the following report.
John Callender
Chair of the Nomination and Governance Committee
30 March 2022
Membership, attendance, and responsibilities of the
Committee can be found on pages 59 and 61.
The terms of reference for the Committee can be
found on the Group’s website at: shawbrook.co.uk/
investors/
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Strategic ReportCorporate GovernanceRisk ReportFinancial Statements Nomination and Governance
Committee Report
Main activities during the year
Throughout the year, the Committee considered the composition of the Board and its committees, Board
appointments, Board re-election processes, compliance with the UK Corporate Governance Code 2018,
succession planning and Equality, Diversity and Inclusion (EDI). Further information about these areas can be
found below.
Senior Independent Officer succession
In October 2021, having prepared a comprehensive
role specification and with the help of HW Global
Talent Partners, independent recruitment consultants,
the external search for the new Senior Independent
Director commenced. The role specification stipulated
the requirement of diversity of thought, background,
gender, and digital experience. HW Global Talent
Partners prepared a long list of potential candidates
and following a vigorous review and interview process
the Committee recommended the appointment of Lan
Tu as Senior Independent Director to the Board (subject
to regulatory approval). During the recruitment process
Janet Connor was also identified as a high calibre
candidate and we recommended to the Board that she
be appointed as a Non-Executive Director. The Board
approved the appointments in March 2022.
Board composition and succession planning
During the year, the Committee considered the Board’s
balance of skills and expertise, structure, size, and
composition ensuring that appropriate succession and
development plans are in place for appointments to the
Board. This work was complemented by a 360-degree
review of the independent Non-Executive Directors
carried out by the Chair.
The Committee is satisfied that the succession
planning structure in place is appropriate for the size
and nature of the Group.
Board and Committee changes
The Committee monitors the membership of the
Board and its committees to ensure that there is a
suitable balance of diversity, skills, and experience.
Consideration to the length of service of the members
is also undertaken.
The Committee reviewed the time commitment of each
Non-Executive Director to help ensure that the Board
and its committees had the appropriate representation
and that the Non-Executive Director were able to
commit the appropriate time to their respective
roles. This is on average at least four days per month
depending on business needs.
The membership of each of the committees was
reviewed and with the approval of the Board it was
agreed that Michele Turmore would become a member
of the Remuneration Committee until becoming Chair
of that Committee in May 2022. Andrew Didham would
retire as a member of the Remuneration Committee
to make way for Michele. It is expected that Lan Tu will
become a member of all the Board’s committees and
that Janet Connor will become a member of the Audit
and Risk Committees.
Board and Senior Management Function
appointment process
During the year, a key focus for the Committee was
the review of the size, structure and composition of the
Board and consideration of appointments of Senior
Management Function (SMF) holders (pursuant to the
Senior Managers and Certification Regime). Prior to any
Board or SMF appointment, the Committee evaluates
the balance of skills, knowledge, and experience
and, in light of this evaluation, prepares a description
of the role and capabilities required for a particular
appointment (including a statement of responsibilities
for SMF holders).
Additionally, work has been undertaken to identify
internal candidates (who were ready for promotion) and
recruit external candidates into the senior leadership
team to help fulfil the strategy of the Group. The
Committee is pleased to report that there were several
internal promotions and external hires made in 2021,
which will help the Group to achieve its strategic aims.
88
Shawbrook Group plc | Annual Report and Accounts 2021 Electing and re-electing Directors
Before recommending the proposed election or
re-election of Directors at the 2021 Annual General
Meeting, the Committee reviewed the independence of
the Non-Executive Directors and concluded that Robin
Ashton, Andrew Didham, Paul Lawrence, and Michele
Turmore met the criteria for independence. John
Callender was independent when he was appointed as
Chairman. Lindsey McMurray and Cédric Dubourdieu’s
re-election as Institutional Directors was made in line
with the Framework Agreement.
Equality, diversity and Inclusion
The Group continues to be a signatory of the Business
in the Community Race at Work and Women in Finance
Charters and each is sponsored by a member of the
Executive team and supported by the EDI Working
Group and employee inclusion network.
As part of its commitment to the Women in Finance
Charter, the Group works with its main external
resourcing partner to help ensure balanced candidate
shortlists and diverse interview panels for management
roles are used wherever possible.
The Group has continued its progress to increase the
female representation in the Senior Management team
to 24.6% in 2021 (23.3% in 2020) through both external
female appointments and internal promotions. The
Group remains on track to reach its target of increasing
female representation in its Senior Management team
to 30% by year end 2022.
Executive and Non-Executive Director
induction
All new Directors are required to undertake an
induction programme, which includes comprehensive
training on their Senior Managers and Certification
Regime responsibilities. In addition, Directors are
required to undertake training in the regulatory and
compliance frameworks and are also required to gain
an understanding of relevant legal requirements such
as money laundering legislation. Inductions include
sessions with the Chairman, Directors, Executive
Management, and external advisors to gain insight into
the Group. Training is tailored to the requirements of
each Director’s role, knowledge, and experience.
A comprehensive induction will be developed for the
new Senior Independent Director and Non-Executive
Director in line with the Group’s induction programme.
Additional information
Additionally, as part of its standing agenda the
Committee carried out an annual review of its
effectiveness and its terms of reference, to ensure
that the Committee continues to fulfil its duties and
activities and the terms of reference remain relevant.
The results of the effectiveness review agreed that the
Committee remained effective.
The Committee has unrestricted access to the
Executive, Senior Leadership, and external advisors
to help discharge its duties. It is satisfied that in 2021
it received sufficient, reliable and timely information
to perform its responsibilities effectively.
The Board reviewed and approved this report on
30 March 2022.
John Callender
Chair of the Nomination and Governance Committee
89
Strategic ReportCorporate GovernanceRisk ReportFinancial Statements Directors’ Report
Corporate governance statement
The Directors of the Company present their report
together with the audited financial statements for
the year ended 31 December 2021. Other information
that is relevant to the Directors’ Report, and which
is incorporated by reference into this report, can be
located as follows:
Employees with disabilities
Applications for employment by people with disability
are given full and fair consideration bearing in mind
the respective aptitudes and abilities of the applicant
concerned and our ability to make reasonable
adjustments to the role and the work environment. In
the event of existing employees becoming disabled,
all reasonable effort is made to ensure that appropriate
training is given and their employment with the
Group continues. Training, career development and
promotion of a disabled person is, as far as possible,
identical to that of an able-bodied person.
Appointment and retirement of Directors
The Company’s Articles of Association set out the rules
for the appointment and replacement of Directors and
expects that all Directors shall retire from office and
may offer themselves for re-appointment at the Annual
General Meeting.
Powers of Directors
The Directors’ powers are conferred on them by
UK legislation and by the Company’s Articles of
Association. Changes to the Company’s Articles of
Association must be approved by the Shareholder
passing a special resolution and must comply with the
provisions of the Companies Act 2006. The Company’s
Articles of Association can be viewed on the website:
shawbrook.co.uk/investors/.
Pages
1 - 48
45
49 - 67
52 - 53
55
79 - 86
28 - 39
246
66
55
67
175 - 179
217 - 220 and
234 - 238
Directors’ interests
None of the Directors hold shares in the Company.
Lindsey McMurray and Cédric Dubourdieu are directors
of Marlin Bidco Limited, the Group’s sole Shareholder.
Subject
Business activities and future
development
Charitable donations
Corporate Governance Report
Directors’ biographical details
Employees
Employee share schemes
Environment
Events after the reporting period
Internal controls and financial risk
management
Relationship with suppliers
Relationship with the shareholder
Results for the year
Use of financial instruments
Section 414 of the Companies Act 2006 requires the
Directors to present a Strategic Report in the Annual
Report and Accounts. The information can be found
on pages 1 to 48.
The Company has chosen, in accordance with Section
414C (11) of the Companies Act 2006, and as noted in
this Directors’ Report, to include certain matters in its
Strategic Report that would otherwise be disclosed in
this Directors’ Report.
Dividends
The Directors are not recommending a final dividend in
respect of the year ended 31 December 2021 (2020: £nil).
Directors’ indemnities
The Company’s Articles of Association provide that,
subject to the provisions of the Companies Act 2006,
the Company may indemnify any Director or former
Director of the Company or any associated Company
against any liability and may purchase and maintain for
any Director or former Director of the Company or any
associated Company insurance against any liability.
The Directors of the Group have entered into individual
deeds of indemnity with the Group which constitute
‘qualifying party indemnity provisions’ entered into
by the Directors and the Company. The deeds of
indemnity protect the Directors to the maximum extent
permitted by the law and by the Articles of Association
of the Company, in respect of any liabilities incurred
in connection with the performance of their duties as
a Director of the Company and any associated Group
company, as defined by the Companies Act 2006.
The Group has maintained appropriate Directors’ and
Officers’ liability insurance in place throughout 2021.
90
Shawbrook Group plc | Annual Report and Accounts 2021 Company Secretary
All Directors have access to the services of the
Company Secretary in relation to the discharge of their
duties. Daniel Rushbrook is the Company Secretary
of Shawbrook Group plc. He can be contacted at the
Company’s registered office, details of which are on
page 181.
Going concern
The financial statements are prepared on a going
concern basis. To assess the appropriateness of this
basis the Directors have considered a wide range of
information relating to present and future conditions,
including the Group’s current financial position, future
projections of profitability, cash flows and capital
resources. In addition, the Directors have considered
the Group’s risk assessment framework and the
possible impacts from the top and emerging risks,
as highlighted in the Risk Report, on the longer-term
strategy and financial position of the business.
The Group continues to have a proven business model,
as demonstrated by the return to pre-pandemic
profitability levels in the year and the continued
operational resilience and agility demonstrated
through the pandemic. The Group remains well
positioned in each of its core markets and the Directors
believe the Group is well capitalised and efficiently
funded with high levels of liquidity.
The Group’s capital and liquidity plans have been stress
tested under a range of severe but plausible scenarios
as part of the annual planning process and annual
ICAAP and ILAAP process and have been reviewed by
the Directors. The stressed forecasts indicate that under
these stressed scenarios, which include using the three
PRA-prescribed scenarios, being the updated Rates
Down scenario for non-systemic banks, the 2021 PRA-
prescribed solvency scenario for systemic firms and a
pandemic scenario, the Group continues to operate
with sufficient levels of liquidity and capital for the next
12 months, with the Group’s capital ratios and liquidity
comfortably in excess of regulatory requirements.
Based on the above, the Directors believe that the
Group has sufficient resources to continue its activities
for a period of at least 12 months from the date of
approval of the financial statements and the Group
has sufficient capital and liquidity to enable it to
continue to meet its regulatory requirements as set
out by the PRA. Accordingly, the Directors concluded
that it is appropriate to adopt the going concern basis
in preparing the Annual Report and Accounts.
Political and charitable donations
The Group did not make any political donations during
the year (2020: £nil). Further information on charitable
donations made by the Group can be found on page 45.
Share capital
Shawbrook Group plc is a non-listed public company
limited by shares.
Details of the Company’s issued share capital, together
with details of any movements in the Company’s issued
share capital during the year, are shown in Note 42 of
the Financial Statements.
The Company’s share capital comprises one class of
ordinary share with a nominal value of £0.01 each. At
31 December 2021, 253,086,879 ordinary shares were in
issue. There were no share allotments in 2021.
A capital contribution of £5.6 million was made
during the year, relating to Shawbrook Bank Limited’s
acquisition of TML, as shown in Note 10 of the Financial
Statements.
Restrictions on the transfer of shares
According to the Articles of Association and prevailing
legislation, there are no specific restrictions on the
transfer of shares of the Company.
Rights attaching to shares
On a show of hands, each member has the right to one
vote at General Meetings of the Company. On a poll,
each member would be entitled to one vote for every
share held. The shares carry no rights to fixed income.
No one person has any special rights of control over the
Company’s share capital and all shares are fully paid.
New issues of share capital
Subject to the Framework Agreement and under
Section 551 of the Companies Act 2006, the Directors
may allot equity securities only with the express
authorisation of the Shareholder. Under Section 561
of the Companies Act 2006, the Board may also not
allot shares for cash (otherwise than pursuant to an
employee share scheme) without first making an offer
to the Shareholder to allot such shares to them on the
same or more favourable terms in proportion to their
respective shareholdings, unless this requirement is
waived by a special resolution of the Shareholder.
Purchase of own shares by the Company
Subject to the Framework Agreement and under
Section 701 of the Companies Act 2006, the Group may
make a purchase of its own shares if the purchase has
first been authorised by a resolution of the Shareholder.
Substantial shareholdings
The Group is 100% owned by Marlin Bidco Limited.
91
Strategic ReportCorporate GovernanceRisk ReportFinancial Statements Directors’ Report
Auditor
Resolutions to reappoint KPMG LLP as the Group’s
auditor and to give the Directors the authority to
determine the auditor’s remuneration will be proposed
at the Annual General Meeting.
Disclosure of information to the auditor
The Directors confirm that:
1. So far as each of the Directors is aware, there is
no relevant audit information of which the auditor
is unaware; and
2. The Directors have taken all the steps that they ought
to have taken as Directors to make themselves aware
of any relevant audit information and to establish
that the auditor is aware of that information.
This confirmation is given and should be interpreted
in accordance with the provisions of the Companies
Act 2006.
Directors’ responsibility statement
The Directors are responsible for preparing the Annual
Report and Accounts and the Group and Parent
Company financial statements in accordance with
applicable law and regulations.
Company law requires the Directors to prepare such
financial statements for each financial year. Under
that law, the Directors must prepare the Group
financial statements in accordance with UK-adopted
international accounting standards (IAS) in conformity
with the requirements of the Companies Act 2006
and have elected to prepare the Parent Company
financial statements on the same basis. Pursuant to
the requirements of the Companies Act 2006, the
Directors have chosen to prepare the Group and Parent
Company financial statements in accordance with the
International Financial Reporting Standards (IFRS).
Under company law, the Directors must not approve
the accounts 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 the Group’s financial statements, the
Directors are required to: properly select and apply
accounting policies; present information, including
accounting policies, in a manner that provides relevant,
reliable, comparable and understandable information;
and provide additional disclosures when compliance
with the specific requirements of IFRS is insufficient to
enable an understanding of the impact of particular
transactions, other events and conditions on the entity’s
financial position and financial performance. Finally,
the Directors must assess the Group’s ability to continue
as a going concern.
92
The Directors are responsible for keeping adequate
accounting records that are sufficient to show and
explain the Group’s transactions, and disclose with
reasonable accuracy, at any time, the financial
position of the Company, enabling them to ensure that
its financial statements comply with the Companies
Act 2006. Additionally, the Directors are responsible
for safeguarding the Group’s assets and, hence, taking
reasonable steps to prevent and detect fraud and
other irregularities. The Directors are responsible for
maintaining and ensuring the integrity of the corporate
and financial information included on the Group’s
website at shawbrook.co.uk/investors/. Legislation in
the UK governing the preparation and dissemination
of financial statements may differ from legislation in
other jurisdictions.
Each of the Directors, whose names and functions
are listed on pages 52 - 53, confirms that, to the
best of their knowledge:
■ the financial statements, prepared in accordance
with the applicable set of accounting standards, give
a true and fair view of the assets, liabilities, financial
position and profit or loss of the Group and the
undertakings included in the consolidation taken
as a whole;
■ the Strategic Report (on pages 1 - 48) and the
Directors’ Report (on pages 90 -92) include a
fair review of: (i) the business’s development and
performance; and (ii) the position of the Group
and the undertakings included in the consolidation
taken as a whole, together with a description of the
principal risks and uncertainties that they face;
■ the Annual Report and financial statements comply
with all aspects of the Guidelines for Disclosure and
Transparency in Private Equity; and
■ the Annual Report and Accounts, taken as a whole,
are fair, balanced and understandable, and provide
the information necessary for the Shareholder
to assess the Group’s position and performance,
business model and strategy.
This responsibility statement was approved
by the Board of Directors on 30 March 2022.
By order of the Board.
Daniel Rushbrook
Company Secretary
Shawbrook Group plc | Annual Report and Accounts 2021 Risk Report
94
97
Approach to risk management
Risk governance and oversight
101 Top and emerging risks
112
Principal risks
156 Capital risk and management
163
ICAAP, ILAAP and stress testing
163 Recovery Plan and Resolution Pack
164 Group viability statement
Risk
Report
Approach to risk management
Shawbrook Group plc and its subsidiaries (together,
the ‘Group’) seek to manage the risks inherent in its
business activities and operations through close and
disciplined risk management. This aims to quantify
the risks taken, manage and mitigate them as far as
possible and then price appropriately for the residual
level of risk carried in order to produce an appropriate
commercial return through the cycle.
The Group’s approach to risk management continued to
evolve in 2021, with further investment in key areas such
as climate change, financial crime controls, operational
resiliency, information security and technology.
Notable activities and changes in relation to risk
management during the year are summarised below.
■ The Group appointed a new Chief Executive Officer
in June 2021. Following this appointment, the Group
implemented organisational changes, whereby the
Group is now centred around three customer franchises
(Enterprise, Consumer and TML), with an additional
central segment. The risk function worked with the
customer franchises and central functions to ensure
alignment of responsibilities and clear segregation
of the first and second line of defence. Additional
investment has taken place in the second line of
defence to increase consumer expertise, transition the
oversight of collections and recoveries from the first line
of defence, outsource policy oversight and support
planning for the implementation of the Consumer Duty.
■ The risk function appointed a new Director of Financial
Crime and Money Laundering Reporting Officer and a
Risk Management Director. In anticipation of possible
challenges resulting from the ongoing impacts of
COVID-19 and tapering of government support, the risk
function also appointed permanent resources to
support activities associated with the identification and
subsequent management of potential problem loans.
■ The Risk Management Framework (RMF) was further
enhanced, reflecting the annual review of risk
appetite and including further clarification of climate
change risks and how these are managed.
■ To support the embedding of climate change risk
awareness, a training module was rolled out to all
employees in November 2021. The Climate Risk
Working Group also completed a climate risk
assessment and developed a Climate Risk
Implementation Plan for 2021, to demonstrate
compliance with SS3/19 ‘Enhancing banks’ and
insurers’ approaches to managing the financial risks
from climate change’. In support of the Climate Risk
Implementation Plan, the Group arranged external
training for the Board on the financial and transitional
impacts arising from climate change. The Group has
also established relationships with leading climate
data specialists to support its assessment of physical
and transition risk and has made progress in
developing climate related disclosures
(see the ESG Report starting on page 28). The Group
plans to align to the recommendations of the Task
Force on Climate-related Financial Disclosures (TCFD)
during 2022.
■ Throughout the year, the Group has implemented its
LIBOR transition programme and, as at 31 December
2021, the majority of the Group’s exposures with LIBOR
dependency have been transitioned to alternative rates
through active communication with customers.
■ The Group has further embedded its approach to
stress testing and received Board approval for its
Internal Capital Adequacy Assessment Process
(ICAAP), Internal Liquidity Adequacy Assessment
Process (ILAAP) and Group risk appetite.
■ The Group has completed a further review of its
important business services and impact tolerances,
together with a review of the implications for SS2/21
‘Outsourcing and third party risk management’, which
was published in March 2021 and sets out the Prudential
Regulation Authority’s (PRA) expectations on how
regulated firms should comply with regulatory
requirements and expectations relating to outsourcing
and third-party management. The Group is on track
to deliver changes that are required to meet the
requirements of SS2/21 in its existing contracts by
31 March 2022.
Effective risk management is recognised as being key
to the execution of the Group’s strategy. The Group’s
approach to risk management is underpinned by five
key elements:
Risk
strategy
Risk
appetite
Governance
Culture
Risk
Management
Framework
Further details
of these key
elements
are provided
below.
Risk strategy
The risk strategy is an integral part of the Group strategy
and sets out the strategic risk management objectives
that support the achievement of the Group’s commercial
goals and the operation of each customer franchise’s
activities that seek to deliver those aims. The risk strategy
sets out which risks are to be acquired or incurred and
how they will be managed by the Group. This is
summarised in the Group’s Risk Plan, which is approved
annually by the Board in February of each year. The
Group’s Risk Plan includes the risk priorities for the
Group’s risk function, together with the risk plans
for the customer franchises and central functions.
94
Shawbrook Group plc | Annual Report and Accounts 2021 The strategic risk management objectives are to:
■ identify material risks arising in the day-to-day activities and operations of the Group;
■ quantify the risks attached to the execution of the Group’s business plans;
■ set an appropriate risk appetite with calibrated measures and limits;
■ optimise the risk/reward characteristics of business written;
■ set minimum standards in relation to the acquisition and management of risk;
■ secure and organise the required level and capability of risk infrastructure and resources;
■ undertake remedial action where any weaknesses are identified; and
■ scan the horizon for emerging risks.
Risk appetite
The level of risk that the Group is willing to tolerate in operating the various elements of its business are defined in the
RMF. This articulates qualitative and quantitative measures of risk that are cascaded across various areas of the
Group’s operations, calibrated by reference to the Group’s risk appetite and absolute capacity for risk absorption.
During the year ended 31 December 2021, the Group completed the annual review, together with some interim
reviews, of the Group and first line of defence risk appetites. This included the approval of an initial set of climate
change risk appetite measures within the appropriate principal risks.
The Risk Appetite Statement is not static and evolves to support the Group’s business objectives, the operating
environment and risk outlook. Whilst the Group Risk Appetite Report provides an aggregated measure of
performance against risk appetite, it is not just a reporting tool. Just as importantly, it also provides a framework
that is used dynamically to inform strategic and operational management decisions, as well as supporting the
business planning process. In line with the opening up of the UK economy throughout 2021, the Group made
strategic business decisions to re-balance risk appetite, whilst managing the needs of its existing customers.
The Risk Appetite Statement is reviewed periodically by the Risk Committee and agreed with the Board on an
annual basis, or more frequently if required. A dashboard with the status of each metric is monitored monthly by
the Group Risk Management Committee and the Executive Committee. The Group Risk Management Committee
and the Board exercise their judgement as to the appropriate action required in relation to any threshold breach,
dependent on the scenario at the time.
As set out in the following illustration, the Risk Appetite Statement identifies five risk appetite objectives that are
further subdivided into 23 appetite dimensions. The objective assessment of each risk appetite dimension is
supported by qualitative statements and a series of quantitative measures that are weighted by their importance to
the overall appetite. Climate risk is considered in each of the risk appetite objectives in line with industry best practice.
Risk appetite
objectives
Strategic risk
Credit risk
Liquidity and
market risk
Operational
risk
Compliance,
conduct and
financial crime risk
Profit volatility
Credit risk
Financial strength
Concentration risk
Lending growth
Risk appetite
dimensions
Funding and
liquidity
Technology risk
(including systems)
Interest rate risk in
the banking book
Information risk
Product design
Sales and
distribution risk
Third party risk
Post sales service
Physical assets
and security
Culture
Process execution
Financial crime
Change risk
Data privacy risk
People risk
Model risk
Data risk
Climate risk
95
Strategic ReportCorporate GovernanceRisk ReportFinancial Statements Approach to risk management
Governance
All of the Group’s risk activities are subject to
detailed and comprehensive governance
arrangements that set out how risk-based authority
is delegated from the Board to the Executive
Committee and the various risk management
committees and individuals. Risk governance
and oversight is detailed further below.
Culture
The Group is led by an experienced management
team with a combination of significant underwriting
expertise and institutional and regulatory banking
experience at various major financial institutions
and specialist lenders. This heritage provides the
platform for a set of values and behaviour where
the customer is at the heart of the decision-making
process and the customer franchises are held fully
accountable for risk performance. At the individual
level, this process begins with the induction
programme and job descriptions, is carried into the
setting of individual objectives and performance
reviews and is ultimately reflected in the
compensation and reward structure. The Group
conducts regular surveys for all of its employees,
to help identify any emerging risks and to promote
engagement.
Risk Management Framework
All of the Group’s business and support service
activities, including those outsourced to third-party
providers or originated via brokers and other
business intermediaries, are managed within the
parameters of a single comprehensive RMF. This sets
out minimum requirements and ensures consistent
standards and processes are set across the Group.
Risks are identified, measured, managed,
monitored, reported and controlled using the RMF.
The design and effectiveness of the framework is
overseen and reviewed by the Risk Committee.
Responsibility for risk management sits at all levels
across the Group. The Board sets the ‘tone from the
top’ and all colleagues are expected to adopt the
role of ‘risk manager’ in all aspects of their role.
The RMF describes the various activities, techniques
and tools that are mandated to support the
identification, measurement, control, management,
monitoring, reporting and challenge of risk across
the Group. It is designed to provide an integrated,
comprehensive, consistent and scalable structure
that is capable of being communicated to and
clearly understood by all of the Group’s employees.
The RMF also incorporates the organisational
arrangements for managing risk with specific
responsibilities distributed to certain functions.
This ensures that there is clear accountability,
responsibility and engagement at appropriate
levels within the Group, which can provide robust
review and challenge, as well as be challenged.
Operationally, the RMF is organised around a
number of principal risks (see page 112).
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Shawbrook Group plc | Annual Report and Accounts 2021 Risk governance and oversight
Risk governance describes the architecture through which the Board allocates and delegates primary
accountability, responsibility and authority for risk management across the Group.
Responsibility for risk oversight is delegated from the Board to the Risk Committee and Audit Committee.
Ultimate responsibility for risk remains with the Board.
Accountability, responsibility and authority for risk management is delegated to the Chief Executive Officer
and Chief Risk Officer, who in turn allocate responsibility for oversight and certain approvals across a number
of management committees. The Managing Directors of each customer franchise are assigned the designated
role of SMF18 (‘other overall responsibility function’).
Authority and responsibility for material operational risk management, decision-making and risk assurance
is vested in the Chief Risk Officer and the risk function. Lesser levels of authority are cascaded to senior
management within the first line of defence.
The Group’s principal risks are detailed on page 112. Oversight of these principal risks is illustrated below.
Climate risk is embedded in each of the principal risks and is overseen by the Chief Risk Officer.
Oversight
Principal
risk
Credit risk
Liquidity and
market risk
Board
Risk Committee
Audit Committee
First line
Second line
Third line
Credit management in
customer franchises
Credit risk
Group Risk
Management
Committee
Treasury
Market and
liquidity risk
Asset and Liability
Committee
Operational risk
All customer franchises
and central functions
Prudential risk
Compliance,
conduct and
financial crime risk
All customer franchises
Compliance and
financial crime
Strategic risk
Executive Directors and
Senior Management
Prudential risk
Systems and
change risk
Chief
Technology Office
Prudential risk
Group Risk
Management
Committee
Group Risk
Management
Committee
Executive
Committee
Executive
Committee
Internal audit
These bodies and senior officers are accountable and responsible for ensuring that the day-to-day risks are
appropriately managed within the agreed risk appetite and in accordance with the requirements of the RMF.
Individuals are encouraged to adopt an open and independent culture of challenge, which is important
in ensuring risk issues are fully surfaced and debated, with views and decisions recorded. Risk governance
and culture is reinforced by the provisions of the Senior Managers and Certification Regime.
Formal risk escalation and reporting requirements are set out in risk policies, individual committee terms
of reference and the approved risk appetite thresholds and limits.
Committee structure and risk responsibilities
An abbreviated Board and Executive Committee structure is set out in the Corporate Governance Report
on pages 61 to 64. The monitoring and control of risk is a fundamental part of the management process within
the Group. The Board oversees the management of the principal risks across the Group.
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Strategic ReportCorporate GovernanceRisk ReportFinancial Statements Risk governance and oversight
Three lines of defence model
The RMF is underpinned by the ‘Three Lines of Defence’ model, which is summarised in the diagram below:
Customer franchises
Risk strategy
Risk appetite
Risk function
Led by the Chief Risk Officer
Credit risk
Liquidity and
market risk
Operational
risk
Central functions
Climate change risk
Finance
Customer
service
and
experience
Technology
Human
resources
and
marketing
Legal
Compliance,
conduct and
financial crime
risk
Strategic
risk
Systems and
change risk
Internal audit
Led by Chief
Internal Auditor
First line of defence
Owner of the risk management
process and regulatory compliance
Identifies, measures, manages,
monitors and reports on risks
Second line of defence
Designs, interprets and develops overall
Risk Management Framework and monitors
business as usual adherence
Reviews and monitors top risks
Develops compliance policies, leads
requirements for regulatory change and
monitors horizon risks and regulatory issues
Third line of defence
Performs independent
testing and verification of
the Group’s business model,
policies, processes and
business line compliance
Provides independent,
risk-based and objective
assurance to the Board
and regulators that the risk
management process is
functioning as designed
r
o
t
r
a
o
l
t
u
a
g
u
e
g
R
e
R
l
t
i
d
u
a
l
a
n
r
e
t
x
E
First line of defence
Responsibility for risk management resides in the
frontline customer franchises together with the central
functions. Line management is directly accountable for
identifying and managing the risks that arise in their
business or functional area. They are required to
establish effective controls in line with the Group’s risk
policies and act within the risk appetite parameters
set and approved by the Board.
The first line of defence comprises the customer
franchises and the central functions including: the
finance function led by the Chief Financial Officer,
the technology and change function led by the
Chief Technology Officer, the human resources and
marketing function led by the Chief People and
Marketing Officer and the legal function led by General
Counsel and Company Secretary. Operational risk
and resilience oversight is performed by the Enterprise
franchise on behalf of the Executive Committee.
Each functional area operates to set risk policies to
ensure that activities remain within the Board’s stated
risk appetite for that area of the Group. The risk policies
are approved by the appropriate committee in
accordance with their terms of reference and are
reviewed annually, with any material changes
requiring approval at committee level.
The first line of defence has its own operational policy,
process and procedure manuals to demonstrate and
document how it conforms to the approved policies
and controls. Likewise, it develops quality control
programmes to monitor and measure adherence to
and effectiveness of procedures. All employees within
a customer facing unit are considered first line of
defence. Each employee is aware of the risks to the
Group of their particular activity and the customer
franchise and central function heads are responsible
for ensuring there is a ‘risk aware’ culture within the first
line of defence. For certain key policies, employees
within the customer franchises complete regular online
training programmes to ensure knowledge is refreshed
and current.
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Shawbrook Group plc | Annual Report and Accounts 2021
Second line of defence
The second line of defence comprises the Group’s central and independent risk management and compliance
function led by the Chief Risk Officer, who reports to the Chief Executive Officer and laterally to the Chair of the
Risk Committee. The Chief Risk Officer is also provided with unfettered access to the Chairman of the Board.
The second line of defence also includes the General Counsel and Company Secretary who report to the Chief
Executive Officer.
The current high-level risk structure is shown below. This includes Senior Management Function (SMF) references
per the Senior Managers and Certification Regime where applicable:
Chair of
the Risk
Committee
Chief
Executive
Officer
Chief Risk
Officer
(SMF4)
General
Counsel and
Company
Secretary
Prudential
risk
Conduct
and
compliance
risk (SMF16)
Money
Laundering
Reporting
Officer and
Financial
Crime (SMF17)
Liquidity and
market risk
Credit risk
Non-
performing
loans
Collections
and recoveries
and
outsourced
services
Legal
The second line of defence is necessarily and deliberately not customer facing and has no responsibility for
any business targets or performance. It provides independent challenge and control of the first line of defence,
which is delivered through the following:
■ the design and build of the various components
of the RMF and embedding these, together with the
risk strategy and risk appetite, across the Group;
■ independent monitoring of the Group’s activities
against the Board’s risk appetite and limits, and
provision of monthly analysis and reporting on the risk
portfolio to the Executive Committee and the Board;
■ issuing and maintaining the suite of Group risk
policies;
■ in relation to outsourced services, the setting
of policies and subsequent assessment of
policy conformance;
■ undertaking physical reviews of risk management,
controls and capability in the first line units and
providing risk assurance reports to the Executive
Committee and the Board on all aspects of risk
performance and compliance with the RMF;
■ providing advice and support to the first line of
defence in relation to risk management activities;
■ credit approvals between delegated authority and
the threshold for Credit Approval Committee; and
■ undertaking stress testing exercises and working with
the finance and treasury functions on the production
of the ICAAP, ILAAP and Recovery Plan and
Resolution Pack.
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Third line of defence
The third line of defence comprises the internal
audit function, led by the Chief Internal Auditor, and
provides independent assurance directly to the
Board and Audit Committee on the activities of the
Group and the effectiveness of the RMF and internal
controls. The internal audit function reports directly
to the Chair of the Audit Committee, as well as the
Chief Executive Officer, and is independent of the
first and second lines of defence.
The third line of defence has access to the activities
and records of both the first and second lines of
defence. It can inspect and review adherence to
policies and controls in the first line, the monitoring
of activity in the second line and the setting of
policies and controls in the second line. The third line
of defence does not independently establish policies
or controls itself, outside of those necessary to
implement its recommendations with respect to
the other two lines of defence. The third line may
in some cases use as a starting point the reports
and reviews compiled by the second line but is not
restricted to them or necessarily influenced by
their findings.
The scope of work of the third line of defence is
agreed with the Audit Committee and is designed
to provide an independent assessment of the
adequacy and effectiveness of governance, risk
management and the internal control frameworks
operated by the Group and to note the extent to
which the Group is operating within its risk appetite.
It does this by reviewing aspects of the control
environment, key processes and specific risks and
includes review of the operation of the second line
of defence.
The Group continues to engage Deloitte LLP
to provide resources as part of the co-sourced
model led by the Chief Internal Auditor.
Risk policies and controls
The RMF is enacted through a comprehensive suite
of control documents and risk policies, setting out
the minimum requirements and standards in relation
to the acquisition and management of risk assets as
well as the control of risks embedded in the Group’s
operations, activities and markets.
The Group’s high-level control documents and risk
policies are overseen by the Group’s risk function,
headed by the Chief Risk Officer and are approved
by the Board or, where delegated, the appropriate
Risk Committee. The suite of policies is grouped
according to importance and principal risks within
a Board approved policy hierarchy and framework.
Group-level risk policies are supplemented, as required,
by customer franchise specific risk processes and
procedures, which detail more specific and tailored
criteria. The customer franchise specific processes and
procedures are required to be compliant with Group
policy and dispensations or waivers are required where
gaps are identified. These process and procedure
manuals provide employees at all levels with day-to-day
direction and guidance in the execution of their duties.
The effectiveness of and compliance with risk policy
frameworks is evaluated on a continuous basis through
the monthly reporting requirements (including risk
policy exceptions reporting). Additionally, a biannual
risk and control self-assessment, supplemented by a
program of audits, thematic risk assurance reviews
and quality control testing, is undertaken by each of the
three lines of defence. The Group has also implemented
an annual attestation process to confirm compliance
with the RMF and identify risk management priorities
for the next 12 months.
Asset class policies
The Group controls its lending activities through 21 asset
class policies and a further 10 lending policies. This
provides a stable, consistent risk standard and control
across the Group’s portfolio of loan assets. Asset classes
can also be aligned more readily with risk-weightings,
probability of default (PD), loss given default (LGD) and
expected credit loss (ECL) metrics, which facilitates risk
reporting, risk adjusted profitability analysis and
modelling for stress testing and capital adequacy
purposes. During 2021, the Group continued to utilise a
matrix that sits above the asset class policies to highlight
the key criteria that are reserved for Board approval.
Asset class policies are structured on the basis of policy
rules, which must be adhered to, and guidelines, where
an element of controlled discretion is permitted. All
planned exceptions to policy rules require approval at
the Group risk level and both planned and unplanned
exceptions to policy rules are reported monthly to the
relevant risk management committee.
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Shawbrook Group plc | Annual Report and Accounts 2021 Top and emerging risks
The Group’s top and emerging risks are identified through the process outlined in the RMF (see page 96) and
are considered regularly by the Group Risk Management Committee and subsequently by the Risk Committee.
Top risks
Top risks are those risks that could cause the delivery of the Group’s strategy, results of operations,
financial condition and/or prospects to differ materially from expectations.
The Group sees eight themes as its top risks:
Credit impairment
Intermediary,
outsourcing and
operational resiliency
Global pandemic risk
Geopolitical risk
Economic and
competitive
environment
Pace of
regulatory change
Pace, scale of
change and
people risk
Information and
cyber security risk
A review of each of these
themes is provided on the
following pages. The links to
key performance metrics
provided for each top risk
refer to those detailed in ‘Our
platform in numbers’ on the
inside cover.
In the following pages, the below symbols are used to illustrate the change in risk environment
during the year for each of the Group’s top risks.
No change
Risk decreased
Risk increased
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Strategic ReportCorporate GovernanceRisk ReportFinancial Statements Top and emerging risks
Credit impairment
Overview
As at 31 December 2021, the
Group’s loan book is £8.6 billion and
is exposed to credit impairment if
customers are unable to repay
loans and any outstanding interest
and fees.
How this could impact our strategy or business model
■ Increases in credit impairment could lead to a material reduction
in profitability and retained earnings that may impact on the
Group’s capital ratios and its ability to meet its objectives.
■ Lack of preparations for the transition from origination to in-life
management may lead to missed opportunities to support
customers, leading to increased impairment and customer harm.
The shape of the economic
recovery will play a key role in
driving the impairment profile
in the foreseeable future.
As the government support
provided during COVID-19 comes
to an end, the risk of highly
indebted SMEs not able to service
their debt increases. In addition,
the shape of post-COVID economic
recovery, e.g. rise in online
shopping, hybrid working, rising
inflation, labour shortages and
disruption in supply chain, could all
collectively put pressure on cost of
risk across retail and SME portfolios.
Links to key performance metrics
■ Cost of risk
■ CET1 capital ratio
■ Total capital ratio
How we manage this risk
■ Investment in permanent non-performing loan resources has
managed the number of watchlist and forbearance cases during
COVID-19 and will continue to respond proactively to potential
uncertainty following the removal of furlough.
■ The Group’s risk appetite is calibrated to help achieve the business
strategy and is modified as required to reflect the uncertainty
in economic and competitive landscape.
■ The Group has enhanced underwriting guidelines and
requirements to provide increased focus on sustainability
of income, including some non-contractual income sources,
within the affordability calculation. Asset class policies have
been cautiously reviewed to recognise the recovery in some
segments of the Group’s target market.
■ The impact on impairment models is regularly monitored and
reported to internal committees and post-model adjustments
(PMAs) are reviewed by the Model Management Sub-Committee
and approved by the Group Impairment Committee.
Focus areas for 2022
■ Increased focus on product and sectoral risk to support the Group’s
evolution of risk appetite as the economic recovery continues.
■ Develop further strategic credit management information
to ensure timely and accurate reflection of risk in the Group’s
lending segments, thus enhancing the Group’s ability to make
proactive decisions.
■ Continue to develop the granularity and accuracy of the Group’s
stress testing capability.
■ Regular review of the evidence supporting all key areas
of judgement used in support of the model-based ECL.
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Shawbrook Group plc | Annual Report and Accounts 2021 Intermediary, outsourcing and operational resiliency
Overview
The specialist nature of some of
the Group’s lending through
intermediaries and brokers could
mean some customers find
themselves with an increased risk
of an unfavourable outcome. This
may include meeting Mortgage
Conduct of Business regulation,
Consumer Credit sourcebook and
other regulations and the oversight
of third parties where it may be
exposed to Section 75 and Section
140 risk. For the Group, this could
also lead to increased conduct
related redress, additional fraud, or
credit risk impairments.
The Group uses a number of third
parties to support the delivery of its
objectives. The availability and
resiliency of its core customer
facing systems play a key role in
supporting the Group’s reputation
in its chosen markets.
Links to key performance metrics
■ Loan book
■ Customers served
How this could impact our strategy or business model
■ The Group may be impacted by the failure of third parties to deliver
on their regulatory obligations, which may lead to increased
complaints, redress costs and damage to the Group’s reputation
through regulatory censure. This may also lead to increased
contingent liabilities in certain areas where the Group is exposed to
Section 75 and Section 140 liabilities, which impacts on the Group’s
profitability and capital resources.
■ Failure of a third-party outsourcer may lead to customer harm,
which may lead to complaints, loss of confidence in the Group
and potentially regulatory censure.
■ The Group, as a deposit taker, could be impacted if its systems
prevented a significant number of payments to be made, leading
to its financial stability being undermined.
■ The potential for operational disruption could have a material
impact on profitability or viability.
How we manage this risk
■ The Group has continued to invest in its relationship with its key
third parties, to focus on strong customer outcomes particularly as
furlough ends. This has included increased reporting of the
performance of material third parties at the Group Risk Management
Committee, Risk Committee and Board as appropriate.
■ The Group has implemented a new material outsource service for
its Consumer franchise to benefit from increased levels of digital
self-service channels through which customers can engage with
the Group.
■ The Group has identified all of its important business services
and has invested resources in developing policy, process and
procedures to support the effective operation of each.
■ The Group has developed and implemented an operational
resiliency roadmap and heatmap of its key business services,
including an update to its impact tolerances to promote greater
operational resiliency.
■ The Group has further invested in cloud technology to increase the
resiliency of its core systems, back-up for its core information and
to automate its watchlist and other key management information.
This has also included the onboarding of climate related
management information.
Focus areas for 2022
■ Further embedding of the Operational Resilience Framework through
scenario testing to refine the Group’s impact tolerances in both
assessing customer harm and the safety and soundness of the Group.
■ The Group is reviewing its existing contracts to meet the
requirements of SS2/21 on outsourcing and third-party management.
■ The Group is accelerating its investment in digital, including
the embedding of Agile and product engineering within its
product segments and the automation of its credit risk
management information.
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Strategic ReportCorporate GovernanceRisk ReportFinancial Statements Top and emerging risks
Global pandemic risk
Overview
The UK COVID-19 vaccination
programme and economic and
regulatory policy measures have
significantly supported the UK’s
economic recovery during 2021.
However, uncertainty around the
impact of furlough on
unemployment and the prospects
for SMEs, combined with the
potential for new variants and the
impact on the NHS over the winter
months, could impact on the
economic recovery. This could
impact upon the Group’s
employees, operations, third parties
and customers. The ultimate impact
will depend on unemployment, virus
recurrence, the nature and extent of
any government interventions and
the timing and effectiveness of new
health measures taken to supress
the spread.
Links to key performance metrics
■ Loan book
■ Customers served
■ Cost of risk
■ CET1 capital ratio
■ Total capital ratio
■ Employee engagement score
How this could impact our strategy or business model
■ Reduced customer spending and business investment, lowering demand
for the Group’s loan products and decreasing originations.
■ Increased impairments resulting from higher unemployment, insolvencies
and reduced income impacting customer’s ability to service debt and
increased numbers of customers requesting forbearance.
■ Impact on impairment arising from other economic variables such as
residential and commercial property prices.
■ Increased pressure on operations resulting from increased numbers of
customers seeking support and the potential for colleagues to be exposed
to the virus generating increased absenteeism.
■ A protracted delay in the return to the office environment could reduce
collaboration and delay the execution of the strategy.
How we manage this risk
■ The Executive Committee established a People Engagement Forum with the
aim of ensuring that the employee voice is heard in a more formalised way.
The People Engagement Forum is working alongside the Group’s Estate
Steering Committee to shape the design and delivery of the transition back
to the ‘new normal’. The People Engagement Forum has focused on lessons
learnt from working at home and longer-term thinking about how the Group
uses its offices to support the delivery of strategy, collaboration and
employee engagement.
■ The Group continues to follow government advice and has promoted a
gradual return to office-based working. Going forward, the Group aims to
adopt a hybrid and flexible approach to work, guided by industry standards
and practices, which could support both our employees and customers
alike. Additional investment in IT infrastructure, including the roll out of new
laptops to all colleagues, has been made to enhance information security,
which will continue to support Group’s hybrid working approach.
■ Continuation of measures to support the safety and wellbeing of all
employees, including: the provision of membership to a wellbeing and
meditation app, licenses to a video conferencing provider to allow
employees to remain connected with families and the business and
access to an online GP service.
■ The Group has provided loans to customers under COVID-19 related
business support schemes (Coronavirus Business Interruption Loan
Scheme and Recovery Loan Scheme) to existing customers affected by
COVID-19 that met eligibility criteria.
■ Provision of forbearance arrangements, adhering to and complying
with regulatory guidance. Whilst most customers have returned to
making full repayments, the Group expects that some customers will
require longer-term forbearance measures.
Focus areas for 2022
■ As government support and temporary COVID-19 related measures
expire, the Group will continue to focus on supporting its customers
appropriately and meeting regulatory obligations.
■ Continued assessment of the impact of COVID-19 scenarios to identify
and evaluate financial impacts on the business, the Group’s third parties,
operations and its employees.
■ Continued focus on the impact of COVID-19 on the Group’s impairment
models and calculated ECLs.
■ Conduct risk assessments to identify potential strategic, operational
and regulatory exposures.
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Shawbrook Group plc | Annual Report and Accounts 2021 Geopolitical risk
Overview
Geopolitical risk, such as an
unprecedented political risk e.g.
a dispute triggering Article 16 or
regional conflicts, could present
a risk to the business, its financials
and earnings volatility.
The UK left the EU on 31 January
2020 with a trade agreement in
place at the end of the transition
period on 31 December 2020.
However, during 2021 a number of
issues resurfaced between the UK
and the EU, e.g. revision of terms of
Northern Ireland protocol, fishing
rights and export ban on COVID-19
vaccine quotas, which could lead
to a trade dispute with the EU.
Post-Brexit immigration rules have
disrupted trade, particularly
affecting UK exports to the EU. The
impact was also observed in labour
markets, e.g. shortage in road
haulage drivers, farm and
hospitality workers, as many
European workers returned to the
EU. Although this has led to an
increase in job vacancies in the UK,
many of these remain unfilled due
to skill gaps and low uptake by
British workers in certain segments.
Links to key performance metrics
■ Loan book
■ Cost to income ratio
■ Customers served
■ Cost of risk
■ CET1 capital ratio
■ Total capital ratio
How this could impact our strategy or business model
■ Lower economic, labour shortage and disruption in supply chains
could impact the level of private sector investment in the UK, which,
in turn, negatively impact on the Group’s customers’ demand for
loans, funding and deposits that it provides.
■ Trade disagreements could potentially elevate economic issues as
seen with a rise in inflation during 2021, which could lead to higher
interest rates and affect impairments on the Group’s loan portfolios.
■ Credit spreads could widen leading to reduced investor appetite for
the Group’s debt securities, which could impact the Group’s cost of
and/or access to funding and the ability to grow the loan portfolios.
■ The Group’s operational resiliency may be impacted by the need to
transition activities from non-UK firms.
How we manage this risk
■ The Group undertakes a comprehensive assessment of its risk
appetite and stress tests its lending and deposit portfolios to ensure
that it can meet its objectives in severe but plausible economic
conditions. This includes the Group’s assessment of post-Brexit
risks and opportunities.
■ The Group regularly engages with its critical suppliers to foresee
and mitigate any impact on services provided to the Group.
■ The Group continues to strengthen its capital position and pursue
a diversified funding structure. The Group has completed a number
of securitisations of its loan portfolios and this continues to be a key
part of the Group’s strategy.
■ The Group has reviewed its register of outsource providers and has
no gaps in EU General Data Protection Regulation Article 28 clauses.
Focus areas for 2022
■ Ensure that all outsourcers and third parties are operationally
resilient in the event of geopolitical uncertainty, including the review
of business continuity plans and disaster recovery plans and regular
tests of technology resiliency using tools such as penetration testing.
■ Continue to develop a range of mitigating actions, including the
use of robust stress tests that contain the risk of geopolitical risk by
comparing the economic scenarios assessed in IFRS 9 with those
used in the ICAAP.
■ The Group continues to monitor the situation in Ukraine. Although
the Group does not have any direct exposure, it does have indirect
exposure, for example the impacts of rising energy prices, cost of
living and inflation, potential supply chain issues faced by customers
and increased cyber security threats. Accordingly, the Group has
updated its affordability policy to ensure that its lending remains
appropriate and is closely monitoring the cyber perimeter and
information security risks within the Group and by engaging with
key third parties.
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Strategic ReportCorporate GovernanceRisk ReportFinancial Statements Top and emerging risks
Economic and competitive environment
Overview
A reversal in UK economic
conditions, particularly in England
where the majority of the Group’s
operations are based, could affect
the Group’s performance.
The UK economy witnessed sharp
growth during the first half of 2021
as COVID-19 restrictions ended.
However, the downside risks
remained during 2021, with higher
inflation and acute material
shortages as reflected in soaring
prices of used cars, rising energy
and fuel prices and shortage of
construction materials, all
impacting on growth in the short
– to medium-term. In addition, the
economic challenges from the
ending of the furlough scheme,
together with ending of temporary
restrictions on the use of statutory
demands and certain winding-up
petitions on corporations, are still
to be seen.
The trading environment remains
competitive as more specialised
lenders returned to lending during
2021 as consumer demand
returned, new lenders gained
banking licenses and existing firms
invest in technology and agile ways
of operating and providing service
to customers and clients.
Links to key performance metrics
■ Loan book
■ Customers served
■ Cost of risk
■ Gross asset yield
■ CET1 capital ratio
■ Total capital ratio
How this could impact our strategy or business model
■ Reduced gross lending from lower demand as customers defer major
purchases and investment. This may be partly offset by lower early
settlement of loans.
■ Increased impairments if a significant number of SMEs experience
financial distress or insolvency, or if consumers experience an increase
in unemployment.
■ A prolonged economic downturn may impact the Group’s ability to
fund strategic investment to meet the needs of customers and
improve operations.
■ Rising competition may compress Group margins and impact on
target returns.
How we manage this risk
■ The Group continued on its digital journey including the launch of the
My Shawbrook Buy-to-Let Portal and delivering Platform for Growth
to support the scaling of the Asset Finance offering. This includes
the development of a decision engine to support the delivery of
automated lending decisions and implementation of a partner
oversight tool that supports greater consistency and automation
of brokers and intermediaries.
■ The Group carefully considered its risk appetite in its selected markets
and prioritised the needs of its existing customers over new originations.
The Group prioritised investment in meeting the Group’s longer-term
needs through the creation of a ‘Value Creation Roadmap’.
■ Investment made during 2020 in additional resources in the first and
second lines of defence continued to strengthen the Group’s ability
to manage problem loans.
■ The Group became an accredited Recovery Loan Scheme lender in
August 2021, offering a limited number of loans to existing customers
affected by COVID-19 that meet specific eligibility criteria.
■ The Group undertakes a comprehensive assessment of its risk appetite
under baseline and stress economic scenarios to ensure that it can
meet its objectives in severe but plausible economic conditions.
Focus areas for 2022
■ The targeted expansion of risk appetite in carefully selected sectors
to align with the economic outlook as it emerges.
■ Scaling the business through the implementation of automated
lending decisions.
■ Utilisation of third parties and technology to increase capacity in
originations, servicing and collections activities to position the Group
to meet the needs of its customers.
■ Continue to invest in its outsourcing controls and oversight to manage
any additional risk that the Group may be exposed to.
■ Accelerate the Group’s investment in digital through additional
resources in product management and a focus on customer and
user experience.
■ Support the wider adoption of Agile through the embedding
of a product and engineering model.
■ Invest in technology resources to deliver the engineering requirements
of the accelerated digital strategy.
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Shawbrook Group plc | Annual Report and Accounts 2021 Pace of regulatory change
Overview
The prudential and conduct
regulatory regimes are subject to
change and could lead to either
increase in the level and quality of
financial resources, or change in
policies and processes to meet
regulatory requirements.
In relation to financial risk, in
December 2021, the Financial Policy
Committee announced that the UK
countercyclical capital buffer would
increase from 0% to 1% in
December 2022 and, if the economy
continued to progress, it would be
expected to increase from 1% to 2%
in June 2023. Other relevant
prudential policy announcements in
the next year include guidance on
implementation of the remaining
Basel 3 banking standards, the
minimum requirement for own funds
and eligible liabilities review and the
implementation of Basel 3.1.
The financial sector will also
continue to embed climate risk
regulation and industry standards,
which are subject to evolve over the
coming years and will form a key
part of the business strategy.
In relation to non-financial risks,
implementation of operational
resilience and third party and
outsourcing regulations will
continue, along with other high
priority regulatory initiatives as
published in the Regulatory
Initiatives Grid in November 2021,
including the new Consumer Duty.
How this could impact our strategy or business model
■ An increase in minimum regulatory capital requirements may
directly impact on the Group’s risk appetite and its ability to
support its lending to current and potential future customers.
■ Changes in regulatory capital requirements may lead the Group to
change its business mix, exit certain business activities altogether
or not to expand in areas despite otherwise attractive potential.
■ An increase in minimum regulatory capital requirements may
restrict distributions on capital instruments, which may have an
impact on the Group’s ability to issue new, or refinance existing,
capital instruments.
■ Frequent change in regulation could also have wide ranging
impacts beyond financial resources reflected through changes
in internal policies and processes, people and systems resources,
product offerings and the markets and customers we serve.
How we manage this risk
■ The Group actively engages with regulators, industry bodies and
advisors to actively engage in consultation processes. The Group
actively reviews regulatory publications to assess their implications
for the business and oversees the impact analysis through its
Regulatory Change Working Group.
■ The Group follows its prudential programme to update its ICAAP,
ILAAP and Recovery Plan and Resolution Pack and considers the
conclusions in the regular business planning processes that have
taken place during the year.
■ During 2021, the Group completed a structured asset sale of
£343 million of TML originated mortgages. This is the second
structured asset sale of TML originated mortgages. The
transaction will support the Group’s growth objectives, funding
strategy and capital management.
Focus areas for 2022
■ Ongoing stress testing of the Group’s lending portfolios to quantify
the impact of any changes on the strategy and business model.
■ Complete an annual review of the ICAAP and Recovery Plan and
complete the Liquidity Supervisory Review and Evaluation Process.
Links to key performance metrics
■ Loan book
■ The design and implementation of controls to support the
embedding of the new Consumer Duty and new Consumer Principle.
■ Cost to income ratio
■ Cost of risk
■ CET1 capital ratio
■ Total capital ratio
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Strategic ReportCorporate GovernanceRisk ReportFinancial Statements Top and emerging risks
Pace, scale of change and people risk
Overview
The scale and pace of change
could create delivery challenges
and could lead to disruption of the
Group’s plans and in the delivery
of its objectives.
The Group needs to deliver a
significant number of projects over
the plan to deliver its objectives.
Failure to deliver the required
change may lead to disruptions
in the delivery of its objectives.
The hybrid working environment
post-COVID poses additional
challenges on collaboration and
development, but may open up
new recruitment markets.
ESG is a key pillar of the Group’s
purpose led strategy and reflects
the importance of sustainability,
and equality, diversity and inclusion
in driving the long-term strategy
and business model.
Links to key performance metrics
■ Loan book
■ Customers served
■ Cost of risk
■ Gross asset yield
■ CET1 capital ratio
■ Total capital ratio
How this could impact our strategy or business model
■ Delivering what customers need and in the way that they want to
engage with the Group is essential to building the Group and failure to
do this may impact on originations, customer retention and profitability.
■ People risk remains a key factor in the post-COVID environment as
hybrid working and flexible working hours becomes the ‘new normal’.
Improvement in technology continues to create options for people to
live and work from a place of their choice and firms that lag behind in
their employee value proposition might find it difficult to attract the
right talent.
■ Failure to protect employees and promote mental health and
wellbeing could lead to higher absence and impacts on the Group’s
ability to look after its existing customers.
■ A clear and purposeful ESG strategy is key to supporting long-term
sustainable performance, including strong engagement from
all employees.
How we manage this risk
■ The Group has focused on supporting employees during COVID-19
with the implementation of new technologies to ensure that the
Group’s operations remain resilient.
■ The Group has actively considered the wellbeing of its employees
by offering membership to a wellbeing and meditation app, access
to an online GP service and a comprehensive workplace assessment
process that has been followed with the provision of additional
support where reasonable adjustments are required.
■ The Group’s People Engagement Forum is working alongside the
Group’s Estate Steering Committee to shape the design and delivery
of the transition back to the ‘new normal’. The People Engagement
Forum has focused on lessons learnt from working at home and
longer-term thinking about how the Group uses its offices to support
the delivery of strategy, collaboration and employee engagement.
■ The Group has launched an ESG working group and an equality,
diversity and inclusion network, which included the Group signing
up for the Race at Work Charter.
■ In April 2021, the Group announced a multi-year partnership with
rugby union side, Saracens. As part of the sponsorship the Group
provides ongoing financial support to the 20-year-old ‘Saracens
Foundation’, whose mission is to transform lives on and off the pitch
to build stronger communities.
■ The Group has regularly completed its employee engagement survey
and maintained an employee engagement score of 8.0 (2020: 8.0).
■ The Group continues to develop its employee value proposition to
attract and retain the best talent to support its business strategy.
■ The Group’s adoption of hybrid working provides the opportunity
to access a wider talent pool across the UK and, in turn, supports
the UK Government’s levelling up agenda.
Focus areas for 2022
■ The Group has organised its strategic priorities into a roadmap
through which to prioritise its resources. Delivery of the roadmap
is key to the Group’s objectives.
■ The Group will continue to advance its digital strategy through
its investment in people and technological resources to deliver
its objectives.
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Shawbrook Group plc | Annual Report and Accounts 2021 Information and cyber security risk
Overview
The cyber threat remains
significant and high profile across
all industries. Cyber security and
information risk continues to be a
focus area for regulators and is
increasingly assessed as an integral
part of operational resilience. This is
coupled with an increase in public
awareness and regulatory focus
specifically on cyber resilience in
the face of increasingly targeted,
destructive ransomware attacks
experienced over the last 12 months
in the market.
Links to key performance metrics
■ Loan book
■ Customers served
■ CET1 capital ratio
■ Total capital ratio
How this could impact our strategy or business model
■ Increasing customer demand could exceed the Group’s ability to
provide highly reliable and widely available systems and services,
leading to a fall in confidence and customer attrition.
■ The evolving nature and scale of criminal activity could increase
the likelihood and severity of attacks on the Group’s systems.
■ Customer franchise value and customer trust could be significantly
eroded by a successful attack on the Group’s systems, leading to
a diversion of funds or the theft of customer data.
How we manage this risk
■ The Group continually reviews its control environment for
information security to reflect the evolving nature of the threats
to which the Group is exposed.
■ The Group’s strategy for mitigating information security risk is
comprehensive, including: a documented cyber strategy, ongoing
threat assessments, regular penetration testing, the wide
deployment of preventative and detective controls and a
programme of cyber awareness education and training.
■ The Group continues to invest in its technology layer, including the
use of cloud computing resources to improve resiliency and the
implementation of additional controls to support the security of its
core systems. This includes investment in automated application
security testing tools and sensitive data discovery software.
■ Development of customer franchise specific application and data
heatmaps to manage legacy system risk, resiliency and the
build-up of technical debt.
Focus areas for 2022
■ The Group has continued to invest in its capabilities to reduce its
exposure to a cyber-attack and plans to further align to ISO 27001
standards to further refine its risk appetite and controls with
respect to information security.
■ Embed Chief Technology Office and information security controls
within its outsourcers and third parties.
■ Group-wide implementation of data ownership and controls to
promote improved accuracy of source customer data and
improvements in management information.
■ Group-wide implementation of Agile through the embedding
of the product and engineering model.
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Strategic ReportCorporate GovernanceRisk ReportFinancial Statements Top and emerging risks
Emerging risks
Emerging risks are those that have unknown components, the impact of which could crystallise over a longer
period and could include certain other factors beyond the Group’s control, including escalation of terrorism
or global conflicts, natural disasters, epidemic outbreaks and similar events.
The Group has identified two emerging risks:
Financial crime
Climate risk
Each of these risks are considered further below. The links to key performance metrics provided for each emerging
risk refer to those detailed in ‘Our platform in numbers’ on the inside cover.
In the comparative year, LIBOR transition and negative rates were also identified as emerging risks. However, as
at 31 December 2021, the Group’s LIBOR transition programme is largely complete and during 2021 the Group has
implemented tactical changes to address the potential for negative rates. Consequently, these areas have now
been removed as emerging risks.
Financial crime
Emerging
risk
Overview
Financial crime is any kind of
criminal conduct relating to money
or to financial services or markets.
This includes any offence involving:
How this could impact our strategy or business model
■ An inadequate control environment for financial crime could lead
to increased operational losses, credit impairment, increased
manual reviews and potentially regulatory enforcement, penalties
and/or censure.
■ fraud or dishonesty;
■ misconduct in, or misuse of
information relating to, a
financial market;
■ handling the proceeds of crime; or
■ the financing of terrorism.
Although the risk has always been
present in the financial services
industry, the increased use of digital
channels has elevated the risk
profile. With the development of
technology, the type and impact
of financial crime activities is likely
to increase over the coming years.
Links to key performance metrics
■ Loan book
■ Cost to income ratio
■ Customers served
■ Cost of risk
■ The reputational damage associated with financial crime could cause
loss of customers and intermediaries, impacting the Group’s revenues
and financial position and/or regulatory standing.
■ The current hybrid working environment and the transition of resources
to new work activities may impact the effectiveness of existing controls
and increase fraud opportunities.
How we manage this risk
■ The Group continues to enhance its control environment with respect
to financial crime. This is closely monitored by the Executive Committee.
■ The Group began implementation of an automated customer due
diligence processes in 2021 and this will be completed in 2022.
■ The Group conducts a firm-wide financial crime risk assessment to
assess compliance with Group policies. This focuses on the following
risk categories: money laundering and terrorist financing risk, bribery
and corruption risk, sanctions risk, tax evasion risk and fraud risk.
■ The Group has a dedicated Money Laundering Reporting Officer,
who reports to the Chief Risk Officer.
Focus areas for 2022
■ During 2021, the Group has significantly enhanced its defences to tackle
financial crime through the implementation of a new financial crime
control environment. This implementation plan will continue into 2022,
with key focus on the automation of processes and controls such as
customer due diligence and transaction monitoring.
■ The Group will continue to invest in resources and risk identification,
prevention and control mechanisms to protect its customers and
investors and to protect the Group from the facilitation of financial crime.
■ The Group will ensure that actions arising from the review of the material
customer loan write-off that occurred in 2021 are fully implemented.
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Shawbrook Group plc | Annual Report and Accounts 2021 Climate risk
Overview
Climate change and society’s
response to it, presents financial
risks which impact the Group’s
objectives. The risks arise through
two primary channels: the physical
effects of climate change and the
impact of changes associated
with the transition to a lower
carbon economy.
Links to key performance metrics
■ Loan book
■ Customers served
■ Cost of risk
■ Gross asset yield
■ CET1 capital ratio
■ Total capital ratio
Emerging
risk
How this could impact our strategy or business model
■ Physical risks could lead to real impacts on the economy through
business disruption, asset destruction and migration. This may
drive market and credit losses to the Group through lower property
and corporate asset values, lower household wealth and lower
corporate profits and more litigation.
■ The transition to a lower carbon economy could lead to lower
growth and productivity and the potential for operational risks
and underwriting losses.
How we manage this risk
■ The Group considers the embedding of climate related matters
to be a key initiative and, as such, has appointed the Chief Risk
Officer as the responsible executive to oversee delivery of the
Climate Change Plan.
■ The Group has embedded the management of climate risk within
each of its principal risks, with a focus on high materiality areas
including strategic risk and credit risk.
■ The Group has developed a proportionate approach to climate
change in line with the requirements of SS3/19 and focuses its
assessment on term loans in the Enterprise and TML franchises.
■ The Group has partnered with leading climate data providers
and consultancies to develop its understanding of physical and
transition risk and has used this to develop its initial risk appetite
statement and measures together with metrics, measures and
initial climate risk disclosures and the TCFD roadmap.
■ The Group has a working group that meets monthly to oversee
implementation and achieved compliance with SS3/19 by the end of
2021. This includes the development of target capabilities across four
workstreams: governance, RMF, scenario analysis and disclosures.
Focus areas for 2022
■ Climate risk is an ongoing long-term cross cutting risk, hence its
impact on the Group’s policies, customers, markets and products
will be closely linked to the UK Government’s policies on transition
to net zero and how other financial institutions embed climate risk
in their business models.
111
Strategic ReportCorporate GovernanceRisk ReportFinancial Statements Principal risks
The principal risks faced by the Group are set out in the table below. Oversight of the Group’s principal risks
is outlined on page 97. Climate risk is embedded within each principal risk.
Certain information in the principal risks section is audited. Sections that are specifically marked as ‘audited’
are covered by the Independent Auditor’s Report starting on page 166. All other sections are unaudited.
Additional
information
See page 114
Principal sources
of exposure
The principal source of customer
credit risk is the Group’s loans
and advances to customers.
Treasury credit risk exposure is
limited to short-term deposits placed
with leading UK banks and high-
quality liquid assets purchased for
inclusion in the Group’s liquidity
buffer.
Principal risk Definition
Credit risk
(Audited)
Credit risk is the risk that a borrowing
client or treasury counterparty fails to
repay some, or all, of the capital or
interest advanced to them, due to lack
of willingness to pay and/or lack of
ability to pay. Credit risk can be further
divided into customer credit risk (from
core lending activity) and treasury
credit risk (from treasury activity).
Credit risk also includes credit
concentration risk, which is the risk
of exposure to particular groups of
customers, sectors or geographies
that, uncontrolled, may lead to
additional losses that the Shareholder
or the market may not expect.
Liquidity risk
(Partially
audited)
Liquidity risk is the risk that the Group
is unable to meet its current and future
financial obligations as they fall due,
or is only able to do so at excessive cost.
The principal source of liquidity risk
is the Group’s retail and wholesale
deposits, as well as affinity
partnerships and bilateral/public
securitisations.
See page 145
Market risk
(Partially
audited)
Market risk is the risk of financial loss
through unhedged or mismatched
asset and liability positions that are
sensitive to changes in interest rates
or currencies.
Exposure to market risk arises from
the Group’s core activities of offering
loans and deposits to customers.
See page 151
All financial assets held by
the Group are non-trading.
Operational
risk
Operational risk is the risk of loss
resulting from inadequate or failed
internal processes, people and system
failures, or from external events.
The principal sources of operational
risk, as per the year-end assessment,
are information, model, third-party
suppliers and process execution.
See page 154
See page 155
Compliance,
conduct and
financial
crime risk
Conduct risk is the risk that the Group’s
behaviour will result in poor customer
outcomes and that the Group’s people
fail to behave with integrity.
Compliance and financial crime risk is
the risk of regulatory enforcement and
sanction, material financial loss, or loss
of reputation the Group may suffer as
a result of its failure to identify and
comply with applicable laws,
regulations, codes of conduct and
standards of good practice, or that the
Group’s processes may be used to
commit financial crime.
The principal sources of compliance,
conduct and financial crime risk are
when customers suffer harm due to
the Group, or its third-party suppliers
and intermediaries, failure to meet
expectations, or treat customers
fairly, particularly when servicing
the needs of customers with
vulnerabilities. Compliance risk arises
where the Group fails to identify or
comply with applicable law and
regulation. Financial crime risk arises
where the Group’s systems and
controls are circumvented for the
purposes of perpetrating financial
crime, including fraud, bribery, money
laundering and the financing of
terrorist activity.
112
Shawbrook Group plc | Annual Report and Accounts 2021 Principal risk Definition
Strategic
risk
Strategic risk is the risk that
the Group is unable to meet
its objectives through the inappropriate
selection or implementation of strategic
plans. This includes the ability
to generate lending volumes within
the Group’s risk appetite.
Principal sources
of exposure
The principal sources of strategic risk
are lending growth, financial
strength and profit volatility.
Additional
information
See page 155
Systems and
change risk
Systems risk is the risk that new threats
are introduced to the Group’s critical
systems resulting in them becoming
unavailable during core operational
times.
The principal sources of systems and
change risk are sufficient and up
to date technology, together with
appropriate innovation and delivery
capacity.
See page 155
Change risk is the risk that transition
changes in the business will not be
supported by appropriate change
capability and be improperly
implemented. It is also the risk that too
many in-flight changes cause disruption
to business operations.
Change in lending segments
During the year ended 31 December 2021, the Group implemented organisational changes. Prior to these
organisational changes, the Group had three reportable lending segments (Property Finance, Business Finance
and Consumer Lending). Following the changes, a new reportable lending segment, TML Mortgages, was added.
TML Mortgages, was previously included within the Property Finance lending segment. As a result of this change,
there are now four reportable lending segments, which are organised under the Group’s new customer franchises,
summarised as follows:
■ Enterprise: comprising the amended Property Finance segment and Business Finance;
■ Consumer: comprising Consumer Lending; and
■ TML: comprising the new TML Mortgages segment1.
A number of the disclosures in the credit risk section that follows present information that is disaggregated
by lending segment. Such disclosures are now based on the four new lending segments and prior year
comparative information has been restated accordingly.
1 The TML Mortgages segment comprises: the TML subsidiary, or, prior to it becoming a subsidiary when TML was an
associate, the Group’s share of results; and loans originated by TML that are held on Shawbrook Bank Limited’s statement
of financial position.
113
Strategic ReportCorporate GovernanceRisk ReportFinancial Statements Credit monitoring
Approval and ongoing monitoring controls are
exercised both within the customer franchises and
through oversight by the Group’s credit risk function.
This applies to both individual transactions, as well as at
the portfolio level, by way of monthly credit information
reporting, measurement against risk appetite limits
and testing via risk quality assurance reviews.
The Group’s risk function oversees collections and
arrears management processes, which are managed
internally or by selected third parties. Throughout 2021,
the Group continued to invest in its collections
strategies and potential problem loan management
teams to ensure that the Group is well positioned for
a more challenging environment.
Managing credit risk in relation to business support
schemes offered by the UK Government
The Group became an accredited Coronavirus
Business Interruption Loan Scheme (CBILS) lender in
May 2020 and offered CBILS loans until the end of
March 2021. Following this, the Group became an
accredited Recovery Loan Scheme lender in
August 2021.
To manage credit risk in relation to loans offered under
these support schemes, the Group only offers such
loans to customers with existing debt facilities that
meet specific eligibility criteria. Credit risk on these
loans are individually assessed and then approved
by the second line of defence.
As a further risk mitigant, the UK Government provides
the Group with a guarantee to protect 80% of any post
recovery loss in the event of default on loans offered
under these support schemes. In relation to CBILS
loans, the UK Government also provided the option
to customers to make a Business Interruption Payment
on their behalf to cover the first 12 months of interest
payments and some upfront fees.
Principal risks
Credit risk
Audited: the following section is covered in its entirety
by the Independent Auditor’s Report.
The following sections provide additional information
regarding the management of credit risk, the
impairment of financial assets, exposure to credit risk
and concentrations of credit risk, the use of collateral
to mitigate credit risk and forbearance.
(a) Managing credit risk (audited)
Key to the management of credit risk is the
implementation of credit risk approval processes
and credit monitoring processes, as detailed below.
Credit risk approval process
To manage credit risk, the Group operates a hierarchy
of lending authorities based principally upon the size of
the aggregated credit risk exposure to counterparties,
group of connected counterparties or, where
applicable, a portfolio of lending assets that are subject
to a single transaction. In addition to maximum amounts
of credit exposure, sole lending mandates may stipulate
sub-limits and/or further conditions and criteria.
During the year ended 31 December 2021,
organisational changes were implemented. This
included the existing Property Finance credit approval
authorities transferring from the Chief Operating Office
to the Customer Experience Director, who is a member
of the Executive Committee. TML credit approval
authorities remained with the Chief Operating Office
in TML, pending the arrival of a new Chief Risk Officer
in TML, and the existing Consumer Lending credit
approval authorities transferred to the Head of
Regulated Lending and Customer Service. The
delegation for all SME lending within the Enterprise
franchise continues to sit with the credit risk team
in the Group’s risk function.
Lending is advanced subject to the Group lending
approval policy and specific credit criteria. When
evaluating the credit quality and covenant of the
borrower, significant emphasis is placed on the nature
of the underlying collateral. This process also includes
the review of the Board’s appetite for concentration risk.
The Group is a responsible lender and affordability
remains a key area of focus for the Group. The Group’s
approach to affordability is set out in the Group’s
affordability policy, which is embedded within each of
the customer franchise’s lending guides and systems.
The Group also uses a number of external systems to
check affordability and has the ability to refer to
Open Banking information, subject to policy and
customer consent.
114
Shawbrook Group plc | Annual Report and Accounts 2021 For loan commitments, where the loan commitment
relates to the undrawn component of a facility, it is
assigned to the same stage as the drawn component
of the facility.
In relation to the above:
■ Lifetime ECL is defined as ECLs that result from
all possible default events over the expected
behavioural life of a financial instrument.
■ 12-month ECL is defined as the portion of lifetime
ECL that will result if a default occurs in the 12 months
after the reporting date, weighted by the probability
of that default occurring.
Assessing whether an asset shows a SICR and
determining whether an asset is considered to be in
default, or otherwise credit impaired, or is considered
to be ‘cured’ are all identified as areas involving critical
judgement and are detailed further starting on
page 128.
In addition to the aforementioned three stages
(Stage 1, 2 and 3), financial assets may be separately
allocated as purchased or originated credit-impaired
(POCI). POCI assets are financial assets that are
credit-impaired on initial recognition. Once a financial
asset is assigned as POCI, it remains in this category
until derecognition irrespective of its credit quality.
For POCI assets, the ECL is always measured on a
lifetime basis. ECLs are only recognised (or released)
to the extent the ECL has changed from the amount
of credit impairment recognised on initial recognition.
(b) Impairment of financial assets
(audited)
To reflect the potential losses that the Group might
experience due to credit risk, the Group recognises
impairment provisions on its financial assets in the
financial statements. In accordance with the Group’s
accounting policy (Note 7(w) of the Financial
Statements), impairments are calculated using a
forward-looking ECL model. ECLs are an unbiased
probability-weighted estimate of credit losses
determined by evaluating a range of possible outcomes.
The Group calculates ECLs and recognises
a ‘loss allowance’ in the statement of financial position
for its financial assets not held at fair value through
profit or loss and for loan commitments1.
The following sections provide details regarding the
measurement and calculation of ECLs, the use of
post-model adjustments (PMAs), analysis of the loss
allowance recognised in the statement of financial
position and an assessment of the critical accounting
judgements and estimates associated with the
impairment of financial assets.
Measurement of expected credit losses
(audited)
Measurement of ECLs depends on the stage the
financial asset is allocated to. Stage allocation is
based on changes in credit risk when comparing
credit risk at initial recognition to credit risk at the
reporting date, as follows:
■ Stage 1: when a financial asset is first recognised it is
assigned to Stage 1. If there is no significant increase
in credit risk from initial recognition (SICR) the
financial asset remains in Stage 1. For financial
assets in Stage 1, a 12-month ECL is recognised.
■ Stage 2: when a financial asset shows a SICR it is
moved to Stage 2. Financial assets in Stage 2 can be
‘cured’ and reclassified back to Stage 1 when there is
no longer a SICR and any probation period has been
completed. For financial assets in Stage 2, a lifetime
ECL is recognised.
■ Stage 3: when there is objective evidence of
impairment and the financial asset is considered to
be in default, or otherwise credit-impaired, it is moved
to Stage 3. Financial assets in Stage 3 can be ‘cured’
and reclassified back to Stage 2 when it is no longer
in default, or otherwise credit-impaired, and any
probation period has been completed. For financial
assets in Stage 3, a lifetime ECL is recognised.
1 The Group has no financial guarantee contracts.
115
Strategic ReportCorporate GovernanceRisk ReportFinancial Statements Principal risks
Credit risk continued
Calculation of expected credit losses
(audited)
ECLs are the discounted product of the probability of
default (PD), exposure at default (EAD) and loss given
default (LGD). Each of these components are detailed
further below.
ECLs are determined by projecting the PD, EAD
and LGD for each future month for each exposure.
The three components are multiplied together and
adjusted to reflect forward-looking information. This
calculates an ECL for each future month, which is then
discounted back to the reporting date and summed.
The discount rate used in the ECL calculation is the
current effective interest rate, or the original effective
interest rate if appropriate.
Probability of default
PD is an estimate of the likelihood of default over a
given time horizon. A default may only happen at a
certain time over the assessed period, if the facility
has not been previously derecognised and is still in
the portfolio.
In relation to loans and advances to customers and
loan commitments, the PD is based on internal and
external individual customer information that is
updated for each reporting period. The Group operates
both a model-based PD and a slotting approach. The
model-based PD is used for high volume portfolios
such as those in Consumer Lending and residential
mortgages within Property Finance. Statistical
modelling techniques are used to determine which
borrower and account performance characteristics are
predictive of default behaviour based on supportable
evidence observed in historical data that is related to
the group of accounts to which the model will be
applied. The slotting approach has been developed
and implemented for the low volume and high value
obligors in Business Finance and large ticket
commercial property loans within Property Finance.
Slotting in residential investment and commercial
investment applies to facilities over a set threshold. Both
processes deliver a point-in-time measure of default.
The Group currently uses a coverage ratio for loans
originated through TML and certain other mortgages
while a customer grading system is developed.
For the model-based portfolios, the measure of PD
is based on information available to the Group from
credit reference agencies and includes information
from a broad range of financial services firms and
internal product performance data and is applied at
the borrower level.
116
For the slotted portfolios, the measure of PD relates to
attributes relating to financial strength, political and
legal environment, asset/transaction characteristics,
strength of sponsor and security.
For each asset class, the Group has a proprietary
approach to extrapolate its best estimate of the
point-in-time PD from 12 months to behavioural maturity
to derive the lifetime PD. This uses economic response
models that have been developed specifically to forecast
the sensitivity of PD to key macroeconomic variables.
Exposure at default
EAD is an estimate of the exposure at a future default
date, taking into account expected changes in the
exposure after the reporting date, including
repayments of principal and interest, whether
scheduled by contract or otherwise, expected
drawdowns on committed facilities, and accrued
interest from missed payments.
EAD is designed to address increases in utilisation of
committed limits and unpaid interest and fees that
the Group would ordinarily expect to observe to the
point of default, or through to the point of realisation
of the collateral.
The Group determines EADs by modelling the range of
possible exposure outcomes at various points in time,
corresponding to the multiple scenarios.
Loss given default
LGD is an estimate of the loss arising in the case where
a default occurs at a given time. It is based on the
difference between the contractual cash flows due
and those that the lender would expect to receive,
including from the realisation of any collateral. It is
usually expressed as a percentage of the EAD.
In relation to loans and advances to customers and
loan commitments, the Group segments its lending
products into smaller homogenous portfolios based on
the Group’s lending segments as detailed below. In all
cases the LGD or its components are tested against
recent experience to ensure that they remain current.
Shawbrook Group plc | Annual Report and Accounts 2021 ■ Property Finance and TML Mortgages: the LGD is
generally broken down into two parts. These include
the Group’s estimate of the probability of possession
given default, combined with the loss given
possession. The Group has continued to focus on the
proportion of accounts that have not cured over an
emergence period, rather than the proportion of
accounts that enter possession in line with market
best practice. The LGD is based on the Group’s
estimate of a shortfall, based on the difference
between the property value after the impact of a
forced sale discount plus a scenario specific market
value decline and sale costs, and the loan balance
with the addition of unpaid interest and fees and first
charge claims with regards to second charge
residential mortgages.
■ Business Finance: the LGD is based on experience
of losses on repossessed assets where the Group
has collateral, or management judgement in
situations where the Group has minimal experience
of actual losses.
■ Consumer Lending: the LGD uses an estimate of the
expected write-off based on an established
contractual debt sale agreement supplemented by
liquidation analysis for loans terminated or charged-
off and the expected write-off for loans held for
deceased and vulnerable customers or customers
where there are outstanding complaints. There is
no recovery portfolio.
Basis of calculation
A number of complex models are used in the
calculation of ECLs, which utilise both the Group’s
historical data and external data inputs. The Group
uses a bespoke calculation engine to estimate ECLs
on either a collective or individual basis depending on
the nature of the underlying portfolio and financial
instruments. The collective assessment groups loans
with shared credit risk characteristics through lines of
business. The engine captures model outputs from the
12-month PD, Lifetime PD, LGD, EAD, macroeconomic
models and staging analysis to calculate an estimate
for each account.
Asset classes where the Group calculates ECLs on
an individual basis include:
■ Stage 3 and POCI assets where individual
impairments are reviewed and approved by the
customer franchise specific impairment committees
and Group Impairment Committee;
■ large and unique Stage 1 and Stage 2 loans in
the Enterprise franchise; and
■ treasury and interbank relationships (such as cash
and balances at central banks, loans and advances
to banks and investment securities).
Asset classes where the Group calculates ECLs
on a collective basis include:
■ Stage 1 and Stage 2 loans and certain Stage 3
exposures within the Enterprise franchise (except
as identified above);
■ Mortgages originated through TML; and
■ all loans within the Consumer franchise.
For ECLs calculated on a collective basis, exposures
are grouped into smaller homogeneous portfolios
based on the Group’s lending segments and a
combination of internal and external characteristics
of the loans, as described below:
Property Finance
■ Product asset class (residential lending and
commercial/semi-commercial lending);
■ time on file; and
■ exposure value.
Business Finance
■ Business unit (i.e. asset finance, structured finance,
corporate lending and development finance);
■ time on file; and
■ collateral type.
Consumer Lending
■ Product type (personal loans and home
improvement/holiday ownership loans); and
■ time on file.
TML Mortgages
■ Product type (buy-to-let and owner-occupied lending).
Where loans are assessed on a collective basis, such as
loans within the Consumer franchise, recent experience
is used to assess the LGD. For loans secured on
residential and commercial property, recent experience
of the probability of possession given default and the
loss given possession is used to support the ECL. For
loans to SMEs, an assessment is performed on a loan-
by-loan basis, which is reviewed by the Group
Impairment Committee where the impairment is in
excess of £75,000. Where models are used, LGDs are
calculated taking into account the valuations of
available collateral and the experienced forced sale
discounts when collateral has been realised. These
factors are applied to all portfolios at each reporting
date to derive the individual impairment requirement.
These judgements are reviewed at the Group
Impairment Committee and the Audit Committee.
117
Strategic ReportCorporate GovernanceRisk ReportFinancial Statements Principal risks
Credit risk continued
Using forward-looking information in the calculation of expected credit losses
ECLs are required to reflect an unbiased probability-weighted range of possible future outcomes. In order to do this,
the Group has developed a proprietary approach to assess the impact of the changes in economic scenarios on the
obligor level ECL. The Group has mapped each asset class to an external long-run benchmark series that is believed
to behave in a similar way to the Group’s portfolio over the economic cycle. For some low default portfolios, internal
data has been used to support this assessment.
The Group has developed econometric models to establish how much of the historical series can be explained
by movements in UK macroeconomic factors. The models deliver an estimate of the impact of a unit increase
in default arising from a 1% increase in the underlying macroeconomic factors. The models are developed in
line with the Group’s Model Risk Governance Framework and are subject to review at least every six months.
The models are tested across multiple sets of scenarios to ensure that they work in a range of scenarios,
the output of the scenarios is a series of scalars by asset class and a scenario that can be applied to the
underlying PDs to deliver a forward-looking ECL.
The Group has developed a proprietary approach to extrapolating its 12-month PDs over the behavioural
maturity of the loans that the scalars can be applied to. The nature of the scenarios means that there will be
an impact on both the PD and the number of obligors moving from Stage 1 to Stage 2 in line with SICR criteria.
Post-model adjustments (audited)
Limitations in the impairment models used to calculate ECLs may be identified through the ongoing assessment
and validation of the outputs from the models. Consequently, in certain circumstances, the Group makes PMAs
to ensure the loss allowance recognised adequately reflects the expected outcome. These adjustments are
generally modelled to take into account the particular attributes of the account that have not been adequately
captured by the models. All PMAs are monitored, reviewed and where applicable incorporated into future model
development. PMAs are reviewed and approved every six months at the Group Impairment Committee and the
Audit Committee, along with other key impairment judgements. PMAs are considered to be an area of critical
judgement (see page 128).
During the year ended 31 December 2021, PMAs continued to be applied in the economic response models as
these models have not been trained over a period that is comparable to a COVID-19 environment.
As at 31 December 2021, specific PMAs added to the modelled loss allowance totalled £4.9 million (2020: £7.0 million)
and are as follows:
■ a COVID-19 PMA of £0.8 million (2020: £2.9 million). This PMA is applied to customers that have taken a payment
holiday in relation to COVID-19 to account for the additional risk of default once the payment holiday has
expired. The PMA has been calculated on the assumption that they will ultimately behave like loans in Stage 2;
■ a high-risk sector PMA of £1.8 million (2020: £4.1 million). This PMA is applied to individual customers that are
non-performing where recovery is linked to COVID-19 and sectors assessed by the Group as being most
impacted by COVID-19 to account for the additional risk of default;
■ a property-based PMA of £0.3 million (2020: £nil). This PMA is applied to loans where the underlying collateral
is a block over 18 metres tall that may be subject to cladding risk; and
■ a consumer-based PMA of £2.0 million (2020: £nil). This PMA reflects the growth in the loan book during H2 2021
where the full risk has not emerged due to the lack of seasoning of the loans.
PMAs are assigned between Stage 1 and Stage 2.
118
Shawbrook Group plc | Annual Report and Accounts 2021 A summary of PMA’s by lending segment1 is as follows:
Property Finance
Business Finance
Consumer Lending
Total post-model adjustments
2021
£m
0.3
1.8
2.8
4.9
2020
£m
2.9
4.1
–
7.0
Analysis of the loss allowance recognised (audited)
A summary of the loss allowance recognised in the Group’s statement of financial position is as follows:
Cash and balances at central banks
Loans and advances to banks
Loans and advances to customers
Investment securities
Assets held for sale
Loan commitments
Total loss allowance recognised
Of which: modelled
Of which: post-model adjustments on loans and advances to customers
2021
£m
2020
£m
<0.1
<0.1
76.0
<0.1
0.5
0.7
77.2
72.3
4.9
<0.1
<0.1
92.3
<0.1
<0.1
3.2
95.5
88.5
7.0
Further analysis of the loss allowance recognised in respect of each financial asset category and loan
commitments is provided in the following sections.
Cash and balances at central banks, loans and advances to banks and investment securities
The loss allowances for cash and balances at central banks, loans and advances to banks and investment
securities are immaterial, totalling less than £0.1 million in both reported years. All assets within these asset
categories are in Stage 1.
1 This is based on the Group’s new lending segments as detailed on page 113. Prior year comparatives have been restated
accordingly. There are no PMAs applied to the TML Mortgages lending segment.
119
Strategic ReportCorporate GovernanceRisk ReportFinancial Statements Principal risks
Credit risk continued
Loans and advances to customers
The loss allowance for loans and advances to customers is £76.0 million (2020: £92.3 million). This is recognised
as a deduction from the gross carrying amount of the asset (see Note 23 of the Financial Statements).
The following table provides an analysis of loans and advances to customers by lending segment1 and the
year-end stage classification:
As at 31 December 2021
Stage 1
Stage 2
Stage 32
Gross carrying amount
Stage 1
Stage 2
Stage 3
Loss allowance
Carrying amount3
Loss allowance coverage
Stage 1
Stage 2
Stage 3
Total loss allowance coverage
As at 31 December 2020
Stage 1
Stage 2
Stage 32
Gross carrying amount
Stage 1
Stage 2
Stage 3
Loss allowance
Carrying amount3
Loss allowance coverage
Stage 1
Stage 2
Stage 3
Total loss allowance coverage
120
Property
Finance
£m
Enterprise
Business
Finance
£m
4,437.6
1,952.3
620.3
127.4
178.4
89.7
5,185.3
2,220.4
(5.0)
(3.8)
(13.4)
(22.2)
(11.9)
(8.5)
(18.4)
(38.8)
Consumer
Lending
£m
TML
Mortgages
£m
427.4
17.3
4.4
449.1
(8.2)
(2.7)
(3.2)
(14.1)
498.4
15.2
0.1
513.7
(0.7)
(0.2)
–
(0.9)
Total
£m
7,315.7
831.2
221.6
8,368.5
(25.8)
(15.2)
(35.0)
(76.0)
5,163.1
2,181.6
435.0
512.8
8,292.5
0.1%
0.6%
10.5%
0.4%
0.6%
4.8%
20.5%
1.7%
1.9%
15.6%
72.7%
3.1%
0.1%
1.3%
–
0.2%
Property
Finance
£m
3,287.5
1,219.8
109.8
4,617.1
(6.9)
(10.9)
(13.0)
(30.8)
Enterprise
Business
Finance
£m
1,489.9
266.2
41.0
1,797.1
(11.5)
(13.6)
(11.9)
(37.0)
Consumer
Lending
£m
TML
Mortgages
£m
394.4
66.1
5.2
465.7
(10.1)
(9.9)
(4.0)
(24.0)
239.1
0.2
0.3
239.6
(0.5)
–
–
(0.5)
0.4%
1.8%
15.8%
0.9%
Total
£m
5,410.9
1,552.3
156.3
7,119.5
(29.0)
(34.4)
(28.9)
(92.3)
4,586.3
1,760.1
441.7
239.1
7,027.2
0.2%
0.9%
11.8%
0.7%
0.8%
5.1%
29.0%
2.1%
2.6%
15.0%
76.9%
5.2%
0.2%
–
–
0.2%
0.5%
2.2%
18.5%
1.3%
Shawbrook Group plc | Annual Report and Accounts 2021 The following table provides an analysis of loans and advances to customers by agreement type and the
year-end stage classification:
As at 31 December 2021
Stage 1
Stage 2
Stage 32
Gross carrying amount
Stage 1
Stage 2
Stage 3
Loss allowance
Carrying amount3
Loss allowance coverage
Stage 1
Stage 2
Stage 3
Total loss allowance coverage
As at 31 December 2020
Stage 1
Stage 2
Stage 32
Gross carrying amount
Stage 1
Stage 2
Stage 3
Loss allowance
Carrying amount3
Loss allowance coverage
Stage 1
Stage 2
Stage 3
Total loss allowance coverage
Loan
receivables
£m
Finance
lease
receivables
£m
Instalment
credit
receivables
£m
6,952.7
792.4
193.3
7,938.4
(23.3)
(13.3)
(25.2)
(61.8)
40.4
9.0
4.6
54.0
(0.5)
(0.4)
(1.9)
(2.8)
322.6
29.8
23.7
376.1
(2.0)
(1.5)
(7.9)
(11.4)
Total
£m
7,315.7
831.2
221.6
8,368.5
(25.8)
(15.2)
(35.0)
(76.0)
7,876.6
51.2
364.7
8,292.5
0.3%
1.7%
13.0%
0.8%
1.2%
4.4%
41.3%
5.2%
0.6%
5.0%
33.3%
3.0%
Loan
receivables
£m
Finance
lease
receivables
£m
Instalment
credit
receivables
£m
0.4%
1.8%
15.8%
0.9%
Total
£m
5,410.9
1,552.3
156.3
7,119.5
(29.0)
(34.4)
(28.9)
(92.3)
302.0
51.3
9.0
362.3
(2.7)
(4.0)
(4.0)
(10.7)
351.6
7,027.2
0.9%
7.8%
44.4%
3.0%
0.5%
2.2%
18.5%
1.3%
5,055.9
1,489.1
140.1
6,685.1
(25.9)
(29.8)
(20.9)
(76.6)
6,608.5
0.5%
2.0%
14.9%
1.1%
53.0
11.9
7.2
72.1
(0.4)
(0.6)
(4.0)
(5.0)
67.1
0.8%
5.0%
55.6%
6.9%
1 This is based on the Group’s new lending segments as detailed on page 113. Prior year comparatives have been
restated accordingly.
2 Stage 3 loans in Business Finance/loan receivables include POCI loans with a gross carrying amount of £3.3 million
(2020: £3.8 million) and loss allowance of £nil (2020: £nil).
3 Excludes fair value adjustments for hedged risk.
121
Strategic ReportCorporate GovernanceRisk ReportFinancial Statements Principal risks
Credit risk continued
The following table provides an analysis of movements during the year in the loss allowance associated with loans
and advances to customers. The table is compiled by comparing the position at the end of the year to that at the
beginning of the year. Transfers between stages are deemed to have taken place at the start of the year, with all
other movements shown in the stage in which the asset is held at the end of the year.
Stage 1
£m
Stage 2
£m
Stage 3
£m
2021
Total
£m
Stage 1
£m
Stage 2
£m
Stage 3
£m
As at 1 January
29.0
34.4
28.9
92.3
20.6
14.2
26.3
2020
Total
£m
61.1
ECL (credit)/charge
for the year
Transfer from Stage 1
Transfer from Stage 2
Transfer from Stage 3
New financial assets
originated or purchased
Financial assets derecognised
(excluding disposals)
Changes in credit risk1
Net ECL (credit)/charge
for the year
Other movements
Financial assets
derecognised on disposal
Financial assets transferred
to assets held for sale
Total other movements
Total movement
in loss allowance
(2.9)
15.9
10.3
12.8
(20.8)
(17.6)
2.5
(23.4)
1.2
1.3
(0.7)
(0.1)
0.4
7.5
(11.5)
–
–
–
(4.2)
4.0
5.3
3.2
(7.8)
1.4
1.0
3.8
(6.7)
–
–
–
1.7
15.8
10.9
6.5
0.7
18.1
(0.3)
(21.8)
8.3
(9.4)
(9.8)
2.8
0.2
16.8
(9.0)
12.8
(18.6)
32.4
(2.3)
(19.2)
6.1
(15.4)
9.0
20.3
2.6
31.9
(0.4)
(0.5)
(0.9)
–
–
–
–
–
–
(0.4)
(0.6)
(0.1)
(0.5)
(0.9)
–
(0.6)
–
(0.1)
–
–
–
(0.7)
–
(0.7)
(3.2)
(19.2)
6.1
(16.3)
8.4
20.2
2.6
31.2
As at 31 December
25.8
15.2
35.0
76.0
29.0
34.4
28.9
92.3
122
Shawbrook Group plc | Annual Report and Accounts 2021 The net ECL (credit)/charge for the year represents the amount recognised in the statement of profit and loss
within impairment losses on financial assets (see Note 20 of the Financial Statements). An analysis of this (credit)/
charge by lending segment2 is provided in the following table.
Property Finance
Business Finance
Consumer Lending
TML Mortgages
Net ECL (credit)/charge for the year
2021
£m
(8.1)
1.8
(9.9)
0.8
(15.4)
2020
£m
17.2
11.5
2.9
0.3
31.9
The ECL credit in the current year, compared to the ECL charge in the comparative year, is predominantly
attributable to the improvement in the economic outlook included within the calculation of ECLs (see page 131
for additional information).
Other movements in the loss allowance includes the release of loss allowance upon disposal of financial assets.
In both reported years, this is attributable to structured asset sales and the derecognised loss allowance forms
part of the net gain on derecognition of financial assets measured at amortised cost recognised in the statement
of profit and loss (see Note 15 of the Financial Statements).
Other movements in the loss allowance also includes the transfer of loss allowance from loans and advances
to customers to assets held for sale. This transfer is a reclassification in the statement of financial position and
has no impact in the statement of profit and loss.
1 Changes in credit risk includes changes resulting from net changes in lending, including repayments,
additional drawdowns and accrued interest, and changes resulting from adjustments to the models
used in the calculation of ECLs, including model inputs and underlying assumptions.
2 This is based on the Group’s new lending segments as detailed on page 113. Prior year comparatives
have been restated accordingly.
123
Strategic ReportCorporate GovernanceRisk ReportFinancial Statements Principal risks
Credit risk continued
Movements in the gross carrying amount of loans and advances to customers during the year that contributed
to the changes in the loss allowance during the year are shown in the following table. The table is compiled by
comparing the position at the end of the year to that at the beginning of the year. Transfers between stages are
deemed to have taken place at the start of the year, with all other movements shown in the stage in which the
asset is held at the end of the year.
Stage 1
£m
Stage 2
£m
Stage 3
£m
2021
Total
£m
Stage 1
£m
Stage 2
£m
Stage 3
£m
2020
Total
£m
As at 1 January
5,410.9
1,552.3
156.3
7,119.5
5,847.8
716.6
125.6
6,690.0
Movements in gross
carrying amount
Transfer from Stage 1
(415.8)
348.8
Transfer from Stage 2
974.0
(1,071.9)
67.0
97.9
Transfer from Stage 3
38.4
13.2
(51.6)
–
–
–
(983.3)
916.8
178.4
(214.6)
66.5
36.2
33.2
15.4
(48.6)
–
–
–
New financial assets
originated or purchased
Financial assets derecognised
(excluding disposals)
3,444.2
30.7
21.7
3,496.6
2,144.6
205.6
13.2
2,363.4
(1,395.6)
(10.5)
(40.4)
(1,446.5)
(1,218.2)
(12.5)
(22.5)
(1,253.2)
Net changes in lending1
(98.9)
(30.2)
(28.8)
(157.9)
(265.8)
(68.0)
(14.0)
(347.8)
Financial assets
derecognised on disposal
Financial assets transferred
to assets held for sale
Total movement in
gross carrying amount
(343.0)
–
–
(343.0)
(323.7)
(6.9)
–
(330.6)
(298.5)
(1.2)
(0.5)
(300.2)
(2.1)
(0.1)
(0.1)
(2.3)
1,904.8
(721.1)
65.3
1,249.0
(436.9)
835.7
30.7
429.5
As at 31 December
7,315.7
831.2
221.6
8,368.5
5,410.9
1,552.3
156.3
7,119.5
124
Shawbrook Group plc | Annual Report and Accounts 2021 Assets held for sale
Assets held for sale comprise loans and advances to customers that meet the criteria to be separately classified
as assets held for sale. These loans continue to be measured at amortised cost. The loss allowance for assets held
for sale is £0.5 million (2020: <£0.1 million). This is recognised as a deduction from the gross carrying amount of the
asset (see Note 32 of the Financial Statements).
The following table provides an analysis of movements during the year in the loss allowance associated with assets
held for sale.
Stage 1
£m
Stage 2
£m
Stage 3
£m
As at 1 January
Movements in loss allowance
Financial assets
derecognised on disposal
Financial assets transferred from
loans and advances to customers
Total movement
in loss allowance
As at 31 December
–
–
0.5
0.5
0.5
–
–
–
–
–
–
–
–
–
–
2021
Total
£m
–
–
0.5
0.5
0.5
Stage 1
£m
Stage 2
£m
Stage 3
£m
5.3
1.6
1.6
2020
Total
£m
8.5
(5.3)
(1.6)
(1.6)
(8.5)
–
–
–
–
(5.3)
(1.6)
(1.6)
(8.5)
–
–
–
–
In relation to the above table, the derecognised loss allowance forms part of the net gain on derecognition of
financial assets measured at amortised cost recognised in the statement of profit and loss (see Note 15 of the
Financial Statements).
Movements in the gross carrying amount of assets held for sale during the year that contributed to the changes
in the loss allowance during the year are shown in the following table.
Stage 1
£m
Stage 2
£m
Stage 3
£m
2021
Total
£m
Stage 1
£m
Stage 2
£m
Stage 3
£m
As at 1 January
2.1
0.1
0.1
2.3
106.6
3.1
2.9
2020
Total
£m
112.6
Movements in gross
carrying amount
Financial assets
derecognised on disposal
Financial assets transferred from
loans and advances to customers
Net changes in lending1
Total movement in
gross carrying amount
As at 31 December
(2.1)
(0.1)
(0.1)
(2.3)
(100.5)
(3.0)
(2.8)
(106.3)
298.5
–
296.4
298.5
1.2
–
1.1
1.2
0.5
–
300.2
–
2.1
(6.1)
0.1
(0.1)
0.1
(0.1)
2.3
(6.3)
0.4
297.9
(104.5)
(3.0)
(2.8)
(110.3)
0.5
300.2
2.1
0.1
0.1
2.3
1 Net changes in lending includes repayments, additional drawdowns and accrued interest.
125
Strategic ReportCorporate GovernanceRisk ReportFinancial Statements Principal risks
Credit risk continued
Loan commitments
The loss allowance for loan commitments is £0.7 million (2020: £3.2 million). The loss allowance is recognised
as a provision (see Note 36 of the Financial Statements).
The following table provides an analysis of movements during the year in the loss allowance associated with loan
commitments. The table is compiled by comparing the position at the end of the year to that at the beginning
of the year. Transfers between stages are deemed to have taken place at the start of the year, with all other
movements shown in the stage in which the asset is held at the end of the year.
Stage 1
£m
Stage 2
£m
Stage 3
£m
2021
Total
£m
Stage 1
£m
Stage 2
£m
Stage 3
£m
As at 1 January
2.4
0.7
0.1
3.2
1.0
–
ECL (credit)/charge
for the year
Transfer from Stage 1
Transfer from Stage 2
New loan commitments
Loan commitments that have
been derecognised
Changes in credit risk1
Net ECL (credit)/charge
for the year
(0.1)
0.2
0.1
(0.9)
(1.4)
0.1
(0.2)
–
–
(0.5)
(2.1)
(0.6)
As at 31 December
0.3
0.1
–
–
–
–
0.2
0.2
0.3
–
–
0.1
(0.9)
(1.7)
(2.5)
0.7
(0.1)
–
1.5
(0.2)
0.2
1.4
2.4
0.1
–
0.3
–
0.3
0.7
0.7
–
–
–
0.1
–
–
0.1
0.1
2020
Total
£m
1.0
–
–
1.9
(0.2)
0.5
2.2
3.2
The net ECL (credit)/charge for the year represents the amount recognised in the statement of profit and
loss within impairment losses on financial assets (see Note 20 of the Financial Statements). The ECL credit
in the current year, compared to the ECL charge in the comparative year, is predominantly attributable
to the improvement in the economic outlook included within the calculation of ECLs (see page 131 for
additional information).
1 Changes in credit risk includes changes resulting from net changes in commitments and changes resulting from adjustments
to the models used in the calculation of ECLs, including model inputs and underlying assumptions.
126
Shawbrook Group plc | Annual Report and Accounts 2021 Movements in the gross loan commitment during the year that contributed to the changes in the loss allowance
during the year are shown in the following table. The table is compiled by comparing the position at the end of the
year to that at the beginning of the year. Transfers between stages are deemed to have taken place at the start
of the year, with all other movements shown in the stage in which the asset is held at the end of the year.
2020
Total
£m
591.5
–
–
–
548.7
Stage 1
£m
Stage 2
£m
Stage 3
£m
2021
Total
£m
Stage 1
£m
Stage 2
£m
Stage 3
£m
As at 1 January
1,020.1
58.9
9.7
1,088.7
585.9
5.6
–
Movements in gross
loan commitments
Transfer from Stage 1
(26.2)
26.2
Transfer from Stage 2
Transfer from Stage 3
New loan commitments
Loan commitments that
have been derecognised
28.1
9.6
517.9
(33.5)
–
11.2
(358.7)
–
–
5.4
(9.6)
–
–
–
–
–
(51.0)
7.5
–
33.4
(10.8)
–
529.1
515.9
30.0
17.6
3.3
–
2.8
Net changes in commitments
(14.0)
(16.9)
3.4
(27.5)
152.7
(358.7)
(190.9)
(9.0)
9.7
(17.4)
(217.3)
3.4
165.8
Total movement in
gross loan commitments
156.7
(13.0)
(0.8)
142.9
434.2
53.3
9.7
497.2
As at 31 December
1,176.8
45.9
8.9
1,231.6
1,020.1
58.9
9.7
1,088.7
127
Strategic ReportCorporate GovernanceRisk ReportFinancial Statements
Principal risks
Credit risk continued
Critical judgements relating to the impairment of financial assets (audited)
The measurement of ECLs requires the Group to make a number of judgements. The judgements that are
considered to have the most significant effect on the amounts in the financial statements are:
■ the assessment of whether there has been a SICR (resulting in the financial asset being transferred to Stage 2);
■ determining whether a financial asset is in default (resulting in transfer to Stage 3); and
■ determining whether the financial asset is ‘cured’ (and is therefore reclassified back to a lower stage).
These judgements have an impact upon the stage the financial asset is allocated to and therefore whether a
12-month or lifetime ECL is recognised in the financial statements. Additional details regarding each of these
judgement areas are provided below.
An additional area of judgement that is considered to have a significant effect on amounts in the financial
statements is the application of PMAs. PMAs are amounts added to the modelled ECL amount when the Group
judges that the modelled ECL amount does not adequately reflect the expected outcome. Details of PMAs applied
by the Group are provided on page 118.
The Group reviews and updates these key judgements bi-annually, in advance of the Interim Financial Report and
the Annual Report and Accounts. All key judgements are reviewed and recommended to the Audit Committee for
approval prior to implementation.
The impairment of cash and balances at central banks, loans and advances to banks, investment securities and
assets held for sale is immaterial. As such, the area where these judgements have the most significant effect
specifically relates to the impairment of loans and advances to customers and loan commitments.
Significant increase in credit risk assessment
If a financial asset shows a SICR, it is transferred to Stage 2 and the ECL recognised changes from a 12-month ECL
to a lifetime ECL. The assessment of whether there has been a SICR requires a high level of judgement as detailed
below. The assessment of whether there has been a SICR also incorporates forward-looking information. The use
of forward-looking information is detailed on page 131.
For the purposes of the SICR assessment, the Group applies a series of quantitative, qualitative and backstop criteria:
■ Quantitative criteria: this considers the increase in an account’s remaining lifetime PD at the reporting date
compared to the expected residual lifetime PD when the account was originated. The Group segments its credit
portfolios into PD bands and has determined a relevant threshold for each PD band, where a movement in
excess of threshold is considered to be significant. These thresholds have been determined separately for each
portfolio based on historical evidence of delinquency.
■ Qualitative criteria: this includes the observation of specific events such as short-term forbearance, payment
cancellation, historical arrears or extension to customer terms (see following table for further details).
■ Backstop criteria: IFRS 9 ‘Financial Instruments’ includes a rebuttable presumption that 30 days past due is
an indicator of a SICR. The Group considers 30 days past due to be an appropriate backstop measure and
does not rebut this presumption.
128
Shawbrook Group plc | Annual Report and Accounts 2021 As a general indicator, there is deemed to be a SICR if the following criteria are identified based on the Group’s
quantitative modelling:
Sector
Criteria
Property Finance:
residential and
commercial
investment
mortgages
■ External mortgage payments in arrears from the credit reference agencies.
The external arrears information is statistically a lead indicator of financial
difficulties and potential arrears on the loan book;
■ for short-term loans with a modelled PD: where the PD > 0.38% and the absolute
movement in remaining lifetime PD is more than four times the estimate at origination;
■ for term loans with a modelled PD: where the PD > 0.38% and the absolute movement
in remaining lifetime PD is more than two times the estimate at origination;
■ for portfolios where the origination PD is less than 1%, an additional SICR rule has
been implemented whereby the minimum additive PD movement must be at least
10% to trigger a SICR;
■ for all portfolios with a slotted PD: where the PD > 0.38% and the absolute
movement in remaining lifetime PD is more than three times the estimate
at origination;
■ loan account is forborne; or
■ entry on to amber watchlist.
Property Finance:
residential owner-
occupied mortgages
■ All exposures are graded under the modelled approach. Where the modelled
PD > 0.38% and the absolute movement in remaining lifetime PD is more than
5.1 times the estimate at origination;
■ where the customer has ever been six or more payments in arrears on any fixed
term account at the credit reference agency;
■ where the customer has missed a mortgage payment in the last six months
at the credit reference agency; or
■ loan account is forborne.
Business Finance
■ For accounts with a modelled PD: where the absolute movement in the remaining
lifetime PD is more than 4.6 times the estimate at origination;
■ for accounts with a slotted PD: where the absolute movement in the remaining
lifetime PD is more than three times the estimate at origination; or
■ loan account is forborne; or
■ entry on to amber watchlist.
Consumer Lending
■ Non-personal loans: where the PD > 0.38% and the absolute movement in
remaining lifetime PD is more than 2.0 times the estimate at origination;
■ personal loans: where the PD > 0.38% and the absolute movement in remaining
lifetime PD is more than 2.0 times the estimate at origination;
■ county court judgements registered at the credit reference agencies of > £150
or > £1,000 in last three years; or
■ loan account is forborne.
TML Mortgages
■ Where the customer has missed a mortgage payment;
■ loan account is forborne; or
■ loan account is on watchlist.
129
Strategic ReportCorporate GovernanceRisk ReportFinancial Statements Principal risks
Credit risk continued
Stage 2 criteria are designed to be effective indicators
of a significant deterioration in credit risk. As part of its
bi-annual review of key impairment judgements, the
Group undertakes detailed analysis to confirm that the
Stage 2 criteria remain effective. This includes (but is
not limited to):
■ Criteria effectiveness: this includes the emergence
to default for each Stage 2 criterion when compared
to Stage 1, Stage 2 outflow as a percentage of Stage
2, percentage of new defaults that were in Stage 2
in the months prior to default, time in Stage 2 prior
to default and percentage of the book in Stage 2
that are not progressing to default or curing.
■ Stage 2 stability: this includes stability of inflows
and outflows from Stage 2 and 3.
■ Portfolio analysis: this includes the percentage of the
portfolio that is in Stage 2 and not defaulted, the
percentage of the Stage 2 transfer driven by Stage 2
criterion other than the backstops and back-testing
of the defaulted accounts.
For low credit risk exposures, the Group is permitted to
assume, without further analysis, that the credit risk on
a financial asset has not increased significantly since
initial recognition if the financial asset is determined to
have low credit risk at the reporting date. The Group
has opted not to apply this low credit risk exemption.
Loan commitments relating to the undrawn component
of a facility are assigned to the same stage as the
drawn component of the facility. Therefore, if the drawn
component of the facility shows a SICR and is
transferred to Stage 2, the undrawn component will
also be transferred.
The extension of short-term concessions in response
to COVID-19 from March 2020 to July 2021, may indicate
a SICR under the Group’s normal assessment criteria
outlined above. However, the Group adopted advice
from UK regulatory bodies that the granting of
COVID-19 related concessions does not automatically
indicate a SICR for the majority of cases, with these
interim measures not considered to be forbearance
given the customer was not in financial difficulty when
the concession was granted. As such, the accounts with
COVID-19 related concessions were predominantly
removed from the SICR assessment. The Group did,
however, carefully consider internal credit and
customer data to determine whether there might be
any other accounts with SICR not otherwise identified
by the process. In 2021, the additional risk arising from
customers off-ramping from payment holidays has
been considered through PMAs.
130
Definition of default and credit-impaired assets
When there is objective evidence of impairment and
the financial asset is considered to be in default, or
otherwise credit-impaired, it is transferred to Stage 3.
The Group’s definition of default is fully aligned with
the definition of credit-impaired.
The Group applies a series of quantitative and
qualitative criteria to determine if an account meets
the definition of default and should therefore be
transferred to Stage 3. These criteria include:
■ when the borrower is unlikely to pay its credit
obligations to the Group in full, without recourse
by the Group to actions such as realising security
(if any is held);
■ when the borrower is more than 90 days past due
on any credit obligation to the Group; and
■ when a credit obligation to the Group has gone past
maturity or there is doubt that the exit strategy for
the obligation is likely.
Inputs into the assessment of whether a financial asset
is in default and their significance may vary over time
to reflect changes in circumstances.
Approach to curing
The Group considers a financial asset to be cured, and
therefore reclassifies back to a lower stage, when none
of the assessed criteria that caused movement into the
higher stage is currently present.
For Stage 3 loans with forbearance arrangements in
place, the loan must first successfully complete its
12-month curing period to be transferred to Stage 2.
Following this, the loan must then successfully complete
its 24-month forbearance probation period before the
forbearance classification can be discontinued. For
Stage 3 loans that have cured without forbearance,
they need to have completed a 12-month probation in
Stage 2 prior to returning to Stage 1.
During the year ended 31 December 2021, the Group
has enhanced its forbearance data and has further
enhanced the implementation of probation periods
for loans. For amortising loans in Stage 2 as a result of
arrears, the arrears must be cured for a period of 180
days prior to returning to Stage 1. If the Stage 2 criteria
was driven by an increase in PD, the probation period of
90 days starts from entry to Stage 2 prior to returning to
Stage 1. Where the loan is in Stage 2 and cures through
probation, the loan must remain up to date for a period
of 24 months prior to returning to Stage 1. For loan
products such as revolving credit facilities, the loan must
be in ‘amber watchlist’ (monitoring) for 180-days prior to
returning to Stage 1 and, if it cured through the granting
of forbearance, then the loan must remain in ‘amber
watchlist’ for 24 months prior to returning to Stage 1.
Shawbrook Group plc | Annual Report and Accounts 2021 Critical accounting estimates relating
to the impairment of financial assets
(audited)
The calculation of ECLs requires the Group to make a
number of assumptions and estimates. The accuracy of
the ECL calculation would be impacted by movements
in the forward-looking economic scenarios used, or the
probability weightings applied to these scenarios and
by unanticipated changes to model assumptions that
differ from actual outcomes. The key assumptions and
estimates that, depending on a range of factors, could
result in a material adjustment in the next financial year
are set out in the following sections.
The impairment of cash and balances at central banks,
loans and advances to banks, investment securities and
assets held for sale is immaterial. As such, the area
where the assumptions and estimates set out below
could have the most significant impact specifically
relates to the impairment of loans and advances to
customers and loan commitments.
For the alternative scenarios, the Group is not large
enough to have an internal economist and therefore
works with a third party on the narrative of the scenarios
and the rate paths to ensure that they are internally
consistent using the UK Treasury model. The rate paths
used in the scenarios are consistent with the core UK
macroeconomic factors that are published by the Bank
of England as part of the annual stress testing exercise.
For the year ended 31 December 2021, the economic
scenarios reflect that the UK economy witnessed sharp
growth during the first half of 2021 as COVID-19
restrictions ended. However, the downside risks
remained during 2021, with higher inflation and acute
material shortages, as reflected in the prices of used
cars, rising energy and fuel prices and shortage of
construction materials, all impacting on growth in the
short – to medium-term. In addition, the economic
challenges from the ending of the furlough scheme,
together with ending of temporary restrictions on the
use of statutory demands and certain winding-up
petitions on corporations, are still to be seen.
Forward-looking information
The Group incorporates forward-looking information
into the calculation of ECLs and the assessment of
whether there has been a SICR. The use of forward-
looking information involves significant judgement
and represents a key source of estimation uncertainty.
In the comparative year ended 31 December 2020,
the Group moved from using three forward-looking
economic scenarios to four: a base case (central view),
an alternative upside scenario, an alternative moderate
downside scenario and an alternative severe downside
scenario. In the current year ended 31 December 2021,
the Group continued to use four forward-looking
economic scenarios and has updated the economic
scenarios accordingly.
The central view used is informed by the HM Treasury
Central forecast that is published quarterly and used as
part of the Group’s corporate planning activity. Intra-
quarter, the Group considers survey-based data and
lead indicators to inform whether the central view
continues to be appropriate. The Group focuses its
view on the next five years as part of the narrative to
the scenario but has rate paths that extend out beyond
the planning period for the Group and up to 20 years.
131
Strategic ReportCorporate GovernanceRisk ReportFinancial Statements Principal risks
Credit risk continued
A summary of the economic assumptions used are detailed in the following tables:
As at 31 December 2021
GDP – % average change year-on-year
Base
Bank Rate (%)
UK Unemployment (%)
Consumer Prices Index –
% change year-on-year
UK Residential House Price Index –
% change year-on-year
Upside
Downside
Severe downside
Base
Upside
Downside
Severe downside
Base
Upside
Downside
Severe downside
Base
Upside
Downside
Severe downside
Base
Upside
Downside
2022
5.7%
8.2%
3.2%
0.7%
0.20%
0.25%
0.10%
0.10%
4.6%
4.0%
5.9%
7.9%
2.3%
0.9%
1.9%
3.5%
(2.0%)
4.1%
(7.7%)
Severe downside
(13.4%)
As at 31 December 2020
GDP – % average change year-on-year
Base
Upside
Downside
Severe downside
Base
Upside
Downside
Severe downside
Base
Upside
Downside
Severe downside
Base
Upside
Downside
Severe downside
Base
Upside
Downside
Severe downside
Bank Rate (%)
UK Unemployment (%)
Consumer Prices Index –
% change year-on-year
UK Residential House Price Index –
% change year-on-year
132
2021
7.1%
12.9%
1.6%
(4.5%)
0.10%
0.10%
0.10%
0.50%
6.5%
5.0%
8.5%
10.5%
1.9%
0.9%
0.6%
5.0%
(6.6%)
2.9%
(11.2%)
(15.7%)
2023
2.3%
2.4%
3.1%
3.6%
0.50%
0.75%
0.20%
0.20%
4.2%
3.9%
5.1%
7.1%
1.7%
2.0%
1.7%
1.9%
0.4%
3.2%
(1.3%)
(3.9%)
2022
4.3%
4.1%
8.1%
11.5%
0.10%
0.25%
0.10%
0.50%
5.3%
4.1%
6.7%
7.5%
2.0%
0.9%
2.0%
2.1%
3.7%
3.7%
1.4%
2.1%
2024
2.3%
2.3%
2.3%
2.0%
0.75%
1.00%
0.50%
0.50%
4.1%
3.9%
4.8%
5.7%
2.0%
2.0%
2.0%
2.0%
1.9%
3.1%
3.6%
7.4%
2023
3.6%
1.8%
3.7%
4.7%
0.50%
0.75%
0.50%
0.50%
5.1%
4.1%
5.7%
6.8%
2.0%
0.9%
1.9%
2.1%
3.6%
3.7%
2.6%
4.4%
2025
1.7%
1.7%
1.7%
1.8%
1.00%
1.25%
0.75%
0.75%
4.1%
3.9%
4.5%
5.0%
2.0%
2.0%
2.0%
2.0%
1.8%
3.0%
3.2%
5.4%
2024
2.8%
1.8%
2.8%
3.0%
0.75%
1.00%
0.75%
0.75%
5.1%
4.1%
5.6%
6.1%
2.0%
0.9%
1.9%
2.0%
3.2%
3.7%
4.3%
4.7%
2026
1.7%
1.7%
1.7%
1.7%
1.50%
1.75%
1.25%
1.25%
4.1%
3.9%
4.5%
5.0%
2.0%
2.0%
2.0%
2.0%
3.7%
3.7%
3.7%
3.7%
2025
1.9%
1.8%
1.9%
2.2%
1.00%
1.25%
1.00%
1.00%
5.1%
4.1%
5.6%
6.1%
2.0%
0.9%
1.9%
2.0%
3.2%
3.2%
4.3%
3.3%
Shawbrook Group plc | Annual Report and Accounts 2021 The probability weightings applied to the above scenarios are another area of judgement. They are generally set
to ensure that there is an asymmetry in the ECL. The probability weightings applied to each scenario are as follows:
Base
Upside
Downside
Severe downside
2021
60%
10%
25%
5%
2020
40%
10%
35%
15%
In determining the probability weightings, the Group has regularly considered the nature and probability of the
alternative downside scenarios. The nature and shape of the economic scenarios reflect the outlook of the UK
economy. The end of furlough and the tapering of government schemes does not look like it will feed through into
unemployment, which is supported by high vacancy rates. The lack of number of properties for sale is expected
to continue to support house prices into 2022. Inflation is the biggest short-term risk with risks of further disruption
linked to new variants contained within the scenarios. The progress of the UK economy and the narrowing of the
range of forecasts supports an increase in the weighting on the central view from 40% to 60%.
The Group undertakes a review of its economic scenarios and the probability weightings applied at least quarterly
and more frequently if required. The results of this review are recommended to the Audit Committee and the
Board prior to any changes being implemented.
The calculation of ECLs is sensitive to the judgements and assumptions made regarding the forward-looking
scenarios used and the probability weightings applied. Sensitivity analysis was performed to assess the impact
on the loss allowance recognised on loans and advances to customers and loan commitments.
The following table shows the loss allowance as at 31 December 2021 for loans and advances to customers and
loan commitments based on the probability-weighted multiple economic scenarios, as recognised in the
statement of financial position (see Note 23 and Note 36 of the Financial Statements, respectively), and the impact
on this loss allowance if each individual forward-looking scenario were weighted at 100%. In each of the scenarios,
PMA’s are assumed to be constant and have been added back into each of the scenarios.
As at 31 December 2021
Loans and advances to customers
Property Finance
and TML Mortgages1
Business Finance
Consumer Lending
Total
Loan commitments
Business Finance
Total
Probability
– weighted loss
allowance per
statement of
financial position
£m
Increase/(decrease) in loss allowance
if scenario weighted at 100%
Base
£m
Upside
£m
Downside
£m
Severe
downside
£m
23.1
38.8
14.1
76.0
0.7
0.7
(2.2)
(0.7)
(0.2)
(3.1)
–
–
(6.5)
(3.3)
(0.4)
(10.2)
(0.1)
(0.1)
5.1
1.8
0.4
7.3
0.1
0.1
14.0
5.5
1.2
20.7
0.2
0.2
1 As detailed on page 113, during the year a new reportable segment, TML Mortgages, was added, which was previously
reported as part of Property Finance, for the purpose of sensitivity analysis, TML Mortgages remains included with Property
Finance while the Group develops its methodology.
133
Strategic ReportCorporate GovernanceRisk ReportFinancial Statements Principal risks
Credit risk continued
Model estimations
ECL calculations are outputs of complex models with a number of underlying assumptions regarding the choice
of variable inputs and their interdependencies. The Group considers the key assumptions impacting the ECL
calculation to be within the PD and LGD. Sensitivity analysis was performed to assess the impact of changes
in these key assumptions on the loss allowance recognised on loans and advances to customers and loan
commitments as at 31 December 2021.
A summary of the key assumptions and sensitivity analysis is provided in the following table.
Assumption
Sensitivity analysis
PD
A 10% increase in the PD for each customer would increase the total loss allowance
on loans and advances to customers and loan commitments by £2.7 million.
LGD: Property Finance
and TML Mortgages1
Property value
Forced sale discount
LGD: Business Finance
A 10% absolute reduction in property prices would increase the loss allowance on loans
and advances to customers in the Property Finance and TML Mortgages segments by
£12.2 million.
A 5% absolute increase in the forced sale discount would increase the loss allowance on
loans and advances to customers in the Property Finance and TML Mortgages segments
by £8.5 million.
Absolute LGD value
A 5% absolute increase in the LGD applied would increase the total loss allowance on loans
and advances to customers and loan commitments in Business Finance by £4.5 million.
LGD: Consumer Lending
Loss given charge-off
A 10% absolute increase in the loss given charge-off would increase the loss allowance
on loans and advances to customers in Consumer Lending by £1.4 million.
(c) Exposure to credit risk (audited)
Financial assets subject to impairment
To assess exposure to credit risk, the Group has developed a credit grading system that maps to a common
master grading scale. This credit grading system is applied to the Group’s financial assets for which a loss
allowance is recognised, together with loan commitments.
The risk grading framework set out below has been applied in both reported years and consists of 25 grades on
a master grading scale, reflecting varying degrees of risk and default. Responsibility for setting risk grades lies
with the approval point for the risk or committee, as appropriate. Risk grades are subject to regular reviews by
the Group’s risk function.
Grading
Low risk
Medium risk
High risk
Master grading scale
1-10
11-15
16-25
PD range
<=0.38%
>0.38% to <= 1.76%
>1.76%
1 As detailed on page 113, during the year a new reportable segment, TML Mortgages, was added, which was previously
reported as part of Property Finance, for the purpose of sensitivity analysis, TML Mortgages remains included with Property
Finance while the Group develops its methodology.
134
Shawbrook Group plc | Annual Report and Accounts 2021
The following tables analyse the Group’s exposure by credit risk grade and year-end stage classification. The
credit risk grades are based on the grades defined in the preceding table. It should be noted that the credit risk
grading assessment is a point-in-time assessment, whereas the stage classification is determined based on the
change in credit risk from initial recognition. As such, for non-credit impaired financial assets, there is not a direct
relationship between the credit risk assessment and stage classification.
The following tables also provide the Group’s maximum exposure to credit risk. For financial assets, the Group’s
maximum exposure to credit risk is the gross carrying amount net of any loss allowance recognised. Where the
loss allowance is less than £0.1 million, the Group’s maximum exposure to credit risk is equal to the gross carrying
amount and only this amount is presented in the table. For loan commitments, the Group’s maximum exposure
to credit risk is the gross amount committed. The maximum exposure does not take into account the effect of
credit risk mitigation, such as collateral held.
Cash and balances at central banks
Low risk
Gross carrying amount
Loans and advances to banks
Low risk
Gross carrying amount
Loans and advances
to customers
Stage 1
£m
Stage 2
£m
Stage 31
£m
Stage 1
£m
1,693.8
1,693.8
Stage 1
£m
66.9
66.9
2021
Total
£m
2021
Total
£m
1,693.8
1,693.8
2021
Total
£m
66.9
66.9
Stage 1
£m
1,273.2
1,273.2
Stage 1
£m
91.0
91.0
Stage 1
£m
Stage 2
£m
Stage 31
£m
2020
Total
£m
1,273.2
1,273.2
2020
Total
£m
91.0
91.0
2020
Total
£m
Low risk
Medium risk
High risk
Gross carrying amount
1,301.0
4,081.7
1,933.0
7,315.7
44.2
250.5
536.5
831.2
1.8
1,347.0
1,779.9
–
4,332.2
2,202.8
76.2
791.6
3.4
1.9
1,859.5
2,996.3
219.8
2,689.3
1,428.2
684.5
151.0
2,263.7
221.6
8,368.5
5,410.9
1,552.3
156.3
7,119.5
Loss allowance
(25.8)
(15.2)
(35.0)
(76.0)
(29.0)
(34.4)
(28.9)
(92.3)
Carrying amount2
7,289.9
816.0
186.6
8,292.5
5,381.9
1,517.9
127.4
7,027.2
1 Stage 3 loans include POCI loans with a gross carrying amount of £3.3 million (2020: £3.8 million) and loss allowance of
£nil (2020: £nil), these are included in the high risk grade.
2 Excludes fair value adjustments for hedged risk.
135
Strategic ReportCorporate GovernanceRisk ReportFinancial Statements Principal risks
Credit risk continued
Investment securities
Low risk
Gross carrying amount
Assets held for sale
Low risk
Medium risk
High risk
Stage 1
£m
Stage 2
£m
Stage 3
£m
298.5
–
–
–
–
1.2
1.2
–
1.2
Gross carrying amount
298.5
Loss allowance
Carrying amount
(0.5)
298.0
Stage 1
£m
522.0
522.0
2021
Total
£m
298.5
–
1.7
300.2
2021
Total
£m
576.7
329.4
325.5
–
–
0.5
0.5
–
(0.5)
0.5
299.7
2021
Total
£m
522.0
522.0
Stage 1
£m
358.2
358.2
Stage 1
£m
Stage 2
£m
Stage 3
£m
–
2.1
–
2.1
–
2.1
–
0.1
–
0.1
–
0.1
–
–
0.1
0.1
–
0.1
Stage 1
£m
Stage 2
£m
Stage 3
£m
531.7
114.6
373.8
3.2
2.5
53.2
58.9
0.6
–
9.1
9.7
2020
Total
£m
358.2
358.2
2020
Total
£m
–
2.2
0.1
2.3
–
2.3
2020
Total
£m
535.5
117.1
436.1
1,088.7
Loan commitments
Low risk
Medium risk
High risk
Carrying amount
Stage 1
£m
Stage 2
£m
Stage 3
£m
576.7
323.8
276.3
1,176.8
–
5.6
40.3
45.9
–
–
8.9
8.9
1,231.6
1,020.1
Financial assets not subject to impairment
The following table sets out the Group’s maximum exposure to credit risk from its financial assets not subject to
impairment (i.e. those held at fair value through profit or loss). The maximum exposure to credit risk is equal to the
carrying amount. The maximum exposure does not take into account the effect of credit risk mitigation through
the use of master netting and collateral arrangements.
Derivative financial assets
2021
21.5
2020
4.1
136
Shawbrook Group plc | Annual Report and Accounts 2021 (d) Concentrations of credit risk (audited)
The Group monitors concentrations of credit risk from its loans and advances to customers by geographic
location, loan size and by industry.
Concentrations of credit risk by geographic location
An analysis of the Group’s loans and advances to customers by lending segment1 and geographic location
is shown below:
As at 31 December 2021
East Anglia
East Midlands
Greater London
Guernsey/Jersey/Isle of Man
North East
North West
Northern Ireland
Scotland
South East
South West
Wales
West Midlands
Yorkshire/Humberside
Property
Finance
£m
Enterprise
Business
Finance
£m
Consumer
Lending
£m
TML
Mortgages
£m
149.0
240.1
1,793.0
24.3
89.4
464.4
5.8
297.1
1,046.9
353.0
135.1
280.6
306.6
119.4
101.2
613.0
11.4
22.0
241.4
1.2
99.4
258.9
267.1
55.8
206.0
223.6
17.8
31.8
50.1
–
21.7
51.0
0.5
52.9
84.1
37.2
21.6
41.0
39.4
20.2
30.0
146.7
–
16.5
48.2
0.1
41.5
99.4
32.0
16.1
33.5
29.5
Total
£m
306.4
403.1
2,602.8
35.7
149.6
805.0
7.6
490.9
1,489.3
689.3
228.6
561.1
599.1
Gross loans and advances to customers
5,185.3
2,220.4
449.1
513.7
8,368.5
As at 31 December 2020
East Anglia
East Midlands
Greater London
Guernsey/Jersey/Isle of Man
North East
North West
Northern Ireland
Scotland
South East
South West
Wales
West Midlands
Yorkshire/Humberside
Gross loans and advances to customers
Property
Finance
£m
Enterprise
Business
Finance
£m
Consumer
Lending
£m
TML
Mortgages
£m
139.6
189.7
1,713.2
31.6
83.4
383.3
6.8
268.8
919.7
322.8
105.4
215.5
237.3
4,617.1
60.6
87.2
465.8
16.1
26.7
188.3
–
67.2
282.6
193.9
71.2
210.5
127.0
1,797.1
19.1
34.2
52.5
0.1
20.7
52.4
1.0
58.3
85.8
38.0
20.1
43.1
40.4
7.5
10.2
96.6
–
2.9
15.5
0.1
14.6
47.8
12.8
4.8
16.7
10.1
465.7
239.6
Total
£m
226.8
321.3
2,328.1
47.8
133.7
639.5
7.9
408.9
1,335.9
567.5
201.5
485.8
414.8
7,119.5
1 This is based on the Group’s new lending segments as detailed on page 113. Prior year comparatives have been
restated accordingly.
137
Strategic ReportCorporate GovernanceRisk ReportFinancial Statements Principal risks
Credit risk continued
Concentrations of credit risk by loan size
An analysis of the Group’s loans and advances to customers by lending segment1 and loan size is shown below:
As at 31 December 2021
0 – £50k
£50k – £100k
£100k – £250k
£250k – £500k
£500k – £1.0 million
£1.0 million – £2.5 million
£2.5 million – £5.0 million
£5.0 million – £10.0 million
£10.0 million – £25.0 million
> £25.0 million
Property
Finance
£m
Enterprise
Business
Finance
£m
Consumer
Lending
£m
TML
Mortgages
£m
159.6
430.1
1,399.5
1,185.2
687.9
642.3
317.6
150.8
156.5
55.8
50.0
40.1
94.9
93.8
176.0
405.3
380.2
356.3
597.6
26.2
448.7
0.4
–
–
–
–
–
–
–
–
13.2
57.3
224.0
155.7
55.6
7.9
–
–
–
–
Total
£m
671.5
527.9
1,718.4
1,434.7
919.5
1,055.5
697.8
507.1
754.1
82.0
Gross loans and advances to customers
5,185.3
2,220.4
449.1
513.7
8,368.5
As at 31 December 2020
0 – £50k
£50k – £100k
£100k – £250k
£250k – £500k
£500k – £1.0 million
£1.0 million – £2.5 million
£2.5 million – £5.0 million
£5.0 million – £10.0 million
£10.0 million – £25.0 million
> £25.0 million
Property
Finance
£m
Enterprise
Business
Finance
£m
Consumer
Lending
£m
TML
Mortgages
£m
175.7
408.9
1,176.6
1,043.2
683.0
603.0
293.5
133.2
100.0
–
73.9
50.0
103.0
111.1
172.8
350.1
299.6
320.3
281.4
34.9
465.3
0.4
–
–
–
–
–
–
–
–
13.8
33.6
80.4
77.9
30.8
3.1
–
–
–
–
Gross loans and advances to customers
4,617.1
1,797.1
465.7
239.6
Total
£m
728.7
492.9
1,360.0
1,232.2
886.6
956.2
593.1
453.5
381.4
34.9
7,119.5
138
Shawbrook Group plc | Annual Report and Accounts 2021 Concentrations of credit risk by industry
An analysis of the Group’s loans and advances to customers by lending segment1 and industry is shown below:
As at 31 December 2021
Agriculture, forestry and fishing
Mining and quarrying
Manufacturing
Transport, storage and utilities
Construction
Wholesale and retail trade
Services and other
Real estate (commercial)
Financial industry (bank and non-bank)
Property
Finance
£m
Enterprise
Business
Finance
£m
Consumer
Lending
£m
TML
Mortgages
£m
0.2
0.1
6.4
5.4
320.3
14.9
2,397.3
2,422.2
18.5
20.7
1.5
196.3
250.1
390.3
143.4
193.6
566.5
458.0
–
–
–
–
–
–
449.1
–
–
–
–
–
–
–
–
359.7
154.0
–
Total
£m
20.9
1.6
202.7
255.5
710.6
158.3
3,399.7
3,142.7
476.5
Gross loans and advances to customers
5,185.3
2,220.4
449.1
513.7
8,368.5
As at 31 December 2020
Agriculture, forestry and fishing
Mining and quarrying
Manufacturing
Transport, storage and utilities
Construction
Wholesale and retail trade
Services and other
Real estate (commercial)
Financial industry (bank and non-bank)
Gross loans and advances to customers
Property
Finance
£m
Enterprise
Business
Finance
£m
Consumer
Lending
£m
TML
Mortgages
£m
0.6
0.1
3.2
6.4
307.5
15.2
2,164.6
2,110.2
9.3
4,617.1
24.3
0.3
156.5
221.4
300.1
108.3
155.4
422.6
408.2
1,797.1
–
–
–
–
–
–
465.7
–
–
465.7
–
–
–
–
–
–
108.4
131.2
–
239.6
Total
£m
24.9
0.4
159.7
227.8
607.6
123.5
2,894.1
2,664.0
417.5
7,119.5
1 This is based on the Group’s new lending segments as detailed on page 113. Prior year comparatives have been
restated accordingly.
139
Strategic ReportCorporate GovernanceRisk ReportFinancial Statements Principal risks
Credit risk continued
(e) Collateral held and other credit enhancements (audited)
As a key method of mitigating credit risk, the Group holds collateral and other credit enhancements against
certain of its financial assets. The amount and type of collateral required depends on an assessment of the credit
risk of the counterparty.
The Group has internal policies on the acceptability of specific classes of collateral or credit risk mitigation.
The Group’s policies regarding obtaining collateral have not significantly changed during the year and there
has been no significant change in the overall quality of the collateral held by the Group since the prior year.
Derivative financial assets
All new eligible derivative transactions with wholesale counterparties are centrally cleared with cash posted as
collateral to further mitigate credit risk. Residual and non-eligible trades are collateralised under a Credit Support
Annex in conjunction with the ISDA Master Agreement.
Non-derivative financial assets
For loans and advances to banks and investment securities, collateral is generally not held. However, at times,
certain securities are held as part of reverse repurchase agreements.
For loans and advances to customers, the Group obtains collateral for certain of its exposures. Types of collateral
obtained is dependent upon the loan type, as follows:
■ Loan receivables: amounts may be secured by a first or second charge over commercial and residential
property, or against debt receivables or other assets such as asset backed loans and invoice receivables.
■ Finance lease receivables and instalment credit receivables: amounts are secured against the underlying
asset, which can be repossessed in the event of a default.
Certain customer loans have been offered under government support schemes (CBILS and Recovery Loan
Scheme). The UK Government provides the Group with a guarantee to protect 80% of any post recovery loss
in the event of default on such loans, thus providing a form credit enhancement.
The following tables set out the security profile of the Group’s loans and advances to customers by lending
segment1. Amounts in the table represent gross carrying amounts. Loans with a government guarantee, as
detailed above, are classified as secured for the purposes of this disclosure:
As at 31 December 2021
Property
Finance
£m
Enterprise
Business
Finance
£m
Consumer
Lending
£m
TML
Mortgages
£m
Total
£m
Secured on commercial and residential property
5,185.3
Secured on debt receivables
Secured on other assets
Secured on finance lease assets
Secured on instalment credit assets
Loans with 80% government guarantee
–
–
–
–
–
713.5
793.5
219.6
54.0
376.1
44.6
Total secured loans and advances to customers
5,185.3
2,201.3
–
–
–
–
–
–
–
513.7
6,412.5
–
–
–
–
–
793.5
219.6
54.0
376.1
44.6
513.7
7,900.3
Unsecured loan receivables
–
19.1
449.1
–
468.2
Gross loans and advances to customers
5,185.3
2,220.4
449.1
513.7
8,368.5
140
Shawbrook Group plc | Annual Report and Accounts 2021 As at 31 December 2020
Property
Finance
£m
Enterprise
Business
Finance
£m
Consumer
Lending
£m
TML
Mortgages
£m
Secured on commercial and residential property
4,617.1
Secured on debt receivables
Secured on other assets
Secured on finance lease assets
Secured on instalment credit assets
Loans with 80% government guarantee
–
–
–
–
–
534.4
595.4
178.8
72.1
362.3
32.2
Total secured loans and advances to customers
4617.1
1,775.2
–
–
–
–
–
–
–
239.6
–
–
–
–
–
Total
£m
5,391.1
595.4
178.8
72.1
362.3
32.2
239.6
6,631.9
Unsecured loan receivables
–
21.9
465.7
–
487.6
Gross loans and advances to customers
4,617.1
1,797.1
465.7
239.6
7,119.5
Collateral held in relation to secured loans is capped, after taking into account the first charge balance, at the
carrying amount of the loan.
Credit-impaired financial assets
The Group closely monitors collateral held for financial assets considered to be credit-impaired (Stage 3 and POCI),
as it becomes more likely that the Group will take possession of such collateral to mitigate potential credit losses.
The only asset category with credit-impaired assets is loans and advances to customers. The below tables provide
further information about these credit-impaired assets and the related collateral held by lending segment1:
Gross carrying amount
Loss allowance
Carrying amount
As at 31 December 2021
Secured
£m
Unsecured
£m
Secured
£m
Unsecured
£m
Secured
£m
Unsecured
£m
Property Finance
Business Finance2
Consumer Lending
TML Mortgages
Total credit-impaired loans
and advances to customers
127.4
89.7
–
0.1
217.2
–
–
4.4
–
4.4
(13.4)
(18.4)
–
–
–
–
(3.2)
–
114.0
71.3
–
0.1
(31.8)
(3.2)
185.4
–
–
1.2
–
1.2
Gross carrying amount
Loss allowance
Carrying amount
As at 31 December 2020
Property Finance
Business Finance2
Consumer Lending
TML Mortgages
Total credit-impaired loans
and advances to customers
Secured
£m
Unsecured
£m
Secured
£m
Unsecured
£m
Secured
£m
Unsecured
£m
109.8
41.0
–
0.3
151.1
–
–
5.2
–
5.2
(13.0)
(11.9)
–
–
–
–
(4.0)
–
96.8
29.1
–
0.3
(24.9)
(4.0)
126.2
–
–
1.2
–
1.2
Fair value of
collateral
held
£m
114.0
71.3
n/a
0.1
185.4
Fair value of
collateral
held
£m
96.8
29.1
n/a
0.3
126.2
1 This is based on the Group’s new lending segments as detailed on page 113. Prior year comparatives have been
restated accordingly.
2 Business Finance includes POCI loans with a gross carrying amount of £3.3 million (2020: 3.8 million) and loss allowance of
£nil (2020: £nil). The POCI loans are secured assets and the fair value of collateral held is £3.3 million (2020: £3.8 million)
(i.e. capped at the carrying amount of the loan).
141
Strategic ReportCorporate GovernanceRisk ReportFinancial Statements Principal risks
Credit risk continued
The following table shows the distribution of loan-to-value ratios for the Group’s credit-impaired mortgage assets
held in the Property Finance and TML Mortgages lending segments. Loan-to-value is calculated as the ratio of the
current gross carrying amount of the loan to the value of the collateral at origination. Amounts in the following
table reflect the gross carrying amount of the loans.
Loan-to-value ratio
Less than 50%
50-70%
71-90%
91-100%
More than 100%
Total credit-impaired mortgage assets
2021
2020
Property
Finance
£m
TML
Mortgages
£m
Property
Finance
£m
TML
Mortgages
£m
27.0
65.1
31.9
1.5
1.9
127.4
–
–
0.1
–
–
0.1
20.1
45.5
41.9
1.6
0.7
109.8
–
–
0.3
–
–
0.3
Repossessions
The Group’s policy is to pursue the realisation of collateral in an orderly manner.
In March 2020, in line with the Financial Conduct Authority (FCA) requirement, the Group implemented a
moratorium on repossessions. The moratorium ended on 31 March 2021, however the UK Government imposed
further restrictions on repossessions until 31 May 2021 and 30 June 2021 in England and Wales, respectively. In
Scotland there was no overall end date and instead a tiered approach, based on location, was used, with
restrictions lifted in most areas by mid-May 2021. The Group recommenced application of its normal repossessions
policy when the restrictions were lifted and took possession of a number of properties during the remainder of
2021. The Group continues to monitor and comply with regulatory and government guidelines.
As at 31 December 2021, the Group held 13 repossessed properties with a carrying amount of £12.4 million
(2020: 4 repossessed properties with carrying amount of £3.0 million).
(f) Forbearance and COVID-19 concessions (audited)
Forbearance
The Group maintains a forbearance policy for the servicing and management of customers who are
in financial difficulty and require some form of concession to be granted, even if this concession entails
a loss for the Group. A concession may be either of the following:
■ a modification of the previous terms and conditions of an agreement, which the borrower is considered
unable to comply with due to its financial difficulties, to allow for sufficient debt service ability, that would
not have been granted had the borrower not been in financial difficulties; or
■ a total or partial refinancing of an agreement that would not have been granted had the borrower not been
in financial difficulties.
Forbearance in relation to an exposure can be temporary or permanent depending on the circumstances,
progress on financial rehabilitation and the detail of the concession(s) agreed.
The Group excludes short-term repayment plans that are up to three months in duration from its definition
of forborne loans.
142
Shawbrook Group plc | Annual Report and Accounts 2021 The Group applies the European Banking Authority (EBA) Implementing Technical Standards on forbearance
and non-performing exposures as defined in Annex V of Commission Implementing Regulation (EU) 2015/227.
Under these standards, loans are classified as performing or non-performing in accordance with the EBA rules,
as adopted by the PRA.
The EBA standards stipulate that a forbearance classification can be discontinued when all of the following
conditions have been met:
■ the exposure is considered to be performing, including where it has been reclassified from the non-
performing category, after an analysis of the financial condition of the debtor showed that it no longer
met the conditions to be considered as non-performing;
■ a minimum two year probation period has passed from the date the forborne exposure was considered
to be performing;
■ regular payments of more than an insignificant aggregate amount of principal or interest have been made
during at least half of the probation period; and
■ none of the exposures to the debtor is more than 30 days past due at the end of the probation period.
The following tables provide a summary of the Group’s forborne loans and advances to customers by lending
segment1 and year-end stage classification. There are no forborne loans in the TML Mortgages segment and,
as such, this segment is not included in the tables.
As at
31 December 2021
Property Finance
Stage 2
Stage 3
Total
Business Finance
Stage 2
Stage 3
Total
Consumer Lending
Stage 2
Stage 3
Total
Total
Stage 2
Stage 3
Total
Gross amount of forborne loans
Loss allowance on forborne loans
Performing
£m
Non-
Performing
£m
Total
£m
Performing
£m
Non-
Performing
£m
Number
Total
£m
Coverage
%
208
549
757
276
652
928
332
3,105
3,437
816
4,306
5,122
11.8
–
11.8
43.6
–
43.6
0.8
–
0.8
56.2
–
56.2
8.5
41.5
50.0
1.8
61.8
63.6
0.5
3.2
3.7
10.8
106.5
117.3
20.3
41.5
61.8
45.4
61.8
107.2
1.3
3.2
4.5
67.0
106.5
173.5
–
–
–
(2.4)
–
(2.4)
–
–
–
(2.4)
–
(2.4)
(0.1)
(4.0)
(4.1)
–
(12.3)
(12.3)
(0.1)
(2.4)
(2.5)
(0.2)
(18.7)
(18.9)
(0.1)
(4.0)
(4.1)
(2.4)
(12.3)
(14.7)
(0.1)
(2.4)
(2.5)
(2.6)
(18.7)
(21.3)
0.5
9.6
6.6
5.3
19.9
13.7
7.7
75.0
55.6
3.9
17.6
12.3
1 This is based on the Group’s new lending segments as detailed on page 113.
143
Strategic ReportCorporate GovernanceRisk ReportFinancial Statements Principal risks
Credit risk continued
As at
31 December 2020
Property Finance
Stage 2
Stage 3
Total
Business Finance
Stage 2
Stage 3
Total
Consumer Lending
Stage 2
Stage 3
Total
Total
Stage 2
Stage 3
Total
Gross amount of forborne loans
Loss allowance on forborne loans
Performing
£m
Non-
Performing
£m
Total
£m
Performing
£m
Non-
Performing
£m
Number
Total
£m
Coverage
%
189
502
691
385
185
570
327
2,467
2,794
901
3,154
4,055
9.6
–
9.6
57.6
–
57.6
0.6
–
0.6
67.8
–
67.8
1.3
35.0
36.3
11.2
6.7
17.9
1.2
2.6
3.8
13.7
44.3
58.0
10.9
35.0
45.9
68.8
6.7
75.5
1.8
2.6
4.4
81.5
44.3
125.8
(0.2)
–
(0.2)
(4.4)
–
(4.4)
(0.1)
–
(0.1)
(4.7)
–
(4.7)
–
(4.5)
(4.5)
(0.4)
(3.1)
(3.5)
(0.9)
(1.9)
(2.8)
(0.2)
(4.5)
(4.7)
(4.8)
(3.1)
(7.9)
(1.0)
(1.9)
(2.9)
(1.3)
(9.5)
(10.8)
(6.0)
(9.5)
(15.5)
1.8
12.9
10.2
7.0
46.3
10.5
55.6
73.1
65.9
7.4
21.4
12.3
COVID-19 concessions
As at 31 December 2021, all short-term concessions that were granted to customers in response to COVID-19
had concluded. On expiry of these COVID-19 concessions, where underlying longer-term financial difficulties
were evident, the Group’s normal forbearance assessment applied. The Group has considered the additional
risk of recently expired COVID-19 concessions within its PMAs.
In the comparative year, as at 31 December 2020, there were 1,557 loans, with a gross carrying amount of
£86.0 million and a loss allowance of £3.1 million, that had COVID-19 concessions applied. In line with regulatory
guidance, customers with COVID-19 concessions were not considered forborne and are not included in the
Group’s forbearance disclosures shown above.
144
Shawbrook Group plc | Annual Report and Accounts 2021 Liquidity risk
Partially audited: in the following section, information under headings marked as ‘audited’ is covered
by the Independent Auditor’s Report. All other information is unaudited.
The following sections provide additional information relating to the management of liquidity risk and
additional analysis and metrics used in assessing, monitoring and managing liquidity risk.
Managing liquidity risk
The Group has developed comprehensive funding and liquidity policies to ensure that it maintains sufficient
liquid assets to be able to meet all of its financial obligations and maintain public confidence.
The Group’s treasury function is responsible for the day-to-day management of the Group’s liquidity and
wholesale funding. The Board sets limits over the level, composition and maturity of liquidity and deposit
funding balances, which are reviewed at least annually. Compliance with these limits is monitored on a daily
basis by finance and risk personnel that are independent of the treasury function.
Stress testing is a major component of liquidity risk management and the Group has developed a diverse
selection of scenarios covering a range of market-wide and firm specific factors. The Group performs liquidity
stress tests to ensure that the Group maintains adequate liquidity for business purposes even under stressed
conditions. The Group’s core liquidity stress test is performed on a daily basis by the finance function, with a
further series of liquidity stress tests performed on a monthly basis that are formally reported to the Asset and
Liability Committee and the Board.
A comprehensive review of the Group’s Liquidity Framework, including stress testing, is conducted at least
annually through the ILAAP. The Asset and Liability Committee, Risk Committee and the Board are heavily
involved in the full ILAAP life cycle, with all challenges clearly documented. The ILAAP is used to demonstrate
the Group’s compliance with the PRA’s Overall Liquidity Adequacy Rule and assess funding and liquidity risk
across the actual and budgeted statement of financial position.
145
Strategic ReportCorporate GovernanceRisk ReportFinancial Statements Principal risks
Liquidity risk continued
Maturity analysis for financial assets and liabilities (audited)
The following tables segment the carrying amount of the Group’s financial assets and liabilities based on
the final contractual maturity date. In practice, the Group’s assets and liabilities may be repaid, or otherwise
mature, earlier or later than implied by their contractual tenor. Accordingly, this information is not relied upon
by the Group in managing liquidity risk.
In the following tables, the ‘less than 1 month’ maturity group includes amounts repayable on demand. For
loans and advances to customers and customer deposits, the ‘more than 5 years’ maturity group also includes
the fair value adjustment for hedged risk. Accrued interest is assigned to the maturity group based on when it is
scheduled to be paid. Assets held for sale are assigned to the maturity band in accordance with the expected
month of sale.
As at 31 December 2021
Financial assets
Cash and balances
at central banks
Loans and advances to banks
Loans and advances to customers
Investment securities
Derivative financial assets
Assets held for sale
Less than
1 month
£m
1-3
months
£m
3 months
– 1 year
£m
1-2
years
£m
2-5
years
£m
More than
5 years
£m
Total
£m
1,672.7
66.9
257.2
–
–
299.7
–
–
216.5
5.8
–
–
–
–
918.8
28.0
0.7
–
–
–
776.8
193.0
1.3
–
–
–
21.1
–
1,693.8
66.9
1,471.6
4,631.2
8,272.1
285.1
16.3
–
10.1
3.2
–
522.0
21.5
299.7
Total financial assets
2,296.5
222.3
947.5
971.1
1,773.0
4,665.6
10,876.0
Financial liabilities
Amounts due to banks
(0.7)
–
–
–
(1,200.0)
–
(1,200.7)
Customer deposits
(2,873.3)
(707.7)
(2,780.1)
(1,028.6)
(843.1)
(125.8)
(8,358.6)
Derivative financial liabilities
Debt securities in issue
Lease liabilities
Subordinated debt liability
(0.1)
(9.9)
(0.2)
–
(0.4)
(5.8)
(0.4)
(0.3)
(3.0)
(18.6)
(1.6)
(1.5)
(2.7)
(27.7)
(2.0)
–
(1.5)
(0.4)
(8.1)
(46.0)
(211.2)
(319.2)
(4.1)
–
(1.5)
(9.8)
(95.0)
(96.8)
Total financial liabilities
(2,884.2)
(714.6)
(2,804.8)
(1,061.0)
(2,094.7)
(433.9)
(9,993.2)
Cumulative gap
(587.7)
(1,080.0)
(2,937.3)
(3,027.2)
(3,348.9)
882.8
882.8
146
Shawbrook Group plc | Annual Report and Accounts 2021 As at 31 December 2020
Financial assets
Cash and balances
at central banks
Loans and advances to banks
Loans and advances to customers
Investment securities
Derivative financial assets
Assets held for sale
Less than
1 month
£m
1-3
months
£m
3 months
– 1 year
£m
1-2
years
£m
2-5
years
£m
More than
5 years
£m
Total
£m
1,255.2
91.0
496.9
–
0.4
–
–
–
–
–
–
–
–
–
18.0
1,273.2
–
91.0
188.1
830.3
630.0
1,148.1
3,767.9
7,061.3
–
–
2.3
37.7
28.4
202.7
89.4
358.2
–
–
3.5
–
0.1
–
0.1
–
4.1
2.3
Total financial assets
1,843.5
190.4
868.0
661.9
1,350.9
3,875.4
8,790.1
Financial liabilities
Amounts due to banks
(0.7)
(16.3)
(41.5)
–
(757.0)
–
(815.5)
Customer deposits
(2,478.1)
(759.6)
(1,745.2)
(1,098.7)
(748.5)
(64.0)
(6,894.1)
Derivative financial liabilities
Debt securities in issue
Lease liabilities
Subordinated debt liability
(0.4)
–
(0.2)
–
(0.8)
(0.1)
(0.3)
(0.3)
(0.8)
(8.9)
(1.4)
(1.5)
(5.8)
(1.0)
(1.9)
–
(30.7)
(15.4)
(4.8)
(3.5)
(42.0)
(179.4)
(204.8)
(2.5)
(11.1)
–
(95.0)
(96.8)
Total financial liabilities
(2,479.4)
(777.4)
(1,799.3)
(1,107.4)
(1,556.4)
(344.4)
(8,064.3)
Cumulative gap
(635.9)
(1,222.9)
(2,154.2)
(2,599.7)
(2,805.2)
725.8
725.8
147
Strategic ReportCorporate GovernanceRisk ReportFinancial Statements Principal risks
Liquidity risk continued
The following tables segment the gross contractual cash flows of the Group’s financial liabilities into relevant
maturity groupings. Totals in the following table differ to the preceding tables, and do not agree directly to the
statement of financial position, as the table incorporates all cash flows, on an undiscounted basis, related to both
principal and future coupon payments. Estimated future interest payments are derived using interest rates and
contractual maturities at the reporting date.
As at 31 December 2021
Financial liabilities
Less than
1 month
£m
1-3
months
£m
3 months
– 1 year
£m
1-2
years
£m
2-5
years
£m
More than
5 years
£m
Total
£m
Amounts due to banks
1.2
1.0
4.5
6.0
1,211.0
–
1,223.7
Customer deposits
2,875.4
709.0
2,799.6
1,049.5
917.3
140.5
8,491.3
Derivative financial liabilities
Debt securities in issue
Lease liabilities
Subordinated debt liability
0.1
9.8
0.2
–
0.4
6.5
0.4
0.7
3.0
21.1
1.6
7.5
2.7
31.2
2.1
8.1
1.5
56.6
4.3
24.1
0.4
227.4
1.7
122.2
8.1
352.6
10.3
162.6
Total financial liabilities
2,886.7
718.0
2,837.3
1,099.6
2,214.8
492.2
10,248.6
As at 31 December 2020
Financial liabilities
Amounts due to banks
Customer deposits
Derivative financial liabilities
Debt securities in issue
Lease liabilities
Subordinated debt liability
Less than
1 month
£m
1-3
months
£m
3 months
– 1 year
£m
0.9
2,479.7
0.4
0.3
0.2
–
16.4
761.0
0.8
0.7
0.3
0.7
42.2
1,760.8
0.8
11.5
1.4
7.5
1-2
years
£m
0.8
1,119.7
5.8
4.7
2.0
8.1
2-5
years
£m
More than
5 years
£m
758.5
821.2
30.7
28.1
5.1
24.1
–
72.6
3.5
204.3
2.8
130.5
413.7
Total
£m
818.8
7,015.0
42.0
249.6
11.8
170.9
8,308.1
Total financial liabilities
2,481.5
779.9
1,824.2
1,141.1
1,667.7
148
Shawbrook Group plc | Annual Report and Accounts 2021 Liquidity buffer
The Group maintains a liquidity buffer of high-quality liquid assets, as defined by the EBA’s mandates and
adopted by the PRA. These assets can be monetised to meet stress requirements in line with internal stress
testing and the requirements of the Delegated Regulation on the Liquidity Coverage Ratio (LCR).
The average monthly liquidity buffer throughout the year was £1,477.8 million (2020: £1,665.0 million).
The following table sets out the components of the Group’s liquidity buffer:
Cash and withdrawable central bank reserves (LCR level 1 assets)
Central government assets (LCR level 1 assets)
Extremely high-quality covered bonds (LCR level 1 assets)
High-quality covered bonds (LCR level 2A assets)
Total liquidity buffer
2021
£m
2020
£m
1,672.5
1,255.1
17.1
–
–
22.8
97.1
9.1
1,689.6
1,384.1
Central government assets are off-balance sheet UK gilts acquired as part of an off-balance sheet ‘security swap’.
See Note 7(j) of the Financial Statements for further details.
Liquidity coverage ratio and net stable funding ratio
The LCR is a regulatory metric that measures a set of standardised liquidity inflows and outflows over a period
of 30 days. The Group calculates the LCR in accordance with the EBA’s LCR standards, as adopted by the PRA.
The following table sets out the Group’s LCR:
Liquidity buffer (£m)
Total net cash outflows (£m)
Liquidity coverage ratio (%)
2021
1,689.6
681.9
247.8
2020
1,384.1
602.6
229.7
The net stable funding ratio (NSFR) is a regulatory metric that measures the amount of stable funding available
compared to the amount of stable funding required. Based on current interpretations of regulatory requirements
and guidance, the Group’s NSFR as at 31 December 2021 is 136.4% (2020: 136.7%). This is in excess of the minimum
level of 100% that will come into effect on 1 January 20221.
Assets available to support future funding (audited)
A proportion of the Group’s assets have the potential to be used as collateral to support central bank or other
wholesale funding activity. Assets that have been committed for such purposes are classified as encumbered
assets and cannot be used for other purposes. The Group has Board imposed limits setting out the percentage
of assets that can be encumbered.
All other assets are defined as unencumbered assets. These comprise assets that are potentially available to
be used as collateral (‘available as collateral’) and assets that, due to their nature, are not suitable to be used
as collateral (‘other’).
The tables and additional narrative provided on the following page set out the carrying amount of the Group’s
encumbered and unencumbered assets. The disclosure is designed to illustrate the availability of the Group’s
assets to support future funding and is not intended to identify assets that would be available in the event of
a resolution or bankruptcy.
1
In the UK, the timing of a binding NSFR has been extended by the PRA and it will now become effective from 1 January 2022,
as part of the revised Capital Requirements Regulation (CRR II) implementation. Upon implementation, the NSFR must be at
least equal to 100% on an ongoing basis.
149
Strategic ReportCorporate GovernanceRisk ReportFinancial Statements Principal risks
Liquidity risk continued
As at 31 December 2021
Cash and balances at central banks
Loans and advances to banks
Loans and advances to customers
Investment securities
Derivative financial assets
Assets held for sale
Non-financial assets
Total assets
As at 31 December 2020
Cash and balances at central banks
Loans and advances to banks
Loans and advances to customers
Investment securities
Derivative financial assets
Assets held for sale
Non-financial assets
Total assets
Encumbered
Unencumbered
Pledged as
collateral
£m
–
10.8
1,684.1
520.3
–
–
–
Other
£m
21.1
15.7
–
–
–
–
–
Available as
collateral
£m
–
40.4
6,588.0
–
–
–
36.1
Other
£m
1,672.7
–
–
1.7
21.5
299.7
117.4
Total
£m
1,693.8
66.9
8,272.1
522.0
21.5
299.7
153.5
2,215.2
36.8
6,664.5
2,113.0
11,029.5
Encumbered
Unencumbered
Pledged as
collateral
£m
–
48.6
1,269.4
165.0
–
–
–
Other
£m
18.0
6.3
–
–
–
–
–
Available as
collateral
£m
–
36.1
5,791.9
193.2
–
–
39.2
1,483.0
24.3
6,060.4
Other
£m
1,255.2
–
–
–
4.1
2.3
108.2
1,369.8
Total
£m
1,273.2
91.0
7,061.3
358.2
4.1
2.3
147.4
8,937.5
Encumbered assets ‘pledged as collateral’ comprise:
Loans and advances to banks totalling £10.8 million (2020: £48.6 million), of which:
■ £10.8 million (2020: £48.6 million) is pledged as collateral against derivative contracts.
Loans and advances to customers totalling £1,684.1 million (2020: £1,269.4 million), of which:
■ £1,282.2 million (2020: £946.8 million) is positioned with the Bank of England for use as collateral against
amounts drawn under the Term Funding Scheme with additional incentives for SMEs.
■ £nil (2020: £55.3 million) is pledged as collateral against secured bank borrowings.
■ £401.9 million (2020: £267.3 million) is pledged to securitisation programmes.
Investment securities totalling £520.3 million (2020: £165.0 million), of which:
■ £391.0 million (2020: £150.0 million) is positioned with the Bank of England for use as collateral against amounts
drawn under the Term Funding Scheme with additional incentives for SMEs.
■ £129.3 million (2020: £15.0 million) is pledged as collateral for repurchase agreements or used in ‘security swaps’
(see Note 7(j) of the Financial Statements).
‘Other’ encumbered assets (assets that cannot be used for secured funding for legal or other reasons) comprise:
■ £21.1 million (2020: £18.0 million) of mandatory deposits with central banks.
■ £15.7 million (2020: £6.3 million) of securitisation cash, which represents restricted cash balances
of consolidated structured entities.
The above tables do not include collateral received by the Group (i.e. from reverse repos) that are not recognised
on the statement of financial position, the vast majority of which the Group is permitted to repledge.
150
Shawbrook Group plc | Annual Report and Accounts 2021 Market risk
Partially audited: in the following section, information under headings marked as ‘audited’ is covered by the
Independent Auditor’s Report. All other information is unaudited.
The following sections provide additional information relating to the management of market risk and specific
details regarding foreign exchange risk, basis risk and interest rate risk. An update regarding the Group’s transition
from LIBOR to alternative rates is also provided.
Managing market risk
The Group’s treasury function is responsible for managing the Group’s exposure to all aspects of market risk within
the operational limits set out in the Group’s treasury policies, with the overall objective of managing market risk in
line with the Group’s risk appetite. The Asset and Liability Committee approves the Group’s treasury policies and
receives regular reports on all aspects of market risk exposure, including interest rate risk.
Additional details about the specific forms of market risk that the Group is exposed to are provided in the
following sections.
Foreign exchange risk (audited)
Foreign exchange risk is the risk that the value of, or net income arising from, assets and liabilities changes as
a result of movements in exchange rates. The Group has low levels of foreign exchange risk that is managed
by appropriate financial instruments including derivatives.
The tables below set out the Group’s exposure to foreign exchange risk:
As at 31 December 2021
Loans and advances to banks
Loans and advances to customers
Total exposure
As at 31 December 2020
Loans and advances to banks
Loans and advances to customers
Total exposure
Euros
£m
2.9
9.4
12.3
Euros
£m
4.1
7.0
11.1
US
Dollars
£m
Australian
Dollars
£m
2.1
6.6
8.7
0.4
–
0.4
US
Dollars
£m
Australian
Dollars
£m
5.0
10.5
15.5
0.6
–
0.6
There are no currencies to which the Group has a significant exposure. Accordingly, sensitivity analysis is not
provided, as the impact of foreign exchange movements, particularly after taking into account the impact
of derivative financial instruments used to manage such risk, is not material.
Basis risk (audited)
Basis risk is the risk of loss arising from changes in the relationship between interest rates that have similar but
not identical characteristics (for example, SONIA and the Bank of England base rate). This is monitored closely
and regularly reported to the Asset and Liability Committee. This risk is managed within established risk limits by
matching and, where appropriate and necessary, through the use of derivatives and via other control procedures.
The Group’s forecasts and plans take in to account the risk of interest rate changes and are prepared and
stressed accordingly, in line with PRA guidance.
Information regarding the Group’s transition from LIBOR to alternative rates can be found on page 154.
151
Strategic ReportCorporate GovernanceRisk ReportFinancial Statements Principal risks
Market risk continued
Interest rate risk (audited)
Interest rate risk is the risk of loss arising from adverse movements in market interest rates. Interest rate risk
arises from the loan and savings products that the Group offers. This risk is managed through the use of
appropriate financial instruments, including derivatives, with established risk limits, reporting lines, mandates
and other control procedures.
The following tables provide a summary of the Group’s interest rate gap position. Items are allocated to time
bands by reference to the earlier of the next contractual interest rate change and the maturity date.
As at 31 December 2021
Assets
Cash and balances
at central banks
Loans and advances to banks
Within
3 months
£m
3 months
but
<6 months
£m
6 months
but
<1 year
£m
1 year
but
<5 years
£m
>5 years
£m
Non-
interest
bearing
£m
Total
£m
1,672.7
66.9
–
–
–
–
–
–
–
–
21.1
–
1,693.8
66.9
Loans and advances to customers
3,597.8
328.3
696.7
3,533.4
206.1
(90.2)
8,272.1
Investment securities
Derivative financial assets
Assets held for sale
Non-financial assets
522.0
–
–
3.0
–
–
–
–
–
–
–
–
–
2.0
3.8
15.6
Total assets
5,862.4
330.3
700.5
3,549.0
–
–
–
1.0
207.1
–
21.5
299.7
128.1
522.0
21.5
299.7
153.5
380.2
11,029.5
Equity and liabilities
Amounts due to banks
(1,200.7)
–
–
–
–
–
(1,200.7)
Customer deposits
(3,558.5)
(1,612.0)
(1,176.4)
(1,858.7)
(125.1)
(27.9)
(8,358.6)
Derivative financial liabilities
Debt securities in issue
Lease liabilities
Subordinated debt liability
Non-financial liabilities
Equity
–
(320.2)
–
(0.3)
–
–
–
–
–
(1.5)
–
–
–
–
–
-
–
(125.0)
–
–
–
(95.0)
–
–
–
–
–
–
–
–
(8.1)
1.0
(9.8)
–
(76.1)
(8.1)
(319.2)
(9.8)
(96.8)
(76.1)
(835.2)
(960.2)
Total equity and liabilities
(5,079.7)
(1,613.5)
(1,301.4)
(1,953.7)
(125.1)
(956.1)
(11,029.5)
Notional values of derivatives
89.0
914.4
517.3
(1,413.6)
(107.1)
Cumulative gap
871.7
502.9
419.3
601.0
575.9
–
–
–
–
152
Shawbrook Group plc | Annual Report and Accounts 2021 As at 31 December 2020
Assets
Cash and balances
at central banks
Loans and advances to banks
Within
3 months
£m
3 months
but
<6 months
£m
6 months
but
<1 year
£m
1 year
but
<5 years
£m
>5 years
£m
Non-
interest
bearing
£m
Total
£m
1,255.2
91.0
–
–
–
–
–
–
–
–
18.0
–
1,273.2
91.0
Loans and advances to customers
3,205.7
303.9
561.8
2,857.4
197.2
(64.7)
7,061.3
Investment securities
Derivative financial assets
Assets held for sale
Non-financial assets
Total assets
Equity and liabilities
358.2
–
–
3.8
–
–
–
–
–
–
–
–
–
2.3
4.2
18.3
4,913.9
306.2
566.0
2,875.7
–
–
–
1.3
198.5
–
4.1
2.3
117.5
77.2
358.2
4.1
2.3
147.4
8,937.5
Amounts due to banks
(815.5)
–
–
–
–
–
(815.5)
Customer deposits
(3,195.3)
(955.7)
(811.2)
(1,829.5)
(63.6)
(38.8)
(6,894.1)
Derivative financial liabilities
Debt securities in issue
Lease liabilities
Subordinated debt liability
Non-financial liabilities
Equity
–
(205.6)
–
(0.3)
–
–
–
–
–
(1.5)
–
–
–
–
–
–
–
–
–
–
–
(95.0)
–
(125.0)
–
–
–
–
–
–
(42.0)
(42.0)
0.8
(11.1)
–
(58.7)
(204.8)
(11.1)
(96.8)
(58.7)
(689.5)
(814.5)
Total equity and liabilities
(4,216.7)
(957.2)
(811.2)
(2,049.5)
(63.6)
(839.3)
(8,937.5)
Notional values of derivatives
1,305.8
(20.0)
(59.0)
(1,132.2)
(94.6)
Cumulative gap
2,003.0
1,332.0
1,027.8
721.8
762.1
–
–
–
–
The Group considers a parallel 250 basis points (bps) movement in interest rates to be appropriate for scenario
testing given the current economic outlook and industry expectations.
The Group estimates that a +/ – 250 bps movement in interest rates paid/received would impact the economic
value of equity as follows:
■ + 250 bps: £13.9 million positive (2020: £14.2 million negative)
■ – 250 bps: £51.1 million positive (2020: £7.3 million positive)
In addition, the effect of the same two interest rate shocks is applied to the statement of financial position at
year end, to determine how net interest income may change on an annualised basis for one year (earnings at risk),
as follows:
■ + 250 bps: £59.1 million positive (2020: £62.0 million positive)
■ – 250 bps: £7.3 million negative (2020: £8.9 million positive)
In preparing the above, the Group makes certain assumptions consistent with expected and contractual repricing
behaviour as well as behavioural repayment profiles of the underlying statement of financial position items in
relation to the specific scenarios. The results also include the impact of hedge transactions.
153
Strategic ReportCorporate GovernanceRisk ReportFinancial Statements Operational risk
The Risk Committee receives regular reports across
the spectrum of operational risks. These reports
cover incidents that have arisen and allow the Risk
Committee to assess the Group’s response and
proposed remedial actions.
During 2021, the Group has continued to enhance and
embed the internal controls environment. More robust
internal control libraries have been established,
hosted within the Group’s governance, risk and
control system. This has enhanced the Risk and
Control Self-Assessment process as residual risk
positions, and therefore the Group’s overall risk profile,
is more substantiated, with views on internal control
design adequacy and operating effectiveness.
Throughout 2021, the Group delivered an updated
important business services inventory and impact
tolerance metrics, supported by service mapping
and scenario testing, to address the latest
regulatory requirements. Collaboration with industry
peers ensured alignment on approach. The resulting
Group self-assessment and resilience actions
provide a roadmap to continue enhancing the
Group’s operational resilience looking ahead to
the 2025 regulatory deadline.
Principal risks
Market risk continued
Interest rate benchmark reform (audited)
In 2017, it was determined that the interest rate
benchmark LIBOR should be replaced and LIBOR
panel banks agreed to continue submitting to LIBOR
until the end of 2021 to enable time for the market to
transition away from LIBOR.
In response to the announcements, the Group
established a LIBOR transition programme under the
governance of the Chief Financial Officer and
reporting to the Board. The aim of the programme
was to identify LIBOR exposures within the business
and prepare and deliver on an action plan to enable
a smooth transition to alternative rates.
The LIBOR transition programme established a plan
designed to actively transition the Group’s LIBOR
exposures, which were limited to sterling LIBOR only,
to alternative rates by the end of 2021, with minimum
reliance on a tough legacy legislative solution.
In both the 2020 Annual Report and Accounts and
the 2021 Interim Financial Report, the Group
reported on its progress against this transition plan
and its remaining exposures with LIBOR dependency.
During the second half of 2021, the Group
implemented the final steps of the transition plan
and, as at 31 December 2021, all derivative financial
instruments and the majority of non-derivative
financial instruments with LIBOR dependency have
either matured or been migrated to an alternative
rate specifically selected to be appropriate for the
particular product and the customers that the
product serves.
Non-derivative financial instruments that continue to
be linked to sterling LIBOR as at 31 December 2021
(and are therefore deemed not to have transitioned
from LIBOR) comprise 1,110 customer loans with a
gross carrying amount of £983.5 million, of which:
■ 52 loans with a gross carrying amount of £5.3 million
fall within the tough legacy bracket and will move
to synthetic LIBOR1 on 1 January 2022; and
■ 1,058 loans with a gross carrying amount of
£978.2 million have had all required steps for
transition completed and will transfer to an
alternative rate on the next interest rate setting
date during Q1 2022.
1 The FCA used its powers, granted to it by the Government under the Benchmarks Regulation, to require continued
publication on a ‘synthetic’ basis for the 1-month, 3-month and 6-month sterling LIBOR settings until the end of 2022.
These synthetic LIBOR rates are not intended for use in new contracts, but are available for holders of ‘legacy’ LIBOR-
referencing contracts.
154
Shawbrook Group plc | Annual Report and Accounts 2021 Compliance, conduct
and financial crime risk
The Group continually reviews its risk management
approach to reflect the regulatory and legal
environment in which it operates. The Group has
no appetite for behaving inappropriately resulting
in unfair outcomes for its customers.
During 2021, conduct risks were raised by each
customer franchise for consideration by the Risk
Committee. The Risk Committee reviewed the risks
raised and considered whether the Group’s proposed
actions were appropriate to mitigate the risks
effectively and ensured that all complaints were fairly
addressed. The year has seen continued improvements
made to the Group’s financial crime controls, along
with further roll-outs of automated customer due
diligence for new and existing customers.
The Group’s framework and approach for the fair
servicing of vulnerable customers has received
increased focus during the year, following
publication of the FCA’s latest guidance in this area.
This work continues into 2022 and will eventually
be aligned with the requirements expected to arise
from the new Consumer Duty, which will be
launched by the FCA in the second half of 2022.
The Group has continued to incur costs in relation
to litigation and complaints. Costs include customer
redress and remediation, specifically in relation to
Section 75 and Section 140 of the Consumer Credit
Act within the Consumer franchise. Key accounting
judgements and estimates associated with these
matters are considered regularly by the Audit
Committee. Resolution of these matters remains a
necessary and important part of delivering the
Group’s risk appetite. The Group received some
insurance recoveries on amounts previously
provided for, as detailed in Note 36 of the Financial
Statements. Risk appetite is assessed by the
customer franchises and central functions through
key indicators, which are aggregated and provide
an overall rating that is reported to the Risk
Committee as part of the Group’s Risk Appetite
Dashboard. This is supported by additional tools,
such as the conduct risk and control self-
assessment. As a result of this analysis, the Group
has reconsidered its appetite for lending with
Section 75 and Section 140 exposure.
Strategic risk
Strategic risk focuses on large, long-term risks that
could become a material issue for the delivery of the
Group’s goals and objectives. Management of
strategic risk is primarily the responsibility of the
Group’s senior management team. The management
of strategic risk is intrinsically linked to the corporate
planning and stress testing processes and is further
supported by the regular provision of consolidated
business performance and risk reporting to the
Executive Committee and the Board.
During 2021, the Group made strategic decisions to
securitise a number of mortgages originated
through The Mortgage Lender Limited to reflect
market conditions for the asset class and to support
the proactive management of risk weighted assets
within the capital stack.
During the year, the Board received and approved a
number of reports, including the strategy update. It
has also been engaged actively in the formation of
the Group’s risk appetite, ICAAP, ILAAP, Recovery
Plan and Resolution Pack, which are critical tools to
managing strategic risk.
Systems and change risk
Customer expectations for service availability
continue to rise with the rapid pace of new
technologies, leading to a significantly lower
tolerance for service disruption. The Group
recognises that, in order to continue to be
recognised for very high levels of customer
satisfaction, it needs to continually monitor systems
risk and ensure that change is delivered with
minimum disruption to customers. The Group has
continued to invest in its digital capability to improve
customer experience and has invested in cloud
technologies to increase the scale, stability and
resiliency of its systems.
During 2021, the Group delivered key areas of its
operational resiliency roadmap, including an
update to the Group’s important business services
and the documentation of the processes supporting
them and measurement of key operational
resiliency metrics. As part of the roadmap, revised
impact tolerances have been created and are now
being monitored in parallel to the development of
scenario testing.
155
Strategic ReportCorporate GovernanceRisk ReportFinancial Statements Capital risk and management
Capital risk is the risk that the Group has insufficient
quantity and quality of capital to cover regulatory
requirements and/or to support its own growth plans.
Exposure to capital risk could arise due to a depletion
of the Group’s capital resources as a result of the
crystallisation of any of the risks to which it is exposed
or an increase in minimum capital requirements.
Managing capital risk
The Group’s objective in managing capital is to
maintain appropriate levels of capital to support the
Group’s business strategy and meet regulatory
requirements. Capital risk is overseen by the Asset
and Liability Committee, who monitor the capital
position against the Capital Contingency Plan and
Recovery Plan triggers and limits on a monthly basis.
The Asset and Liability Committee also regularly
review the forward-looking capital surplus, in the
context of its business plans and ensure that the
Group has advance warning of any potential capital
challenges. The Group’s risk function regularly
reviews emerging regulatory change that may
impact on the capital surplus and undertakes
impact assessments.
The Group’s approach to capital management is
driven by strategic and organisational requirements,
whilst also taking into account the regulatory and
commercial environments in which it operates.
The principal objectives when managing capital
are to:
■ address the expectation of the Shareholder and
optimise business activities to ensure return on
capital targets are achieved though efficient
capital management;
■ ensure that sufficient risk capital is held. Risk
capital caters for unexpected losses that may
arise, protects the Shareholder and depositors
and thereby supports the sustainability of the
Group through the business cycle; and
■ comply with capital supervisory requirements
and related regulations.
The Group recognises the importance of allocating
the correct risk-weighting to its assets and, during
the year ended 31 December 2021, formed a
regulatory reporting committee to oversee the
documentation and testing of its risk-weighted
assets. A Risk-weighted Asset Policy was also
developed by this committee, which was
recommended for approval at the Audit Committee.
The PRA supervises the Company on a consolidated
basis, with capital requirements set for the Group as a
whole and information on capital adequacy provided
to the PRA at a consolidated Group level only.
Shawbrook Bank Limited and its subsidiary, The
Mortgage Lender Limited, are the only regulated
subsidiaries within the Group. Shawbrook Bank
Limited is supervised by the PRA and the FCA, whilst
The Mortgage Lender Limited is regulated by the FCA.
Regulatory requirements
The Group applies the regulatory framework defined
by the Capital Requirements Regulation (CRR)
and the Capital Requirements Directive (CRD V).
Directive requirements are implemented in the UK
by the PRA and supplemented through additional
regulation under the PRA Rulebook.
The aim of the regulatory framework is to promote
safety and soundness in the financial system. The
regulatory framework categorises the capital and
prudential requirements under three pillars:
■ Pillar 1 defines the minimum capital requirements
that firms are required to hold for credit, market
and operational risks.
■ Pillar 2 builds on Pillar 1 and incorporates the
Group’s own assessment of additional capital
required in order to cover specific risks that are
not covered by the minimum regulatory capital
requirement set out under Pillar 1. Under Pillar 2,
the Group completes an annual self-assessment
of these risks as part of its ICAAP. The ICAAP is
reviewed by the PRA every two years (or earlier if
required), which culminates in the PRA setting a
firm-specific requirement on the level of capital
the Group, and its regulated subsidiary,
Shawbrook Bank Limited, are required to hold,
known as the Total Capital Requirement.
■ Pillar 3 requires the Group to publish a set of
disclosures that allow market participants to assess
information on the Group’s capital, risk exposures
and risk assessment process. The Group’s Pillar 3
disclosures can be found on the Group’s website
shawbrook.co.uk/investors/
As at 31 December 2021, the minimum capital and
leverage requirements set out by the regulatory
framework are summarised below (except where
otherwise noted, these are unchanged from
31 December 2020).
156
Shawbrook Group plc | Annual Report and Accounts 2021 The regulatory minimum for the Common Equity
Tier 1 capital ratio, total Tier 1 capital ratio and total
capital ratio are set at 4.5%, 6% and 8% of risk-
weighted assets, respectively. In addition to these
minimum requirements, the Group is required to
maintain additional Common Equity Tier 1 capital
for the capital conservation buffer of 2.5% of
risk-weighted assets and the UK countercyclical
capital buffer of 0% of risk-weighted assets.
Additional systemic buffers provided for by CRD V
do not apply to the Group.
The regulatory minimum for the leverage ratio is set
at 3%. The Group is not required to comply with the
PRA’s UK Leverage Ratio Framework until its retail
deposits exceed the £50 billion threshold.
The Total Capital Requirement of the Group set by
the PRA is 9.07% of risk-weighted assets (2020: 9.78%
of risk-weighted assets).
The Group (including its regulated subsidiaries)
maintains an adequate capital base and has
complied with all externally imposed capital
requirements. The Total Capital Requirement set
by the PRA has been met at all times and capital
adequacy and leverage ratios are well in excess
of the minimum regulatory requirements.
Regulatory developments
During the year ended 31 December 2021, the
following regulatory changes came into effect:
■ In June 2021, the Group implemented the revised
SME supporting factor set out in the amendments
to Article 501 of the CRR.
■ CRD V introduced a new requirement relating to
certain holding companies of PRA regulated entities
established in the UK (referred to as parent financial
holding companies or parent mixed financial holding
companies). Companies in scope of the new
requirement will become subject to licensing
obligations and ongoing supervision by the PRA.
Relevant companies were required to apply to the
PRA for either approval or exemption from the new
requirement. The Group concluded that the new
requirement applied to the Company and applied
for approval prior to the June 2021 deadline. The
PRA confirmed that the Company was approved
as a financial holding company in December 2021.
Future regulatory changes that are relevant to the
Group are as follows:
■ From January 2022, the revised Capital Requirements
Regulation (CRR II) will come into effect, as set out
PS22/21 ‘Implementation of Basel standards: Final
rules’. The CRR II changes will require the Group to
implement new rules associated with the NSFR,
counterparty credit risk and large exposures, however it
is not expected that this will have any material impacts.
■ The latest Regulatory Initiatives Grid (published in
November 2021) stated that the consultation paper
to support the implementation of Basel 3.1 would be
delayed until Q4 2022 (previously scheduled for
October 2021) and that implementation would not
take place until late 2023 at the earliest. The Group’s
planning assumption is that implementation will be
aligned with the EU on 1 January 2025.
■ In December 2021, the Financial Policy Committee
announced an increase in the UK countercyclical
capital buffer from 0% to 1% with effect from
December 2022. It also announced that, absent from
any changes in the economic environment, it would
expect to increase the UK countercyclical capital
buffer from 1% to 2% with effect from June 2023
to reflect a more standard environment.
■ Following the PRA’s publication of PS21/21 ‘The UK
leverage ratio framework’, as of 1 January 2022, the
Group will calculate its leverage ratio based on the
guidelines contained within the policy statement by
recalibrating from a 3% to a 3.25% minimum leverage
ratio and excluding central bank claims as long as
they are matched by liabilities of the same currency
and equal or longer maturity. As at 31 December 2021,
the Group held £1.7 billion of central bank claims that
would have been eligible to exclude, which would
have increased the leverage ratio by c. 1.3%.
IFRS 9 transitional arrangements
The Group has elected to use a transitional
approach when recognising the impact of adopting
IFRS 9. The transitional approach involves phasing in
the full impact using transitional factors published in
Regulation (EU) 2017/2395. This permits the Group to
add back to their capital base a proportion of the
impact that IFRS 9 has upon their loss allowances for
non-credit impaired loans during the first five years
of implementation. This add-back is referred to
throughout the capital risk disclosures as the
‘transitional adjustment for IFRS 9’.
Per the transitional factors set out in Regulation (EU)
2017/2395, the proportion that the Group may add
back in 2021 is 50% (2020: 70%). However, in response
to the COVID-19 pandemic, the EU reviewed the
transitional arrangements and reached agreement
to reset the proportions for relevant ECLs raised from
1 January 2020, as set out in the CRR ‘Quick Fix’, a
change that was accepted by the PRA. As a result,
for non-credit impaired ECLs raised from 1 January
2020, the revised add-back percentage for 2021 is
100% (2020: 100%). Provisions raised prior to 2020
continue to follow the original transitional factors
set out in Regulation (EU) 2017/2395.
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Strategic ReportCorporate GovernanceRisk ReportFinancial Statements Capital risk and management
Capital risk disclosures
The following disclosures present the consolidated capital position for the Group, as reported to the PRA.
Disclosures for the Group’s regulated subsidiaries (Shawbrook Bank Limited and its subsidiary, The Mortgage
Lender Limited) are not separately disclosed and can be found in Shawbrook Bank Limited’s own Annual Report
and Accounts, which is available on the Group’s website shawbrook.co.uk/investors/
Disclosures are presented on a CRD V transitional basis after applying IFRS 9 transitional arrangements. A
comparison of the reported capital metrics (including transitional adjustments) to the capital metrics as if IFRS 9
transitional arrangements had not been applied (the ‘fully loaded’ basis) is provided on page 162.
Additional disclosures can be found in the Group’s Pillar 3 Disclosures on the Group’s website detailed above.
Regulatory capital
Regulatory capital consists of the sum of the following elements:
■ Common Equity Tier 1 capital: includes ordinary share capital, related share premiums, retained earnings,
reserves and deductions for intangible assets and other regulatory adjustments relating to items that are
included in equity but are treated differently for capital adequacy purposes.
■ Additional Tier 1 capital: includes instruments classified as equity.
■ Tier 2 capital: includes qualifying subordinated liabilities.
The following table summarises the composition of the Group’s regulatory capital as at 31 December:
2021
£m
2.5
87.3
5.6
740.8
(75.2)
17.3
778.3
124.0
124.0
2020
£m
2.5
87.3
–
600.7
(65.1)
40.9
666.3
124.0
124.0
902.3
790.3
94.1
94.1
94.1
94.1
996.4
884.4
Share capital
Share premium account
Capital contribution reserve
Retained earnings
Intangible assets
Transitional adjustment for IFRS 9
Common Equity Tier 1 capital
Capital securities
Additional Tier 1 capital
Total Tier 1 capital
Subordinated debt liability1
Tier 2 capital
Total regulatory capital
158
Shawbrook Group plc | Annual Report and Accounts 2021 The Group’s total regulatory capital reconciles to the Group’s total equity per the statement of financial position
as follows:
Total regulatory capital
Subordinated debt liability1
Intangible assets
Transitional adjustment for IFRS 9
Total equity
Movement in the Group’s total regulatory capital during the year is as follows:
Total regulatory capital as at 1 January
Movement in Common Equity Tier 1 capital
Increase in capital contribution reserve
Movement in retained earnings:
Profit for the year
Share-based payments
Coupon paid on capital securities
(Increase)/decrease in intangible assets
(Decrease)/increase in transitional adjustment for IFRS 9
Total movement in Common Equity Tier 1 capital
Movement in Tier 2 capital
Issuances of subordinated debt
Repurchases and redemption of subordinated debt
Other movements
Total movement in Tier 2 capital
2021
£m
996.4
(94.1)
75.2
(17.3)
960.2
2021
£m
884.4
2020
£m
884.4
(94.1)
65.1
(40.9)
814.5
2020
£m
815.6
5.6
–
149.3
0.6
(9.8)
(10.1)
(23.6)
112.0
–
–
–
–
58.1
0.5
(9.8)
1.5
18.8
69.1
75.0
(75.0)
(0.3)
(0.3)
Total regulatory capital as at 31 December
996.4
884.4
1 For the purpose of regulatory capital calculations, capitalised interest and other accounting adjustments of £2.7 million
are excluded (2020: £2.7 million).
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Strategic ReportCorporate GovernanceRisk ReportFinancial Statements Capital risk and management
Risk-weighted assets
The following table sets out the risk-weighted assets for the Group. The Group applies the standardised approach
to measure credit risk, counterparty credit risk and securitisation exposures and the basic indicator approach
to measure operational risk.
Credit risk1
Property Finance
Business Finance
Consumer Lending
TML Mortgages
Other
Total credit risk
Counterparty credit risk: credit valuation adjustment
Securitisation exposures in the banking book
Operational risk
Total risk-weighted assets
Capital ratios
Common Equity Tier 1 capital ratio
Total Tier 1 capital ratio
Total capital ratio
2021
£m
2020
£m
2,531.1
1,974.9
2,369.9
2,234.0
322.5
207.1
152.4
341.2
84.7
113.3
5,583.0
4,748.1
1.0
20.9
532.7
2.6
15.9
505.1
6,137.6
5,271.7
2021
%
12.7
14.7
16.2
2020
%
12.6
15.0
16.8
1 Credit risk is allocated to the Group’s reportable lending segments. The Group’s lending segments have changed during
the year, with the addition of TML Mortgages which was previously reported within Property Finance (see page 113).
Prior year comparative information has been restated accordingly.
160
Shawbrook Group plc | Annual Report and Accounts 2021 Leverage
Total Tier 1 capital
Exposure measure
2021
£m
902.3
2020
£m
790.3
Total statutory assets (excluding derivatives)
11,008.0
8,933.4
Off-balance sheet items
Exposure value for derivatives
Transitional adjustment for IFRS 9
Other regulatory adjustments
Total exposures
Leverage ratio
In relation to the above table:
278.6
35.5
17.3
(75.2)
200.3
25.5
40.9
(65.1)
11,264.2
9,135.0
8.0%
8.7%
■ Off-balance sheet items comprise pipeline and committed facilities balances that have a credit conversion
factor of low/medium risk attached to them.
■ Exposure value for derivatives has been reported in compliance with CRD V rules. The derivative measure
is calculated as the replacement cost for the current exposure plus an add-on for future exposure and is
not reduced for any collateral received, or grossed up for collateral provided.
■ Other regulatory adjustments comprise asset amounts deducted in determining Tier 1 capital (i.e. intangible assets).
161
Strategic ReportCorporate GovernanceRisk ReportFinancial Statements Capital risk and management
IFRS 9 transitional arrangements impact analysis
As detailed on page 157, the Group has elected to use a transitional approach when recognising the impact
of adopting IFRS 9. To illustrate the impact of using this transitional approach, the following table provides
a comparison of the Group’s reported capital metrics (including transitional adjustments) to the capital
metrics as if IFRS 9 transitional arrangements had not been applied (the ‘fully loaded’ basis):
Capital resources
Common Equity Tier 1 capital (£m)
Total Tier 1 capital (£m)
Total regulatory capital (£m)
Risk-weighted assets
2021
2020
Including
transitional
adjustments
Transitional
adjustments
not applied
Including
transitional
adjustments
Transitional
adjustments
not applied
778.3
902.3
996.4
761.0
885.0
979.1
666.3
790.3
884.4
625.4
749.4
843.5
Total risk-weighted assets (£m)
6,137.6
6,130.2
5,271.7
5,238.7
Capital ratios
Common Equity Tier 1 capital ratio (%)
Total Tier 1 Capital Ratio (%)
Total capital ratio (%)
Leverage
12.7
14.7
16.2
12.4
14.4
16.0
12.6
15.0
16.8
11.9
14.3
16.1
Leverage ratio total exposures (£m)
11,264.2
11,246.9
9,135.0
9,094.1
Leverage ratio (%)
8.0
7.9
8.7
8.2
162
Shawbrook Group plc | Annual Report and Accounts 2021 ICAAP, ILAAP
and stress testing
Recovery Plan and
Resolution Pack
The Group has prepared a Recovery Plan and
Resolution Pack in accordance with PRA Supervisory
Statements SS9/17 ‘Recovery planning’ and SS19/13
‘Resolution planning’. These documents represent
the Group’s ‘Living Will’ and examine in detail:
■ the consequences of severe levels of stress (i.e.
beyond those in the ICAAP) impacting the Group
at a future date;
■ the state of preparedness and contingency plan
to respond to and manage through such a set of
circumstances; and
■ the options available to the Group to withstand
and recover from such an environment.
The Recovery Plan is updated every three years, or
more frequently in the event of a material change in
the Group’s status, capital or liquidity position. The
Recovery Plan triggers are updated annually as part
of the risk appetite update. The Board is fully
engaged in considering the scenarios and options
available for remedial actions to be undertaken.
The Board considers that the Group’s business
model, its supportive owners and the diversified
nature of its business markets, provide it with the
flexibility to consider selective business or portfolio
disposals, credit appetite tightening, loan book
run-off, equity raising, or a combination of these
actions. The Group would invoke the Recovery Plan
in the event that it is required.
The ICAAP, ILAAP and associated stress testing
exercises represent important elements of the Group’s
ongoing risk management processes. The results of
the risk assessment contained in these documents are
embedded in the strategic planning process and risk
appetite to ensure that sufficient capital and liquidity
are available to support the Group’s growth plans, as
well as cover its regulatory requirements at all times
and under varying circumstances.
The ICAAP and ILAAP are reviewed at least annually,
and more often in the event of a material change in
the Group’s business, its capital or liquidity. Ongoing
stress testing and scenario analysis outputs are used
to inform the formal assessments and determination
of required buffers, the strategy and planning for
capital and liquidity management, as well as the
setting of risk appetite limits.
The Board, Group Risk Management Committee and
the Asset and Liability Committee have engaged in
a number of exercises that have considered and
developed stress test scenarios. The analysis enables
the Group to evaluate its capital and funding
resilience in the face of severe but plausible risk
shocks. In addition to the UK Solvency Scenario and
the Rates Down scenario prescribed by the PRA, the
stress tests have included a range of market-wide
and idiosyncratic stress tests, as well as operational
risk scenario analyses. Stress testing is an integral
part of the adequacy assessment processes for
liquidity and capital, and the setting of tolerances
under the annual review of Group risk appetite.
The Group also performed reverse stress tests to
help assess the full continuum of adverse impacts
and, therefore, the level of stress at which the Group
would breach its individual capital and liquidity
guidance requirements as set by the PRA under the
ICAAP and ILAAP processes.
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Strategic ReportCorporate GovernanceRisk ReportFinancial Statements Group viability statement
■ the Group considered the implications of
implementing the minimum requirement for own
funds and eligible liabilities in the event that the
Group triggers the threshold and the impact on
capital from implementing Basel 3.1; and
■ the Board reviewed and approved the annual
ICAAP and ILAAP. As part of its ICAAP, the Group
performed a variety of stress tests and reverse stress
tests, which were derived after considering the
Group’s top and emerging risks and were presented
to the Group Risk Management Committee and the
Board. The Group also considered its funding and
liquidity adequacy in the context of the stress testing
and reverse stress tests. The Group considered the
key ongoing risks including:
■ economic uncertainty arising from the ongoing
pandemic impacting interest rates, inflation and
the wider UK economy, including the unwinding of
any governmental and regulatory changes
implemented since the start of the pandemic;
■ legal and regulatory changes as a result of the
ongoing implementation of existing EU legislation
into UK law and the economic impacts from any
changes to the UK’s trading relationship with the
EU; and
■ financial risks arising from the transitional impacts
of climate change on the Group’s business.
The Board believes these risks were captured within its
stress testing scenarios. The stress tests enable the
Group to assess the impact of a number of severe but
plausible scenarios on its business model. In the case
of reverse stress testing, the Board is able to assess
scenarios and circumstances that would render its
business model unviable, thereby identifying business
vulnerabilities and ensuring the development of early
warning indicators and potential mitigating actions.
Based on the results of these assessments, the Directors
have a reasonable expectation that the Group will be
able to continue in operation and meet its liabilities as
they fall due over a period of at least three years.
In accordance with provision 31 of the UK Corporate
Governance code, the Directors have assessed the
outlook for the Group over a longer period than the
12 months required by the going concern statement.
The Board considers that a three year period is an
appropriate length of time for the viability assessment.
A period of three years has been chosen because it is
the period covered by the Group’s well established
strategic planning cycle, which generates a strategic
plan that the Board reviews, approves and monitors.
Given the inherent uncertainty involved in forward
planning assumptions, the Board considers three years
appropriate for the assessment. The three year period
is further supported by the annual ICAAP process,
which models capital requirements over this period.
The assessment of viability included the following:
■ the Board considered updates to the business plans
at various times during the year to assess current
business performance and the impact of any
emerging risks as identified through the Group’s
established RMF;
■ the Board considered the Group’s current and
forecast liquidity and funding plans supporting the
strategic objectives;
■ the Board reviewed and evaluated the top and
emerging risks, including the overall control
environment, for the Group as part of the regular
and ongoing reporting to the Board. This included a
review of the cyber intelligence threat and the annual
information risk assessment, together with the
technology roadmap for improvements in the
technology control environment in 2021 and 2022;
■ the Board considered the strategy and updated
five-year plan and approved them in December 2021.
This included the business plans and financial
projections from 31 December 2021 to 31 December
2026. The plan included various scenarios stressing
the business performance, which demonstrated that
the Group continued to operate within regulatory
requirements for both capital and liquidity over
the period;
■ the Board considered the quantity and quality of
capital resources available to support the delivery of
the Group’s objectives. This included consideration
of the effects of a changing regulatory landscape
on the Total Capital Requirement, Pillar 2B and the
CRD V combined buffer requirements, together with
the effect of the Group’s Recovery Plan to restore the
capital position in scenarios of capital headwinds;
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Financial Statements
166
Independent Auditor’s Report
175 Consolidated statement of profit and loss
and other comprehensive income
176 Consolidated and Company statement
of financial position
177 Consolidated statement of changes in equity
178 Company statement of changes in equity
179 Consolidated and Company statement of cash flows
180 Notes to the financial statements
Financial
Statements
Independent Auditor’s Report to
the members of Shawbrook Group plc
1. Our opinion is unmodified
We have audited the financial statements of
Shawbrook Group plc (“the Company”) for the year
ended 31 December 2021 which comprise the
Consolidated statement of profit and loss and other
comprehensive income, Consolidated and Company
statement of financial position, Consolidated
statement of changes in equity, Company statement
of changes in equity, Consolidated and Company
statement of cash flows, and the related notes,
including the accounting policies in Note 7.
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 2021 and of the Group’s
profit for the year then ended;
■ the Group financial statements have been properly
prepared in accordance with UK-adopted
international accounting standards;
■ the parent Company financial statements have been
properly prepared in accordance with UK-adopted
international accounting standards and as applied
in accordance with the provisions of the Companies
Act 2006; and
■ the financial statements have been prepared in
accordance with the requirements of the 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. 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 applied to listed entities. We believe that
the audit evidence we have obtained is a sufficient
and appropriate basis for our opinion.
Overview
Materiality:
Group financial
statements as a
whole
£7.0million (2020: £4.5 million)
3.5% of Group profit before tax
(2020: 4.4% of three-year average
Group profit before tax)
Coverage
100% (2020: 100%)
of Group profit before tax
Key audit matters
vs 2020
Recurring risks
Expected credit
loss provisioning
Provision for
conduct matters
IT user access
management
Recoverability of
parent Company’s
investment in
subsidiaries
2. Key audit matters: our assessment
of risks of material misstatement
Key audit matters are those matters that, in our
professional judgement, 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, were as follows.
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Shawbrook Group plc | Annual Report and Accounts 2021 Expected credit loss provisioning
£76.0 million; 2020: £92.3 million
Refer to pages 102, 114-144 (Risk Report), pages 195-196 (accounting policies) and page 210 (financial disclosures)
Risk vs 2020:
The risk
Our response
Subjective estimate
The measurement of expected credit losses (“ECL”) for
loans to customer involves significant judgement and
estimates with a high degree of estimation uncertainty.
The key areas where we identified greater levels of
management judgement and therefore increased levels
of audit focus in the estimation of ECL are:
■ Model estimations: Inherently judgemental modelling is
used to estimate ECL, particularly in determining certain
Probabilities of Default (“PD”) and Loss Given Default
(“LGD”) of the portfolios. These models utilise both the
Group’s historical data and external data inputs.
■ Economic scenarios: IFRS 9 requires the Group to
measure ECLs on an unbiased forward-looking basis
reflecting a range of future economic conditions.
Significant management judgement is applied in
determining the economic scenarios and the
probability weightings applied to them.
■ Significant increase in credit risk (“SICR”): The
criteria selected to identify a significant increase in
credit risk is a key area of judgement within the Group’s
ECL calculation as these criteria determine whether a
12 – month or a lifetime provision is recorded. In the
current year, market reaction towards the recovery
phase from COVID – 19 heightens the level of
subjectivity in this judgement.
■ Post-model adjustments: Adjustments to the model-
driven ECL results are raised by management to
address known impairment model limitations or
emerging trends. Such adjustments are inherently
subjective and significant judgement is involved in
estimating these amounts.
■ Assumptions applied to non-modelled portfolios:
The Group also has portfolios for which the ECL is
estimated through a coverage approach or using
slotting approach to determine PDs. While calculations
are less complex than for the modelled portfolios, the
determination of the assumptions which are applied
to these portfolios is based on management’s
judgement and is subjective with a high degree
of estimation uncertainty.
The effect of these matters is that, as part of our risk
assessment, we determined that ECL provisioning has
a high degree of estimation uncertainty, with a potential
range of reasonable outcomes greater than our
materiality for the financial statements as a whole,
and possibly many times that amount.
Disclosure quality
The disclosures regarding the Group’s application
of IFRS 9 are key to explaining the key judgements
and material inputs to the IFRS 9 ECL estimate.
We performed the following audit procedures rather
than seeking to rely on the Group’s controls because the
nature of the balance is such that we would expect to
obtain audit evidence primarily through the detailed
procedures described:
■ Our credit risk modelling expertise: We involved our
own credit risk modelling specialists to assist us with
the following:
■ for a sample of models which were changed or
updated during the year, evaluating whether the
changes were appropriate by assessing the updated
model methodology;
■ independently for a sample of models, evaluating the
model output by inspecting the corresponding model
functionality and independently implementing the
model by rebuilding the model code;
■ independently assessing and reperforming, for a
selection of models, the reasonableness of the model
predictions by comparing them against actual
results and evaluating the resulting differences; and
■ reperforming and inspecting model code for the
calculation of certain components of the ECL model
to assess its consistency of the Group’s approved
staging criteria and the output of the model.
■ Our economics expertise: We involved our own
economic specialists who assisted us in:
■ assessing the reasonableness of the Group’s
methodology and models for determining the
economic scenarios used and the probability
weightings applied to them;
■ assessing key economic variables which included
comparing samples of economic variables to
external sources; and
■ assessing the overall reasonableness of the
economic forecasts by comparing the Group’s
forecasts to our own modelled forecasts.
■ Test of details: Other key areas of our testing in
addition to set out above included:
■ sample testing over key inputs into the ECL
calculation for certain non-modelled portfolios
through credit file reviews; and
■ critically evaluated management’s assumptions
which are applied to determine the basis of post
model adjustments.
■ Assessing transparency: We evaluated whether the
disclosures appropriately reflect and address the
uncertainty which exists when determining the
expected credit losses. As a part of this, we assessed
the sensitivity analysis that will be disclosed. In addition,
we assessed whether the disclosure of the key
judgements and assumptions made is sufficiently clear.
Our results:
We found the resulting estimate of the ECL recognised
and the associated disclosures made to be acceptable
(2020: acceptable).
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Provisions for conduct matters
£13.5 million; 2020: £14.8 million
Refer to page 190 (accounting policies) and pages 229 (financial disclosures)
Risk vs 2020:
The risk
Subjective estimate
Due to the uncertainties that can arise in measuring
potential obligations resulting from operational, legal
and regulatory matters, the Directors apply judgement
in estimating the value of any associated provisions.
In particular, the Group continues to receive an inflow
of customer complaints relating to its financing of solar
lending products where the original supplier is no longer
solvent. The solar provision is considered as a significant
audit risk.
The key elements of judgement are the estimation of
future customer complaints rate, the uphold rate of
complaints received and the estimated redress cost per
upheld complaint. These judgements are informed by the
Group’s past complaint and claim experience. Given the
limited historical information, there is a risk that the actual
experience may differ from the Group’s expectation.
The effect of these matters is that, as part of our risk
assessment, we determined that the provision related to
conduct matters has a high degree of estimation
uncertainty, with a potential range of reasonable
outcomes greater than our materiality for the financial
statements as a whole.
Disclosure quality
The disclosures relating to the provision for conduct
matters are important in explaining the Group’s
key judgements and material inputs to the subjective
estimate.
Our response
We performed the following audit procedures rather
than seeking to rely on the Group’s controls because
the nature of the balance is such that we would expect
to obtain audit evidence primarily through the detailed
procedures described:
■ Test of details: We assessed and challenged the
appropriateness of the model underlying the
provision for solar conduct matters and reperformed
the calculation.
■ Historical comparison: We assessed the
reasonableness of the key assumptions against
historical experience of customer complaints levels,
complaint uphold rates and redress paid.
■ Sensitivity analysis: We assessed and challenged the
reasonableness of the solar provisioning model’s key
assumptions, by performing stress tests on the number
of expected future complaints, the uphold level of
complaints and the redress paid per complaint.
■ Assessing transparency: We evaluated whether
the Group’s disclosures detailing significant conduct
related matters adequately disclose the potential
liabilities of the Group. As a part of this, we have
assessed the sensitivity analysis that is disclosed.
Our results:
We found the resulting estimate of the conduct
provisions recognised and related disclosures made
to be acceptable (2020: acceptable).
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IT user access management
Page 109 (Risk Report); Risk vs 2020:
The risk
Our response
Control performance
The Group’s accounting and reporting processes
are dependent on automated controls enabled by
IT systems. User access management controls are
an important component of the general IT control
environment assuring that unauthorised access to
systems does not impact the effective operation of the
automated controls in the financial reporting processes.
Certain user access management controls were not
consistently implemented and effectively operated
across the Group, including at third party service
providers in the previous year.
Ineffective controls included privileged access
management and monitoring of privileged database
activities on certain systems related to management
of loans to customers.
If the above controls for user access management are
deficient and not remediated or adequately mitigated,
the pervasive nature of these controls may undermine
our ability to place reliance on automated and IT
dependent controls in our audit.
Our audit procedures included:
■ Control testing: Using our own IT audit specialists,
we tested the design and operating effectiveness
of the relevant controls over user access
management including:
■ authorising access rights for new joiners;
■ authorising modified access;
■ timely removal of user access rights;
■ logging and monitoring of user activities;
■ privileged user and developer access to production
systems, the procedures to assess granting,
potential use, and the removal of these access
rights; and
■ segregation of duties including access to multiple
systems that could circumvent segregation controls.
■ Test of details: For certain account balances we
responded to the deficient general IT controls by
performing additional substantive testing, such as
extended sample testing over certain account
balance and comparing the selected data to the
external sources (such as third party contracts and /
or bank statements) to test the integrity of the
transactional level data that is flowing into and
contained within the Group’s financial statements.
Our results:
Our audit response to the identified control deficiencies
was to expand the extent of our planned detailed
testing. Based on the risk identified and our procedures
performed, we did not identify unauthorised user
activities in the systems relevant to financial reporting
(2020: none identified).
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Recoverability of parent Company’s investment in subsidiaries
£416.7 million; 2020: £410.5 million
Refer to page 190 (accounting policies) and page 227 (financial disclosures)
Risk vs 2020:
The risk
Low risk, high value
The carrying amount of the parent Company’s
investments in subsidiaries represents 81% (2020: 81%)
of the company’s total assets.
Their recoverability is not at a high risk of significant
misstatement, or subject to significant judgement
or estimate.
However, due to their materiality in the context of
the parent Company’s financial statements, this
is considered to be an area that has the greatest
effect on our overall parent Company audit.
We continue to perform procedures over going
concern, valuation of goodwill – Business Finance
and effective interest rate accounting. However,
following the more favourable economic outlook
and general improvement in the macroeconomic
environment regarding COVID-19, the level of
uncertainty relating to forecasts that support going
concern and goodwill has reduced, sensitivity
around redemption profile in relation to effective
interest rate accounting, the level of judgement
and estimation uncertainty relating to these
matters has reduced since the previous year. We
have not assessed these areas as being one of the
most significant risks in our current year audit and,
therefore, it is not separately identified in our report
this year.
Our response
We performed the following audit procedures rather
than seeking to rely on the Group’s controls because
the nature of the balance is such that we would expect
to obtain audit evidence primarily through the detailed
procedures described:
■ Test of details: Compare the carrying amount of 100%
of investments with the relevant subsidiaries’ financial
statements to identify whether their net assets, being
an approximation of their minimum recoverable
amount, were in excess of their carrying amount and
assessing whether those subsidiaries have historically
been profit-making.
Our results:
We found the parent Company’s assessment of
the recoverability of the investment in subsidiary
to be acceptable (2020: acceptable).
3. Our application of materiality and an
overview of the scope of our audit
Materiality for the Group financial statements as a
whole was set at £7.0 million (2020: £4.5 million),
determined with reference to a benchmark of Group
profit before tax of £191.1 million (2020: £102.0 million,
normalised by averaging over the last three years).
Materiality for the parent Company financial
statements as a whole was set at £4.0 million (2020:
£4.1 million), determined with reference to a benchmark
of total assets, of which it represents 1% (2020: 1%).
In line with our audit methodology, our procedures
on individual account balances and disclosures
were performed to a lower threshold, performance
materiality, so as to reduce to an acceptable level
the risk that individually immaterial misstatements
in individual account balances add up to a material
amount across the financial statements as a whole.
Performance materiality of the group financial
statements was set at 65% (2020: 65%) of materiality
for the financial statements as a whole, which equates
to £4.5 million (2020: £2.92 million) for the Group and
£2.6 million (2020: £3.0 million) for the parent Company.
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We used our knowledge of the Group and Company,
its industry, and the general economic environment
to identify the inherent risks to its business model
and analysed how those risks might affect the
Group’s and Company’s financial resources or
ability to continue operations over the going
concern period. The risks that we considered most
likely to adversely effect the Group’s and Company’s
available financial resources is insufficient
regulatory capital to meet minimum regulatory
capital levels over the going concern period.
We considered whether these risks could plausibly
affect regulatory capital and liquidity in the going
concern period by comparing severe, but plausible
downside scenarios that could arise from these risks
individually and collectively against the level of
available financial resources indicated by the
Group’s and Company’s financial forecasts.
We considered whether the going concern
disclosure in the financial statements gives a full
and accurate description of the Directors’
assessment of going concern.
Our conclusions based on this work:
■ we consider that the Directors’ use of the going
concern basis of accounting in the preparation of
the financial statements is appropriate;
■ we have not identified, and concur with the
Directors’ assessment that there is not, a material
uncertainty related to events or conditions that,
individually or collectively, may cast significant
doubt on the Group’s or Company’s ability to
continue as a going concern for the going
concern period; and
■ we found the going concern disclosure in Note 3
to be acceptable.
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 above conclusions are not a guarantee that the
Group or the Company will continue in operation.
We applied this percentage in our determination
of performance materiality based on the level of
identified misstatements and control deficiencies
during the prior period.
We agreed to report to the Audit Committee any
corrected or uncorrected identified misstatements
exceeding £0.35 million (2020: £0.22 million), in
addition to other identified misstatements that
warranted reporting on qualitative grounds.
We were able to rely upon the Group’s internal control
over financial reporting in several areas of our audit,
where our controls testing supported this approach,
which enabled us to reduce the scope of our
substantive audit work; in the other areas the scope
of the audit work performed was fully substantive.
The Group team performed the audit of the Group
as if it was a single aggregated set of financial
information. The audit was performed using the
materiality and performance materiality levels set
out above.
Group profit before tax
£191.1 million
(2020: £102.0 million
(normalised))
Profit before tax
Group materiality
Group materiality
£7.0 million (2020: £4.5 million)
£7.0 million
Whole financial statements
materiality (2020: £4.5 million)
£4.5 million
Whole financial statements
performance materiality
(2020: £2.92 million)
£0.35 million
Misstatements reported
to the audit committee
(2020: £0.22 million)
4. Going concern
The Directors have prepared the financial
statements on the going concern basis as they do
not intend to liquidate the Group or Company or to
cease their operations, and as they have concluded
that the Group’s and Company’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”).
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Independent Auditor’s Report to
the members of Shawbrook Group plc
5. Fraud and breaches of laws and
regulations – ability to detect
Identifying and responding to risks of material
misstatement due to fraud
To identify risks of material misstatement due to fraud
(“fraud risks”) we assessed events or conditions that
could indicate an incentive or pressure to commit fraud
or provide an opportunity to commit fraud. Our risk
assessment procedures included:
■ enquiring of Directors, the Audit Committee, Internal
Audit, executive management and inspection of policy
documentation as to the Group’s high-level policies
and procedures to prevent and detect fraud, including
the Internal Audit function, and the Group’s channel for
“whistleblowing”, as well as whether they have
knowledge of any actual, suspected or alleged fraud;
■ reading Board, Audit Committee and Risk Committee
meeting minutes;
■ considering remuneration incentive schemes and
performance targets for management and Directors;
and
■ using analytical procedures to identify any unusual
or unexpected relationships.
We communicated identified fraud risks throughout
the audit team and remained alert to any indications
of fraud throughout the audit.
As required by auditing standards, and taking into
account possible pressures to meet profit targets and our
overall knowledge of the control environment, we
perform procedures to address the risk of management
override of controls, in particular the risk that Group
management may be in a position to make
inappropriate accounting entries and the risk of bias in
accounting estimates and judgements such as ECL on
loans and advances to customers and conduct matters.
On this audit we do not believe there is a fraud risk
related to revenue recognition because there is limited
complexity in the calculation and recognition of revenue.
We also identified fraud risks related to expected credit
losses provision and provision for conduct matters due
to the fact these involve significant estimation and
subjective judgements that are difficult to corroborate.
Further detail in respect of ECL provisioning and
provision for conduct matters is set out in the key
audit matter disclosures in section 2 of this report.
We performed procedures including:
■ identifying journal entries and other adjustments
to test based on risk criteria and comparing the
identified entries to supporting documentation.
These included those posted by senior finance
management and those posted to unusual accounts;
■ evaluating the business purpose of significant
unusual transactions; and
■ assessing significant accounting estimates for bias.
We discussed with the Audit Committee matters
related to actual or suspected fraud, for which
disclosure is not necessary, and considered any
implications for our audit.
Identifying and responding to risks of material
misstatement due to non-compliance with laws
and regulations
We identified areas of laws and regulations that could
reasonably be expected to have a material effect on
the financial statements from our general commercial
and sector experience through discussion with the
Directors and other management (as required by
auditing standards), and from inspection of the
Group’s regulatory and legal correspondence and
discussed with the Directors and other management
the policies and procedures regarding compliance
with laws and regulations.
As the Group is regulated, our assessment of risks
involved gaining an understanding of the control
environment including the entity’s procedures for
complying with regulatory requirements.
We communicated identified laws and regulations
throughout our team and remained alert to any
indications of non-compliance.
The potential effect of these laws and regulations on
the financial statements varies considerably.
Firstly, the Group is subject to laws and regulations
that directly affect the financial statements including
financial reporting legislation (including related
companies legislation), distributable profits legislation
and taxation legislation and we assessed the extent of
compliance with these laws and regulations as part of
our procedures on the related financial statement items.
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Shawbrook Group plc | Annual Report and Accounts 2021 Secondly, the Group is subject to many other laws
and regulations where the consequences of non-
compliance could have a material effect on amounts
or disclosures in the financial statements, for instance
through the imposition of fines or litigation or the loss
of the Group’s license to operate. We identified the
following areas as those most likely to have such an
effect: specific areas of regulatory capital and liquidity,
conduct, money laundering and financial crime and
certain aspect of company legislation recognising the
financial and regulated nature of the Group’s activities.
Auditing standards limit the required audit procedures
to identify non-compliance with these laws and
regulations to enquiry of the Directors and other
management and inspection of regulatory and legal
correspondence, if any. Therefore if a breach of
operational regulations is not disclosed to us or evident
from relevant correspondence, an audit will not detect
that breach.
Context of the ability of the audit to detect fraud
or breaches of law or regulation
Owing to the inherent limitations of an audit, there is an
unavoidable risk that we may not have detected some
material misstatements in the financial statements,
even though we have properly planned and performed
our audit in accordance with auditing standards. For
example, the further removed non-compliance with
laws and regulations is from the events and transactions
reflected in the financial statements, the less likely the
inherently limited procedures required by auditing
standards would identify it.
In addition, as with any audit, there remained a higher
risk of non-detection of fraud, as these may involve
collusion, forgery, intentional omissions,
misrepresentations, or the override of internal controls.
Our audit procedures are designed to detect material
misstatement. We are not responsible for preventing
non-compliance or fraud and cannot be expected to
detect non-compliance with all laws and regulations.
6. We have nothing to report on the other
information in the Annual 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.
Strategic Report and Directors’ Report
Based solely on our work on the other information:
■ we have not identified material misstatements
in the Strategic Report and the Directors’ Report;
■ in our opinion the information given in those reports
for the financial year is consistent with the financial
statements; and
■ in our opinion those reports have been prepared
in accordance with the Companies Act 2006.
7. We have nothing to report on the other
matters on which we are required to
report by exception
Under the Companies Act 2006, we are required
to report to you if, in our opinion:
■ adequate accounting records have not been kept
by the parent Company, or returns adequate for
our audit have not been received from branches
not visited by us; or
■ the parent Company financial statements are not
in agreement with the accounting records and
returns; or
■ certain disclosures of Directors’ remuneration
specified by law are not made; or
■ we have not received all the information and
explanations we require for our audit.
We have nothing to report in these respects.
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9. The purpose of our audit work and to
whom we owe our responsibilities
This report is made solely to the Company’s members,
as a body, in accordance with Chapter 3 of Part 16 of
the 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.
Simon Ryder (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
15 Canada Square
London
E14 5GL
30 March 2022
8. Respective responsibilities
Directors’ responsibilities
As explained more fully in their statement set out on
page 92, 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
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
accordance with ISAs (UK) will always detect a material
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
frc.org.uk/auditorsresponsibilities.
174
Shawbrook Group plc | Annual Report and Accounts 2021 Consolidated statement of profit and loss
and other comprehensive income
for the year ended 31 December 2021
Interest income calculated using the effective interest rate method
Other interest and similar income
Interest expense and similar charges
Net interest income
Operating lease rental income
Depreciation on operating leases
Net other operating lease expense
Net operating lease income
Fee and commission income
Fee and commission expense
Net fee and commission income
Net gains on derecognition of financial assets measured at amortised cost
Net gains/(losses) on derivative financial instruments and hedge accounting
Net other operating income
Net operating income
Administrative expenses
Impairment losses on financial assets
Provisions
Total operating expenses
Share of results of associate
Impairment of investment in associate
Profit before tax
Tax
Note
12
12
13
27
14
14
14
15
26
16
20
36
30
30
2021
£m
456.3
(12.6)
(89.1)
354.6
10.4
(8.6)
–
1.8
11.5
(7.0)
4.5
21.7
3.1
0.4
2020
£m
399.9
(8.7)
(115.6)
275.6
10.9
(9.1)
(0.1)
1.7
8.6
(8.3)
0.3
9.4
(5.0)
0.6
386.1
282.6
(164.5)
(31.4)
7.0
(131.3)
(54.9)
(20.3)
(188.9)
(206.5)
–
–
0.1
(2.7)
197.2
73.5
21
(47.9)
(15.4)
Profit after tax, being total comprehensive income, attributable to owners
149.3
58.1
The notes on pages 180 to 246 are an integral part of these financial statements.
175
Strategic ReportCorporate GovernanceRisk ReportFinancial Statements Consolidated and Company statement
of financial position
as at 31 December 2021
Assets
Cash and balances at central banks
Loans and advances to banks
Loans and advances to customers
Investment securities
Derivative financial assets
Current tax receivable
Property, plant and equipment
Intangible assets
Deferred tax assets
Investment in associate
Other assets
Assets held for sale
Investment in subsidiaries
Subordinated debt receivable
Total assets
Liabilities
Amounts due to banks
Customer deposits
Provisions
Derivative financial liabilities
Debt securities in issue
Lease liabilities
Other liabilities
Subordinated debt liability
Total liabilities
Equity
Share capital
Share premium account
Capital securities
Capital contribution reserve
Retained earnings
Total equity
Note
22
22
23
25
26
27
28
29
30
31
32
33
40
34
35
36
26
37
38
39
40
42
43
10
2021
£m
1,693.8
66.9
8,272.1
522.0
21.5
4.2
48.3
75.2
14.2
–
11.6
299.7
–
–
Group
2020
£m
1,273.2
91.0
7,061.3
358.2
4.1
3.0
53.6
65.1
12.3
2.8
10.6
2.3
–
–
11,029.5
8,937.5
1,200.7
8,358.6
14.2
8.1
319.2
9.8
61.9
96.8
815.5
6,894.1
18.0
42.0
204.8
11.1
40.7
96.8
10,069.3
8,123.0
2.5
87.3
124.0
5.6
740.8
960.2
2.5
87.3
124.0
–
600.7
814.5
Company
2021
£m
2020
£m
–
–
–
–
–
–
–
–
–
–
0.8
–
416.7
97.5
515.0
–
–
–
–
–
–
–
96.8
96.8
2.5
87.3
124.0
5.6
198.8
418.2
–
–
–
–
–
–
–
–
–
–
0.7
–
410.5
97.7
508.9
–
–
–
–
–
–
–
96.8
96.8
2.5
87.3
124.0
–
198.3
412.1
Total equity and liabilities
11,029.5
8,937.5
515.0
508.9
The notes on pages 180 to 246 are an integral part of these financial statements.
These financial statements were approved by the Board of Directors on 30 March 2022 and were signed on its behalf by:
Marcelino Castrillo
Chief Executive Officer
Registered number 07240248
Dylan Minto
Chief Financial Officer
176
Shawbrook Group plc | Annual Report and Accounts 2021
Consolidated statement of changes in equity
for the year ended 31 December 2021
Year ended 31 December 2021
As at 1 January 2021
Profit for the year
Share-based payments
Coupon paid on capital securities
Capital contribution
As at 31 December 2021
Year ended 31 December 2020
As at 1 January 2020
Profit for the year
Share-based payments
Coupon paid on capital securities
Share
capital
£m
Share
premium
account
£m
Capital
securities
£m
Capital
contribution
reserve
£m
Retained
earnings
£m
2.5
87.3
124.0
–
–
–
–
–
–
–
–
–
–
–
–
2.5
87.3
124.0
–
–
–
–
5.6
5.6
Share
capital
£m
Share
premium
account
£m
Capital
securities
£m
Capital
contribution
reserve
£m
2.5
87.3
124.0
-
-
-
-
-
-
-
-
-
-
-
-
-
-
As at 31 December 2020
2.5
87.3
124.0
The notes on pages 180 to 246 are an integral part of these financial statements.
Total
equity
£m
814.5
149.3
0.6
(9.8)
5.6
600.7
149.3
0.6
(9.8)
–
740.8
960.2
Retained
earnings
£m
Total
equity
£m
551.9
765.7
58.1
0.5
(9.8)
58.1
0.5
(9.8)
600.7
814.5
177
Strategic ReportCorporate GovernanceRisk ReportFinancial Statements Company statement of changes in equity
for the year ended 31 December 2021
Year ended 31 December 2021
As at 1 January 2021
Profit for the year
Share-based payments
Coupon paid on capital securities
Capital contribution
As at 31 December 2021
Year ended 31 December 2020
As at 1 January 2020
Profit for the year
Share-based payments
Coupon paid on capital securities
Share
capital
£m
Share
premium
account
£m
Capital
securities
£m
Capital
contribution
reserve
£m
2.5
87.3
124.0
–
–
–
–
–
–
–
–
–
–
–
–
2.5
87.3
124.0
–
–
–
–
5.6
5.6
Share
capital
£m
Share
premium
account
£m
Capital
securities
£m
Capital
contribution
reserve
£m
2.5
87.3
124.0
–
–
–
–
–
–
–
–
–
Retained
earnings
£m
Total
equity
£m
198.3
412.1
9.7
0.6
(9.8)
–
9.7
0.6
(9.8)
5.6
198.8
418.2
Retained
earnings
£m
Total
equity
£m
198.0
411.8
9.6
0.5
(9.8)
198.3
9.6
0.5
(9.8)
412.1
–
–
–
–
–
As at 31 December 2020
2.5
87.3
124.0
The notes on pages 180 to 246 are an integral part of these financial statements.
178
Shawbrook Group plc | Annual Report and Accounts 2021 Consolidated and Company statement
of cash flows
for the year ended 31 December 2021
Note
2021
£m
Group
2020
£m
Company
2021
£m
2020
£m
Cash flows from operating activities
Profit before tax
Adjustments for non-cash items and other adjustments
included in the statement of profit and loss1
(Increase)/decrease in operating assets
Increase/(decrease) in operating liabilities1
Tax paid
Net cash generated from operating activities
44
44
44
Cash flows from investing activities
Purchase of investment securities
Disposals and maturities of investment securities
Purchase of property, plant and equipment
Purchase and development of intangible assets
Redemption of subordinated debt
Purchase of subordinated debt
Purchase of subsidiary, net of cash acquired
Net cash used by investing activities
Cash flows from financing activities
Increase/(decrease) in amounts due to banks
Issue of debt securities
Repurchase and redemption of debt securities
Costs arising on issue of debt securities
Payment of principal portion of lease liabilities
Issue of subordinated debt
Repurchase and redemption of subordinated debt
Costs arising on issue of subordinated debt
Coupon paid to holders of capital securities
Net cash generated from/(used by) financing activities
197.2
73.5
1.3
(1,519.4)
1,448.8
(48.3)
79.6
61.6
(368.9)
766.9
(16.8)
516.3
(199.8)
(158.2)
37.7
(0.7)
(7.1)
–
–
(3.4)
(173.3)
385.2
158.6
(44.2)
(0.8)
(1.9)
–
–
–
(9.8)
487.1
–
(0.8)
(7.5)
–
–
–
(166.5)
(66.1)
–
(36.8)
–
(1.2)
75.0
(75.0)
(0.9)
(9.8)
(114.8)
Net increase in cash and cash equivalents
Cash and cash equivalents as at 1 January
Cash and cash equivalents as at 31 December
22
393.4
1,346.2
1,739.6
235.0
1,111.2
1,346.2
The notes on pages 180 to 246 are an integral part of these financial statements.
9.7
0.2
(0.1)
–
–
9.8
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(9.8)
(9.8)
–
–
–
9.6
0.5
0.7
(0.1)
–
10.7
–
–
–
–
75.0
(75.0)
–
–
–
–
–
–
–
75.0
(75.0)
(0.9)
(9.8)
(10.7)
–
–
–
1
In the year ended 31 December 2021, a presentational change has been made to present the expected credit loss (ECL) charge
on loan commitments as part of adjustments for non-cash items and other adjustments included in the statement of profit and
loss. Previously it was included within the increase in operating liabilities. The change is made so that presentation is consistent
with the ECL charge on loans and advances to customers. Prior year comparatives have been restated accordingly to reflect this
presentational change, resulting in £2.2 million being reclassified from increase in operating liabilities to adjustments for non-cash
items and other adjustments included in the statement of profit and loss.
179
Strategic ReportCorporate GovernanceRisk ReportFinancial Statements Notes to the financial statements
for the year ended 31 December 2021
Basis of preparation and accounting policies
1. Reporting entity .......................................................................................................................................................................................... 181
2. Basis of accounting and measurement .............................................................................................................................. 181
3. Going concern .............................................................................................................................................................................................. 181
4. Functional and presentation currency ................................................................................................................................ 182
5. Presentation of risk and capital management disclosures ............................................................................. 182
6. Adoption of new and revised standards and interpretations ........................................................................ 182
Significant accounting policies .................................................................................................................................................. 183
7.
8. New and revised standards and interpretations not yet adopted ........................................................... 197
9. Critical accounting judgements and estimates ........................................................................................................ 197
Significant one-off transactions
10. Acquisition of subsidiary ................................................................................................................................................................... 200
Financial performance
11. Segmental analysis ................................................................................................................................................................................ 202
Interest and similar income ........................................................................................................................................................... 205
12.
13.
Interest expense and similar charges .................................................................................................................................. 206
14. Net fee and commission income .............................................................................................................................................. 206
15. Derecognition of financial assets measured at amortised cost ............................................................... 206
16. Administrative expenses ................................................................................................................................................................... 207
17. Employees ....................................................................................................................................................................................................... 208
18. Employee share-based payment transactions ......................................................................................................... 209
19. Directors’ remuneration .................................................................................................................................................................... 209
20. Impairment losses on financial assets ................................................................................................................................. 210
21. Tax ............................................................................................................................................................................................................................ 211
Assets and liabilities
22. Cash and cash equivalents ............................................................................................................................................................ 212
23. Loans and advances to customers ......................................................................................................................................... 212
24. Securitisations and structured entities ................................................................................................................................ 214
25. Investment securities ............................................................................................................................................................................ 216
26. Derivative financial instruments and hedge accounting .................................................................................. 217
27. Property, plant and equipment .................................................................................................................................................. 221
28. Intangible assets ....................................................................................................................................................................................... 222
29. Deferred tax assets ................................................................................................................................................................................ 224
30. Investment in associate ..................................................................................................................................................................... 225
31. Other assets .................................................................................................................................................................................................. 226
32. Assets held for sale .................................................................................................................................................................................. 227
33. Investment in subsidiaries ................................................................................................................................................................ 227
34. Amounts due to banks ........................................................................................................................................................................ 228
35. Customer deposits ................................................................................................................................................................................. 228
36. Provisions ......................................................................................................................................................................................................... 229
37. Debt securities in issue ........................................................................................................................................................................ 230
38. Leases .................................................................................................................................................................................................................. 231
39. Other liabilities ........................................................................................................................................................................................... 232
40. Subordinated debt ................................................................................................................................................................................. 233
41. Financial instruments .......................................................................................................................................................................... 234
Equity
42. Share capital ................................................................................................................................................................................................ 239
43. Capital securities ..................................................................................................................................................................................... 239
Cash flow statement
44. Notes to the cash flow statement ............................................................................................................................................ 240
Other information
45. Ultimate parent company ................................................................................................................................................................ 241
46. Subsidiary companies ......................................................................................................................................................................... 241
47. Related party transactions ............................................................................................................................................................ 243
48. Capital commitments ......................................................................................................................................................................... 244
49. Contingent liabilities ............................................................................................................................................................................. 245
50. Loan commitments ............................................................................................................................................................................... 246
51. Events after the reporting period ............................................................................................................................................. 246
180
Shawbrook Group plc | Annual Report and Accounts 2021 1. Reporting entity
Shawbrook Group plc (the ‘Company’) is a public
limited company incorporated and domiciled in the UK.
The Company is registered in England and Wales
(company number 07240248) and its registered office is
Lutea House, Warley Hill Business Park, The Drive, Great
Warley, Brentwood, Essex, CM13 3BE.
The consolidated financial statements comprise the
results of the Company and its subsidiaries (together, the
‘Group’), including its principal subsidiary, Shawbrook
Bank Limited. Details of subsidiary companies included
in the Group are provided in Note 46.
The ultimate parent company is Marlin Bidco Limited.
Details are provided in Note 45.
The principal activities of the Group are lending and
savings. Further details regarding the nature of the
Group’s operations are provided in the Strategic Report.
2. Basis of accounting
and measurement
Both the consolidated and Company financial
statements are prepared in accordance with UK-
adopted international accounting standards, as
defined by the UK Endorsement Board (UKEB)1. Details
of new policies adopted by the Group during the year
and significant accounting policies applied by the
Group are provided in Note 6 and Note 7, respectively.
The reporting period for both the consolidated and
Company financial statements is the 12 months ended
31 December 2021.
No individual statement of profit and loss or related
notes are presented for the Company, as permitted
by Section 408 of the Companies Act 2006.
The financial statements are prepared on a going
concern basis (see Note 3) and on a historical cost
basis, except as required in the valuation of derivative
financial instruments, which are carried at fair value.
3. Going concern
The financial statements are prepared on a going
concern basis. To assess the appropriateness of this
basis the Directors have considered a wide range of
information relating to present and future conditions,
including the Group’s current financial position, future
projections of profitability, cash flows and capital
resources. In addition, the Directors have considered
the Group’s risk assessment framework and the
possible impacts from the top and emerging risks,
as highlighted in the Risk Report, on the longer-term
strategy and financial position of the business.
The Group continues to have a proven business model,
as demonstrated by the return to pre-pandemic
profitability levels in the year and the continued
operational resilience and agility demonstrated
through the pandemic. The Group remains well
positioned in each of its core markets and the Directors
believe the Group is well capitalised and efficiently
funded with high levels of liquidity.
The Group’s capital and liquidity plans have been stress
tested under a range of severe but plausible scenarios
as part of the annual planning process and annual
ICAAP and ILAAP process and have been reviewed by
the Directors. The stressed forecasts indicate that
under these stressed scenarios, which include using the
three Prudential Regulation Authority (PRA) prescribed
scenarios, being the updated Rates Down scenario for
non-systemic banks, the 2021 PRA prescribed solvency
scenario for systemic firms and a pandemic scenario,
the Group continues to operate with sufficient levels
of liquidity and capital for the next 12 months, with
the Group’s capital ratios and liquidity in excess of
regulatory requirements.
Based on the above, the Directors believe that the
Group has sufficient resources to continue its activities
for a period of at least 12 months from the date of
approval of the financial statements and the Group
has sufficient capital and liquidity to enable it to
continue to meet its regulatory requirements as set
out by the PRA. Accordingly, the Directors concluded
that it is appropriate to adopt the going concern basis
in preparing the Annual Report and Accounts.
1 Per the UKEB:
■ UK-adopted international accounting standards comprise: EU adopted international accounting standards at the end of
Transition Period, and, international accounting standards adopted by the Secretary of State for the Department of
Department for Business, Energy and Industrial Strategy (before delegation of adoption powers to the UKEB).
■ International accounting standards means the International Accounting Standards (IAS), International Financial Reporting
Standards (IFRS) and related Interpretations (SIC-IFRIC interpretations), subsequent amendments to those standards and
related interpretations, future standards and related interpretations issued or adopted by the International Accounting
Standards Board.
181
Strategic ReportCorporate GovernanceRisk ReportFinancial Statements Notes to the financial statements
for the year ended 31 December 2021
4. Functional and presentation
currency
Both the consolidated and Company financial
statements are presented in pounds sterling, which is
the functional currency of the Company and all of its
subsidiaries. All amounts are rounded to the nearest
million, except where otherwise indicated.
Foreign currency transactions are translated into
functional currency using the spot exchange rate
at the date of the transaction.
Monetary assets and liabilities denominated in foreign
currencies are translated into the functional currency
using the spot exchange rate at the reporting date.
Foreign exchange gains and losses resulting from the
restatement and settlement of such transactions are
recognised in the statement of profit and loss.
Non-monetary assets and liabilities that are measured
on a historical cost basis and denominated in foreign
currencies are translated into the functional currency
using the spot exchange rate at the date of the
transaction. Non-monetary assets and liabilities that
are measured at fair value and denominated in foreign
currencies are translated into the functional currency
at the spot exchange rate at the date of valuation.
Where these assets and liabilities are held at fair value
through profit or loss, exchange differences are
reported as part of the fair value gain or loss.
5. Presentation of risk and capital
management disclosures
Disclosures required under IFRS 7 ‘Financial Instruments:
Disclosures’ concerning the nature and extent of risks
relating to financial instruments are included within the
principal risks section of the Risk Report. Specifically,
this includes information about credit risk (starting on
page 114), liquidity risk (starting on page 145), and
market risk (starting on page 151). Disclosures required
under IAS 1 ‘Presentation of Financial Statements’
concerning objectives, policies and processes for
managing capital are included within the capital risk
and management section of the Risk Report starting on
page 156. Where information in the Risk Report is
marked as ‘audited’, it is covered by the Independent
Auditor’s Report.
6. Adoption of new and revised
standards and interpretations
During the year ended 31 December 2021, the Group
adopted Interest Rate Benchmark Reform – Phase 2
(Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and
IFRS 16), as detailed below.
None of the other amendments that came into effect
during the year had a significant impact on the Group
and no new accounting policies came into effect during
the year. The Group has not early adopted any
standards, interpretations or amendments that have
been issued but are not yet effective.
(a) Interest Rate Benchmark Reform –
Phase 2 (Amendments to IFRS 9, IAS 39,
IFRS 7, IFRS 4 and IFRS 16) (the ‘Phase 2
amendments’)
Following endorsement by the UK, the Group adopted
the Phase 2 amendments with effect from 1 January
2021. The Phase 2 amendments provide certain
practical expedients and temporary reliefs to address
issues that might affect financial reporting after the
reform of an interest rate benchmark, including its
replacement with alternative rates. For the Group, this
specifically relates to when changes are made to the
contractual cash flows of financial instruments and
hedging relationships as a result of interest rate
benchmark reform, as detailed below.
Changes in the basis for determining the
contractual cash flows
The amendments to IFRS 9 ‘Financial Instruments’
provide a practical expedient that allows a change in
the basis of determining the contractual cash flows of
a financial instrument required by the reform to be
accounted for by updating the effective interest rate,
without the recognition of an immediate gain or loss
(i.e. it is not accounted for in accordance with the
Group’s usual accounting policy for modifications of
financial instruments). This practical expedient may
only be applied where the change to the contractual
cash flows is both necessary as a direct consequence
of the reform and the new basis for determining the
contractual cash flows is economically equivalent to
the previous basis. In the event that changes are in
addition to those required by the reform, the practical
expedient is applied first, after which the Group’s usual
accounting policy for modifications of financial
instruments is applied.
182
Shawbrook Group plc | Annual Report and Accounts 2021 During the year, loans and advances to customers and
investment securities with a gross carrying amount at
the point of transition of £305.3 million and £53.6 million,
respectively, were transitioned from a LIBOR reference
rate to an alternative reference rate and the practical
expedient was applied.
Additional, loans and advances to customers with
a gross carrying amount of £2,743.9 million were
transitioned from a LIBOR reference rate to an
alternative rate during the year and did not meet the
criteria to avail the practical expedient. For these loans,
the Group’s usual accounting policy for modifications
of financial assets was applied and net modification
gains/losses of £nil were recognised in the statement
of profit and loss.
Hedge accounting
On adoption of IFRS 9, the Group made the accounting
policy choice to continue to apply the hedge
accounting requirements of IAS 39 ‘Financial
Instruments: Recognition and Measurement’. The
Phase 2 amendments to IAS 39 provide certain reliefs
when changes are made to hedge relationships as
a result of interest rate benchmark reform.
Specifically, the Group has applied a temporary
exception that means changes to the referenced
interest rate benchmark and hedge documentation
due to interest rate benchmark reform does not
constitute the discontinuation of the hedge
relationship, nor the designation of a new hedging
relationship. During the year, hedge relationships with
a nominal amount of £492.6 million were transitioned
from a LIBOR reference rate to an alternative
benchmark rate and, as a result of applying this relief,
were not discontinued.
Disclosures
The amendments to IFRS 7 require certain disclosures
to be made to enable users of financial statements
to understand the effect of interest rate benchmark
reform on an entity’s financial instruments and risk
management strategy. These disclosures are included
in the market risk section of the Risk Report starting
on page 154 and include details of the Group’s LIBOR
transition programme and a summary of the Group’s
remaining exposures with LIBOR dependency as at
31 December 2021.
7. Significant accounting policies
Except where otherwise indicated, the Group has
consistently applied the following accounting policies
to all periods presented in the financial statements.
(a) Basis of consolidation
Subsidiaries
See disclosures at Note 46
Subsidiaries are entities, including structured entities,
that are controlled by the Group. Control is achieved
when the Group has power over the entity, is exposed,
or has rights, to variable returns from its involvement
with the entity and can use its power over the entity
to affect its returns. The Group reassesses whether it
controls the entity if facts and circumstances indicate
that there are changes to one or more of these three
elements of control.
Subsidiaries are consolidated from the date on which
control is transferred to the Group and are
deconsolidated from the date that control ceases.
Accounting policies are applied consistently across
the Group and intragroup transactions and balances
are eliminated in full on consolidation.
Business combinations
See disclosures at Note 10
Business combinations are accounted for using the
acquisition method. Consideration transferred and
identifiable assets acquired and liabilities assumed
as part of the business combination are generally,
with some limited exceptions, recognised at their
acquisition date fair values.
If the cost of acquisition (aggregate of the fair value
of consideration transferred, amount recognised for
non-controlling interests and fair value of any previous
interest held) exceeds the fair value of identifiable net
assets acquired, goodwill is recognised and is treated in
accordance with the Group’s intangible asset policy
(see Note 7(n)). If the fair value of identifiable net assets
acquired exceeds the cost of acquisition (a ‘bargain
purchase’), a gain is recognised in the statement of
profit and loss.
Acquisition-related costs are expensed as incurred
and are included in administrative expenses in the
statement of profit and loss, except if related to the
issue of debt or equity securities, whereby any
incremental direct transaction costs are recognised
as a deduction from the instrument.
183
Strategic ReportCorporate GovernanceRisk ReportFinancial Statements Notes to the financial statements
for the year ended 31 December 2021
7. Significant accounting policies continued
Investment in associates
See disclosures at Note 30
(c) Interest income and expense
See disclosures at Note 12 and Note 13
Associates are entities over which the Group has
significant influence and that is neither a subsidiary
undertaking nor an interest in a joint venture. Significant
influence is the power to participate in the financial
and operating policy decisions of the investee but
is not control or joint control over those policies.
Interests in associates are accounted for using the
equity method of accounting until the date on which
significant influence ceases.
Investments are initially measured at cost, including
transaction costs. After initial recognition, the Group
recognises its share of the associate’s post-acquisition
profit or loss and other comprehensive income. The
cumulative post-acquisition movements are adjusted
against the carrying amount of the investment.
Dividends receivable from associates are recognised as
a reduction in the carrying amount of the investment.
Investments are reviewed for indicators of impairment
at each reporting date and if indicators are present, an
impairment review is performed. If the carrying amount
exceeds its recoverable amount, an impairment loss is
recognised in the statement of profit and loss.
(b) Operating segments
See disclosures at Note 11
Operating segments are identified based on internal
reports and components of the Group that are
regularly reviewed by the chief operating decision
maker to allocate resources to segments and to assess
their performance. For this purpose, the Executive
Committee has been determined to be the chief
operating decision maker for the Group.
The Group determines operating segments according
to similar economic characteristics and the nature
of its products and services. No operating segments
are aggregated to form the Group’s reportable
operating segments.
Financial instruments measured at amortised cost
For all interest-bearing financial instruments measured
at amortised cost, interest income and expense are
recognised using the effective interest rate method.
The effective interest rate method calculates the
amortised cost of a financial asset or financial liability
and allocates the interest income or expense over the
relevant period. The effective interest rate is the rate
that exactly discounts estimated future cash flows
through the expected life of the financial instrument
to the gross carrying amount of a financial asset, or
the amortised cost of a financial liability.
In relation to the above, amortised cost is the amount
at which the financial instrument is measured on initial
recognition minus the principal repayments, plus or
minus the cumulative amortisation using the effective
interest rate method of any difference between that
initial amount and the maturity amount and, for
financial assets, adjusted for any loss allowance.
The gross carrying amount of a financial asset is the
amortised cost before adjusting for any loss allowance.
With the exception of credit-impaired financial assets,
when calculating the effective interest rate, the Group
estimates future cash flows considering all contractual
terms of the financial instrument but does not consider
the loss allowance recognised on financial assets. The
calculation includes all fees paid or received between
parties to the contract that are an integral part of the
effective interest rate, transaction costs and all other
premiums or discounts. Transaction costs include
incremental costs that are directly attributable to
the acquisition or issue of the financial instrument.
In calculating interest income and expense, the
calculated effective interest rate is applied to the
gross carrying amount of the financial asset, or to the
amortised cost of the financial liability, respectively.
For financial assets that become credit-impaired after
initial recognition (i.e. a ‘Stage 3’ asset, as detailed on
page 115 of the Risk Report), interest income is
calculated by applying the effective interest rate to the
amortised cost of the financial asset. If the asset is no
longer credit-impaired, the calculation of interest
income reverts to the gross basis.
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Shawbrook Group plc | Annual Report and Accounts 2021 For financial assets that were credit-impaired on initial
recognition (I.e. a ‘POCI’ asset, as detailed on page 115
of the Risk Report), interest income is calculated by
applying a credit-adjusted effective interest rate to the
amortised cost of the financial asset. The calculation of
interest income does not revert to the gross basis, even
if the credit risk of the asset improves.
Derivative financial instruments
For derivative financial instruments forming part of
hedging relationships and economic hedging
relationships, the Group recognises net interest income
or expense based on the underlying hedged items.
For derivative financial instruments hedging assets,
the net interest income or expense is recognised in
interest income. For derivative financial instruments
hedging liabilities, the net interest income or expense
is recognised in interest expense.
(d) Fee and commission income
and expense
See disclosures at Note 14
Fee and commission income include amounts from
contracts with customers that are not included in the
effective interest rate calculation detailed in Note 7(c).
These amounts are recognised when performance
obligations attached to the fee or commission have
been satisfied. The income streams included in fee
and commission income all have a single performance
obligation attached to them. Where income is earned
from the provision of a service, such as an account
maintenance fee, the performance obligation is
deemed to have been satisfied when the service is
delivered. Where income is earned upon the execution
of a significant act, such as fees for executing a
payment, the performance obligation is deemed
to have been satisfied when the act is completed.
Incremental costs incurred to generate fee and
commission income are charged to fee and
commission expense as they are incurred.
(e) Administrative expenses
See disclosures at Note 16
Administrative expenses are recognised on an
accruals basis.
Accounting policies for expenses relating to property,
plant and equipment and intangible assets are set out
in Note 7(m) and Note 7(n), respectively. Accounting
policies for payroll related costs, are as follows:
Payroll costs
Salaries and social security costs are recognised
over the period in which the employees provide
the services to which the payments relate.
Cash bonus awards are recognised to the extent that
the Group has a present obligation to its employees
that can be measured reliably and are recognised
over the period that employees are required to
provide services.
For long-term incentive plans offered to certain
employees, benefits are recognised at the present
value of the obligation at the reporting date, reflecting
the best estimate of the effect of the associated
performance conditions. Costs are recognised over the
period until which the Group considers all vesting
conditions to have been reasonably achieved, which
takes into account the period that employees are
required to provide services.
For defined contribution pension arrangements, the
Group pays fixed contributions into employees’
personal pension plans, with no further payment
obligations once the contributions have been paid.
The Group’s contributions to such arrangements are
recognised as an expense when they fall due.
Employee share-based payments
For the equity-settled share-based payment scheme in
operation, the grant date fair value of the share-based
payment transaction is recognised as a payroll cost in
administrative expenses in the statement of profit and
loss, with a corresponding increase in retained earnings
in equity, on a straight-line basis over the period that
the employees become unconditionally entitled to the
awards (the vesting period). In the absence of market
prices, the grant date fair value is estimated using an
appropriate valuation technique.
The amount recognised as an expense is adjusted to
reflect the number of awards for which the related
service and non-market vesting conditions are
expected to be met, such that the amount ultimately
recognised as an expense is based on the number of
awards that meet the related service and non-market
performance conditions at the vesting date.
For share-based payment awards with market
performance conditions or non-vesting conditions, the
grant date fair value of the award is measured to reflect
such conditions and there is no true-up for differences
between expected and actual outcomes.
In the Company’s financial statements, the share-
based payment transaction is recognised as an
increase in its investment in subsidiaries, with a
corresponding increase in retained earnings in equity.
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for the year ended 31 December 2021
7. Significant accounting policies continued
(f) Tax
See disclosures at Note 21 and Note 29
(h) Loans and advances to customers
See disclosures at Note 23
Tax comprises current tax and deferred tax. Tax is
generally recognised in the statement of profit and loss,
except where it relates to items recognised directly in
equity, in which case the tax is also recognised in equity.
An exception to this is distributions to holders of capital
securities, whereby the distribution is recognised
directly in equity, but the tax relief is recognised in the
statement of profit and loss.
Current tax
Current tax comprises the expected tax payable or
receivable on the taxable income or loss for the year
and any adjustment to the tax payable or receivable in
respect of previous years. It is measured using tax rates
enacted or substantively enacted at the reporting date.
Deferred tax
Deferred tax is provided in full using the liability method
on temporary differences between the carrying
amounts of assets and liabilities for financial reporting
purposes and the amounts used for tax purposes.
The amount of deferred tax provided is based on the
expected manner of realisation or settlement of the
carrying amount of assets and liabilities, using tax rates
enacted or substantively enacted at the reporting date.
A deferred tax asset is recognised in the statement
of financial position for unused tax losses, unused tax
credits and deductible temporary differences to the
extent that it is probable that future taxable profits
will be available against which they can be utilised.
Deferred tax assets are reviewed at each reporting
date and are reduced to the extent that it is no longer
probable that the related tax benefit will be realised.
(g) Cash and cash equivalents
See disclosures at Note 22
For the purposes of the statement of cash flows, cash
and cash equivalents is the aggregate of cash and
balances at central banks (less mandatory deposits
with central banks), loans and advances to banks and
short-term highly liquid debt securities with less than
three months to maturity from the date of acquisition.
Both cash and balances at central banks and loans
and advances to banks are classified as financial
assets measured at amortised cost (see Note 7(v)).
Certain assets included in loans and advances to banks
are pledged as collateral under terms that are usual
and customary for such activities.
Loans and advances to customers are classified
as financial assets measured at amortised cost
(see Note 7(v)).
Loans and advances to customers include assets
acquired in exchange for loans, instalment credit
and finance lease receivables as part of an orderly
realisation. The difference between the gross
receivable and the present value of the receivable
is recognised as unearned finance income. Further
details of finance lease receivables are included
in Note 7(t).
Certain assets included in loans and advances to
customers are pledged as collateral under terms that
are usual and customary for such activities. In addition,
certain assets have been transferred to structured
entities as part of securitisation transactions (see
Note 7(i)).
(i) Securitisation transactions
See disclosures at Note 24 and Note 37
The Group securitises certain loans included within
loans and advances to customers, by transferring the
beneficial interest in such loans to a bankruptcy remote
structured entity. A structured entity is an entity
designed so that its activities are not governed by
way of voting rights.
The Group performs an assessment to determine
whether it controls such structured entities, in
accordance with the criteria set out in Note 7(a). In
performing this assessment, the Group considers
factors such as: the purpose and design of the entity;
its practical ability to direct the relevant activities of
the entity; the nature of the relationship with the entity;
and the size of its exposure to the variability of returns
of the entity. Where the Group is assessed to control
the structured entity, it is treated as a subsidiary and
is fully consolidated.
When the Group completes a securitisation, the Group
considers whether the assets securitised meet the
derecognition criteria outlined in Note 7(v). If the
derecognition criteria are met, the transferred loans
are treated as sales, referred to as ‘structured asset
sales’ and a gain or loss on derecognition is recognised
in the statement of profit and loss. If the derecognition
criteria are not met, the transfer of loans is not treated
as a sale and the loans continue to be recognised in
their entirety in the statement of financial position.
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Shawbrook Group plc | Annual Report and Accounts 2021 Securitisations involve the simultaneous issue of
mortgage-backed debt securities by the associated
structured entity to investors. In securitisation
transactions where the structured entity is
consolidated, the issued debt securities are classified
on initial recognition as either financial liabilities or
equity instruments, in accordance with the substance
of the contractual arrangements. Typically, the Group
has an obligation to deliver the cash flows generated
from the underlying securitised loans to the debt
security holder and accordingly, the debt securities are
classified as financial liabilities measured at amortised
cost (see Note 7(v)) and are recognised in debt
securities in issue in the statement of financial position.
Certain debt securities issued by structured entities may
be retained by the Group. Where retained debt
securities are issued by consolidated structured entities,
they are eliminated in full on consolidation. Where
retained debt securities are issued by unconsolidated
structured entities, they are recognised in investment
securities in the statement of financial position.
(j) Investment securities
See disclosures at Note 25
Investment securities are classified as financial assets
measured at amortised cost (see Note 7(v)).
Investment securities include covered bonds and debt
securities issued by unconsolidated structured entities
as part of the securitisation transactions that are
retained by the Group (see Note 7(i)).
Certain assets included in investment securities are
pledged as collateral under terms that are usual
and customary for such activities.
Repurchase agreements, reverse repurchase
agreements and security swaps
Securities may be sold subject to a commitment to
repurchase them at a predetermined price (a
‘repurchase agreement’). The terms of the transaction
are such that the derecognition criteria outlined in
Note 7(v) are not met and, accordingly, the sold assets
continue to be recognised in their entirety in the
statement of financial position. A liability is recognised
in respect of the consideration received in amounts
due to banks in the statement of financial position,
reflecting the Group’s obligation to repurchase the
assets for a fixed price at a future date. The difference
between the sale and repurchase price is treated as
interest and is accrued over the life of the agreement
using the effective interest rate method.
On occasion, certain securities may be swapped via
linked repurchase and reverse repurchase agreements
with the same counterparty (a ‘security swap’). In such
circumstances, no cash consideration is exchanged. The
transferred assets are not derecognised and there is no
associated liability as the non-cash collateral received
is not recognised in the statement of financial position
(i.e. the transaction is off-balance sheet). Net fees are
treated as interest and are accrued over the life of the
agreement using the effective interest rate method.
(k) Derivative financial instruments
See disclosures at Note 26
Derivative financial instruments are mandatorily
classified as fair value through profit or loss (see Note
7(v)). Derivatives are classified as financial assets where
their fair value is positive and financial liabilities where
their fair value is negative. Where there is the legal right
and intention to settle net, the derivative is classified as
a net asset or net liability, as appropriate.
To calculate fair values, the Group typically uses
discounted cash flow models using yield curves that are
based on observable market data. For collateralised
positions, the Group uses discount curves based on
overnight indexed swap rates. For non-collateralised
positions, the Group uses discount curves based on
Sterling Overnight Index Average rate (SONIA).
For measuring derivatives that might change the
classification from being an asset to a liability or vice
versa, fair values do not take into consideration either
the credit valuation adjustment or the debit valuation
adjustment, as the Group’s portfolio is fully
collateralised and it is deemed to be immaterial.
Where derivatives are not designated as part of an
accounting hedge relationship, gains and losses arising
from changes in fair value are recognised in net gains/
(losses) on derivative financial instruments and hedge
accounting in the statement of profit and loss. Where
derivatives are designated within an accounting hedge
relationship, the treatment of the changes in fair value
are as described in Note 7(l).
The Group enters into master netting and margining
agreements with derivative counterparties. In general,
under such master netting agreements the amounts
owed by each counterparty that are due on a single
day in respect of all transactions outstanding under
the agreement are aggregated into a single net
amount payable by one party to the other. In certain
circumstances, for example when a credit event such
as a default occurs, all outstanding transactions under
the agreement are aggregated into a single net
amount payable by one party to the other and the
agreements terminated.
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Strategic ReportCorporate GovernanceRisk ReportFinancial Statements Notes to the financial statements
for the year ended 31 December 2021
7. Significant accounting policies continued
Under margining agreements where the Group has
a net asset position valued at current market values,
in respect of its derivatives with a counterparty, then
that counterparty will place collateral, usually cash,
with the Group in order to cover the position. Similarly,
the Group will place collateral, usually cash, with the
counterparty where it has a net liability position.
During the year, all hedge relationships with a LIBOR
dependency were either discontinued or transitioned to
alternative benchmark rates and, at this point in time,
the Group ceased to apply the Phase 1 amendments.
With effect from 1 January 2021, the Group adopted
‘Interest Rate Benchmark Reform – Phase 2
(Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS
16). The amendments provide certain reliefs when
changes are made to hedge relationships as a result of
interest rate benchmark reform. Details of the reliefs
applied by the Group during the year as a result of
adopting these amendments are provided in Note 6(a).
The Group designates certain derivatives as fair value
hedges. The Group does not designate any derivatives
as cash flow hedges or net investment hedges.
Fair value hedges
The Group applies fair value hedge accounting for
portfolio hedges of interest rate risk. The hedged items
are portfolios that are identified as part of the risk
management process. These comprise either fixed rate
assets only, or fixed rate liabilities only, in respect of the
designated benchmark interest rate, such as SONIA.
Each portfolio is grouped into repricing time periods
based on expected repricing dates, by scheduling cash
flows into the periods in which they are expected to
occur. Interest rate swaps are used as the hedging
instruments to manage this interest rate risk to swap
the fixed rate interest flows to floating.
Changes in the fair value of derivatives designated as
fair value hedges and changes in the fair value of the
hedged asset or liability attributable to the hedged risk
are recognised in net gains/(losses) on derivative
financial instruments and hedge accounting in the
statement of profit and loss.
If the hedge no longer meets the criteria for hedge
accounting, hedge accounting is discontinued
prospectively. The cumulative fair value adjustment to
the carrying amount of the hedged item is amortised
to the statement of profit and loss over the remaining
period to maturity. If the hedged item is derecognised,
the cumulative fair value adjustment to the carrying
amount of the hedged item is recognised immediately
in the statement of profit and loss.
(l) Hedge accounting
See disclosures at Note 26
The Group has elected, as an accounting policy choice
permitted under IFRS 9, to continue to apply the hedge
accounting rules set out in IAS 39. However, the Group
does provide the additional and more detailed hedge
accounting disclosures introduced by IFRS 9’s
consequential amendments to IFRS 7.
Hedge accounting is permitted when documentation,
eligibility and testing criteria are met. As such, at the
inception of the hedge relationship, the Group formally
designates and documents the hedge relationship (the
link between the hedging instrument and the hedged
item) to which it wishes to apply hedge accounting
and the risk management objective and strategy for
undertaking the hedge. The Group also documents the
method that will be used to assess the effectiveness of
the hedging relationship (the dollar-offset method, or,
for trades designated in dynamic hedge accounting
relationships, the regression method).
The Group makes an assessment, both at inception and
on a monthly basis, as to whether the derivatives used in
hedging transactions are highly effective in offsetting
the exposure to changes in the hedged item’s fair value.
The hedge is deemed to be highly effective where the
actual results of the hedge are within a range of 80-
125%. If the Group concludes that the hedge is no longer
highly effective, hedge accounting is discontinued.
The Group applies the reliefs set out in ‘Interest Rate
Benchmark Reform – Amendments to IFRS 9, IAS 39
and IFRS 7’, (the ‘Phase 1 amendments’). Accordingly,
for the prospective assessment of hedge effectiveness,
the Group assumes that the benchmark interest rate
was not altered as a result of interest rate benchmark
reform. For the retrospective assessment of hedge
effectiveness, if the hedging relationship was subject
to interest rate benchmark reforms, the Group does
not discontinue hedge accounting solely because the
actual effectiveness fell outside of the 80-125% range.
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Shawbrook Group plc | Annual Report and Accounts 2021 (m) Property, plant and equipment
and depreciation
See disclosures at Note 27
Assets on operating leases represent assets that
are leased to customers under operating lease
agreements. Right-of-use leasehold property represent
assets that are leased by the Group. Further details
of these asset categories are set out in Note 7(t).
Accounting policies for all other asset categories
are as follows:
Goodwill is not amortised but is tested annually for
impairment and additionally whenever there is an
indication that impairment may exist. For the purpose
of impairment testing, goodwill is allocated to cash
generating units (CGUs). A CGU is the smallest
identifiable group of assets that generates cash inflows
that are largely independent of the cash inflows from
other assets or groups of assets. If the carrying amount
of a CGU exceeds its recoverable amount, an
impairment loss is recognised in administrative
expenses in the statement of profit and loss.
Assets are measured at cost less accumulated
depreciation and any accumulated impairment losses.
Cost includes the original purchase price of the asset
and any directly attributable costs of bringing the asset
to the location and condition necessary for its intended
use. Subsequent expenditure is only capitalised when it
improves the expected future economic benefits of the
asset. All other costs, including ongoing repairs and
maintenance, are expensed to administrative expenses
in the statement of profit and loss as incurred.
Other intangible assets
Other intangible assets are measured at cost less
accumulated amortisation and any accumulated
impairment losses. For externally acquired intangible
assets, cost includes the original purchase price of the
asset and any directly attributable costs of preparing
the asset for its intended use. For internally developed
intangible assets, cost includes all costs directly
attributable in preparing the asset so that it is capable
of operating in its intended manner.
Depreciation is calculated to write off the cost of the
asset less its estimated residual value on a straight-line
basis over its estimated useful life and is charged to
administrative expenses in the statement of profit and
loss. For leasehold property, the estimated useful life
is the life of the lease. For fixtures and fittings, the
estimated life is 10 years, or is aligned to the length of
the lease of the property it resides in. For office
equipment, the estimated useful life is three to five
years. The depreciation method, useful lives and
residual values are reviewed at each reporting date
and adjusted if appropriate.
Assets are reviewed for indicators of impairment at
each reporting date and if indicators are present, an
impairment review is performed. If the carrying amount
exceeds its recoverable amount, an impairment loss is
recognised in administrative expenses in the statement
of profit and loss.
On the disposal of an asset, the net disposal proceeds
are compared with the carrying amount of the asset
and any gain or loss is included in administrative
expenses in the statement of profit and loss.
(n) Intangible assets and amortisation
See disclosures at Note 28
Goodwill
Goodwill may arise on the acquisition of subsidiaries
and represents the excess of the cost of acquisition
over the fair value of identifiable net assets acquired.
Goodwill is stated at cost less any accumulated
impairment losses.
For internally developed intangible assets costs may
only be capitalised when the Group is able to
demonstrate that: the expenditure can be reliably
measured; the product or process is technically and
commercially feasible; future economic benefits are
probable; and the Group has the intention and ability to
complete development and subsequently use or sell the
asset. Until the point that all conditions are regarded as
met, costs are recognised in administrative expenses in
the statement of profit and loss as incurred.
Subsequent expenditure is capitalised only when it
increases the future economic benefits embodied in
the specific asset to which it relates. All other
expenditure is recognised in administrative expenses
in the statement of profit and loss as incurred.
Assets are amortised on a straight-line basis over its
estimated useful life of between three and seven years.
Amortisation is recognised in administrative expenses
in the statement of profit and loss. The amortisation
method, useful lives and residual values are reviewed
at each reporting date and adjusted if appropriate.
Assets are reviewed for indicators of impairment at
each reporting date and if indicators are present, an
impairment review is performed. If the carrying amount
exceeds its recoverable amount, an impairment loss is
recognised in administrative expenses in the statement
of profit and loss.
On the disposal of an asset, the net disposal proceeds
are compared with the carrying amount of the asset
and any gain or loss included in administrative
expenses in the statement of profit and loss.
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Strategic ReportCorporate GovernanceRisk ReportFinancial Statements Notes to the financial statements
for the year ended 31 December 2021
7. Significant accounting policies continued
(o) Assets and disposal groups held
for sale
See disclosures at Note 32
(r) Customer deposits
See disclosures at Note 35
Customer deposits are classified as financial liabilities
measured at amortised cost (see Note 7(v)).
(s) Provisions
See disclosures at Note 36
Provisions are recognised when there is a present
obligation arising as a result of a past event, it is
probable (more likely than not) that an outflow of
resources will be required to settle the obligation and
a reliable estimate can be made of the amount of the
obligation. Provisions for levies are recognised when the
conditions that trigger the payment of the levy are met.
When the Group expects some or all of a provision to be
reimbursed, for example, under an insurance contract,
the reimbursement is recognised as a separate asset,
but only when the reimbursement is virtually certain.
The expense relating to a provision is presented in the
statement of profit and loss net of any reimbursement.
Provisions also includes the loss allowance for loan
commitments (see Note 7(z)).
(t) Leases
See disclosures at Note 38
Group as a lessor: finance leases
Lease agreements in which the Group transfers
substantially all the risks and rewards of ownership
of the underlying asset to the lessee are classified
as finance leases.
A finance lease receivable equal to the net investment
in the lease is recognised and is presented within loans
and advances to customers in the statement of financial
position. This represents the future lease payments less
profit and costs allocated to future periods.
Lease payments are apportioned between interest
income in the statement of profit and loss and a
reduction of the finance lease receivable to achieve a
constant rate of interest on the remaining balance of
the receivable.
The Group classifies non-current assets and disposal
groups as held for sale if their carrying amounts will be
recovered principally through a sale transaction rather
than through continuing use. The criteria for held for
sale classification is regarded as met only when the
sale is highly probable and the asset or disposal group
is available for immediate sale in its present condition.
Management must be committed to the plan to sell
the asset or disposal group and the sale expected
to be completed within one year from the date of
the classification.
Non-current assets and disposal groups classified as
held for sale are generally measured at the lower of
their carrying amount and fair value less costs to sell,
with any adjustments recognised in the statement of
profit and loss. Depreciation and amortisation cease
once classified as held for sale.
An exception to this is financial assets within the scope
of IFRS 9, which continue to be measured in
accordance with this standard as set out in Note 7(v).
For example, loans classified as held for sale continue
to be measured at amortised cost.
Assets classified as held for sale are presented on a
separate line in the statement of financial position.
Prior period presentation is not restated.
(p) Investment in subsidiaries
See disclosures at Note 33
The Company’s investments in controlled entities are
valued at cost less any accumulated impairment losses.
Such investments are reviewed for indicators of
impairment at each reporting date and if indicators are
present, an impairment review is performed. If the
carrying amount exceeds its recoverable amount,
an impairment loss is recognised in the statement
of profit and loss.
(q) Amounts due to banks
See disclosures at Note 34
Amounts due to banks are classified as financial
liabilities measured at amortised cost (see Note 7(v)).
Amounts due to banks may include liabilities
recognised as part of repurchase agreements
(see Note 7(j)).
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Shawbrook Group plc | Annual Report and Accounts 2021 Group as a lessor: operating leases
Lease agreements in which the Group does not transfer
substantially all the risks and rewards of ownership of
the underlying asset to the lessee are classified as
operating leases.
The leased asset is included in property, plant and
equipment in the statement of financial position. The
asset is recognised at the lower of its fair value less
costs to sell and the carrying amount of the lease
(net of impairment allowance) at the date of exchange.
Depreciation is calculated to write off the cost of the
asset less its estimated residual value on a straight-line
basis over the life of the lease and is charged to
depreciation on operating leases in the statement
of profit and loss.
Assets are reviewed for indicators of impairment at
each reporting date and if indicators are present, an
impairment review is performed. If the carrying amount
exceeds its recoverable amount, an impairment loss
is recognised in net other operating lease income/
(expense) in the statement of profit and loss.
Operating lease rental income is recognised in the
statement of profit and loss on a straight-line basis
over the lease term.
Where an agreement is classified as an operating
lease at inception but is subsequently reclassified as
a finance lease following a change to the agreement
or an extension beyond the primary term, then the
agreement is accounted for as a finance lease.
Group as a lessee
At the lease commencement date, the Group
recognises a right-of-use asset and a lease liability.
The right-of-use asset is included in property, plant
and equipment in the statement of financial position.
The asset is measured at cost less accumulated
depreciation and any accumulated impairment losses
and is adjusted for any remeasurement of the lease
liability. The cost of the asset includes the amount of the
lease liability recognised, initial direct costs incurred and
lease payments made at or before the commencement
date less any lease incentives received.
Depreciation is calculated to write off the cost of
the asset less its estimated residual value on a straight-
line basis over the life of the lease and is charged
to administrative expenses in the statement of
profit and loss.
Assets are reviewed for indicators of impairment at
each reporting date and if indicators are present, an
impairment review is performed. If the carrying amount
exceeds its recoverable amount, an impairment loss is
recognised in administrative expenses in the statement
of profit and loss.
The lease liability is measured at the present value of the
lease payments to be made over the lease term. In
calculating the present value of lease payments, the
Group uses the incremental borrowing rate at the lease
commencement date, unless the interest rate implicit in
the lease is readily determinable. The Group determines
the lease term as the non-cancellable term of the lease,
together with any periods covered by an option to extend
the lease if it is reasonably certain to be exercised, or any
periods covered by an option to terminate the lease if it is
reasonably certain not to be exercised.
Lease liabilities are classified as financial liabilities
measured at amortised cost (see Note 7(v)). Lease
liabilities are remeasured if there is a modification, a
change in the lease term, a change in the in-substance
fixed lease payments, or a change in the assessment to
purchase the underlying asset. When the lease liability is
remeasured in this way, a corresponding adjustment is
made to the carrying amount of the right-of-use asset.
The Group applies the recognition exemption to any
short-term leases (i.e. those leases that have a lease
term of twelve months or less from the commencement
date and do not contain a purchase option) and any
leases that are considered of low value. For these
leases, no right-of-use asset is recognised and lease
payments continue to be charged to administrative
expenses in the statement of profit and loss on a
straight-line basis over the lease term.
(u) Subordinated debt
See disclosures at Note 40
The subordinated debt liability is classified as a
financial liability measured at amortised cost
(see Note 7(v)).
The subordinated debt receivable in the Company is
classified as a financial asset measured at amortised
cost (see Note 7(v)).
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7. Significant accounting policies continued
(v) Financial instruments
See disclosures at Note 41
Based on the two assessments, financial assets are
classified as amortised cost, fair value through other
comprehensive income (FVOCI) or fair value through
profit or loss (FVTPL), as follows:
■ Amortised cost: when the financial asset is held in
a hold-to-collect business model and its contractual
terms give rise on specified dates to cash flows that
are SPPI.
■ FVOCI: when the financial asset is held in a hold-to-
collect-and-sell business model and its contractual
terms give rise on specified dates to cash flows that
are SPPI.
■ FVTPL: when the financial asset does not meet the
criteria to be classified as amortised cost or FVOCI.
Derivatives embedded in contracts where the host
is a financial asset are never separated. Instead, the
hybrid financial instrument as a whole is assessed
for classification.
For financial assets that meet the requirements to
be classified as amortised cost or FVOCI, on initial
recognition, the Group may irrevocably designate
the financial asset as FVTPL, if doing so eliminates or
significantly reduces an accounting mismatch that
would otherwise arise.
Investments in equity instruments are normally
classified as FVTPL. However, on initial recognition of an
equity instrument that is not held for trading, the Group
may irrevocably elect, on an investment-by-investment
basis, to present subsequent changes in fair value in the
statement of other comprehensive income.
After initial recognition, financial assets are
reclassified only under the rare circumstances
that the Group changes its business model for
managing financial assets.
All of the Group’s financial assets are classified as
amortised cost, with the exception of derivative
financial assets, which, for classification purposes,
are always deemed to be held for trading and are
therefore mandatorily classified as FVTPL.
Financial assets classified as amortised cost are
initially measured at fair value plus incremental direct
transaction costs. Subsequent measurement is at
amortised cost using the effective interest rate method
(see Note 7(c)). Amortised cost is reduced by impairment
losses (see Note 7(w)). Interest income, foreign exchange
gains and losses and impairment losses are recognised
in the statement of profit and loss.
Recognition
Financial instruments are recognised when the Group
becomes a party to the contractual provisions of the
instrument. Regular way purchases and sales of
financial assets are recognised on trade date.
Classification and measurement of financial assets
To classify financial assets, the Group performs two
assessments:
■ The ‘business model assessment’: this assessment
determines whether the Group’s objective is to
generate cash flows from collecting contractual cash
flows (‘hold-to-collect’), by both collecting contractual
cash flows and selling financial assets (‘hold-to-collect-
and-sell’) or neither. The assessment is performed at a
portfolio level and is based on expected scenarios. In
making this assessment, the Group considers
information such as: sales in prior periods, expected
sales in future periods and the reasons for such sales.
If cash flows are realised in a manner that is different
from the original expectation, the classification of
the remaining financial assets in that portfolio is not
changed but such information is used when assessing
new financial assets going forward.
■ The ‘SPPI test’: this assessment determines whether
the contractual cash flows of the financial asset are
solely payments of principal and interest on the
principal amount outstanding (SPPI) (i.e. whether the
contractual cash flows are consistent with a basic
lending arrangement). For the purposes of the SPPI
test, principal is defined as the fair value of the
financial asset at initial recognition. Interest is defined
as consideration for the time value of money and
credit risk associated with the principal amount
outstanding and for other basic lending risks and
costs (e.g. liquidity risk and administrative costs),
as well as a reasonable profit margin. The SPPI test
is performed at an instrument level based on the
contractual terms of the instrument at initial
recognition. In performing the SPPI test, terms that
could change the contractual cash flows so that they
are not SPPI are considered, such as: contingent and
leverage features, non-recourse arrangements and
features that could modify the time value of money.
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Shawbrook Group plc | Annual Report and Accounts 2021 Financial assets classified as FVTPL are initially
measured at fair value and are subsequently
remeasured at fair value. Net gains and losses,
including any interest or dividend income, are
recognised in the statement of profit and loss.
Classification and measurement of
financial liabilities
Financial instruments are classified as a financial
liability when the substance of the contractual
arrangements result in the Group having a present
obligation to deliver cash, another financial asset or
a variable number of equity instruments.
Financial liabilities are classified at initial recognition
as FVTPL or amortised cost as follows:
■ FVTPL: when the financial liability meets the
definition of held for trading, or when the financial
liability is designated as such to eliminate or
significantly reduce an accounting mismatch that
would otherwise arise.
■ Amortised cost: when the financial liability is not
classified as FVTPL.
All of the Group’s financial liabilities are classified
as amortised cost, with the exception of derivative
financial liabilities, which, for classification purposes,
are always deemed to be held for trading and are
therefore mandatorily classified as FVTPL.
Financial liabilities classified as amortised cost are
initially measured at fair value minus incremental direct
transaction costs. Subsequent measurement is at
amortised cost using the effective interest rate method
(see Note 7(c)). Interest expense is recognised in the
statement of profit and loss.
Financial liabilities classified as FVTPL are initially
measured at fair value and are subsequently
remeasured at fair value. Net gains and losses,
including any interest, are recognised in the statement
of profit and loss.
Derecognition of financial instruments
Derecognition is the point at which the Group ceases
to recognise a financial asset or a financial liability
on its statement of financial position.
The Group derecognises a financial asset (or a part
of a financial asset) when:
■ the contractual rights to the cash flows from
the financial asset have expired;
■ the Group transfers the financial asset in a
transaction in which substantially all the risks
and rewards of ownership of the financial asset
are transferred; or
■ the Group transfers the financial asset in a transaction
in which the Group neither transfers nor retains
substantially all the risks and rewards of ownership
and it does not retain control of the asset. If the Group
retains control of the asset, it continues to recognise
the transferred asset only to the extent of its continuing
involvement and derecognises the remainder.
The Group derecognises a financial liability (or a part of
a financial liability) when its contractual obligations are
extinguished (i.e. discharged, cancelled, or expired).
On derecognition, the difference between the carrying
amount (or the carrying amount allocated to the
portion being derecognised) and the sum of the
consideration received/paid (including any new asset
obtained less any new liability assumed) is recognised
in the statement of profit and loss.
Modification of financial instruments
When a financial instrument is modified, the Group
performs quantitative and qualitative evaluation to
assess whether or not the new terms are substantially
different to the original terms.
For financial assets, the Group considers the specific
circumstances including:
■ if the borrower is in financial difficulty, whether the
modification merely reduces the contractual cash
flows to amounts the borrower is expected to be able
to pay;
■ whether any substantial new terms are introduced
that substantially affects the risk profile of the loan;
■ significant extension of the loan term when the
borrower is not in financial difficulty;
■ significant change in the interest rate; and
■ insertion of collateral, other security or credit
enhancements that significantly affect the credit
risk associated with the loan.
For financial liabilities, the Group specifically, but not
exclusively, considers the outcome of the ‘10% test’.
This involves a comparison of the cash flows before
and after the modification, discounted at the original
effective interest rate, whereby a difference of more
than 10% indicates the modification is substantial.
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7. Significant accounting policies continued
If the terms and cash flows of the modified financial
instrument are deemed to be substantially different, the
derecognition criteria are met and the original financial
instrument is derecognised and a ‘new’ financial
instrument is recognised at fair value. The difference
between the carrying amount of the derecognised
financial instrument and the new financial instrument
with modified terms is recognised in the statement of
profit and loss. Fees that are considered in determining
the fair value of the new financial instrument and fees
that represent reimbursement of eligible transaction
costs are included in the initial measurement of the new
financial instrument. All other fees are included as part
of the gain or loss on derecognition.
Fair value of financial instruments
Fair value is defined as 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 that date. The fair value of a liability reflects
its non-performance risk.
Where possible, fair value is determined with reference
to quoted prices in an active market or dealer price
quotations. A market is regarded as active if
transactions for the asset or liability take place with
sufficient frequency and volume to provide pricing
information on an ongoing basis.
If the terms and cash flows of the modified financial
instrument are not deemed to be substantially different,
the financial instrument is not derecognised and the
Group recalculates the ‘new’ gross carrying amount of
the financial instrument based on the revised cash
flows of the modified financial instrument discounted
at the original effective interest rate and recognises any
associated gain or loss in the statement of profit and
loss. Any costs and fees incurred are recognised as an
adjustment to the carrying amount of the financial
instrument and are amortised over the remaining term
of the modified financial instrument by recalculating
the effective interest rate on the financial instrument.
In relation to financial assets, where a modification is
granted due to the financial difficulty of the borrower,
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. Under such circumstances, the Group 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 usually means the derecognition
criteria are not met.
With effect from 1 January 2021, the Group adopted
‘Interest Rate Benchmark Reform – Phase 2
(Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16).
The amendments provide a practical expedient that
allows certain modifications arising due to the reform to
be accounted for by updating the effective interest rate,
rather than applying the normal modification policy
outlined above. Additional details, including the Group’s
application of this practical expedient during the year,
are provided in Note 6(a).
Where quoted prices are not available, the Group uses
generally accepted valuation techniques to estimate
fair value including discounted cash flow models and
Black-Scholes option pricing. Wherever possible these
valuation techniques use independently sourced
market parameters, such as interest rate yield curves,
option volatilities and currency rates.
On initial recognition, the best evidence of the fair value
of a financial instrument is normally transaction price
(i.e. the fair value of the consideration given or
received). If the Group determines that the fair value
on initial recognition differs from the transaction price,
the Group accounts for such differences as follows:
■ if fair value is evidenced by a quoted price in an
active market for an identical asset or liability, or
based on a valuation technique that uses only data
from observable markets, the difference is recognised
in the statement of profit and loss on initial
recognition (i.e. day one profit or loss);
■ in all other cases, the fair value will be adjusted to
bring it in line with the transaction price (i.e. day
one profit or loss will be deferred by including it in
the initial carrying amount of the asset or liability).
Subsequently, the deferred gain or loss will be
released to the statement of profit and loss on an
appropriate basis over the life of the instrument, but
no later than when the valuation is wholly supported
by observable market data or the transaction is
closed out.
If an asset or liability measured at fair value has a
bid price and an ask price, the Group measures
assets at bid price and liabilities at ask price.
194
Shawbrook Group plc | Annual Report and Accounts 2021 The Group uses a fair value hierarchy that categorises
financial instruments into three different levels,
as detailed in Note 41. Levels are reviewed at each
reporting date and this determines whether transfers
between levels are required.
The Group calculates ECLs and records a loss
allowance for its financial assets not held at FVTPL
(i.e. its financial assets held at amortised cost) and for
loan commitments1. Assets held at FVTPL and equity
instruments are not subject to impairment.
Further details of the fair value calculation of derivative
financial instruments are set out in Note 7(k).
Loss allowances 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 financial asset;
■ loan commitments: generally, as a provision; and
■ where a financial instrument includes both a drawn
and an undrawn component, and the Group cannot
identify the loss allowance on the undrawn loan
commitment component separately from those on the
drawn component, the Group presents a combined
loss allowance for both components. The combined
amount is presented as a deduction from the gross
carrying amount of the drawn component. Any excess
of the loss allowance over the gross amount of the
drawn component is presented as a provision.
The calculation of ECLs is dependent upon the ‘stage’
the asset is assigned to (Stage 1, 2 or 3), which is based
on changes in credit risk when comparing credit risk at
initial recognition to credit risk at the reporting date, or
whether the asset was purchased or originated credit-
impaired (POCI). Details of the ‘staging’ of assets and
POCI assets, the calculation of ECLs and the key
judgements and estimates associated with this, are
provided in the credit risk section of the Risk Report
starting on page 115.
The Group can elect as an accounting policy choice,
to use the ‘simplified approach’ for trade receivables,
contract assets and lease receivables. The Group has
elected not to use this simplified approach.
Offsetting financial instruments
Financial assets and financial liabilities are offset and
the net amount reported in the statement of financial
position when there is a legally enforceable right to
offset the recognised amounts and there is an intention
to settle on a net basis, or realise the asset and settle
the liability simultaneously.
Income and expenses are presented on a net basis only
when permitted by accounting standards, or for gains
and losses arising from a group of similar transactions,
such as in the Group’s trading activity.
(w) Impairment of financial assets
See disclosures at Note 20
Impairment of financial assets is calculated using a
forward-looking expected credit loss (ECL) model.
ECLs are an unbiased probability-weighted estimate
of credit losses determined by evaluating a range of
possible outcomes. A summary of ECL measurement
is as follows:
■ Financial assets that are not credit-impaired at the
reporting date: as the present value of all cash
shortfalls. Cash shortfalls are the difference between
the contractual cash flows due to the Group 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 discounted at the financial asset’s
original effective interest rate.
■ 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 the Group expects to receive.
ECLs are measured in a manner that reflects the time
value of money and uses reasonable and supportable
information that is available without undue cost or
effort at the reporting date about past events, current
conditions and forecasts of future economic conditions.
1 The Group has no financial assets held at FVOCI and no financial guarantee contracts.
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7. Significant accounting policies continued
Modifications
If a financial asset is modified, an assessment is
made to determine whether the asset meets the
derecognition criteria outlined in Note 7(v).
Subsequently ECLs are measured as follows:
(x) Capital securities
See disclosures at Note 43
Capital securities are classified as equity instruments,
as the substance of the contractual arrangements are
such that the Group does not have a present obligation
to deliver cash, another financial asset or a variable
number of equity instruments. The capital securities
are measured at the fair value of the proceeds from the
issuance less any costs that are incremental and directly
attributable to the issuance (net of applicable tax).
Distributions to holders of the capital securities are
recognised when they become irrevocable and are
deducted from retained earnings in equity. Income tax
relief on distributions to holders of the capital securities
is recognised in the statement of profit and loss, to align
with where the transactions and events that generated
the distributable profits are recognised.
(y) Contingent liabilities
See disclosures at Note 49
Contingent liabilities are possible obligations that arise
from past events whose existence will be confirmed only
by the occurrence, or non-occurrence, of one or more
uncertain future events not wholly within the control of
the Group. Alternatively, they are present obligations
that have arisen from past events where the outflow of
resources is uncertain or cannot be reliably measured.
Contingent liabilities are not recognised in the financial
statements, but they are disclosed unless the
probability of settlement is remote.
(z) Loan commitments
See disclosures at Note 50
Loan commitments are firm commitments to provide
credit under pre-specified terms and conditions. The
Group includes certain uncommitted facilities within
its reported loan commitments where the terms are
such that the Group has an obligation to the customer
should the customer get into financial distress.
The Group recognises a loss allowance on loan
commitments in accordance with the policies set
out in Note 7(w). The loss allowance is included within
provisions in the statement of financial position.
■ if the modification does not result in derecognition
of the existing asset, then the expected cash flows
arising from the modified financial asset are included
in calculating the cash shortfalls from the existing
asset; or
■ if the modification does result in derecognition of the
existing asset, then the expected fair value of the
‘new’ asset is treated as the final cash flow from the
existing financial asset at the time of its derecognition.
This amount is included in calculating the cash
shortfalls from the existing financial asset that are
discounted from the expected date of derecognition
to the reporting date using the original effective
interest rate of the existing financial asset. The date of
renegotiation is considered to be the date of initial
recognition for impairment calculation purposes,
including in determining whether a significant
increase in credit risk has occurred and whether the
new financial asset is deemed to be a POCI asset.
Write-offs
Loans and debt securities are written off (either
partially or in full) when there is no realistic prospect
of recovery. 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.
Write-offs constitute a derecognition event, as detailed
in Note 7(v).
Financial assets that are written off can still be subject
to enforcement activities in order to comply with the
Group’s procedures for recovery of amounts due.
Amounts subsequently recovered on assets written off
are recognised in impairment losses on financial assets
in the statement of profit and loss.
196
Shawbrook Group plc | Annual Report and Accounts 2021 8. New and revised standards and
interpretations not yet adopted
A number of new and revised standards issued by the
International Accounting Standards Board have not yet
come into effect. None of these are expected to have a
material impact on the Group’s financial statements.
9. Critical accounting judgements
and estimates
The preparation of financial statements requires the
Group to make judgements and estimates that affect
the application of accounting policies and the reported
results and financial position.
Estimates, and the underlying assumptions driving these
estimates, are reviewed by the Group on an ongoing
basis. Due to the inherent uncertainty in making
estimates, actual results reported in the future may
differ from the amounts estimated. Revisions to
estimates are recognised in the period in which the
estimates are revised and in any future periods affected.
The areas involving the most complex and subjective
judgements, and areas where estimates are considered
to have the most significant effect on the financial
statements, are set out in the following sections.
The COVID-19 pandemic continues to give rise to
heightened levels of uncertainty. This has required the
Group to make particularly complex judgements and
estimates in the current period, in particular in relation
to impairment losses on financial assets. The Group
continues to closely monitor developments and their
impact on areas involving judgement and the use of
estimates and makes updates as appropriate.
(a) Impairment losses on financial assets
See accounting policies at Note 7(w) and disclosures
at Note 20
Impairment of financial assets is calculated using
a forward-looking ECL model. The calculation and
measurement of ECLs requires the use of complex
judgements and represents a key source of estimation
uncertainty.
Judgements
Judgements considered to have the most significant
effect on amounts in the financial statements are:
■ determining the stage the financial asset is allocated
to and therefore whether a 12-month or lifetime ECL
is recognised in the financial statements. This involves
judgements over whether the financial asset has had
a significant increase in credit risk since initial
recognition, whether the financial asset is in default
or whether the financial asset is ‘cured’; and
■ application of ‘post-model adjustments’ when the
Group judges that the modelled ECL amount does
not adequately reflect the expected outcome.
Additional details are provided in the credit risk section
of the Risk Report starting on page 128.
Estimates
Underlying assumptions used in estimating ECLs that,
depending on a range of factors, could result in a
material adjustment in the next financial year are:
■ the forward-looking economic scenarios used;
■ probability weightings applied to these scenarios;
and
■ model assumptions used, such as the probability
of default (PD) and loss given default (LGD).
Additional details, including sensitivity analysis, are
included in the credit risk section of the Risk Report
starting on page 131.
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9. Critical accounting judgements and estimates continued
(b) Provisions for customer remediation and conduct issues
See accounting policies at Note 7(s) and disclosures at Note 36
Provisions have been recognised in respect of potential claims for instances of misrepresentation, or breaches
of contract by suppliers, where the suppliers have become insolvent and therefore the Group has limited recourse
to those suppliers. Calculating the amount of the provision requires judgement and represents a source of
estimation uncertainty.
Judgements
Judgements considered to have the most significant effect on amounts in the financial statements are:
■ determining whether an event has occurred in the past that would result in a claim, and whether it is probable
that such a claim would result in an outflow of resources for the Group; and
■ assessing the statutory limitation period.
Estimates
The following table sets out the underlying assumptions used in estimating the provision that, depending on
a range of factors, could result in a material adjustment in the next financial year. Sensitivity analysis to illustrate
the impact of, what the Group considers to be, reasonable changes to these assumptions is also provided.
Assumption
Sensitivity analysis
Number of complaints
In deriving this figure the Group takes into account:
■ the status of current claims and projected potential future claims
based on existing complaint data;
■ the origin of the claim (i.e. if the claim relates to a solvent or insolvent
supplier, or if the claim is via a claims management company); and
■ the statutory limitation period.
The impact of a +/-5 percentage point change
in the absolute number of complaints would result
in a £4.3 million increase or decrease in the
provisions, respectively.
Number of upheld claims
Once the number of complaints has been estimated, it is necessary
to estimate how many of these claims will be upheld. This is based
on existing complaint data.
The impact of a +/-5 percentage point change
in the average uphold rate per complaint would
result in a £1.7 million increase or decrease in the
provisions, respectively.
Redress costs on upheld claims
This reflects the expected average customer compensation on
the estimated number of upheld claims, based on agreed redress
strategies (inclusive of loan balance adjustments and cash payments).
This is based on actual claim data.
The impact of a £500 increase or decrease in
the average redress per complaint would result
in a £1.4 million increase or decrease in the
provisions, respectively.
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Shawbrook Group plc | Annual Report and Accounts 2021 (c) Securitisations
See accounting policies at Note 7(i) and disclosures at Note 24
Securitisations involve the transfer of customer loans to structured entities. In determining the accounting
treatment to be applied for each securitisation transaction, complex assessments must be performed,
which necessitates the application of judgement.
Judgements
Judgements considered to have the most significant effect on amounts in the financial statements are:
■ determining whether the Group controls the structured entity and whether it should therefore be treated
as a subsidiary by virtue of control and consolidated; and
■ determining whether the securitised loans should be derecognised.
(d) Classification of financial assets
See accounting policies at Note 7(v) and disclosures at Note 41
Determining the classification of financial assets involves complex assessments that necessitate the application of
judgement.
Judgements
Judgements considered to have the most significant effect on amounts in the financial statements are:
■ determining the business model within which portfolios of assets are managed; and
■ determining whether the contractual terms of a financial asset give rise on specified dates to cash flows
that are SPPI.
These two judgements dictate whether assets are held at amortised cost, FVOCI or FVTPL and thus has a
significant impact on the resulting accounting treatment and amounts recognised in the financial statements.
(e) Acquisition of subsidiary
See accounting policies at Note 7(a) and disclosures at Note 10
In February 2021, the Group’s equity interest in The Mortgage Lender Limited (TML) increased from 19.99% to 100%
and TML became a subsidiary from that date. In accounting for this business combination, judgement was
required to determine the fair values at the date of acquisition.
Judgements
The judgement considered to have the most significant effect on amounts in the financial statements is:
■ determining the fair value of net assets acquired, in particular in identifying separately identifiable
intangible assets.
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10. Acquisition of subsidiary
See accounting policies in Note 7(a)
On 26 February 2021, following the receipt of regulatory and legal approval, Shawbrook Bank Limited, the Group’s
principal subsidiary, completed the acquisition of the remaining 80.01% of shares in TML. As a result, Shawbrook
Bank Limited’s equity interest in TML increased from 19.99% to 100%, making TML a wholly owned subsidiary of the
Group. Prior to this, TML was treated as an associate and was accounted for using the equity method of
accounting (see Note 30).
TML’s principal activity is residential mortgage finance. Taking control of TML will strengthen the Group’s presence
in its core residential and buy-to-let markets, providing the Group with growth opportunities through an extended
product range and increased distribution network.
TML commenced being consolidated as a subsidiary of the Group from 26 February 2021, the date control
transferred to the Group. In the ten months of the reporting period that TML was a subsidiary of the Group, TML
contributed net operating income of £4.9 million and a loss before tax of £7.7 million to the Group’s results. If the
acquisition had occurred on 1 January 2021, it is estimated that the consolidated net operating income for the
Group for the year ended 31 December 2021 would have been £386.4 million and consolidated profit before tax
for the Group would have been £196.1 million.
As detailed below, in accordance with the requirements of IFRS 3 ‘Business Combinations’, the Group has determined
the fair values at the date of acquisition for the consideration transferred, the pre-existing interest in TML and the
identifiable assets acquired and liabilities assumed. The Group continued to assess these amounts, in particular the
fair value of identifiable net assets acquired, for a period of 12 months, concluding on 25 February 2022, to determine
if any additional information existed at the date of acquisition that would alter these amounts.
Critical accounting judgements
Determining the fair values at the date of acquisition, in particular of the net assets acquired, is an area
identified as involving critical accounting judgements. Additional details are provided in Note 9(e).
Consideration transferred
The acquisition date fair value of each major class of consideration transferred is as follows:
Cash
Loan notes
Total consideration transferred
Fair value
£m
5.5
5.6
11.1
There are no contingent consideration arrangements.
Pre-existing interest in TML
The fair value of the 19.99% equity interest in TML previously held was £2.8 million, calculated proportionately
based on the total consideration paid for the remaining 80.01% interest. An impairment was recognised in
the comparative year ended 31 December 2020 to reduce the carrying amount to £2.8 million and, as such,
no further remeasurement was required at the point of acquisition.
Identifiable assets acquired and liabilities assumed
The carrying amount of the net assets acquired at the date of acquisition was £2.9 million. The Group recognised
a fair value adjustment of £1.0 million, reflecting separately identifiable intangible assets recognised in the
combination. An additional adjustment, to align the accounting policies of TML to the Group in respect of lessor
accounting, resulted in the recognition of property plant and equipment and lease liabilities of £0.5 million,
the overall impact to net assets acquired being £nil.
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Shawbrook Group plc | Annual Report and Accounts 2021 Following these adjustments, the fair value of net assets acquired at the date of acquisition was £3.9 million,
as summarised in the following table.
Fair value
£m
Cash and cash equivalents
Property, plant and equipment
Intangible assets
Deferred tax assets
Other assets
Lease liabilities
Other liabilities
Total identifiable net assets acquired
Other assets include other receivables of £0.6 million. The gross contractual amounts due on these other
receivables was £0.6 million, all of which was expected to be collectable at the date of acquisition.
Goodwill
Goodwill arising from the acquisition has been recognised as follows:
Fair value of consideration transferred
Fair value of pre-existing 19.99% interest
Fair value of identifiable net assets acquired
Goodwill recognised
2.1
0.6
1.2
2.4
0.7
(0.5)
(2.6)
3.9
£m
11.1
2.8
(3.9)
10.0
The goodwill recognised is mainly attributable to the synergies expected to be achieved from integrating TML
into the Group.
None of the goodwill recognised is expected to be tax deductible for trading purposes.
Acquisition related costs
In the year ended 31 December 2021, acquisition related costs of £0.6 million are recognised in administrative
expenses in the statement of profit and loss (2020: £0.9 million).
Capital contribution from ultimate parent company
Immediately following the acquisition, TML exchanged the £5.6 million of loan notes issued by Shawbrook Bank
Limited as consideration upon acquisition for new loan notes issued by the Company. This transaction is ultimately
reflected in the Company statement of financial position as a capital contribution to Shawbrook Bank Limited,
increasing the investment in subsidiary (see Note 33).
In turn, TML exchanged the loan notes issued by the Company for shares in Marlin Bidco Limited, the ultimate
parent company of the Group. This transaction is ultimately reflected as a capital contribution to the Company
and results in the recognition of a £5.6 million capital contribution reserve in equity and the cancellation of the
loan notes issued.
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Strategic ReportCorporate GovernanceRisk ReportFinancial Statements Notes to the financial statements
for the year ended 31 December 2021
11. Segmental analysis
See accounting policies in Note 7(b)
The following section provides information regarding the operating segments of the Group. Substantially all of
the Group’s activities are in the United Kingdom and, as such, segmental analysis on geographical lines is not
presented. The Group is not reliant on any single customer and therefore information about major customers
is also not provided.
Operating segments
During the year ended 31 December 2021, the Group implemented organisational changes, whereby the Group is
now centred around three customer franchises (Enterprise, Consumer and TML), with an additional central segment.
Prior to the organisational changes, the Group had four reportable operating segments: three lending segments
(Property Finance, Business Finance and Consumer Lending) and a central segment (Savings and Central).
Following the changes, a new reportable lending segment, TML Mortgages1, was added, aligning to the revised
basis that financial information is presented to the chief operating decision maker. TML Mortgages, was previously
included within the Property Finance lending segment. Consequently, there are now five reportable operating
segments: four lending segments and a central segment. These operating segments are organised under the
Group’s new customer franchises, as summarised in the following table:
Business area Operating segment
Status
Description
Enterprise
franchise
Property Finance
Amended to extract
TML Mortgages
Provides specialist commercial and residential mortgage
products to professional landlords, investors and homeowners.
See page 15 of the Strategic Report.
Business Finance
Unchanged
Provides debt-based financing solutions to support UK SME’s.
Consumer
franchise
TML
franchise
Consumer Lending
Unchanged
TML Mortgages1
New segment
Central
Savings and Central
Unchanged
See page 18 of the Strategic Report.
Provides unsecured personal loans and unsecured loans
through strategic partnerships.
See page 23 of the Strategic Report.
Provides flexible residential mortgages for those with complex
circumstances, including the self-employed, entrepreneurs
and first-time buyers, and buy-to-let mortgages.
See page 26 of the Strategic Report.
Comprises the Savings business, which offers personal savings
products and business savings products for SMEs and charities,
along with central functions and shared central costs.
See pages 24 and 27 of the Strategic Report, respectively.
The following tables provide summarised information regarding the results of each reportable operating segment
based on the new reportable operating segments. Prior year comparative information has been restated accordingly.
1 The TML Mortgages segment comprises: the TML subsidiary, or, prior to it becoming a subsidiary when TML was an associate,
the Group’s share of results (see Note 10); and loans originated by TML that are held on Shawbrook Bank Limited’s statement
of financial position.
202
Shawbrook Group plc | Annual Report and Accounts 2021 The results for each segment in the following tables are presented on a consolidated basis, as reviewed by the chief
operating decision maker. Intra-group transactions between segments are minimal and are not separately disclosed.
Intra-group transactions are conducted under terms that are usual and customary for such activities.
Year ended 31 December 2021
Property
Finance
£m
Enterprise
Business
Finance
£m
Consumer
Lending
£m
TML
Mortgages
£m
Savings and
Central
£m
Interest and similar income
250.3
143.7
Interest expense
and similar charges
Net interest income/(expense)
Net operating lease income
Net fee and commission
income/(expense)
Net gains/(losses) on
derecognition of financial
assets measured at
amortised cost
Net gains on
derivative financial
instruments and
hedge accounting
Net other operating income
Net operating
income/(expense)
(57.2)
193.1
–
(3.4)
–
–
–
(14.7)
129.0
1.8
8.5
(0.1)
–
–
16.6
(3.6)
13.0
–
1.5
(8.1)
(8.7)
(16.8)
–
(0.7)
Total
£m
443.7
(89.1)
354.6
1.8
4.5
21.8
–
21.7
–
–
3.1
0.4
3.1
0.4
41.2
(4.9)
36.3
–
(1.4)
–
–
–
189.7
139.2
34.9
36.3
(14.0)
386.1
Administrative expenses
(20.7)
(26.5)
(11.3)
(11.9)
(94.1)
(164.5)
Impairment losses
on financial assets
Provisions
7.8
–
(38.5)
–
Total operating expenses
(12.9)
(65.0)
0.1
7.0
(4.2)
(0.8)
–
(12.7)
–
–
(31.4)
7.0
(94.1)
(188.9)
Profit/(loss) before tax
176.8
74.2
30.7
23.6
(108.1)
197.2
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Strategic ReportCorporate GovernanceRisk ReportFinancial Statements
Notes to the financial statements
for the year ended 31 December 2021
11. Segmental analysis continued
Year ended 31 December 2020
(Restated)
Property
Finance
£m
Enterprise
Business
Finance
£m
Consumer
Lending
£m
TML
Mortgages
£m
Savings and
Central
£m
Interest and similar income
221.1
112.2
Interest expense
and similar charges
Net interest income/(expense)
Net operating lease income
Net fee and commission
income/(expense)
Net gains/(losses) on
derecognition of financial
assets measured at
amortised cost
Net losses on derivative
financial instruments
and hedge accounting
Net other operating income
(70.2)
150.9
–
(3.3)
–
–
–
(19.8)
92.4
1.7
7.9
–
–
–
50.6
(8.4)
42.2
–
10.7
(6.0)
4.7
–
(2.7)
(0.5)
(3.4)
(11.2)
(14.6)
–
(1.1)
Total
£m
391.2
(115.6)
275.6
1.7
0.3
(0.2)
9.6
–
9.4
–
–
–
–
(5.0)
0.6
(5.0)
0.6
Net operating income/(expense)
147.6
102.0
39.3
13.8
(20.1)
282.6
Administrative expenses
(18.1)
(24.4)
(14.5)
(0.6)
(73.7)
(131.3)
Impairment losses
on financial assets
Provisions
Total operating expenses
Net share of results and
impairment of associate
(16.9)
–
(35.0)
(20.1)
–
(44.5)
(17.0)
(20.3)
(51.8)
(0.9)
–
(1.5)
–
–
(54.9)
(20.3)
(73.7)
(206.5)
–
–
–
(2.6)
–
(2.6)
Profit/(loss) before tax
112.6
57.5
(12.5)
9.7
(93.8)
73.5
204
Shawbrook Group plc | Annual Report and Accounts 2021
The following tables present summarised information about the Group’s assets and liabilities based on the new
reportable operating segments. Prior year comparative information has been restated accordingly. Certain assets
and liabilities are not allocated to the customer franchise operating segments as they are managed on a Group
basis and are therefore presented within the Central operating segment.
As at 31 December 2021
Assets
Liabilities
Property
Finance
£m
Enterprise
Business
Finance
£m
5,443.2
2,217.6
–
–
Net assets/(liabilities)
5,443.2
2,217.6
Consumer
Lending
£m
TML
Mortgages
£m
Savings and
Central
£m
Total
£m
434.3
–
434.3
512.8
2,421.6
11,029.5
–
(10,069.3)
(10,069.3)
512.8
(7,647.7)
960.2
As at 31 December 2020
(Restated)
Assets
Liabilities
Property
Finance
£m
Enterprise
Business
Finance
£m
4,616.7
1,801.6
–
–
Net assets/(liabilities)
4,616.7
1,801.6
Consumer
Lending
£m
TML
Mortgages
£m
Savings and
Central
£m
Total
£m
445.4
–
445.4
239.1
1,834.7
8,937.5
–
(8,123.0)
(8,123.0)
239.1
(6,288.3)
814.5
12. Interest and similar income
See accounting policies in Note 7(c)
Interest income calculated using the effective interest rate method
On cash and balances at central banks
On loans and advances to customers
On investment securities
Total interest income calculated using the effective interest rate method
Other interest and similar income
On derivative financial instruments
Total other interest and similar income
2021
£m
1.5
451.9
2.9
456.3
(12.6)
(12.6)
2020
£m
3.1
394.6
2.2
399.9
(8.7)
(8.7)
Total interest and similar income
443.7
391.2
Interest income calculated using the effective interest rate method is all attributable to financial assets
measured at amortised cost.
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Strategic ReportCorporate GovernanceRisk ReportFinancial Statements Notes to the financial statements
for the year ended 31 December 2021
13. Interest expense and similar charges
See accounting policies in Note 7(c)
On amounts due to banks
On customer deposits
On derivative financial instruments
On debt securities in issue
On lease liabilities
On subordinated debt liability
Total interest expense and similar charges
2021
£m
1.6
76.2
(0.7)
3.7
0.2
8.1
89.1
2020
£m
3.4
99.7
(0.9)
3.7
0.4
9.3
115.6
Except for the amounts attributable to derivative financial instruments, amounts in the above table are calculated
using the effective interest rate method and are attributable to financial liabilities not measured at fair value
through profit and loss.
14. Net fee and commission income
See accounting policies in Note 7(d)
Fee income on loans and advances to customers
Credit facility related fees
Total fee and commission income
Fee and commission expense
Net fee and commission income
2021
£m
7.6
3.9
11.5
2020
£m
5.3
3.3
8.6
(7.0)
(8.3)
4.5
0.3
15. Derecognition of financial assets measured at amortised cost
See accounting policies in Note 7(v)
Net losses on sale of customer loan portfolios
Net gains on structured asset sales
Net gains on derecognition of financial assets measured at amortised cost
2021
£m
(0.1)
21.8
21.7
2020
£m
(0.2)
9.6
9.4
206
Shawbrook Group plc | Annual Report and Accounts 2021 Sale of customer loan portfolios
In the year ended 31 December 2021, the £0.1 million net loss is attributable to the sale of a portfolio of loans
from Business Finance in February 2021. The portfolio was classified as held for sale as at 31 December 2020 (see
Note 32) and, at the point of derecognition, still had a gross carrying amount (and carrying amount) of £2.3 million.
In the comparative year ended 31 December 2020, the £0.2 million net loss was attributable to the sale of a
portfolio of unsecured personal loans from Consumer Lending in January 2020. The loans had been classified
as held for sale as at 31 December 2019 and at the point of derecognition, the loan portfolio had a gross carrying
amount (before loss allowance) of £106.3 million and a carrying amount (after loss allowance) of £97.8 million.
Structured asset sales
The net gains on structured asset sales is attributable to securitised loan portfolios. The securitised loans were
transferred to unconsolidated structured entities and met the criteria to be derecognised from the statement
of financial position (see Note 24).
16. Administrative expenses
See accounting policies in Note 7(e)
Payroll costs
Depreciation of property, plant and equipment1
Other movements on property, plant and equipment depreciation
Net losses on disposal of property, plant and equipment
Amortisation of intangible assets
Net losses on disposal of intangible assets
Other administrative expenses
Total administrative expenses
Note
17
27
27
27
28
28
2021
£m
93.4
3.1
(0.4)
–
8.2
–
60.2
164.5
2020
£m
71.1
3.4
–
0.2
8.5
0.5
47.6
131.3
Other administrative expenses include fees paid to the Group’s auditor, KPMG LLP, as follows. Amounts represent
both current year costs and prior year overruns.
Audit of these annual accounts
Audit of the annual accounts of subsidiary companies
Other tax advisory services
Audit related assurance services
All other assurance services
Total auditor’s remuneration
2021
£000
150
2,600
–
140
–
2020
£000
150
1,257
7
110
55
2,890
1,579
1
Includes depreciation of all asset categories except for assets on operating leases. Depreciation of assets on operating leases
is presented as a separate line item in the statement of profit and loss.
207
Strategic ReportCorporate GovernanceRisk ReportFinancial Statements Notes to the financial statements
for the year ended 31 December 2021
17. Employees
See accounting policies in Note 7(e)
Aggregate payroll costs included in administrative expenses (Note 16) are as follows:
Wages and salaries
Social security costs
Pension costs
Payroll costs
2021
£m
81.4
7.4
4.6
93.4
2020
£m
61.5
5.8
3.8
71.1
Wages and salaries include share-based payment charges (see Note 18).
Pension costs represent contributions to defined contribution pension schemes. The Group does not operate
any defined benefit pension schemes.
Details of Directors’ remuneration are provided in Note 19.
The average number of persons employed by the Group on a full-time equivalent basis by reportable operating
segment is set out in the following table. The table is based on the Group’s new reportable operating segments
(see Note 11).
Property Finance
Business Finance
Consumer Lending
TML Mortgages
Savings and Central
Average employees (on a full-time equivalent basis)
2021
2020
96
235
43
121
469
964
89
225
47
–
450
811
Figures in the above tables include contracted employees of the Group only and do not include contractors.
208
Shawbrook Group plc | Annual Report and Accounts 2021 18. Employee share-based payment transactions
See accounting policies in Note 7(e)
The Group has one share-based scheme in operation, the Management Incentive Plan (MIP). This scheme was
originally introduced for a set of individuals in April 2019. The MIP is an equity-settled share-based payment
scheme. Individuals selected for inclusion in the MIP were entitled to acquire non-voting ‘B’ Class ordinary shares
in Marlin Bidco Limited, the ultimate parent company of the Group. Awards are subject to performance conditions
relating to the equity valuation of the Group in the event of a prescribed exit event. The outcome of the
performance conditions determines the vesting outcome of the awards.
Employee share-based payment charges recognised during the year total £0.6 million (2020: £0.5 million).
Movements in the number of share-based awards during the year are as follows:
Number of share-based awards
As at 1 January
Granted
Forfeited
As at 31 December
2021
8,175
1,675
(1,100)
8,750
2020
5,650
2,900
(375)
8,175
None of the share-based awards have a contractual maturity date and none were exercisable as at 31 December
in either of the reported years.
The grant date fair value of the share-based awards was determined using a Monte Carlo modelling technique.
Key assumptions used in the valuation of awards granted in the reported periods and the resultant grant date
fair value are set out in the following table:
Weighted average expected volatility
Weighted average dividend yield
Weighted average risk-free rate of return (based on government bonds)
Weighted average expected life at grant date
Weighted average grant date fair value (per share)
2021 awards
2020 awards
35.7%
0%
0%
35.0%
0%
(0.08%)
1.4 years
2.2 years
£503
£410
Expected volatility was calculated based on the historical volatility of banks closely aligned to the Group.
19. Directors’ remuneration
Directors' emoluments
Total Directors' remuneration
2021
£000
3,692
3,692
2020
£000
1,740
1,740
The above table includes both Executive and Non-Executive Directors. Further information is provided in the
Directors’ Remuneration Report starting on page 79.
209
Strategic ReportCorporate GovernanceRisk ReportFinancial Statements Notes to the financial statements
for the year ended 31 December 2021
20. Impairment losses on financial assets
See accounting policies in Note 7(w)
Impairment losses on financial assets are attributable to the Group’s loans and advances to customers and loan
commitments, as detailed in the table below. Impairment losses relating to the Group’s other financial asset
categories in scope of IFRS 9 impairments (cash and balances at central banks, loans and advances to banks
and investment securities) are immaterial in both reported years, totalling less than £0.1 million.
Impairment losses on loans and advances to customers
Net ECL (credit)/charge for the year
Loan balances written-off in the year
Amounts recovered in the year in respect of loan balances previously written-off
Total impairment losses on loans and advances to customers
Impairment losses on loan commitments
Net ECL (credit)/charge for the year
Total impairment losses on loan commitments
2021
£m
(15.4)
53.8
(4.5)
33.9
(2.5)
(2.5)
2020
£m
31.9
25.2
(4.4)
52.7
2.2
2.2
Total impairment losses on financial assets
31.4
54.9
Loan balances written-off during the year ended 31 December 2021 include £35.2 million relating to a customer
of the Group that became insolvent in November 2021.
Further analysis of the net ECL credit/(charge) for the year in respect of loans and advances to customers
and loan commitments is provided in the credit risk section of the Risk Report on page 122 and 126, respectively.
Critical accounting judgements and estimates
The impairment of financial assets is an area identified as involving critical accounting judgements and
estimates. Additional details are provided in Note 9(a) and in the credit risk section of the Risk Report starting
on pages 128 and 131, respectively.
210
Shawbrook Group plc | Annual Report and Accounts 2021 21. Tax
See accounting policies in Note 7(f)
A summary of the tax charge recognised in the statement of profit and loss is as follows:
Current tax
Current year
Adjustment in respect of prior years
Total current tax
Deferred tax
Origination and reversal of temporary differences
Adjustment in respect of prior years
Tax rate changes
Total deferred tax
Total tax charge
Note
29
29
29
2021
£m
50.1
(2.9)
47.2
(0.8)
2.6
(1.1)
0.7
2020
£m
15.2
(2.4)
12.8
1.4
1.2
–
2.6
47.9
15.4
A reconciliation of profit before tax to the total tax charge is shown in the following table. The effective tax rate
is 24.3% (2020: 20.9%). This is higher than the UK corporation tax rate due to the combined impact of the banking
surcharge and the other adjustments outlined in the table.
Profit before tax
Implied tax charge thereon at 19.00% (2020: 19.00%)
Adjustments
Banking surcharge
Tax relief on coupon paid on capital securities
Adjustment in respect of prior years
Disallowable expenses and other permanent differences
Tax rate changes
Total tax charge
2021
£m
197.2
2020
£m
73.5
37.5
14.0
13.5
(2.5)
(0.3)
0.8
(1.1)
47.9
3.6
(2.3)
(1.2)
1.3
–
15.4
The UK corporation tax rate will increase from 19% to 25% from 1 April 2023, as substantively enacted on 24 May
2021. In addition, as part of the Autumn Budget and Spending Review in October 2021, it was announced that
from April 2023, the banking surcharge will decrease from 8% to 3% and the banking surcharge exempt amount
will increase from £25 million to £100 million.
211
Strategic ReportCorporate GovernanceRisk ReportFinancial Statements Notes to the financial statements
for the year ended 31 December 2021
22. Cash and cash equivalents
See accounting policies in Note 7(g)
Cash and balances at central banks
Less: mandatory deposits with central banks
Loans and advances to banks
Total cash and cash equivalents
2021
£m
2020
£m
1,693.8
1,273.2
(21.1)
66.9
(18.0)
91.0
1,739.6
1,346.2
Mandatory deposits with central banks represent amounts held with the Bank of England in accordance with
statutory requirements. These deposits are not included in cash and cash equivalents as they are not available
for use in the Group’s day-to-day operations.
Cash and cash equivalents includes:
■ £10.8 million (2020: £48.6 million) of loans and advances to banks that have been pledged as cash collateral
against derivative contracts.
■ £15.7 million (2020: £6.3 million) of securitisation cash, which represents the restricted cash balances of
consolidated structured entities.
The loss allowance for both cash and balances at central banks and loans and advances to banks is immaterial
in both reported years, totalling less than £0.1 million.
23. Loans and advances to customers
See accounting policies in Note 7(h)
2021
2020
Gross
carrying
amount
£m
Loss
allowance
£m
Carrying
amount
£m
Gross
carrying
amount
£m
Loss
allowance
£m
Carrying
amount
£m
Loan receivables
7,938.4
(61.8)
7,876.6
6,685.1
(76.6)
6,608.5
Finance lease receivables
Instalment credit receivables
54.0
376.1
(2.8)
(11.4)
51.2
364.7
8,368.5
(76.0)
8,292.5
72.1
362.3
7,119.5
(5.0)
(10.7)
(92.3)
Fair value adjustments for hedged risk
Total loans and advances to customers
(20.4)
8,272.1
67.1
351.6
7,027.2
34.1
7,061.3
Additional analysis of the Group’s loans and advances to customers and the associated loss allowance is provided
in the credit risk section of the Risk Report starting on page 120.
Loans and advances to customers include pledged and transferred assets as follows. Amounts represent the
carrying amount (after loss allowance).
■ £1,282.2 million (2020: £946.8 million) positioned with the Bank of England for use as collateral against amounts
drawn under its Term Funding Scheme with additional incentives for SMEs.
■ £nil (2020: £55.3 million) pledged as collateral against secured bank borrowings.
■ £401.9 million (2020: £267.3 million) transferred to consolidated structured entities as part of securitisation
programmes, which are pledged as collateral against debt securities in issue.
212
Shawbrook Group plc | Annual Report and Accounts 2021 Loans and advances to customers also include loans offered under COVID-19 related business support schemes
(Coronavirus Business Interruption Loan Scheme and Recovery Loan Scheme). Such loans have a carrying amount
(after loss allowance) of £43.6 million (2020: £31.9 million). The UK Government provides a guarantee to protect 80%
of any post-recovery loss in the event of default on these loans. During the year, no claims have been made against
the government guarantee (2020: no claims).
Fair value adjustments for hedged risk represent an offset to the fair value movement on derivatives designated
in hedge relationships to manage interest rate risk (see Note 26).
Finance lease and instalment credit receivables
Finance lease receivables and instalment credit receivables relate to agreements issued by the Group to
customers for a variety of assets, predominantly plant and machinery. The following table sets out a maturity
analysis, showing the undiscounted payments to be received after the reporting date and a reconciliation to
the gross carrying amount of the receivable.
Undiscounted payments receivable
Within one year
Between one and two years
Between two and three years
Between three and four years
Between four and five years
After five years
Total undiscounted payments receivable
2021
2020
Finance
lease
receivables
£m
Instalment
credit
receivables
£m
Finance
lease
receivables
£m
Instalment
credit
receivables
£m
26.2
15.7
8.1
4.4
2.7
2.5
59.6
197.2
81.5
40.3
28.0
45.7
6.4
399.1
34.0
20.4
11.7
6.0
3.2
4.3
79.6
184.5
108.2
54.5
20.6
8.2
12.0
388.0
Unearned finance income
(5.6)
(23.0)
(7.5)
(25.7)
Gross carrying amount
54.0
376.1
72.1
362.3
Instalment credit receivables include block discounting facilities of £196.3 million (2020: £163.9 million).
The cost of assets acquired by the Group during the year for the purpose of letting to customers under finance
lease and instalment credit agreements is as follows:
Finance lease agreements
Instalment credit agreements
Total cost of assets acquired during the year
2021
£m
15.1
121.5
136.6
2020
£m
19.8
78.4
98.2
213
Strategic ReportCorporate GovernanceRisk ReportFinancial Statements Notes to the financial statements
for the year ended 31 December 2021
23. Loans and advances to customers continued
Modifications
The Group sometimes modifies the terms of loans provided to customers due to commercial renegotiations,
or for distressed loans with a view to maximising recovery.
Modifications occurring due to the customer encountering financial difficulties are referred to as forbearance
activities. Details of forborne loans are provided in the credit risk section of the Risk Report starting on page 142.
In response to COVID-19, from March 2020 to July 2021, the Group extended short-term concessions to customers
requiring support. In line with regulatory guidance and the Group’s forbearance policy, these interim measures
were not considered to be forbearance. Details of COVID-19 related concessions are provided in the credit risk
section of the Risk Report on page 144.
For loans modified during the year, the total net modification gain/loss recognised in the statement of profit and
loss is £nil in both reported years.
LIBOR transition
During the year ended 31 December 2021, the Group implemented its LIBOR transition programme with respect to
loans and advances to customers and, by 31 December 2021, the majority of loans had transitioned to alternative
rates. Details of loans that continue to be linked to LIBOR as at 31 December 2021, along with further information
regarding interest rate benchmark reform, are provided in the market risk section of the Risk Report starting on
page 154. Details regarding the practical expedient extended in the ‘Phase 2 amendments’ to IFRS 9 that was
applied by the Group when transitioning customer loans from LIBOR to alternative rates are provided in Note 6(a).
Write-offs still under enforcement activity
Loans that are written off can still be subject to enforcement activities in order to comply with the Group’s
procedures for recovery of amounts due. The contractual amount outstanding on loans and advances to
customers that were written off during the reporting period, and are still subject to enforcement activity,
is £28.3 million (2020: £27.7 million).
24. Securitisations and structured entities
See accounting policies in Note 7(i)
Consolidated structured entities
The Group includes consolidated structured entities relating to securitisation programmes. The securitisations
involve the transfer of certain mortgage loans included within loans and advances to customers to bankruptcy
remote structured entities. In relation to each of these transactions, the Group continues to service the transferred
loans in return for an administration fee and is entitled to any residual income from the structured entity after the
debt obligations and senior expenses of the securitisation programme have been met.
Based on the structure of these transactions, the Group has assessed that, for accounting purposes, it controls
the structured entities and, as such, they are treated as subsidiaries of the Group and are fully consolidated. The
transfer of loans did not meet the derecognition criteria and, accordingly, the loans continue to be recognised in
their entirety in the statement of financial position (see Note 23).
The securitisations provide long-term funding to the Group through the simultaneous issue of mortgage-backed
debt securities by the structured entities to external investors (see Note 37). The notes are secured on the portfolio
of securitised loans, with the final maturity date of the debt securities issued being no later than the final
repayment date of any of the underlying securitised loans.
214
Shawbrook Group plc | Annual Report and Accounts 2021 A portion of the notes issued by the structured entities are held by a subsidiary of the Group, Shawbrook Bank
Limited (and are eliminated on consolidation). Some of these internally held notes are used in ‘security swaps’,
whereby notes are exchanged for UK gilts (see Note 7(j)), whilst others are positioned with the Bank of England
for use as collateral against amounts drawn under its funding schemes.
Details of securitisations with consolidated structured entities during the reported years are as follows:
■ 2021: a securitisation programme with a consolidated structured entity was completed in August 2021. Loans
with a gross carrying amount (before loss allowance) of £191.1 million and a carrying amount (after loss
allowance) of £190.8 million were transferred to Wandle Mortgage Funding Limited. The structured entity
simultaneously privately issued mortgage-backed debt securities of £158.6 million to an external investor
(see Note 37), with additional notes retained by the Group.
■ 2020: there were no securitisations with consolidated structured entities.
The following table summarises the carrying amount of the securitised loans and the associated debt securities
in issue as at 31 December.
Shawbrook Mortgage Funding 2019-1 plc
Wandle Mortgage Funding Limited
Less: loss allowance on securitised loans
Less: held by the Group (and eliminated on consolidation)
Total recognised in statement of financial position
Loans and
advances
securitised
£m
2021
Debt
securities
in issue
£m
Loans and
advances
securitised
£m
232.1
170.7
402.8
(0.9)
401.9
233.4
178.9
412.3
(93.1)
319.2
268.2
–
268.2
(0.9)
267.3
2020
Debt
securities
in issue
£m
268.2
–
268.2
(63.4)
204.8
Unconsolidated structured entities
The Group has interests in unconsolidated structured entities associated with securitisation programmes. The
securitisations involve the transfer of certain mortgage loans included within loans and advances to customers to
bankruptcy remote structured entities. The residual certificates, representing the rights to receive residual income
from the structured entity, were sold as part of these transactions.
Based on the structure of these transactions, the Group has assessed that, for accounting purposes, it does not
control the structured entities and, as such, they are not consolidated. The transferred loans met the criteria for
derecognition and, accordingly, the loans were derecognised in their entirety from the statement of financial
position and are referred to as ‘structured asset sales’.
Details of securitisations with unconsolidated structured entities during the reported years are as follows:
■ 2021: a securitisation programme with an unconsolidated structured entity was completed in September 2021.
At the point of derecognition, loans had a gross carrying amount (before loss allowance) of £343.0 million and a
carrying amount (after loss allowance) of £342.6 million. A net gain on derecognition of £21.8 million is recognised
in the statement of profit and loss (see Note 15).
■ 2020: a securitisation programme with an unconsolidated structured entity was completed in September 2020.
At the point of derecognition, loans had a gross carrying amount (before loss allowance) of £330.6 million and a
carrying amount (after loss allowance) of £329.9 million. A net gain on derecognition of £9.6 million is recognised
in the statement of profit and loss (see Note 15).
215
Strategic ReportCorporate GovernanceRisk ReportFinancial Statements Notes to the financial statements
for the year ended 31 December 2021
24. Securitisations and structured entities continued
A portion of the debt securities issued by the unconsolidated structured entities as part of the securitisation
transactions were purchased by a subsidiary of the Group, Shawbrook Bank Limited. The Group therefore has
a direct interest in the unconsolidated structured entities. As at 31 December 2021, the carrying amount of the
Group’s investment in debt securities issued by unconsolidated structured entities is £129.5 million (2020:
£79.4 million) (see Note 25). This amount represents the Group’s maximum exposure to loss from its interests
in unconsolidated structured entities.
As at 31 December 2021, the total asset value of the unconsolidated structured entities, including the portion
in which the Group has no interest, is £543.3 million (2020: £327.4 million).
During the year ended 31 December 2021, the Group paid up-front expenses incurred in forming the
unconsolidated structured entity of £1.7 million (2020: £1.7 million). This included amounts to capitalise the entity
and all bank and legal expenses. The Group has no intentions to provide any further financial or other support
to the unconsolidated structured entities following these initial set-up costs.
Critical accounting judgements
The assessments involved in determining whether the Group controls the structured entity and whether
the loans meet the criteria to be derecognised are identified as involving critical accounting judgements.
Additional details are provided in Note 9(c).
25. Investment securities
See accounting policies in Note 7(j)
As at 1 January
Additions
Maturities
Other movements
As at 31 December
Covered
bonds
£m
Debt
securities
£m
278.8
149.8
(37.7)
1.6
79.4
50.0
–
0.1
2021
Total
£m
358.2
199.8
(37.7)
1.7
Covered
bonds
£m
Debt
securities
£m
200.0
78.9
–
(0.1)
–
79.3
–
0.1
2020
Total
£m
200.0
158.2
–
–
392.5
129.5
522.0
278.8
79.4
358.2
Investment securities include pledged assets as follows:
■ £391.0 million (2020: £150.0 million) positioned with the Bank of England for use as collateral against amounts
drawn under its Term Funding Scheme with additional incentives for SMEs.
■ £129.3 million (2020: £15.0 million) pledged as collateral for repurchase agreements or used in ‘security swaps’
(see Note 7(j)).
Debt securities represent mortgage-backed debt securities issued by unconsolidated structured entities as part
of securitisation transactions that were retained by the Group (see Note 24).
The loss allowance for investment securities is immaterial in both reported years, totalling less than £0.1 million.
LIBOR transition
During the year ended 31 December 2021, the Group implemented its LIBOR transition programme with respect
to investment securities. As at 31 December 2021, there are no remaining investment securities with LIBOR
dependency. Further information regarding interest rate benchmark reform is provided in the market risk section
of the Risk Report starting on page 154. Details regarding the practical expedient extended in the ‘Phase 2
amendments’ to IFRS 9 that was applied by the Group when investment securities were transitioned from LIBOR
to alternative benchmark rates are provided in Note 6(a).
216
Shawbrook Group plc | Annual Report and Accounts 2021 26. Derivative financial instruments and hedge accounting
See accounting policies in Note 7(k) and Note 7(l)
Derivative financial instruments
Derivative financial instruments are used by the Group for risk management purposes in order to minimise or
eliminate the impact of movements in interest rates and foreign exchange rates. Derivatives are not used for
trading or speculative purposes. Additional information about market risk, and the use of derivatives in managing
such risk, is included in the Risk Report starting on page 151.
The Group uses the International Swaps and Derivatives Association Master Agreement to document these
transactions in conjunction with a Credit Support Annex.
The following table analyses the Group’s derivative financial instruments by instrument type and specifies
which instruments are designated as hedging instruments in qualifying hedging relationships.
As at 31 December 2021
Interest rate swaps – in hedging relationship
Other interest rate swaps – not in hedging relationship
Interest rate options – in hedging relationship
Spot and forward foreign exchange swaps –
not in hedging relationship
Balance guaranteed swaps – not in hedging relationship
Total derivative financial instruments
As at 31 December 2020
Interest rate swaps – in hedging relationship
Other interest rate swaps – not in hedging relationship
Interest rate options – in hedging relationship
Spot and forward foreign exchange swaps –
not in hedging relationship
Balance guaranteed swaps – not in hedging relationship
Total derivative financial instruments
Nominal
amount
£m
1,797.8
27.7
–
12.1
175.3
2,012.9
Assets
Carrying
amount
£m
20.3
1.0
–
–
0.2
21.5
Nominal
amount
£m
Assets
Carrying
amount
£m
62.0
–
–
28.4
217.8
308.2
0.2
–
–
0.4
3.5
4.1
Nominal
amount
£m
2,296.5
–
1,000.0
14.0
175.3
3,485.8
Nominal
amount
£m
1,251.1
27.7
1,050.0
0.4
217.8
2,547.0
Liabilities
Carrying
amount
£m
5.8
–
2.1
–
0.2
8.1
Liabilities
Carrying
amount
£m
27.4
0.4
10.5
0.2
3.5
42.0
Interest rate swaps are used to manage interest rate risk associated with the Group’s loans and advances
to customers and customer deposits.
Interest rate options are used specifically to manage interest rate risk associated with certain mortgage loans.
Of these interest rate options, £575 million are forward starting, with an effective date beyond 31 December 2021.
Spot and forward foreign exchange swaps are used to manage foreign exchange risk associated with the Group’s
loans and advances to customers and loans and advances to banks.
217
Strategic ReportCorporate GovernanceRisk ReportFinancial Statements Notes to the financial statements
for the year ended 31 December 2021
26. Derivative financial instruments and hedge accounting continued
Balance guaranteed swaps are used by the Group to allow the original hedge accounting relationships relating to
certain securitised fixed rate mortgage loans to be maintained. This involved back-to-back balance guaranteed
swaps being entered into with an external counterparty. The notional amount of these swaps will amortise in their
entirety based upon the realised amortisation of the reference pool of loans.
Article 4 of the European Market Infrastructure Regulation requires that standardised over-the-counter (OTC)
derivatives are mandatorily cleared through authorised central counterparties. Accordingly, the Group clears its
standardised OTC derivatives via ABN Amro with London Clearing House. The following tables split out the total
nominal amount of derivative financial instruments into cleared and OTC:
As at 31 December 2021
Cleared
£m
OTC
£m
Assets
Total
£m
Cleared
£m
Interest rate swaps in hedging relationship
1,633.9
163.9
1,797.8
2,289.1
Other interest rate swaps
Interest rate options in hedging relationship
Spot and forward foreign exchange swaps
Balance guaranteed swaps
Total
27.7
–
–
–
1,661.6
–
–
12.1
175.3
351.3
As at 31 December 2020
Cleared
£m
OTC
£m
Interest rate swaps in hedging relationship
62.0
Other interest rate swaps
Interest rate options in hedging relationship
Spot and forward foreign exchange swaps
Balance guaranteed swaps
Total
–
–
–
–
62.0
–
–
–
28.4
217.8
246.2
Liabilities
Total
£m
2,296.5
–
OTC
£m
7.4
–
1,000.0
1,000.0
14.0
175.3
14.0
175.3
27.7
–
12.1
175.3
–
-
–
–
2,012.9
2,289.1
1,196.7
3,485.8
Assets
Total
£m
62.0
–
–
28.4
217.8
308.2
Liabilities
Cleared
£m
OTC
£m
Total
£m
416.8
27.7
834.3
1,251.1
–
27.7
–
–
–
1,050.0
1,050.0
0.4
217.8
0.4
217.8
444.5
2,102.5
2,547.0
In respect of derivative financial instruments, cash collateral totalling £10.8 million has been pledged
(2020: £48.6 million) and £0.3 million has been received (2020: £nil) (see Note 22 and Note 34, respectively).
Hedge accounting
The Group holds certain interest rate swaps and its interest rate options as hedging instruments in fair value
hedges. The Group does not designate any derivatives as cash flow hedges or net investment hedges.
218
Shawbrook Group plc | Annual Report and Accounts 2021 Details of the Group’s fair value hedges are presented in the following tables:
As at 31 December 2021
Interest rate swaps
Nominal amount (£m)
Less than
1 month
1 – 3
months
3 months
– 1 year
1 – 5
years
More than
5 years
Total
Maturity
9.0
60.0
1,748.3
2,178.4
98.6
4,094.3
Average fixed interest rate
1.16%
0.99%
0.29%
0.70%
0.64%
0.53%
Interest rate options
Nominal amount (£m)
Average fixed interest rate
As at 31 December 2020
Interest rate swaps
Nominal amount (£m)
Average fixed interest rate
Interest rate options
Nominal amount (£m)
Average fixed interest rate
–
–
–
–
350.0
0.75%
650.0
0.75%
–
–
1,000.0
0.75%
Less than
1 month
1 – 3
months
3 months
– 1 year
1 – 5
years
More than
5 years
–
–
–
–
35.0
1.10%
79.0
1.05%
1,120.6
0.68%
78.5
0.67%
–
–
50.0
1,000.0
0.75%
0.75%
–
–
1,050.0
0.75%
Maturity
Total
1,313.1
0.70%
Amounts relating to items designated as hedging instruments and hedge ineffectiveness are set out in the following
tables. The carrying amount of assets and liabilities included in these tables are presented in the statement of financial
position on the lines derivative financial assets and derivative financial liabilities, respectively. Ineffectiveness is
recognised in the statement of profit and loss on the line net gains/(losses) on derivative financial instruments
and hedge accounting. The main sources of ineffectiveness in these hedge relationships relate to the modelled
prepayment/repayment behaviour and the assumptions that are used in modelling this behaviour.
Nominal
amount
£m
Carrying
amount
£m
Change in fair value used for
calculating ineffectiveness
£m
Ineffectiveness recognised
in statement of profit and loss
£m
As at 31 December 2021
Interest rate swaps
Assets
Liabilities
Interest rate options
1,797.8
2,296.5
20.3
5.8
Liabilities
1,000.0
2.1
48.3
(3.6)
9.1
1.0
–
0.1
As at 31 December 2020
Interest rate swaps
Assets
Liabilities
Interest rate options
Liabilities
Nominal
amount
£m
Carrying
amount
£m
Change in fair value used for
calculating ineffectiveness
£m
Ineffectiveness recognised
in statement of profit and loss
£m
62.0
1,251.1
1,050.0
0.2
27.4
10.5
(21.5)
(0.6)
(6.4)
–
–
0.9
219
Strategic ReportCorporate GovernanceRisk ReportFinancial Statements Notes to the financial statements
for the year ended 31 December 2021
26. Derivative financial instruments and hedge accounting continued
Amounts relating to items designated as hedged items are as follows:
As at 31 December 2021
Note1
Assets
Accumulated fair value
hedge adjustments on
the hedged item included
in the carrying amount of
the hedged item2
£m
Carrying
amount
£m
Change in fair value
used for calculating
ineffectiveness
£m
Loans and advances to customers
23
3,112.3
Liabilities
Customer deposits
35
1,982.0
(20.4)
3.7
(56.5)
3.8
As at 31 December 2020
Note1
Assets
Accumulated fair value
hedge adjustments on
the hedged item included
in the carrying amount of
the hedged item2
£m
Carrying
amount
£m
Change in fair value
used for calculating
ineffectiveness
£m
Loans and advances to customers
23
2,363.1
Liabilities
Customer deposits
35
–
34.1
–
24.0
0.5
All hedge accounting relationships have remained highly effective throughout both reported years.
LIBOR transition
During the year ended 31 December 2021, the Group implemented its LIBOR transition programme with respect to
hedge relationships. As at 31 December 2021, there are no remaining hedge relationships with LIBOR dependency.
Further information regarding interest rate benchmark reform is provided in the market risk section of the Risk Report
starting on page 154. Details regarding the relief extended in the ‘Phase 2 amendments’ to IAS 39 that was applied by
the Group when transitioning hedges from LIBOR to alternative benchmark rates are provided in Note 6(a).
Net gains and losses on derivative financial instruments and hedge accounting
Gains and losses on derivative financial instruments and hedge accounting recognised in the statement of profit
and loss are summarised as follows:
Net fair value gains/(losses) on derivative financial instruments
Net fair value (losses)/gains on hedged risk
Net gains/(losses) on derivative financial instruments and hedge accounting
2021
£m
55.8
(52.7)
3.1
2020
£m
(29.5)
24.5
(5.0)
Net fair value gains/(losses) on derivative financial instruments include foreign exchange gains and losses.
1 Note number reference signposts to where the accumulated fair value hedge adjustments on the hedged item is included.
2 The accumulated amount of fair value adjustments remaining in the statement of financial position for hedged items that
have been de-designated, for which the fair value hedged item adjustment is being amortised into the statement of profit
and loss is £2.7 million (2020: £1.6 million).
220
Shawbrook Group plc | Annual Report and Accounts 2021 27. Property, plant and equipment
See accounting policies in Note 7(m)
Year ended 31 December 2021
Cost
As at 1 January 2021
Additions
Acquisitions through
business combinations
Disposals
Other movements1
Transfer to finance leases
As at 31 December 2021
Accumulated depreciation
As at 1 January 2021
Charge for the year
Disposals
Other movements1
Transfer to finance leases
As at 31 December 2021
Carrying amount
As at 1 January 2021
As at 31 December 2021
Year ended 31 December 2020
Cost
As at 1 January 2020
Additions
Disposals
Transfer to finance leases
As at 31 December 2020
Accumulated depreciation
As at 1 January 2020
Charge for the year
Disposals
Transfer to finance leases
As at 31 December 2020
Carrying amount
As at 1 January 2020
As at 31 December 2020
Right-of-use
leasehold property
£m
Leasehold
property
£m
Fixtures, fittings
and equipment
£m
Assets on
operating leases
£m
Total
£m
11.7
0.1
0.5
–
–
–
12.3
2.3
1.8
–
–
–
4.1
9.4
8.2
2.9
–
–
(0.3)
(0.9)
–
1.7
1.5
0.2
(0.3)
(0.4)
–
1.0
1.4
0.7
15.5
0.7
0.1
(1.2)
–
–
15.1
11.9
1.1
(1.2)
–
–
11.8
3.6
3.3
60.4
7.1
–
(6.8)
–
(3.8)
56.9
21.2
8.6
(6.1)
–
(2.9)
20.8
39.2
36.1
90.5
7.9
0.6
(8.3)
(0.9)
(3.8)
86.0
36.9
11.7
(7.6)
(0.4)
(2.9)
37.7
53.6
48.3
Right-of-use
leasehold property
£m
Leasehold
property
£m
Fixtures, fittings
and equipment
£m
Assets on
operating leases
£m
Total
£m
12.6
2.6
(3.5)
–
11.7
1.5
1.6
(0.8)
–
2.3
11.1
9.4
2.4
0.5
–
–
2.9
0.9
0.6
–
–
1.5
1.5
1.4
16.2
0.3
(1.0)
–
15.5
11.5
1.2
(0.8)
–
11.9
4.7
3.6
60.4
11.1
(6.6)
(4.5)
60.4
20.5
9.1
(5.7)
(2.7)
21.2
39.9
39.2
91.6
14.5
(11.1)
(4.5)
90.5
34.4
12.5
(7.3)
(2.7)
36.9
57.2
53.6
Further details relating to right-of-use leasehold property and assets on operating leases are provided in Note 38.
1 Other movements represents an adjustment to the dilapidation accrual and reversal of the associated depreciation recognised.
221
Strategic ReportCorporate GovernanceRisk ReportFinancial Statements Notes to the financial statements
for the year ended 31 December 2021
28. Intangible assets
See accounting policies in Note 7(n)
Cost
As at 1 January
Additions
Acquisitions through business combinations
Disposals
As at 31 December
Accumulated amortisation and impairment
As at 1 January
Amortisation charge for the year
Disposals
As at 31 December
Carrying amount
As at 1 January
As at 31 December
2021
Other
intangible
assets
£m
Goodwill
£m
Total
£m
Goodwill
£m
Other
intangible
assets
£m
44.8
–
10.0
–
54.8
1.1
–
–
1.1
43.7
53.7
49.8
7.1
1.2
–
58.1
28.4
8.2
–
36.6
21.4
21.5
94.6
7.1
11.2
–
112.9
29.5
8.2
–
37.7
65.1
75.2
44.8
–
–
–
44.8
1.1
–
–
1.1
43.7
43.7
44.3
7.5
–
(2.0)
49.8
21.4
8.5
(1.5)
28.4
22.9
21.4
2020
Total
£m
89.1
7.5
–
(2.0)
94.6
22.5
8.5
(1.5)
29.5
66.6
65.1
Other intangible assets is predominantly comprised of computer software, but also includes assets recognised
on the acquisition of businesses, representing brands and the benefit of business networks. Other intangible asset
additions include £7.0 million of internally generated assets (2020: £7.4 million).
Goodwill impairment testing
In accordance with accounting standards and the Group’s accounting policy, the Group performed its annual
assessment to identify any impairment to goodwill. For the purposes of impairment testing, goodwill is allocated to
the Group’s CGUs. The Group’s CGUs are the same as the Group’s new reportable operating segments (see Note 11).
Goodwill is impaired if the carrying amount of a CGU exceeds its recoverable amount. Determining the
recoverable amount involves the calculation of the CGU’s value in use, which is derived by discounting the
forecast cash flows (post-tax profits) to be generated from its continuing use, as described below.
Forecast cash flows are based on the Board approved budget and assumptions regarding the long-term pattern
of sustainable cash flows thereafter. Five years of forecast cash flows (post-tax profits) are included in the
discounted cash flow model (2020: five years). A terminal value growth rate of 2.0% is then applied into perpetuity
to extrapolate cash flows beyond the cash flow period (2020: 1.0%). The terminal value growth rate is estimated
by the Group taking into account rates disclosed by comparable institutions. Forecast cash flows include the
expected impact of COVID-19 where applicable.
222
Shawbrook Group plc | Annual Report and Accounts 2021 To discount the forecast cash flows, the Group derives a CGU specific discount rate. These discount rates are an
estimate of the return that investors would require if they were to choose an investment that would generate cash
flows of amount, timing and risk profile equivalent to those that the entity expects to derive from the CGU. The
Group calculates the discount rates using the price-to-book ratio method, which incorporates target return on
equity, growth rate and the price-to-book ratio. The discount rate for each CGU is adjusted to reflect the risks
inherent to the individual CGU.
Discount rates used for each CGU are as follows:
Property Finance
Business Finance
TML Mortgages
2021
2020
Post-tax
Pre-tax1
Post-tax
Pre-tax1
12.5%
13.5%
15.0%
16.2%
17.3%
20.7%
12.5%
13.5%
–
14.9%
16.4%
–
In both reported years, impairment testing indicated the recoverable amount of each CGU was in excess of its
carrying amount and, as such, no impairment losses have been recognised. Reasonably possible changes in
forecast cash flows and the applied post-tax discount rate would not result in the recoverable amount of any
CGU reducing below the carrying amount, as verified by sensitivity analysis.
A summary of the carrying amount of goodwill by CGU is as follows:
Property
Finance
£m
Business
Finance
£m
TML
Mortgages
£m
9.0
–
9.0
34.7
–
34.7
–
10.0
10.0
2021
Total
£m
43.7
10.0
53.7
Property
Finance
£m
Business
Finance
£m
9.0
–
9.0
34.7
–
34.7
2020
Total
£m
43.7
–
43.7
As at 1 January
Acquisitions through
business combinations
As at 31 December
1 The Group applies post-tax discount rates to post-tax cash flows when testing the CGU for impairment.
The pre-tax discount rate is disclosed in accordance with IAS 36 ‘Impairment of Assets’.
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Strategic ReportCorporate GovernanceRisk ReportFinancial Statements Notes to the financial statements
for the year ended 31 December 2021
29. Deferred tax assets
See accounting policies in Note 7(f)
Deferred tax assets are attributable to the following items:
Decelerated tax depreciation
IFRS 9 adjustment
General provisions
Tax losses acquired through business combinations
Other
Total deferred tax assets
Movements in deferred tax assets are as follows:
As at 1 January
Current period movement
Adjustment in respect of prior years
Tax rate changes
Acquisitions through business combinations
Other
As at 31 December
2021
£m
6.9
2.3
–
2.7
2.3
14.2
2021
£m
12.3
0.8
(2.6)
1.1
2.4
0.2
14.2
2020
£m
9.5
2.5
0.3
–
–
12.3
2020
£m
14.9
(1.4)
(1.2)
–
–
–
12.3
Note
21
21
21
10
Deferred tax assets are mainly attributable to decelerated capital allowances. The Group’s business plans project
future profits that are sufficient to fully recognise the deferred tax assets. The deferred tax assets will unwind over
the remaining life of the underlying assets with which they are associated.
Deferred tax assets have been calculated based on an aggregation rate of 26.3% (2020: 25.5%), which is the
estimated rate of recovery that will unwind over the remaining life of the underlying assets with which they are
associated.
224
Shawbrook Group plc | Annual Report and Accounts 2021 30. Investment in associate
See accounting policies in Note 7(a)
Until 26 February 2021, the Group held 19.99% of the ordinary shares of TML. Despite holding less than 20% of the
ordinary shares, the Group was deemed to have significant interest and, as such, TML was treated as an associate
and was accounted for using the equity method of accounting. On 26 February 2021, the Group’s equity interest in
TML increased from 19.99% to 100% and TML became a subsidiary from that date (see Note 10).
TML’s principal activity is mortgage finance and its place of incorporation and principal place of business is the UK.
TML is not publicly listed.
For the purposes of applying the equity method of accounting, the Group uses TML’s monthly unaudited
management accounts. The following information summarises the financial information of TML, as included in its
monthly unaudited management accounts, and the financial information presented in the Group’s financial
statements. The information for 2020 includes the results of TML for the full reporting year, from 1 January to 31
December 2020. The information for 2021 only includes the results of TML for the two-month period from 1 January
to 26 February 2021, after which date TML became a subsidiary of the Group and was no longer accounted for
using the equity method of accounting.
Revenue
Profit from continuing operations
Total comprehensive profit for the period
2 months to
26 February 2021
£m
12 months to
31 December 2020
£m
3.1
0.2
0.2
14.8
0.4
0.4
Based on the information above, the Group’s 19.99% share of profit recognised in the statement of profit and loss
is less than £0.1 million (2020: £0.1 million profit).
No dividends were received from TML in either reported periods.
225
Strategic ReportCorporate GovernanceRisk ReportFinancial Statements Notes to the financial statements
for the year ended 31 December 2021
30. Investment in associate continued
A reconciliation of the net assets of TML to the carrying amount of the investment in associate recognised as
at 31 December 2020 is presented in the following table. As at 31 December 2021, following the acquisition, the
investment in associate is reduced to £nil.
Current assets (£m)
Non-current assets (£m)
Current liabilities (£m)
Non-current liabilities (£m)
Net assets of the associate (£m)
Proportion of the Group’s ownership interest in the associate
Group’s share of net assets (£m)
Goodwill (£m)
Accumulated impairment losses (£m)
Total investment in associate (£m)
2020
5.7
0.4
(2.2)
(0.1)
3.8
19.99%
0.8
4.7
(2.7)
2.8
Impairment of the investment
In the comparative year, as at 31 December 2020, the Group was in advanced stages of acquiring the remaining
equity in TML. Available market information indicated the value of the existing TML investment may be impaired
and, accordingly, impairment testing was performed.
The recoverable amount, based on the cost of acquiring the remaining 80.01% of equity in TML, was less than the
carrying amount of the investment, resulting in an impairment loss of £2.7 million being recognised in the statement
of profit and loss in the year ended 31 December 2020.
31. Other assets
Other debtors
Prepayments
Amounts due from Group companies
Total other assets
2021
£m
3.4
8.2
–
11.6
Group
2020
£m
3.0
7.6
–
10.6
Company
2020
£m
–
0.2
0.5
0.7
2021
£m
–
0.3
0.5
0.8
226
Shawbrook Group plc | Annual Report and Accounts 2021 32. Assets held for sale
See accounting policies in Note 7(o)
Customer loans held for sale
Total assets held for sale
2021
2020
Gross
carrying
amount
£m
300.2
300.2
Loss
allowance
£m
Carrying
amount
£m
(0.5)
(0.5)
299.7
299.7
Gross
carrying
amount
£m
2.3
2.3
Loss
allowance
£m
Carrying
amount
£m
–
–
2.3
2.3
As at 31 December 2021, assets held for sale comprise a portfolio of loans from Property Finance. The loans were
subsequently sold in January 2022 (see Note 51).
As at 31 December 2020, assets held for sale comprised a portfolio of loans from Business Finance. The sale of these
loans completed in February 2021. A net loss of £0.1 million arising from the derecognition of the loans is recognised
in the statement of profit and loss (see Note 15).
Further analysis of the Group’s assets held for sale and the associated loss allowance can be found in the credit risk
section of the Risk Report on page 125.
33. Investment in subsidiaries
See accounting policies in Note 7(p)
The investment in subsidiary in the Company statement of financial position relates to the Company’s investment
in Shawbrook Bank Limited and is attributable to the following components.
Equity shares
Capital securities
Capital contribution
Share-based payments
Total investment in subsidiaries
Movements in the Company’s investment in subsidiaries are as follows:
As at 1 January
Capital contribution
Share-based payments
As at 31 December
Note
43
10
18
2021
£m
267.8
125.0
5.6
18.3
416.7
2021
£m
410.5
5.6
0.6
416.7
2020
£m
267.8
125.0
–
17.7
410.5
2020
£m
410.0
–
0.5
410.5
The capital contribution made during the year relates to Shawbrook Bank Limited’s acquisition of TML
(see Note 10). Share-based payments are attributable to the scheme detailed in Note 18.
227
Strategic ReportCorporate GovernanceRisk ReportFinancial Statements Notes to the financial statements
for the year ended 31 December 2021
34. Amounts due to banks
See accounting policies in Note 7(q)
Central bank facilities
Secured bank borrowings
Repurchase agreements
Other
Total amounts due to banks
Amounts due to banks include:
2021
£m
1,200.3
–
–
0.4
1,200.7
2020
£m
757.1
43.3
15.1
–
815.5
■ £1,200.0 million (2020: £757.0 million) drawn under the Bank of England’s Term Funding Scheme with additional
incentives for SMEs, which fall due for repayment in 2025. These amounts are collateralised by customer loan
assets and investment securities.
■ £0.3 million (2020: £nil) of cash collateral received against derivative contracts.
In the comparative year ended 31 December 2020, amounts due to banks also included, £43.3 million of secured
bank borrowings that were secured on customer loan assets and £15.0 million of repurchase agreements that
were collateralised by investment securities. These balances were repaid during 2021.
35. Customer deposits
See accounting policies in Note 7(r)
Instant access
Term deposits and notice accounts
Fair value adjustments for hedged risk
Total customer deposits
2021
£m
2,527.9
5,834.4
(3.7)
2020
£m
2,335.7
4,558.4
–
8,358.6
6,894.1
Fair value adjustments for hedged risk represent an offset to the fair value movement on derivatives designated in
hedge relationships to manage interest rate risk (see Note 26).
228
Shawbrook Group plc | Annual Report and Accounts 2021 36. Provisions
See accounting policies in Note 7(s)
As at 1 January
Provisions utilised
Provisions made/(released)
As at 31 December
Loss
provision
£m
Other
provisions
£m
3.2
–
(2.5)
0.7
14.8
(8.4)
7.1
13.5
2021
Total
£m
18.0
(8.4)
4.6
14.2
Loss
provision
£m
Other
provisions
£m
1.0
–
2.2
3.2
7.3
(14.8)
22.3
14.8
2020
Total
£m
8.3
(14.8)
24.5
18.0
Loss provision
The loss provision represents the loss allowance on loan commitments (see Note 50). Provisions made/(released)
represent the ECL charge/(credit) for the year on loan commitments and is recognised in impairment losses on
financial assets in the statement of profit and loss (see Note 20).
Other provisions
Other provisions represent provisions made in relation to customer remediation and conduct issues and provisions
for legal costs to defend cases brought against the Group. Provisions made are recognised in provisions in the
statement of profit and loss.
A reconciliation of the amount recognised in the statement of profit and loss for provisions is as follows:
Provisions made
Insurance recoveries
Net (credit)/charge for provisions
2021
£m
7.1
(14.1)
(7.0)
2020
£m
22.3
(2.0)
20.3
Insurance recoveries in both reported years relate to amounts recovered against solar panel cases. The total of
£16.1 million received across 2020 and 2021 represents all monies claimable.
Critical accounting judgements and estimates
The calculation of other provisions relating to customer remediation and conduct issues is an area identified
as involving critical accounting judgements and estimates. Additional details are provided in Note 9(b).
229
Strategic ReportCorporate GovernanceRisk ReportFinancial Statements Notes to the financial statements
for the year ended 31 December 2021
37. Debt securities in issue
See accounting policies in Note 7(i)
Debt securities in issue comprise asset-backed notes issued to external parties by consolidated structured entities
as part of securitisation transactions (see Note 24). The notes are secured on the underlying portfolio of securitised
loans and recourse under the notes is limited to the structured entity only.
A summary of notes in issue is provided in the following table. Amounts included in the table include accrued
interest and unamortised capitalised costs.
Issued
Issuer
Listing
Initial
call
date
Scheduled
redemption
date
Maturity
date
2021
£m
2020
£m
Class A mortgage-backed
floating rate notes
Senior notes
Total debt securities in issue
Shawbrook
Mortgage Funding
2019-1 plc
Wandle Mortgage
Funding Limited
2019
2021
Euronext
Dublin
2022
n/a
2050
172.4
204.8
Unlisted
n/a
2024
2038
146.8
–
319.2
204.8
Movements in the year are summarised in the following table:
As at 1 January
Issuances
Repurchases and redemptions
Costs capitalised
Other movements
As at 31 December
2021
£m
204.8
158.6
(44.2)
(0.8)
0.8
319.2
2020
£m
240.7
–
(36.8)
–
0.9
204.8
Issuances in the year ended 31 December 2021 comprise £158.6 million senior notes due 2038. These notes
were privately issued to external investors in August 2021 by a consolidated structured entity, Wandle Mortgage
Funding Limited.
Repurchases and redemptions in the comparative year ended 31 December 2020 included the purchase of
£20.0 million of the Class A mortgage-backed floating rate notes originally issued to external investors by a
subsidiary of the Group, Shawbrook Bank Limited.
230
Shawbrook Group plc | Annual Report and Accounts 2021 38. Leases
See accounting policies in Note 7(t)
Group as a lessor: finance leases
Assets leased to customers under finance leases are predominantly plant and machinery. The underlying assets
provide security against the gross receivables and the Group provides no residual value guarantees in order to
mitigate risk.
Details of the Group’s finance lease receivables are set out in Note 23. This includes a maturity analysis showing
the gross investment in the lease (the undiscounted lease payments receivable) and a reconciliation to the net
investment in the lease (the gross carrying amount of the receivable).
Finance income recognised during the year on finance lease receivables is £5.0 million (2020: £6.0 million)
and is included in interest income on loans and advances to customers (see Note 12).
Group as a lessor: operating leases
Assets leased to customers under operating leases are predominantly plant and machinery. The carrying amount
of the Group’s assets on operating leases and the movements during the year are set out in Note 27.
Net income from operating leases is presented on the face of the statement of profit and loss.
Future minimum rentals receivable under non-cancellable operating leases as at 31 December are as follows:
Within one year
Between one and two years
Between two and three years
Between three and four years
Between four and five years
After five years
2021
£m
8.8
6.6
4.6
2.7
1.7
1.0
2020
£m
10.3
7.2
5.7
3.5
1.8
1.3
Total future minimum rentals receivable
25.4
29.8
Group as a lessee
The Group has lease contracts for several buildings. These leases typically have lease terms of between 5
and 10 years. The Group does not sublease any of these leased assets.
Details of the right-of-use assets recognised in relation to these leases, including the carrying amount and
the movements during the year, are set out in Note 27.
The carrying amount of the associated lease liabilities and the movements during the year are as follows:
As at 1 January
Additions
Acquisitions through business combinations
Disposals
Interest expense
Payments
As at 31 December
2021
£m
11.1
0.1
0.5
–
0.2
(2.1)
9.8
2020
£m
12.4
2.6
–
(2.7)
0.4
(1.6)
11.1
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Strategic ReportCorporate GovernanceRisk ReportFinancial Statements Notes to the financial statements
for the year ended 31 December 2021
38. Leases continued
A maturity analysis of lease liabilities is presented in the liquidity risk section of the Risk Report on page 146.
The Group also has certain leases of office equipment with low value, for which the Group applies the recognition
exemption for leases of low value assets. For such leases, no right-of-use asset is recognised and lease payments
are charged to administrative expenses in the statement of profit and loss.
The following table provides a summary of the amounts recognised in the statement of profit and loss:
Administrative
expenses
£m
Interest
expense
£m
1.8
–
0.2
2.0
–
0.2
–
0.2
2021
Total
£m
1.8
0.2
0.2
2.2
Administrative
expenses
£m
Interest
expense
£m
1.6
–
0.2
1.8
–
0.4
–
0.4
Depreciation expense
on right-of-use assets
Interest expense on lease liabilities
Rental expense on low value assets
Total
Cash outflows from leases in the statement of cash flows are as follows:
Payment of the interest portion of the lease liability (cash flows from operating activities)
Payment of the principal portion of the lease liability (cash flows from financing activities)
Total cash outflows from leases
2021
£m
0.2
1.9
2.1
As at 31 December 2021, the Group is not committed to any lease contracts that have not yet commenced
(2020: £nil).
39. Other liabilities
Other creditors (including sundry creditors and other taxes)
Accruals
Total other liabilities
2021
£m
25.9
36.0
61.9
2020
Total
£m
1.6
0.4
0.2
2.2
2020
£m
0.4
1.2
1.6
2020
£m
14.9
25.8
40.7
232
Shawbrook Group plc | Annual Report and Accounts 2021 40. Subordinated debt
See accounting policies in Note 7(u)
Subordinated debt liability
Subordinated debt liabilities comprise notes issued by the Company, as summarised in the following table.
Amounts included in the table include accrued interest and unamortised capitalised costs.
Issued
Listing
Call
date
Maturity
date
2021
£m
2020
£m
6.5% fixed rate reset
callable subordinated notes
9.0% fixed rate reset
callable subordinated notes
Total subordinated liabilities
2019
2020
Open Market of
Frankfurt Stock
Exchange
Global Exchange
Market of
Euronext Dublin
2024
2029
20.3
20.3
2025
2030
Movements in subordinated debt liabilities during the year are as follows:
As at 1 January
Issuances
Repurchases and redemptions
Costs capitalised
Other movements
As at 31 December
76.5
96.8
2021
£m
96.8
–
–
–
–
96.8
76.5
96.8
2020
£m
95.9
75.0
(75.0)
(0.9)
1.8
96.8
In the comparative year ended 31 December 2020, the Company refinanced a portion of its subordinated debt
liability in order to optimise and extend the debt maturity profile. The Company repurchased or redeemed its
£75.0 million 8.5% fixed rate reset callable subordinated notes due 2025 at par and issued £75.0 million 9.0% fixed
rate reset callable subordinated notes due 2030. A £1.4 million charge was recognised in interest expense and
similar charges in the statement of profit and loss in relation to this transaction, reflecting a modification loss
of £0.9 million and the release of £0.5 million of unamortised capitalised costs.
The principal terms of the subordinated debt liabilities are as follows:
■ Interest: interest on the notes is fixed at an initial rate until the call date. On the call date, in the event the notes
are not redeemed, the interest rate will be reset and fixed based on a set margin above a defined market rate.
■ Redemption: the notes may be redeemed in whole on the call date, or at other times for certain regulatory
or tax reasons. Any optional redemption requires the prior consent of the PRA.
■ Ranking: the notes constitute direct, unsecured and subordinated obligations of the Company and rank at least
pari passu, without any preference, among themselves as Tier 2 capital. The notes rank behind the claims of
depositors and other unsecured and unsubordinated creditors, but rank in priority to holders of Tier 1 capital and
of equity in the Company.
Subordinated debt receivable
The subordinated debt receivable in the Company statement of financial position represents subordinated debt
issued to the Company by the Group’s principal subsidiary, Shawbrook Bank Limited. The notes issued by Shawbrook
Bank Limited are on terms consistent with the listed notes issued by the Company. As at 31 December 2021, the
subordinated debt receivable in the Company statement of financial position is £97.5 million (2020: £97.7 million).
The loss allowance on the subordinated debt receivable is £nil in both reported years.
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for the year ended 31 December 2021
41. Financial instruments
See accounting policies in Note 7(v)
Classification of financial assets and financial liabilities
The following table provides a reconciliation of the Group’s financial assets and financial liabilities between the line
items in the statement of financial position and categories of financial instruments. There were no reclassifications
between categories during either of the reported years.
2021
Mandatorily
at FVTPL
£m
Amortised
cost
£m
Carrying
amount
£m
Mandatorily
at FVTPL
£m
Amortised
cost
£m
2020
Carrying
amount
£m
Financial assets
Cash and balances
at central banks
Loans and advances to banks
Loans and advances
to customers
Investment securities
Derivative financial assets
Assets held for sale
Total financial assets
Financial liabilities
Amounts due to banks
Customer deposits
Derivative financial liabilities
Debt securities in issue
Lease liabilities
Subordinated debt liability
–
–
–
–
21.5
–
21.5
–
–
8.1
–
–
–
1,693.8
1,693.8
66.9
66.9
8,272.1
522.0
–
299.7
8,272.1
522.0
21.5
299.7
10,854.5
10,876.0
1,200.7
8,358.6
1,200.7
8,358.6
–
319.2
9.8
96.8
8.1
319.2
9.8
96.8
–
–
–
–
4.1
–
4.1
–
–
42.0
–
–
–
1,273.2
1,273.2
91.0
91.0
7,061.3
358.2
–
2.3
7,061.3
358.2
4.1
2.3
8,786.0
8,790.1
815.5
6,894.1
–
204.8
11.1
96.8
815.5
6,894.1
42.0
204.8
11.1
96.8
Total financial liabilities
8.1
9,985.1
9,993.2
42.0
8,022.3
8,064.3
Critical accounting judgements
The classification of financial assets is an area identified as involving critical accounting judgements.
Additional details are provided in Note 9(d).
234
Shawbrook Group plc | Annual Report and Accounts 2021 Fair value of financial assets and financial liabilities
A summary of the valuation methods used by the Group to calculate the fair value of its financial assets and
financial liabilities is as follows:
■ Cash and balances at central banks and loans and advances to banks: fair value approximates the carrying
amount as balances have minimal credit losses and are either short-term in nature or re-price frequently.
■ Loans and advances to customers: fair value is calculated based on the present value of future principal and
interest cash flows, discounted at the market rate of interest at the reporting date, and adjusted for future credit
losses if considered material.
■ Investment securities, debt securities in issue and subordinated debt liability: fair value is based on quoted
prices where available or by discounting cash flows using market rates.
■ Derivative financial instruments: fair value is obtained from quoted market prices in active markets and,
where these are not available, from valuation techniques including discounted cash flows.
■ Amounts due to banks and customer deposits: fair value is estimated using discounted cash flows applying
either market rates where practicable, or rates offered with similar characteristics by other financial institutions.
The fair value of floating rate placements, fixed rate placements with less than six months to maturity and
overnight deposits is considered to approximate the carrying amount.
■ Assets held for sale: fair value is calculated using expected or known sales price. Where such data is not
available, fair value is calculated in accordance with the type of asset held for sale using the valuation methods
detailed above.
■ Lease liabilities: in accordance with IFRS 7, fair value disclosures are not required for lease liabilities. Accordingly,
a fair value is not calculated and lease liabilities are not included in the following fair value disclosures.
The Group uses a fair value hierarchy which reflects the significance of the inputs used in making the
measurements. There are three levels to the hierarchy as follows:
■ Level 1: quoted prices in active markets for identical assets or liabilities that the entity can access at the
measurement date;
■ Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either
directly (i.e. as prices) or indirectly (i.e. derived from prices). A Level 2 input must be observable for substantially
the full term of the instrument. Level 2 inputs include quoted prices for similar assets or liabilities in active markets,
quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted
prices that are observable for the asset or liability, such as interest rates and yield curves observable at commonly
quoted intervals, implied volatilities and credit spreads. Assets and liabilities classified as Level 2 have been
valued using models whose inputs are observable in an active market; and
■ Level 3: inputs for the asset or liabilities that are not based on observable market data (unobservable inputs).
In assessing whether a market is active, factors such as the scale and frequency of trading activity, the availability
of prices and the size of bid/offer spreads are considered. If, in the opinion of the Group, a significant proportion
of an instrument’s carrying amount is driven by unobservable inputs, the instrument, in its entirety, is classified
as Level 3 of the fair value hierarchy. Level 3 in this context means that there is little or no current market data
available from which to determine the level at which an arm’s length transaction would be likely to occur. It
generally does not mean that there is no market data available at all upon which to base a determination
of fair value (for example, consensus pricing data may be used).
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for the year ended 31 December 2021
41. Financial instruments continued
The following table analyses the Group’s financial instruments measured at amortised cost into the fair value
hierarchy. There were no transfers between the levels of the fair value hierarchy during either of the reported years.
Financial assets
at amortised cost
Cash and balances
at central banks
Loans and advances to banks
Loans and advances
to customers
Investment securities
Assets held for sale
Financial liabilities
at amortised cost
Amounts due to banks
Customer deposits
Debt securities in issue
Subordinated debt liability
Level 3
£m
Level 2
£m
–
–
8,272.1
–
299.7
–
66.9
–
129.5
–
–
–
–
–
1,200.7
8,358.6
319.2
96.8
2021
Level 1
£m
1,693.8
–
–
392.5
–
–
–
–
–
Level 3
£m
Level 2
£m
–
–
7,061.3
–
2.3
–
91.0
–
79.4
–
–
–
–
–
815.5
6,894.1
204.8
96.8
2020
Level 1
£m
1,273.2
–
–
278.8
–
–
–
–
–
The following table provides a comparison of the carrying amount per the statement of financial position
and the calculated fair value for the Group’s financial instruments measured at amortised cost.
Cash and balances at central banks, loans and advances to banks and assets held for sale are not included
in the table, as the carrying amount is a reasonable approximation of fair value.
Carrying
amount
£m
2021
Fair
value
£m
Carrying
amount
£m
8,272.1
522.0
8,779.4
524.4
1,200.7
8,358.6
319.2
96.8
1,200.7
8,354.9
320.8
100.2
7,061.3
358.2
815.5
6,894.1
204.8
96.8
2020
Fair
value
£m
7,477.9
360.7
815.5
6,929.2
205.3
96.9
Financial assets at amortised cost
Loans and advances to customers
Investment securities
Financial liabilities at amortised cost
Amounts due to banks
Customer deposits
Debt securities in issue
Subordinated debt liability
236
Shawbrook Group plc | Annual Report and Accounts 2021 The following table analyses the Group’s financial instruments measured at fair value into the fair value hierarchy.
There were no transfers between the levels of the fair value hierarchy during either of the reported years.
Level 3
£m
Level 2
£m
Financial assets at fair value
Derivative financial assets
0.2
21.3
Financial liabilities at fair value
Derivative financial liabilities
0.2
7.9
2021
Level 1
£m
–
–
Level 3
£m
Level 2
£m
3.5
0.6
3.5
38.5
2020
Level 1
£m
–
–
Financial instruments measured at fair value that are categorised as Level 3 are the Group’s balance guaranteed
swaps (see Note 26).
Changes in fair value measurement for financial instruments measured at fair value and categorised as Level 3
are as follows:
As at 1 January
Net fair value gains/(losses) recognised
in the statement of profit and loss
As at 31 December
Derivative
financial
assets
£m
2021
Derivative
financial
liabilities
£m
3.5
(3.3)
0.2
(3.5)
3.3
(0.2)
Derivative
financial
assets
£m
1.3
2.2
3.5
2020
Derivative
financial
liabilities
£m
(1.3)
(2.2)
(3.5)
Net fair value gains/(losses) recognised in the statement of profit and loss are included in net gains/(losses)
on derivative financial instruments and hedge accounting. All gains/(losses) recognised in the statement
of profit and loss are unrealised.
237
Strategic ReportCorporate GovernanceRisk ReportFinancial Statements Notes to the financial statements
for the year ended 31 December 2021
41. Financial instruments continued
Offsetting financial assets and financial liabilities
The disclosures set out in the following tables include financial assets and financial liabilities that are either offset
in the statement of financial position, or are subject to an enforceable master netting arrangement or similar
agreement, irrespective of whether they are offset in the statement of financial position.
Financial collateral amounts disclosed in the tables are limited to the net balance sheet exposure for the
instrument in order to exclude any over collateralisation. Financial collateral amounts disclosed exclude initial
margin cash collateral with central clearing houses. All collateral amounts disclosed are cash collateral.
Related amounts not offset
Gross
amount
£m
Amount
offset
£m
Net amount
presented on
statement of
financial position
£m
Subject to
master netting
arrangements
£m
Financial
collateral
received/
pledged
£m
Net
amount
£m
21.5
21.5
7.9
7.9
–
–
–
–
21.5
21.5
7.9
7.9
(1.6)
(1.6)
(1.6)
(1.6)
(19.5)
(19.5)
(6.2)
(6.2)
0.4
0.4
0.1
0.1
Related amounts not offset
Gross
amount
£m
Amount
offset
£m
Net amount
presented on
statement of
financial position
£m
Subject to
master netting
arrangements
£m
Financial
collateral
received/
pledged
£m
Net
amount
£m
0.6
0.6
15.1
42.0
57.1
–
–
–
–
–
0.6
0.6
15.1
42.0
57.1
(0.6)
(0.6)
(15.1)
(0.6)
(15.7)
–
–
–
(40.8)
(40.8)
–
–
–
0.6
0.6
As at 31 December 2021
Financial assets
Derivative financial assets
Total financial assets
Financial liabilities
Derivative financial liabilities1
Total financial liabilities
As at 31 December 2020
Financial assets
Derivative financial assets1
Total financial assets
Financial liabilities
Repurchase agreements2
Derivative financial liabilities
Total financial liabilities
1 Derivative financial liabilities of £0.2 million (2020: £nil) and derivative financial assets of £nil (2020: £3.5 million), which
are included in the statement of financial position, are not in the scope of the offsetting disclosures as they are not subject
to master netting arrangements.
2 Repurchase agreements are included in amounts due to banks in the statement of financial position (see Note 34).
238
Shawbrook Group plc | Annual Report and Accounts 2021 42. Share capital
Share capital comprises 253,086,879 issued and fully paid ordinary shares of £0.01 each, totalling share capital of
£2,530,869. Each ordinary share has full voting, dividend and capital distribution rights, including on a winding up,
but does not have any rights of redemption. There were no movements in share capital during either of the
reported years.
43. Capital securities
See accounting policies in Note 7(x)
Capital securities comprise securities issued by the Company, as summarised in the following table.
Amounts included in the table are presented net of transaction costs of £1.0 million (2020: £1.0 million).
Issued
Listed
7.875% fixed rate reset perpetual Additional
Tier 1 write down capital securities
2017
Total capital securities
Global Exchange
Market of
Euronext Dublin
Initial
call date
2022
2021
£m
124.0
124.0
2020
£m
124.0
124.0
There were no movements in capital securities during either of the reported years.
During the year ended 31 December 2021, distributions made to holders of the capital securities, recognised
directly in equity, totalled £9.8 million (2020: £9.8 million).
The principal terms of the capital securities are as follows:
■ Interest: interest is fully discretionary and the Company may elect to, or in certain circumstances is obliged to,
cancel (in whole or in part) any interest otherwise scheduled to be paid. Any interest not paid when scheduled is
cancelled. The capital securities bear a fixed rate of interest until the initial call date. On the initial call date, and
on each fifth anniversary thereafter, the interest rate will be reset and fixed based on a set margin above a
defined market rate.
■ Redemption: the capital securities are perpetual with no fixed redemption date. The Company may elect to
redeem all, but not part, of the capital securities on the initial call date, or on any fifth anniversary of the initial
call date, or for certain regulatory or tax reasons. Any optional redemption requires the prior consent of the PRA.
■ Write-down: in the event of the Group’s Common Equity Tier 1 capital ratio falling below 7.0%, an automatic and
permanent write down shall occur, resulting in the full reduction and cancellation of all capital securities and the
cancellation of any interest which is accrued and unpaid.
■ Ranking: the capital securities constitute direct, unsecured and subordinated obligations of the Company and
rank pari passu, without any preference, among themselves. The capital securities also rank pari passu with the
most senior class of issued preference shares in the Company, if any, and rank ahead of the holders of all other
classes of issued shares of the Company, but rank junior to the claims of unsubordinated and subordinated
creditors, other than those creditors whose claims rank, or are expressed to rank, pari passu with, or junior to,
the claims of holders of the capital securities.
In conjunction with the issue of capital securities by the Company, capital securities were issued to the Company
by the Group’s principal subsidiary, Shawbrook Bank Limited. The capital securities issued by Shawbrook Bank
Limited are on terms consistent with the listed capital securities issued by the Company. This is recognised in
the Company statement of financial position as part of the investment in subsidiaries (see Note 33).
239
Strategic ReportCorporate GovernanceRisk ReportFinancial Statements Notes to the financial statements
for the year ended 31 December 2021
44. Notes to the cash flow statement
Adjustments for non-cash items and other adjustments included in the statement of profit and loss
ECL (credit)/charge on loans and advances to customers
ECL (credit)/charge on loan commitments
Other movements on investment securities
Depreciation of property, plant and equipment
Other movements on property, plant and equipment
depreciation
Net losses on disposal of property, plant and equipment
Amortisation of intangible assets
Net losses on disposal of intangible assets
Share of results of associate
Impairment of investment in associate
Other movements on subordinated debt receivable
Other movements on debt securities in issue
Other movements on subordinated debt liability
Share-based payments
Total non-cash items and other adjustments
Net change in operating assets
Increase in mandatory deposits with central banks
2021
£m
(15.4)
(2.5)
(1.7)
11.7
(0.4)
–
8.2
–
–
–
–
0.8
–
0.6
1.3
2021
£m
(3.1)
(Increase)/decrease in derivative financial assets
Increase in operating lease assets
(Increase)/decrease in other assets
(Increase)/decrease in assets held for sale
(Increase)/decrease in operating assets
Net change in operating liabilities
Increase in customer deposits
(Decrease)/increase in other provisions
(Decrease)/increase in derivative financial liabilities
Increase/(decrease) in other liabilities
Increase/(decrease) in operating liabilities
(17.4)
(5.5)
(0.6)
(297.4)
(1,519.4)
2021
£m
1,464.5
(1.3)
(33.9)
19.5
1,448.8
240
Group
2020
£m
Company
2020
£m
2021
£m
31.9
2.2
–
12.5
–
0.2
8.5
0.5
(0.1)
2.7
–
0.9
1.8
0.5
61.6
Group
2020
£m
(5.5)
0.3
(8.4)
(1.6)
101.8
(368.9)
–
–
–
–
–
–
–
–
–
–
0.2
–
–
–
0.2
2021
£m
–
–
–
–
(0.1)
–
(0.1)
–
–
–
–
–
–
–
–
–
–
(1.3)
–
1.8
–
0.5
Company
2020
£m
–
–
–
–
0.7
–
0.7
Group
Company
2020
£m
784.7
9.7
27.1
(52.4)
769.1
2021
£m
–
–
–
–
–
2020
£m
–
–
–
(0.1)
(0.1)
Increase in loans and advances to customers
(1,195.4)
(455.5)
Shawbrook Group plc | Annual Report and Accounts 2021 45. Ultimate parent company
The ultimate parent and controlling party of the Group is Marlin Bidco Limited. Marlin Bidco Limited is a company
jointly owned by PSCM Pooling LP and Marlinbass Limited. Both companies are incorporated in Guernsey and are
investment vehicles of Pollen Street Capital Limited and BC Partners LLP, respectively.
The largest company in which the results of the Group are consolidated is that headed by Shawbrook Group plc
(see Note 1). No other financial statements include the results of the Group.
46. Subsidiary companies
See accounting policies in Note 7(a)
Wholly owned subsidiary companies
As at 31 December 2021, the Group includes the following subsidiary companies whose results are included
in the consolidated financial statements. The Company’s investment in subsidiaries is detailed in Note 33.
Country of
incorporation
Class
of shares
Ownership
%
Principal
activity
Registered
address
Name
Shawbrook Bank Limited
and its subsidiaries, as follows:
Shawbrook Buildings
and Protection Limited
Singers Corporate
Asset Finance Limited
The Mortgage Lender Limited (TML)
England and Wales
Ordinary
100
Mortgage
finance
England and Wales
Ordinary
100
Banking
England and Wales
Ordinary
100
Dormant
England and Wales
Ordinary
Singers Healthcare Finance Limited
England and Wales
Ordinary
Coachlease Limited
England and Wales
Ordinary
Hermes Group Limited
England and Wales
Ordinary
Singer & Friedlander
Commercial Finance Limited
Scotland
Ordinary
Link Loans Limited
England and Wales
Ordinary
Centric SPV 1 Limited
England and Wales
Ordinary
Resource Partners SPV Limited
England and Wales
Ordinary
100
100
100
100
100
100
100
100
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
a
a
a
a
a
a
a
b
a
a
a
Registered addresses in relation to the above table are as follows:
a: Lutea House, Warley Hill Business Park, The Drive, Great Warley, Brentwood, Essex, CM13 3BE
b: 8 Nelson Mandela Place, Glasgow, Scotland, G2 1BT
During the year ended 31 December 2021, TML became a subsidiary of the Group on 26 February 2021 (see Note 10).
During the comparative year ended 31 December 2020, the company status of Link Loans Limited was changed
to dormant as of 1 January 2020 and Centric Group Holdings Limited was dissolved on 4 February 2020.
241
Strategic ReportCorporate GovernanceRisk ReportFinancial Statements Notes to the financial statements
for the year ended 31 December 2021
46. Subsidiary companies continued
Subsidiaries by virtue of control
As at 31 December 2021, the Group includes the following structured entities relating to securitisation programmes
(see Note 24). Shares of these entities are ultimately beneficially owned through an independent trust. However, for
accounting purposes, the entities are controlled by the Group and, as such, they are treated as subsidiaries and
are fully consolidated.
Name
Country of
incorporation
Principal
activity
Registered
address
Shawbrook Mortgage Funding 2019-1 plc
England and Wales
Mortgage finance
Shawbrook Mortgage Funding 2019-1 Holdings Limited
England and Wales
Holding company
Wandle Mortgage Funding Limited
England and Wales
Mortgage finance
a
a
b
Registered addresses in relation to the above table are as follows:
a: 1 Bartholomew Lane, London, England, EC2N 2AX
b: Bastion House 6th Floor, 140 London Wall, London, England, EC2Y 5DN
During the year ended 31 December 2021, Wandle Mortgage Funding Limited became a subsidiary of the Group
on 10 August 2021 (see Note 24).
During the comparative year ended 31 December 2020, Lanebrook Mortgage Transaction 2020-1 plc and
Lanebrook Mortgage Transaction 2020-1 Holdings Limited were incorporated in June 2020 in relation to a
securitisation programme and it was assessed that these entities were controlled. In September 2020, the
securitisation transaction completed and the structure of the transaction was such that the Group no longer
controlled the entities.
242
Shawbrook Group plc | Annual Report and Accounts 2021 47. Related party transactions
Transactions with key management personnel
Key management personnel refer to the Executive Management team and the Directors of the Group.
Total compensation for the year for key management personnel employed by the Group is as follows:
Short-term employee benefits
Other long-term benefits
Termination benefits
Total compensation for employed key management personnel
2021
£m
6.1
1.6
1.0
8.7
2020
£m
5.2
0.1
–
5.3
In addition to the above, in the year ended 31 December 2021, the Group incurred fees in relation to the
Institutional Directors appointed to the Board by the ultimate parent company, as set out and agreed within
the Framework Agreement, totalling £0.1 million (2020: £0.1 million). The institutional Directors are not employed
by the Group and, accordingly, their fees are not included in the above table.
Further details of compensation paid to the Directors of the Group are provided in the Directors’ Remuneration
Report on page 84.
The Group provides employee loans to certain key management personnel. These loans are subject to interest
in accordance with the beneficial loan arrangements rate set by HMRC. The loans do not involve more than the
normal risk of collectability or present other unfavourable features. As at 31 December 2021, the amount
outstanding in respect of these loans is £0.5 million (2020: £0.7 million). Interest income recognised in respect of
these loans is less than £0.1 million in both reported years. No provisions have been recognised in respect of these
loans and no balances have been written off or forgiven during either of the reported years.
The Group also holds savings deposits from certain key management personnel and their close family members.
Such deposits are held in the ordinary course of business on normal commercial terms. As at 31 December 2021,
the amount held in respect of these deposits is £0.3 million (2020: £0.2 million). Interest expense recognised in
respect of these deposits is less than £0.1 million in both reported years.
Transactions with the ultimate parent
The ultimate parent and controlling party of the Group is detailed in Note 45.
As at 31 December 2021, the balance owed to Marlin Bidco Limited is £0.8 million (2020: £0.8 million).
In both reported years, certain employees, including key management personnel, have acquired non-voting ‘B’
Class ordinary shares in Marlin Bidco Limited as part of an employee share-based payment scheme (see Note 18).
Transactions with associates
Details of the Group’s associate are provided in Note 30.
In February 2021, the Group’s equity interest in TML increased from 19.99% to 100% and TML became a subsidiary
from that date (see Note 10). Accordingly, there are no balances with associates as at 31 December 2021. As at
31 December 2020, the balance owed to the associate was £0.1 million.
In the two-month period to 26 February 2021, when TML was an associate of the Group, the Group incurred
£0.9 million of commission and servicing fees in relation to the associate (2020: £4.3 million).
243
Strategic ReportCorporate GovernanceRisk ReportFinancial Statements Notes to the financial statements
for the year ended 31 December 2021
47. Related party transactions continued
Transactions between the Company and subsidiary companies
Subsidiary companies of the Group are detailed in Note 46.
Amounts due to the Company from its principal subsidiary, Shawbrook Bank Limited, and recognised
in the Company statement of financial position, are as follows:
Other amounts receivable
Subordinated debt receivable1
Total amounts due from subsidiary
Note
31
40
2021
£m
0.5
96.8
97.3
2020
£m
0.5
96.8
97.3
Transactions during the year between the Company and Shawbrook Bank Limited, recognised in the Company
statement of profit and loss, are as follows:
Coupon on capital securities2
Interest on subordinated debt receivable
Management fee
Total income from subsidiary
48. Capital commitments
As at 31 December 2021, the Group has no capital commitments (2020: £nil).
2021
£m
9.8
7.9
0.3
18.0
2020
£m
9.8
7.8
0.9
18.5
1 The total subordinated debt receivable per Note 40 is £97.5 million (2020: £97.7 million). The difference compared to the amount
presented in this table of £0.7 million (2020: £0.9 million) relates to capitalised amounts (i.e. capitalised costs and a modification
loss), which do not constitute amounts owing between the parties.
2 The coupon on capital securities relates to capital securities issued to the Company by Shawbrook Bank Limited, which are
included as part of the investment in subsidiaries (see Note 33).
244
Shawbrook Group plc | Annual Report and Accounts 2021 In the event that the Group is unsuccessful in its legal
challenge, the Group has undertaken a high-level
estimate of possible redress using an assumed claim
and redress rate and applied it to the non-provisioned
Solar panel loan book. This would suggest a potential
remediation cost up to £20 million, but ultimately
redress would depend on claim rates and agreement
on redress remedies taking into account the benefits
received whilst owned.
Timeshare complaints
In the year ended 31 December 2021, the Group also
received a number of complaints from customers
about holiday ownership (timeshare) products, where
the Group provided finance to customers to fund the
purchase of those products. While the FOS had
previously not upheld the majority of such complaints
that were referred to it, in November 2021 the FOS
subsequently issued a Final Decision on one such
complaint, which was found in the customer’s favour.
The Group has commenced a legal challenge of this
decision by way of judicial review.
In total, the Group advanced loans of c. £200 million to
customers in relation to timeshare financing. However,
the issues referred to above affect a smaller group of
customers totalling loans of c. £113 million. In the event
that the Group is unsuccessful in its judicial review
challenge, the Group has undertaken a high-level
estimate of possible redress using an assumed claim
and redress rate and applied it to the loan book. This
would suggest a potential remediation cost in the
region of £25 million, but ultimately redress would
depend on claim rates and agreement on potential
redress remedies, the cost of which would be
dependent on a number of factors, taking into
account the nature of the timeshare asset and the
benefits received whilst owned. The Group considers
it unlikely that a material liability will arise in relation
to this product.
49. Contingent liabilities
See accounting policies in Note 7(y)
Part of the Group’s business is regulated by the
Consumer Credit Act (CCA), which contains very
detailed and highly technical requirements. The
Group’s Consumer franchise is exposed to risk under
Section 75 and Section 140A of the CCA, in relation
to any misrepresentations, breaches of contract or
other failures by suppliers of goods and services to
customers where the purchase of those goods and
services is financed by the Group. While the Group
would have recourse to the supplier in the event of
such liability, if the supplier becomes insolvent that
recourse would have limited value.
The Group continues to undertake reviews of its
compliance with the CCA and other consumer
regulations. The Group has identified some areas of
potential non-compliance which are not considered
to be material at the present time. However, in light
of the uncertainties involved in such matters, there
can be no assurance that the outcome of a
particular matter will not be material to the Group’s
financial results for a particular period, depending
on the amount of loss resulting from the matter. The
information usually required by IAS 37 ‘Provisions,
Contingent Liabilities and Contingent Assets’ is not
disclosed for each contingent liability matter on the
grounds that it may prejudice the position of the
Group in any relating dispute with other parties.
Specific matters of note are as follows:
Solar panel complaints
In the year ended 31 December 2021, the Group has
continued to receive complaints from customers
about solar panels, where the Group provided
finance to customers to fund the purchase of those
products. A proportion of complaints received this
year have been framed under Section 140A of the
CCA (unfair relationships) and typically relate to
sales which took place more than six years ago
(which is the limitation period for complaints
brought under Section 75 of the CCA). The Group
believes that these ‘unfair relationships’ claims lack
merit and intends to defend such claims, whether
they are raised through the Financial Ombudsman
Service (FOS) or the courts. As at the date of
approval of the 2021 Annual Report and Accounts,
no such claims have yet been the subject of any
determination either at FOS or through the courts.
245
Strategic ReportCorporate GovernanceRisk ReportFinancial Statements Notes to the financial statements
for the year ended 31 December 2021
50. Loan commitments
See accounting policies in Note 7(z)
As at 31 December 2021, the Group has loan commitments, which are not recognised in the statement of financial
position, of £1,231.6 million (2020: £1,088.7 million). A loss allowance of £0.7 million (2020: £3.2 million) is held against
these loan commitments, which is recognised in provisions in the statement of financial position (see Note 36).
Additional analysis of the Group’s loan commitments and the associated loss allowance is provided in the credit
risk section of the Risk Report starting on page 126.
51. Events after the reporting period
With the exception of the transactions and events outlined below, there have been no other significant events
between 31 December 2021 and the date of approval of the 2021 Annual Report and Accounts that require a
change or additional disclosure in the financial statements.
In January 2022, the Group completed the sale of a portfolio of loans from Property Finance. The gain on disposal
is c. £7.7 million. As at 31 December 2021, these loans are classified as assets held for sale and further details can
be found in Note 32.
In February 2022, Russia launched an invasion on Ukraine. Although the Group does not have any direct exposure,
it does have indirect exposure, for example the impacts of rising energy prices, cost of living and inflation, potential
supply chain issues faced by customers and increased cyber security threats. The Group continues to monitor the
situation and in response has updated its affordability policy to ensure that its lending remains appropriate and is
closely monitoring the cyber perimeter and information security risks within the Group. Predicting the full extent of
the implications of this evolving situation, or how long it may continue, is challenging and the impact on the UK
economy and wider financial effects cannot currently be evaluated with a high degree of certainty. It is plausible
that the indirect exposures on the Group could have negative impacts, particularly on areas such as the loan book
(specifically asset quality and ECLs). The Group considers this a non-adjusting event after the reporting period
and no changes have been made to the financial statements.
246
Shawbrook Group plc | Annual Report and Accounts 2021 Other information
248 Abbreviations
249 Performance indicators
250 Country-by-country reporting
Other
information
Abbreviations
Throughout this document:
‘Company’ refers to:
‘Group’ refers to:
‘Shawbrook’ refers to:
‘Shareholder’ refers to:
Shawbrook Group plc
the ‘Company’ and its subsidiaries
The ‘Group’
Marlin Bidco Limited
The following abbreviations are used within this document:
API
bps
Application programme interface
Basis point
LCR
LGD
Liquidity coverage ratio
Loss given default
CBILS
Coronavirus Business Interruption Loan Scheme
LIBOR
London Inter-bank Offered Rate
CCA
CET1
CGU
Consumer Credit Act
Common Equity Tier 1
Cash generating unit
the ‘code’
UK Corporate Governance Code 2018
COVID-19
Coronavirus disease
CRD V
Capital Requirements Directive
LTV
MIP
Loan-to-value
Management Incentive Plan
NSFR
Net stable funding ratio
OTC
PD
PMA
Over-the-counter
Probability of default
Post-model adjustment
CRR/CRR II Capital Requirements Regulation
POCI
Purchased or originated credit-impaired
EAD
EBA
ECL
EDI
EPC
ESG
EU
FCA
FOS
Exposure at default
European Banking Authority
Expected credit loss
Equality, diversity and inclusion
Energy performance certificate
Environmental, social and governance
European Union
Financial Conduct Authority
Financial Ombudsman Service
FVOCI
Fair value through other comprehensive income
FVTPL
Fair value through profit or loss
PRA
RMF
SECR
SICR
SMF
SME
Prudential Regulation Authority
Risk Management Framework
Streamlined Energy and Carbon Reporting
Significant increase in credit risk
from initial recognition
Senior Management Function
Small and medium-sized enterprise
SONIA
Sterling Overnight Index Average rate
SPPI
TCFD
Solely payments of principal and interest
on the principal amount outstanding
Task Force on Climate-related Financial
Disclosures
GHG
Greenhouse gas
TCO2e
Tonnes of carbon dioxide equivalent
HMRC
Her Majesty's Revenue and Customs
TML
The Mortgage Lender Limited
IAS
International Accounting Standards
ICAAP
Internal Capital Adequacy Assessment Process
TFSME
Term Funding Scheme with additional
incentives for SMEs
IFRS
International Financial Reporting Standards
UK
United Kingdom
ILAAP
Internal Liquidity Adequacy Assessment Process
UKEB
UK Endorsement Board
248
Shawbrook Group plc | Annual Report and Accounts 2021
Performance indicators
Certain financial measures disclosed in the Annual Report and Accounts do not have a standardised meaning
prescribed by international accounting standards and may not therefore be comparable to similar measures
presented by other issuers. These measures are considered ‘alternative performance measures’ (non-GAAP
financial measures) and are not a substitute for measures prescribed by international accounting standards.
Definitions of financial performance indicators referred to in the Strategic Report (in alphabetical order) are
set out below:
Average principal employed
The average of monthly closing loans and advances to customers1 (net of loss allowance
and fair value adjustments for hedged risk) and assets on operating leases included in
property, plant and equipment.
Common Equity Tier 1
(CET1) capital ratio
Common Equity Tier 1 capital, divided by, risk-weighted assets.
Cost of risk
Impairment losses on financial instruments, divided by, average principal employed.
Cost to income ratio
The sum of administrative expenses and provisions (per the statement of profit and loss),
divided by, net operating income.
Gross asset yield
Leverage ratio
Net operating income less interest expense and similar charges, divided by, average
principal employed.
Total Tier 1 capital, divided by, total leverage ratio exposure measure. Total leverage ratio
exposure measure is total assets excluding derivatives and intangible assets, and adjusted
for off-balance sheet items such as pipeline and undrawn collateral, exposure value for
derivatives and transitional adjustments 2.
Liability yield
Interest expense and similar charges, divided by, average principal employed.
Liquidity coverage ratio
Liquidity buffer, divided by, total 30-day net cash outflows in a standardised stress
scenario.
Loan book
The sum of loans and advances to customers1 (net of loss allowance and fair value
adjustments for hedged risk) and the carrying amount of assets on operating leases
included in property, plant and equipment.
Management expenses ratio
The sum of administrative expenses and provisions (per the statement of profit and loss),
divided by, average principal employed.
Net interest margin
Net operating income, divided by, average principal employed.
Return on lending
assets before tax
Return on tangible equity
Profit before tax, divided by, average principal employed.
Profit after tax (adjusted to deduct distributions made to holders of capital securities),
divided by, average tangible equity. Average tangible equity is calculated as, total equity
less capital securities and intangible assets at the beginning of the period, plus total equity
less capital securities and intangible assets at the end of the period, divided by two.
Risk-weighted assets
A measure of assets adjusted for their associated risks. Risk weightings are established in
accordance with Prudential Regulation Authority rules and are used to assess capital
requirements and adequacy under Pillar 1.
Stock cost of retail deposits
The weighted average interest rate on the Group’s retail deposits at the respective
reporting date.
Total capital ratio
Total regulatory capital, divided by, risk-weighted assets.
Total Tier 1 capital ratio
Total Tier 1 capital, divided by, risk-weighted assets.
Wholesale funding
The sum of amounts due to banks and debt securities in issue.
1 For the purpose of this calculation, loans and advances to customers includes loans transferred to assets held for sale,
as they are still considered to be part of the Group’s overall loan book until derecognised.
2 Transitional adjustments refer to adjustments for phasing in the impact of IFRS 9 ‘Financial Instruments’ adoption
in accordance with EU regulatory transitional arrangements.
249
Country-by-country reporting
The following disclosures are provided to comply with the requirements of the Capital Requirements (Country-by-
Country Reporting) Regulations 2013. The requirements originate from Article 89 of the Capital Requirements
Directive (CRD IV). The purpose is to provide increased transparency regarding the source of the Group’s income
and the locations of its operations.
In both reported years, Shawbrook Group plc and its subsidiaries (the ‘Group’) are all UK registered entities.
The activities of the Group are detailed in Note 1 of the Financial Statements and in the Strategic Report. Details
of subsidiary companies included in the Group are provided in Note 46 of the Financial Statements.
Required disclosures for the year ended 31 December are summarised below:
Net operating income (£m)
Profit before tax (£m)
Tax charge (£m)
Tax paid (£m)
Average number of employees on a full-time equivalent basis
The Group received no public subsidies during either of the reported years.
2021
UK
386.1
197.2
47.9
48.3
964
2020
UK
282.6
73.5
15.4
16.8
811
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Strategic ReportCorporate GovernanceRisk ReportFinancial Statements
Shawbrook Group plc, Lutea House, Warley Hill Business Park,
The Drive, Great Warley, Brentwood, Essex, CM13 3BE.
Registered in England and Wales – Company Number 07240248.
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Shawbrook Group plc | Annual Report and Accounts 2021