Annual Report & Accounts 2023
Our Purpose
Making you happier about money
Our Purpose guides the way we do business every day, from our Strategy,
Values and Behaviours, the products we offer, the experiences we create
and the topics we care about.
These start and end with our customers. These are our Virgin Values:
Heartfelt service
Insatiable curiosity
Smart disruption
Red hot relevance
Straight up
Delightfully surprising
We care and want the
best for our customers
We search for the best ideas,
approaches and solutions
We shake up the
things that matter
We lead the way today
and anticipate tomorrow
We work together to make
money simpler and easier
We deliver experiences that
make people feel happier
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Chief Executive Officer’s
introduction
Contents
Strategic report
Governance
Risk report
Financial statements
Who we are
Why Purpose is important to us
Purpose in action
Board Chair’s introduction
Chief Executive Officer’s introduction
Key performance indicators (KPIs)
Operating environment
Business model
Strategic priorities
Environmental, social and governance
(ESG)
Non-financial and Sustainability
Information Statement
Our TCFD summary
Commercial review
Chief Financial Officer’s review
How we manage risk
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Board Chair’s introduction
Our Board of Directors
Our Executive Leadership Team
Governance report
Stakeholder engagement
and Board decision making
(Section 172(1) statement)
Governance and Nomination
Committee report
Audit Committee report
Risk Committee report
Directors’ remuneration report
Directors’ report
Our ambition is to be the UK’s best digital bank.
This report’s format is optimised for on-screen viewing.
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Introduction
Credit risk
Financial risk
Model risk
Regulatory and compliance risk
Conduct risk
Operational risk
Economic crime risk
Strategic and enterprise risk
Climate risk
Climate-related
disclosures
Introduction
Strategy
Governance
Risk management
Metrics and targets
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Independent auditor’s report to the
members of Virgin Money UK PLC
Consolidated financial statements
Notes to the consolidated
financial statements
Company financial statements
Notes to the Company
financial statements
Additional information
Principles for Responsible
Banking report
ESG index
Measuring the Group’s performance
Underlying adjustments to the statutory
view of performance
Glossary
Abbreviations
Country by country reporting
Shareholder information
Basis of presentation
Forward-looking statements
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Strategic report
Who we are
Why Purpose is important to us
Purpose in action
Board Chair’s introduction
Chief Executive Officer’s introduction
Key performance indicators (KPIs)
Operating environment
Business model
Strategic priorities
Environmental, social and governance
(ESG)
Non-financial and Sustainability
Information Statement
Our TCFD summary
Commercial review
Chief Financial Officer’s review
How we manage risk
Governance
Risk report
Climate-related disclosures
Financial statements
Additional information
Strategic report
Who we are
We are Virgin Money
We are the UK’s 6th largest bank, with c.6.6m customers, a scalable digital platform
and a national network of stores, contact centres and relationship managers.
We are led by
our Purpose ...
Making you
happier about
money
... which informs our
strategic ambition ...
... and our key
strategic priorities
To be the UK’s
best digital bank
Delighted customers
and colleagues
Super straightforward
efficiency
Pioneering growth
Discipline and
sustainability
To deliver
improved
performance
and value
for our
stakeholders
Scale positions in key UK retail banking markets:
Personal
Helping our customers live and
bank in a more rewarding way
Business
Supporting business owners in realising
their potential and achieving their dreams
of lending
£6.5bn
£49.9bn
of deposits
of lending
£8.7bn
£ 16.7bn
of deposits
Mortgages
Simplifying mortgages to make
homeowners’ lives better
£57.5bn
of lending
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Strategic report
Who we are
Why Purpose is important to us
Purpose in action
Board Chair’s introduction
Chief Executive Officer’s introduction
Key performance indicators (KPIs)
Operating environment
Business model
Strategic priorities
Environmental, social and governance
(ESG)
Non-financial and Sustainability
Information Statement
Our TCFD summary
Commercial review
Chief Financial Officer’s review
How we manage risk
Governance
Risk report
Climate-related disclosures
Financial statements
Why Purpose is important to us
Making you happier about money
Our Purpose articulates why Virgin Money exists,
what problems we are here to solve, and who we
want to be to each person we touch through the
work we do.
Delivering on our Purpose and strategy
We think that the best way to deliver on our Purpose is our strategy to become the UK’s
best digital bank. In order to deliver this we focus on four strategic priorities:
It shapes our strategy and the activity
we undertake. Getting this right will inspire
our colleagues, engage our customers and
communities, steer decisions at moments
of truth and mean it is fully embedded in
our culture.
Making you happier about money was
co-created by over 2,000 Virgin Money
colleagues.
It is long term and enduring. It is not negotiable
– we are on the journey to becoming a truly
Purpose-led business.
Our Purpose establishes us as a bold,
proactive, customer, colleague and community-
focused business with a desire to help people
feel better about their relationship with money.
Delighting customers by delivering
outstanding experiences through digital-first
interaction; supported by delighted colleagues
working in a healthy, flexible, digitally-led
environment.
See pages 20-24 for more.
Pioneering growth. Our unique brand
and straightforward, digitally-accessible
products with market-defining loyalty
rewards help attract and retain digitally-savvy
target customers.
See pages 25-26 for more.
Super straightforward efficiency.
Our Bank leverages technology to drive
efficiency and effectiveness, enabling us
to invest back in our customers and deliver
strong financial results.
See pages 27-28 for more.
Discipline and sustainability. Building and
operating the Bank for the long term, creating
positive outcomes for our customers and
all our stakeholders on a consistent and
sustainable basis.
See pages 29-30 for more.
Additional information
Which will deliver for our stakeholders
Customers
Showing our customers
that we care about them and
their money as we enable
them to manage their money
brilliantly by providing data
and insights as well as access
to exciting and rewarding
digital propositions.
Colleagues
Providing meaningful careers,
development and an inclusive
and ambitious culture,
enabled by great digital tools
and our flexible ‘A Life More
Virgin (ALMV) approach’.
Investors
Delivering our strategy
to grow profitably and
sustainably, drive efficiencies
and improve our returns, as
well as provide sustainable
distributions.
Society
Inclusive banking;
contributing taxes and
enhancing UK banking
competition, with a
progressive sustainability
and ESG agenda.
Minimising our carbon
footprint and encouraging
sustainable choices.
Partners and suppliers
Creating shared value
with our strategic partners,
and supporting our suppliers
with fair payment terms.
Government and regulators
Working with government
and regulators to support
their objectives for a stable,
customer-focused banking
system through good
customer outcomes, delivering
a sustainable business and
staying safe and compliant.
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Who we are
Why Purpose is important to us
Purpose in action
Board Chair’s introduction
Chief Executive Officer’s introduction
Key performance indicators (KPIs)
Operating environment
Business model
Strategic priorities
Environmental, social and governance
(ESG)
Non-financial and Sustainability
Information Statement
Our TCFD summary
Commercial review
Chief Financial Officer’s review
How we manage risk
Governance
Risk report
Climate-related disclosures
Financial statements
Additional information
Why Purpose is important to us
Purpose in action
Our Purpose supports us in focusing on creating value for society
and helping our customers, especially in challenging times.
Helping our customers
in a difficult environment
> Supported customers with the cost of living
See page 20 and our hub here
>
Implemented Consumer Duty
See page 21
> Adopted the government’s Mortgage Charter
See page 54
Developing propositions
that meet customer needs
> Leading, award-winning digital PCA and BCA propositions
See page 25 and 26
> Refreshed VM Investments and Pensions proposition
See page 26
> Sustainable Business Coach helping businesses with net zero
See pages 39 and 40
With
c.6.6m
customers
and
c.3.8m
active relationship
customer accounts
(5% yoy growth)
Developing our operations
for the digital age
>
Improving customer service and experience
See pages 20 and 21
> Driving digital engagement with customers
See pages 20, 21 and 28
> Building our digital resilience against financial crime
See pages 10, 15 and 30
Supporting society
and those in need of help
> Partnering with Macmillan to support people with cancer
See page 7
> Helping people calculate their benefits entitlements
See page 43
> Helping address data poverty with Databank
See page 45
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Why Purpose is important to us
Purpose in action
Board Chair’s introduction
Chief Executive Officer’s introduction
Key performance indicators (KPIs)
Operating environment
Business model
Strategic priorities
Environmental, social and governance
(ESG)
Non-financial and Sustainability
Information Statement
Our TCFD summary
Commercial review
Chief Financial Officer’s review
How we manage risk
Governance
Risk report
Climate-related disclosures
Financial statements
Additional information
Board Chair’s introduction
Delivering for our stakeholders,
led by our Purpose
In 2023, Virgin Money made further progress,
and is increasingly well placed to adapt
to an ever-changing environment.
Dear stakeholder
Virgin Money has continued to make good
progress in 2023 against the digital strategy set
out in 2021, with growth in active relationship
customer account numbers and our target
lending and savings segments, and further
progress on our efforts to digitise the Bank.
This has been achieved despite an operating
environment that has proved increasingly
challenging for the customers we serve. Over
the course of the year, UK GDP growth has
been low but resilient, while the economy has
been impacted by persistently higher inflation,
resulting in multiple interest rate rises, to levels
not seen for nearly 15 years. The Group has
adapted the pace of execution accordingly
as it focused on improving service levels and
supporting customers.
Despite a turbulent backdrop for financial
services earlier in the year, the Group has
maintained a robust balance sheet across all
key metrics, with funding, liquidity and capital
all remaining strong.
Continued good levels of capital generation,
combined with a robust performance in our
second stress test participation, demonstrate
our capital strength and has allowed the
Group to return more capital to shareholders.
The Board is recommending a final dividend
of 2.0p (5.3p in total in respect of FY23)
supplemented by a further £150m share
buyback to take the total buybacks announced
to £200m for FY23. This represents total
distributions of £272m to shareholders in
respect of FY23, a similar level to FY22 (£267m).
Looking ahead to 2024, the Board remains
very focused on ensuring the Group remains
resilient and adapts to new emerging threats
and technologies. As a result, we have taken
the decision to increase our digital investment
in countering financial and cybercrime and
improving data management. This increased
investment will help safeguard the Bank and our
customers and was made with careful
consideration of the short-term financial
implications.
As we enter the new financial year, we have
much to do to deliver our strategy, but these
investments, and the good underlying
momentum in the business will leave Virgin
Money increasingly well placed to deliver
sustainable returns to investors over time,
alongside ongoing value for all stakeholders.
05
David Bennett
Board Chair
Our Purpose sits at the
heart of Virgin Money’s
strategy, ensuring we remain
focused on delivering for
all of our stakeholders.
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Why Purpose is important to us
Purpose in action
Board Chair’s introduction
Chief Executive Officer’s introduction
Key performance indicators (KPIs)
Operating environment
Business model
Strategic priorities
Environmental, social and governance
(ESG)
Non-financial and Sustainability
Information Statement
Our TCFD summary
Commercial review
Chief Financial Officer’s review
How we manage risk
Governance
Risk report
Climate-related disclosures
Financial statements
Additional information
Board Chair’s introduction
Delivering for all stakeholders in 2023
As the sixth largest bank in the UK with c.6.6m
customers, Virgin Money has an important role
to play in supporting our customers, colleagues
and society more broadly through the cost-of-
living challenges presented by the environment.
The Board and I, along with David Duffy and
the management team, have been focused on
ensuring we support our customers as needed.
Throughout 2023, we have offered customers
valuable, digital-led propositions and provided
assistance to those dealing with the impacts
of higher living costs as well as proactively
supporting vulnerable customers. The Group
was a signatory to the Mortgage Charter but
thankfully instances of customers needing
additional support have so far remained low.
Another significant focus has been the adoption
of the new Consumer Duty regulations which
seek to ensure that banks offer good outcomes
for customers. We have also provided a range
of initiatives to drive good customer outcomes
and were proactive in offering customers higher
rates earlier in the year.
Section 172 statement
In undertaking its duties, the Board
continues to be mindful of the need
to appropriately balance the interests
and expectations of the Group’s various
stakeholders. In this report, we describe
how we have considered and worked
with, and for, stakeholders as we seek
to achieve our Purpose of Making you
happier about money.
For our Section 172 statement, and more
on how the Board has engaged with our
stakeholders, please see pages 98-106.
Governance
The operating backdrop across 2023 has
led to a changing environment, both from
a regulatory and customer appetite point of
view. This provided an opportunity to ensure
the governance practices underpinning our
operations remain of the highest standard.
Furthermore, we have ensured the skill set
of the Board is ever evolving, and improving,
particularly against the demands of a digital
future. The Board remains focused on ensuring
that the significant stakeholder engagement
carried out throughout the year is reflected in
its decision-making process, with further details
available within the s.172 compliance section,
on pages 98 to 106.
During the year, we welcomed Sara Weller
as the new Representative Director of Virgin
Enterprises Limited, replacing Amy Stirling
who left the Board during 2022. Sara has
extensive experience, including nine years
as a non-executive director of Lloyds Banking
Group, and she currently also serves on the
Board of BT Group. Female representation on
the Board is now 38%, above our 33% target.
Our colleagues play a pivotal role in the
execution of our strategy. Our successful
delivery of these various requirements was
testament to the hard work of colleagues
across the business, for which I extend my
sincerest thanks.
We continue to see strong levels of engagement
across the Group, and benefits from our ‘A Life
More Virgin’ approach which offers colleagues
a significant range of flexible working
opportunities.
The Bank has also made progress in its efforts
to drive diversity and inclusion. We launched
our allyship framework, BRAVER, over the
Summer, which brings to life the behaviours
and practices that promote equity and inclusion,
providing guidance on how to better support
colleagues from under-represented groups and
foster a genuinely inclusive culture in the Bank.
This has been well received by colleagues and
role modelled by many of our senior leaders
(see page 24 for more).
As part of our wider commitment to society
and the communities in which we operate,
the Board is heavily focused on the progress
of the Group’s sustainability journey and actively
engages in a detailed, quarterly sustainability
update. The Directors also reviewed and
approved the expanded net-zero strategy,
which takes a significant step forward with the
adoption of refreshed, science-based targets
that now cover all our priority portfolios
alongside our own operations. We detail these
and more in our Climate-related disclosures
on pages 240-272.
I am particularly proud of the successful
relationship Virgin Money has had with our
corporate charity partner Macmillan over the
last three years, working in close partnership
to provide support to our customers living with
cancer and raising significant sums of money;
more on this can be seen on the following page.
We now look forward to working with our new
charity partners Mind, in partnership with the
Scottish Association for Mental Health, over the
coming years.
From a regulatory perspective, we continue
to maintain a strong working relationship with
our regulators as we adopt and adapt to the
requirements of tier 1 bank and O-SII status.
This status rightly comes with greater scrutiny,
and demands a matched response in
performance and focus from us. Our enhanced
reputation as a tier 1 bank is helpful assurance
for all our stakeholders and provides confidence
at times of market instability, as we have seen
during the past year.
Our investors also continue to benefit from
the Group’s strong capital position, and the
Board’s commitment to returning excess
capital to shareholders in line with our capital
framework. We will continue to return capital
to shareholders in a balanced way, reflecting
our strategy to seek profitable growth, and to
build a sustainable, resilient digital bank that
is fit for the future.
In summary then, while circumstances may
change and economic conditions will vary,
2023 has demonstrated that if you place
Purpose at the core of what you do, while
ensuring all stakeholders are considered,
good outcomes will follow.
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Outlook
In conclusion, there remains more to do to
deliver on the three-year strategy set out in
2021, but we are making solid progress on
its implementation against a less than certain
operating environment. The Board and I remain
comfortable that our digital strategy is the
right one, and the Group is well positioned
as it enters 2024, to deliver good returns,
improved cost efficiency and profitable growth.
With a robust strategy to digitise the Bank,
a focus on resilience, and opportunities for
growth, Virgin Money and its stakeholders
have much to look forward to in the years ahead.
David Bennett
Board Chair
22 November 2023
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Why Purpose is important to us
Purpose in action
Board Chair’s introduction
Chief Executive Officer’s introduction
Key performance indicators (KPIs)
Operating environment
Business model
Strategic priorities
Environmental, social and governance
(ESG)
Non-financial and Sustainability
Information Statement
Our TCFD summary
Commercial review
Chief Financial Officer’s review
How we manage risk
Governance
Risk report
Climate-related disclosures
Financial statements
Additional information
Purpose in action
Macmillan partnership
The three-year relationship we’ve had
with Macmillan Cancer Support has
been brilliantly impactful. Thanks to the
12 Macmillan moments, we’ve had record
colleague engagement and fundraising.
We closed out our partnership with a
bespoke hike up Ben Nevis with just
short of 150 colleagues raising over £67k,
our stores hosting Coffee Mornings and a
presence at the Mela festival in Newcastle.
In total, our fundraising and additional
company donations have brought us to
a sum of over £1.5m raised for Macmillan,
far beyond our anticipated initial targets.
Beyond fundraising, the Virgin Money
Macmillan Guides made us the first UK
bank to offer a bespoke service for people
living with or affected by cancer, which is
something we’re incredibly proud to have
achieved. We’ve also put support in place
for our colleagues to help them if they’re
impacted by cancer, with colleagues trained
to offer peer-to-peer support and a cancer
toolkit for leaders.
For more information see pages 45 and 46.
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Why Purpose is important to us
Purpose in action
Board Chair’s introduction
Chief Executive Officer’s introduction
Key performance indicators (KPIs)
Operating environment
Business model
Strategic priorities
Environmental, social and governance
(ESG)
Non-financial and Sustainability
Information Statement
Our TCFD summary
Commercial review
Chief Financial Officer’s review
How we manage risk
Governance
Risk report
Climate-related disclosures
Financial statements
Additional information
Chief Executive Officer’s introduction
Delivering against
our strategy
We are delivering positive
financial performance
and strong capital
distributions despite
a challenging backdrop
Dear stakeholder
During the second year of our current strategic
cycle, the Group has continued to execute well
against our Purpose-led ambition to become
the UK’s best digital bank.
2023 has been another year of significant
change in the operating environment and I
am pleased that we have continued to deliver
against this backdrop. The combination of
the higher rate environment and our strategy
is increasingly translating into growth in
relationship customer accounts and income.
We’ve made good progress on our journey to
digitise the Bank, and I would like to thank our
colleagues for a significant year of execution.
There remains more to do as we enter the final
year of our current 3-year plan, but we have
good momentum across key areas of the
business, a robust balance sheet, and a
continued focus on ensuring we support and
reward our customers’ ongoing loyalty. We will
remain vigilant in safeguarding against new and
emerging threats, and adapting accordingly,
we are increasingly well placed to generate
strong, sustainable returns. These will support
shareholder distributions, investment in the
business and our long-term growth ambitions.
Strategic delivery in 2023
Throughout the year, I have been pleased with
our commercial momentum across the business.
Our balance sheet strength helped us withstand
the broader turbulence in the sector earlier
in the year as we retained resilient liquidity,
funding and capital positions.
David Duffy
Chief Executive Officer
We made good progress executing our
Purpose-led strategy in 2023 and are
entering 2024 with good momentum in our
key target segments across the business.
Our refreshed digital products are delivering
growth in balances across our target segments
of Business, Unsecured and relationship
deposits. Business, in particular, demonstrated
good momentum across both sides of the
balance sheet, with a second year of robust
current account sales, and lending growth
despite a weaker market backdrop. Within
Unsecured, our cards business continued
to drive good growth, increasing our market
share steadily, while also focusing on long-term
profitability against the higher rate backdrop.
Relationship deposits grew in line with the
overall deposit base at a time when many banks
have seen significant deposit migration and
attrition. Our early management of the trend
for customers to seek higher yields, offering
attractive products such as our linked savers,
demonstrated how we can offer good value to
customers while also delivering a more resilient
margin outlook.
Earlier in the year the Group took action
to invest in improving our service position,
and we are seeing an improvement in the
key customer satisfaction metrics, albeit
we have more to do. As we reaccelerated our
digitisation work in the second half of the year,
we continued to deliver the gross savings
outlined at FY21, mitigating the backdrop
of inflationary pressure.
Continuing to build an efficient and sustainable
platform to support long-term returns remains
a key ambition. However, we must recognise
the need to adapt to changes in the
environment, including emerging threats and
new technology. We have therefore decided
to invest c.£130m over 3 years, as we deliver
our response to the emerging risks and
technologies, including AI, in the evolving
financial and cybercrime space. Additional
savings have been identified to offset this
however, taking the original c.£175m target
for cost savings to c.£200m, with no additional
cost to achieve.
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Strategic report
Who we are
Why Purpose is important to us
Purpose in action
Board Chair’s introduction
Chief Executive Officer’s introduction
Key performance indicators (KPIs)
Operating environment
Business model
Strategic priorities
Environmental, social and governance
(ESG)
Non-financial and Sustainability
Information Statement
Our TCFD summary
Commercial review
Chief Financial Officer’s review
How we manage risk
Governance
Risk report
Climate-related disclosures
Financial statements
Additional information
Chief Executive Officer’s introduction
Investment case
Virgin Money is well placed to deliver growth and shareholder distributions
Objectives set at FY21
Progress at FY23
FY24 targets
1.
Driving efficiency
>
Invest £275m to accelerate
digital transformation
> Create a modern tech platform and
end-to-end digital customer journeys
>
Invested £213m for £130m savings
> Further gross savings towards
> Digitisation of key journeys at 50%
(FY22: 43%)
c.£200m target
>
Increase in key journeys digitised
> c.£40m of c.£130m 3 year investment
in financial crime prevention programme
2.
Earnings momentum
> Deliver net interest margin (NIM) accretion
> NIM expanded 6bps to 1.91% in FY23
> NIM of 190-195bps
> Control costs
> Deliver improving returns profile
> Stable underlying C:I on FY22, of 52%;
statutory C:I of 64% (FY22: 62%)
> Broadly stable underlying C:I, excluding
financial crime prevention programme
> Statutory RoTE of 3.9% in FY23
> Statutory RoTE c.8%
3.
Strong asset quality
> Maintain a prudent risk appetite
> Loan book skewed to low-risk mortgages
> Prudent risk appetite maintained
> Maintain low impairments within
through the cycle range (30-35bps)
> Built up coverage to 84bps (FY22: 62bps);
> Gradual balance sheet evolution
well above the pre-pandemic level
> Cost of risk between c.30-35bps
> Remain well-provisioned against a downturn
> FY23 42bps cost of risk above target range
given provision build
4.
Profitable growth
5.
Capital returns
> Develop and deliver exciting new
> Virgin Money Investments launched
> Maintain mortgage market share
digital propositions
> Grow across target areas: current accounts
and linked savings, business and
unsecured lending
> Grow relationship customers
> 9% growth in target lending segments
> 5-10% growth across unsecured
> 5% growth in active relationship customer
and business
accounts
> Relationship deposits maintained at 53%
share of deposits
> Further relationship deposit growth,
optimising cost of funding
> Maintain capital framework; 30% dividend
> Further dividend payouts
> Further distributions to drive CET1 to target
payout supplemented by buybacks
> £200m buybacks announced for FY23;
13-13.5% ratio
> Continue with strong organic capital
£325m in total to date
generation to support sustainable returns
> Total capital returns yielding 142% in FY23
> Strong CET1 ratio of 14.7%; >13-13.5% target
> Nominal distributions in line with FY23,
subject to Board and regulatory approval
> Ongoing capital generation supporting
growth, returns and targeted investment
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Board Chair’s introduction
Chief Executive Officer’s introduction
Key performance indicators (KPIs)
Operating environment
Business model
Strategic priorities
Environmental, social and governance
(ESG)
Non-financial and Sustainability
Information Statement
Our TCFD summary
Commercial review
Chief Financial Officer’s review
How we manage risk
Governance
Risk report
Climate-related disclosures
Financial statements
Additional information
Chief Executive Officer’s introduction
The improving rate environment, combined
with our commercial momentum, saw continued
strong underlying capital generation to support
the Group’s ambitions. Our CET1 ratio remained
robust throughout the period and we saw
another strong set of results through our
second BoE stress testing process.
The Board and I remain committed to
continuing to deliver capital distributions for
shareholders. We are recommending a 5.3p
ordinary dividend for 2023, supplemented
by our announcement today of a higher than
guided £150m share buyback in respect of
FY23, to be executed during H1 2024. This
takes total shareholder returns announced for
the year to £272m, in line with 2022 (£267m).
Robust financial performance in 2023
The significantly higher rate environment,
combined with our strategic execution in the
year, resulted in underlying operating profit
before impairment charges 9% higher than
a year ago. However, statutory profit before
tax of £345m was lower than 2022 (£595m),
firstly given higher impairments relative to last
year’s low charge, which primarily reflected
higher modelled provisions, and secondly,
higher adjusting items due to ongoing
restructuring activity and intangible asset
writedowns (see CFO review, pages 59 to 67 for
full details). Altogether, this resulted in a lower
Statutory RoTE of 3.9% (2022: 10.3%), with a
Statutory cost:income ratio of 64% (2022: 62%).
Underlying income increased 8% in the year,
primarily driven by stronger net interest income
(NII). NIM expanded again to 1.91% (2022:
1.85%), supported by a higher yield on our
structural hedge, early management of deposit
migration trends and growth in higher yielding
lending. These developments have helped
offset a continued competitive market for
mortgages and an increasingly competitive
market for deposits.
Underlying operating costs of £971m increased
6% on the prior year. We have continued to
deliver against our cost reduction programme,
with gross savings broadly offsetting additional
costs from inflation and balance sheet growth.
However, the additional costs to resolve service
challenges and higher levels of investment
drove the increase in total costs.
While our overall credit quality remains resilient,
we saw a higher credit impairment charge
this year, equivalent to a cost of risk of 42bps
(2022: 7bps), as we incorporated a more
conservative economic outlook and updated
credit bureau data. This is reflected in our
increased expected credit loss (ECL) provision,
and coverage of 84bps, which is significantly
higher compared to 62bps at FY22. The key
driver of the increased credit provision is credit
cards, reflecting a higher modelled view of
future losses, given updated assumptions.
This leaves the Bank well placed against any
future credit deterioration.
Overall lending balances were stable at £72.8bn,
despite a muted market backdrop. We achieved
9% growth across our target segments of
Unsecured and business-as-usual (BAU)
Business lending, while the mortgage book
reduced 1%, as market demand slowed against
the higher rate backdrop. Pleasingly given the
competitive backdrop, deposit balances grew
2% to £66.6bn, with relationship deposits also
2% higher.
Our ongoing profitability supports a robust
capital position, reflected in a CET1 ratio
of 14.7% (2022: 15.0%) supporting further
capital distributions. The liquidity coverage ratio
(LCR) of 146% and loan to deposit ratio (LDR)
of 109% also highlight the strength of our
funding position and the robustness of our
balance sheet.
Responding to evolving technology
As the backdrop continues to evolve and
new technologies emerge, the Group remains
focused on safeguarding the Bank and our
customers. We remain vigilant to the emerging
expectations, threats and challenges we face,
as well as rising stakeholder expectations.
The rapidly increasing prevalence of online
channels and social media are driving higher
instances of fraud and financial crime in the
UK. Increasingly, this will become an area
where banks bear the full extent of fraud
losses and associated penalties. Cybercrime
represents another area of significant
development, with new technologies including
AI increasing the sophistication and risk of
attacks. Underpinning the defence against
such attacks and broader reporting is strong
data management, including adoption of
the Basel Committee on Banking Supervision
(BCBS) 239 data standard, and this will
be an area of increased focus for us in the
years ahead.
To maintain our vigilance against all forms
of fraud and financial crime, we have decided
to increase our digital investment in this area
from FY24. We will implement new and
improved technology and increase the
sophistication of our processes, with the goal
of providing our customers with upgraded
protection against criminal actors.
As a result, we are announcing a c.£130m
investment programme over the next three
years, of which c.£40m will be spent in FY24.
This investment will significantly upgrade our
financial crime prevention and cyber defence
capabilities, while also delivering increasingly
rich data and analytical capabilities, including
AI models, to underpin our risk data aggregation
and internal risk reporting practices, in line
with regulatory requirements.
This is the right thing to do for customers and
the Bank in the long term, safeguarding and
protecting both as the environment evolves,
and will support sustainable shareholder returns
over time. While the investment will impact on
returns in the short term, we believe it mitigates
against the risk of greater impact on the Bank
and our customers in the future.
We will also seek to offset the higher costs
incurred through additional cost saving
initiatives. We are increasing the scope of
our existing cost savings programme and are
now targeting c.£200m of gross cost savings,
up from c.£175m previously. These will be
delivered primarily by further strategic
rationalisation of our real estate portfolio,
outsourcing and systems simplification.
This will be delivered within the existing
c.£275m restructuring budget set at FY21.
Delivering against our strategic priorities
We continue to progress our strategic shift
towards digital banking, as set out at FY21.
This outlined a three-year programme
of change and investment towards achieving
our strategic ambition of becoming the UK’s
best digital bank. A summary of our progress
against our four key strategic priorities during
2023 is below.
Delighted Customers and Colleagues
We have made significant improvements in
addressing the challenges faced earlier in the
year around service. Call waiting times are on
average 65% lower compared to their October
2022 peak, and after investing more in the first
half, we have been able to reduce the numbers
of third-party resources and additional
colleagues employed to address the backlog
of complaints. Having addressed these issues,
over the second half of the year we have
re-accelerated efforts to digitise and automate
the business as planned.
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Our TCFD summary
Commercial review
Chief Financial Officer’s review
How we manage risk
Governance
Risk report
Climate-related disclosures
Financial statements
Additional information
Chief Executive Officer’s introduction
Our strategic priorities
KPIs
KPIs
Measuring strategic delivery
Delighted customers
and colleagues
Pioneering
growth
Super straightforward
Included directly as Remuneration metric
efficiency
Discipline and
sustainability
Included indirectly in Remuneration metrics
Financial KPI
Non-financial KPI
Total active relationship
customer accounts
Digital primacy
2023
2022
2021(1)
3.8m
3.6m
3.3m
2023
2022
H122(2)
Statutory profit before tax
61%
56%
51%
2023
2022
2021
Financial highlights
Key financial targets
Target lending segment
asset growth
Gross annualised
cost savings (cumulative)
Net interest margin
2023
2022
2021
(3)%
9%
7%
2023
2022
Target
£130m
£69m
£200m
2023
2022
2021
Customer complaints
per 1k accounts
Colleague
engagement
2023
2022
2021
4.0
4.2
3.7
2023
2022
2021
Group Smile score
Group diversity indicators
2022 2023 2025 Target
Cost of risk
80%
79%
68%
2023
2022
2021
(18)bps
CET1 ratio
2023
2022
2021
49%
46%
51%
55%
52%
45-55%
4%
8%
10%
6%
7%
10%
2023
2022
2021
Senior Gender(3)
Senior Ethnicity(3)
Group Ethnicity
(1) As at October 2021 due to availability of source data
(2) As at March 2022 due to availability of source data
(3) Senior defined as top three levels
(4) Hedge ineffectiveness is now presented as an adjustment to underlying as detailed on page 381.
The comparative periods have been adjusted accordingly.
(5) Excluding financial crime prevention programme
See our ESG and sustainability metrics in the ESG
report, pages 31 to 50.
For full definitions of KPIs shown on this page,
please see pages 372-380.
£345m
£595m
£417m
1.91%
1.85%
1.62%
42bps
7bps
14.7%
15.0%
14.9%
Statutory RoTE
c.8% in FY24
2023
2022
2021
Underlying cost:income ratio(4)
c.52% in FY24(5)
2023
2022
2021
3.9%
10.3%
10.2%
52%
52%
58%
Statutory cost:income ratio of 64% in 2023
(2022: 62%, 2021: 81%)
Announced shareholder
distributions
30% dividend payout ratio
Supplemented by buybacks, subject to Board
and regulatory approval
Total payout level, including announced buybacks
2023
2022
2021
142%
57%
4%
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As a result of these actions, the Group’s Smile
scores improved for the first time in three years,
increasing to 49%. Complaints per 1,000
have reduced to 4.0, as we addressed
complaint backlogs and improved processes.
While this investment drove a higher cost
out-turn for 2023 than was initially expected,
it was right we invested for both our customers
and the long-term health of the business.
However, we want to do more and remain
focused on continuing to improve service levels.
Over the course of the year, we have fully
implemented new regulatory requirements
including Consumer Duty and the Mortgage
Charter as well as supporting additional
regulatory focus on the savings market.
These new requirements are well aligned to
our Purpose and how we conduct our business,
meaning we were well placed to deliver them.
Given the current environment, we are also
fully committed to supporting customers as
they deal with higher living costs, including
via our online cost of living hub.
We have made good progress in the
development of our digital wallet and this has
now been launched to our closed user group
made up of Virgin Atlantic credit card users.
This work will form the foundation of our
all-encompassing integrated app for Virgin
Money in 2024 and we are well placed to launch
the first iteration of this through the next year.
For colleagues, our A Life More Virgin flexible
working proposition continues to garner
strong support, with colleague engagement
scores rising to 80% (2022: 79%), validating our
differentiated strategy. We are also advancing
our Diversity, Equity and Inclusion work, seeing
some improvement in our key metrics
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Business model
Strategic priorities
Environmental, social and governance
(ESG)
Non-financial and Sustainability
Information Statement
Our TCFD summary
Commercial review
Chief Financial Officer’s review
How we manage risk
Governance
Risk report
Climate-related disclosures
Financial statements
Additional information
Virgin Money Annual Report & Accounts 2023
and launching our BRAVER initiative (see
page 24). See pages 20 to 24 for more on
how we delight our customers and colleagues.
Pioneering Growth
We have made good progress in 2023 in our
target segments, with total active relationship
customer accounts increasing by 5% to 3.8m,
driven mainly by credit card sales and new
Business Current Account (BCA) customers.
I was particularly pleased with our 6% growth in
business lending, despite the ongoing reduction
in government lending scheme balances. Our
Business bank has benefited from our sector
specialisms at a time when the market has been
muted and we remain well placed to continue
to grow profitably.
We delivered 6% growth in unsecured lending,
primarily driven by growth in credit cards
including a strong performance in our VAA
co-branded card. Taken together, we saw
9% growth across our target lending segments
of BAU business and unsecured (2022: 7%).
In mortgages, our aim is to maintain our market
share over time at around 3.5%. During the year,
we traded well against lower market activity
levels and strong competition. Given the
tougher backdrop, we traded tactically and
focused on maintaining margins, as balances
reduced by 1%.
Our deposit performance throughout the year
has been robust. Maintaining our relationship
deposits as a share of deposit mix at 53%
(2022: 53%) remains an important strategic
focus. We attracted c.110k new Personal
Current Account (PCA) sales in 2023 (2022:
131k) by leveraging our attractive linked savings
propositions and reward offerings, rather than
competing on up-front cash incentives.
Our cashback offering also continues to see
good utilisation with over 860k customers
now enrolled (2022: c.650k).
In the Business bank, our award-winning
BCA proposition and improved digital journeys
have now driven 22 months of consecutive
net customer account growth, via c.39k
new BCA sales in 2023 (2022: c.33k).
During 2023, we also completed the build-out
of our full product proposition with the launch
of Virgin Money Investments (see page 26).
Since launch this has attracted new customers
as we offer a Purpose-led, simple approach
to investing. See pages 25 and 26 for more
on Pioneering Growth.
Super Straightforward Efficiency
Since we announced our strategy at FY21,
inflation has been higher and more enduring
than expected, resulting in key costs across
salaries, suppliers and change delivery moving
significantly higher and providing a major cost
headwind. In addition, the technological
environment continues to evolve at pace,
with new opportunities, threats and regulatory
requirements, which we have needed to
consider in our investment portfolio.
Digital primacy, which measures the proportion
of active PCA and Card customers who are
digital only in their engagement with the Bank,
improved to 61% (2022: 56%). From a property
perspective, the Group announced in H2 that
it will be closing an additional 39 stores, as it
adapts to changing customer demand, reducing
our store network by 30% to 91 stores. The
Group’s property footprint is now at c.440k sq
ft, against a target of c.300k sq ft by FY24, from
our c.900k sq ft start point; a 51% reduction.
Having paused some restructuring activity to
focus on supporting customer service during
the first half of the year, we picked up the
pace in the second half, and have now incurred
£213m of the anticipated total c.£275m
investment programme. We have made good
progress, delivering £130m of annualised
run rate savings and helping to offset cost
pressures from inflation, growth and investment.
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Strategic priorities
Environmental, social and governance
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Non-financial and Sustainability
Information Statement
Our TCFD summary
Commercial review
Chief Financial Officer’s review
How we manage risk
Governance
Risk report
Climate-related disclosures
Financial statements
Additional information
Chief Executive Officer’s introduction
These savings have been driven by ongoing
digitisation, property and organisational
changes, and sourcing benefits. Our work in
H2 included digitising key customer journeys,
which remains central to our strategy, and we
have now fully automated 50% of key journeys
(2022: 43%).
During the year, we also deployed our latest
chatbot Redi (see page 28) across credit cards.
This has been well received by customers,
attracting favourable Smile scores and
supporting a reduction in call volumes.
Following an assessment of the progress of
the project to upgrade the mortgage platform
and challenges identified during testing,
we now anticipate a significant deferral
and redesign as we implement the upgraded
capability. We remain committed to launching
improved capability for our mortgage customers
and brokers over time, and there remains no
impact on day-to-day trading.
Looking ahead, we believe that delivering
greater efficiency will support sustainable
value creation for shareholders, a lower
cost:income ratio and will enhance our ability to
compete effectively in a rapidly changing digital
marketplace. See pages 27 to 28 for more on
delivering Super Straightforward Efficiency.
Discipline and Sustainability
Our focus has always been on ensuring that
our Bank is delivering consistent, sustainable
positive outcomes for our customers,
investors and other stakeholders. Aligned
to that, in 2023 we have been particularly
focused on ensuring our resilience against
the challenging external backdrop.
The Group has remained well positioned given
our strong capital, high-quality customer base
and robust asset quality. We maintained our
disciplined approach to credit, achieving modest,
profitable lending growth in our target areas,
while ensuring the resilience of our funding and
deposits. Our liquidity metrics remain well above
regulatory minimums, and we have maintained
good access to wholesale funding markets,
all of which demonstrate our prudent approach
and market confidence in our business model.
We have also now repaid £1.0bn of TFSME
funding, ahead of its contractual maturity.
The Group’s resilient performance in the BoE’s
Annual Cyclical Scenario (ACS), remaining
significantly in excess of its reference rates on
both a transitional and non-transitional basis,
demonstrates the sustainability of our franchise
against even a severe macro downturn.
We’ve also made good progress on ESG
metrics, maintaining our ‘low risk’ status from
Sustainalytics and AA ‘Leader’ status from
MSCI, evidencing the Group’s enhanced
disclosure and commitment to continual
improvement of our sustainability agenda.
In 2023, the Group has further developed its
Commercial net zero targets and road maps,
as well as setting targets in relation to its own
operations for the first time. Further detail
of our achievements can be found in our
sustainability report on pages 31 to 50.
More on our Discipline and Sustainability
strategic priority is on pages 29 and 30.
Leadership changes
I have further strengthened the Group’s
Executive Leadership Team this year, ensuring
we have the required digital leadership
capabilities to deliver now and in the future,
against the higher expectations of a tier 1 bank.
As announced last year, Sarah Wilkinson joined
the Group as Chief Operating Officer in early
2023, bringing together the Group’s Customer
Experience and Digital & Innovation functions
under new, focused leadership. In late 2023
we appointed Allegra Patrizi as Managing
Director, Business and Commercial. Allegra has
worked in the financial services sector for over
20 years having started her career at McKinsey
& Company where she rose to Partner,
before being Chief Product Officer at F&C
Asset Management, Group Risk Director at
Prudential plc and most recently CEO of Aegon
in the Netherlands. Hugh Chater will remain
with us as a senior adviser until the end of
2024, and I thank him for all his hard work
and leadership over the last seven years.
Outlook
The Group’s underlying momentum is strong.
NIM has continued to expand in FY23, and we
expect a NIM of 190-195bps in FY24. This will
be supported by re-investment of the structural
hedge at higher rates and further growth in
higher margin lending, where we expect to
grow our business and unsecured segments
between 5% and 10%.
We will continue to invest in strengthening
our business for all stakeholders, including the
digital investment in financial crime prevention
and as we focus on improving legacy
components of our infrastructure. We will
improve digital customer experience further,
deliver the second phase of Consumer Duty
and launch new digital propositions, while
delivering against our expanded, £200m gross
cost saving programme. We now anticipate that
the underlying cost:income ratio in FY24 will be
broadly stable on this financial year, excluding
our investment in financial crime prevention.
Having updated our economic outlook under
the International Financial Reporting Standard
(IFRS) 9 methodology, we feel well provided,
and expect our cost of risk for the year to be
in the range of 30-35bps, subject to the
macroeconomic outlook remaining consistent.
The Group remains strongly capital generative
and I’m pleased to confirm that, as previously
announced, we plan further buybacks through
2024, subject to Board and regulatory approval,
following on from £150m today, as we return
to operating within our target CET1 range
of 13% – 13.5% by FY24. We expect nominal
shareholder distributions in FY24 to be in line
with FY23; delivering this would mean we have
returned around £800m of capital distributions
to shareholders over the three years of
our strategy.
As a result of the increased level of investment
in the financial crime prevention programme,
we do now expect to take longer to achieve
our double digit statutory return ambition.
We expect to generate an underlying RoTE
of c.10% in FY24, excluding the financial crime
prevention programme and cash flow hedge
reserve, with a statutory RoTE of c.8%. We are
committed to generating double digit returns
in the medium-term and I look forward to
communicating more details about the next
phase of our strategy at a Capital Markets Day
next year.
In the meantime I would like to thank all
our colleagues for their hard work, and our
customers for their loyalty and support as
we continue to execute our strategy and
deliver on our Purpose of Making you happier
about money. I look forward to updating the
market on our further progress during 2024.
David Duffy
Chief Executive Officer
22 November 2023
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Key performance indicators (KPIs)
Operating environment
Business model
Strategic priorities
Environmental, social and governance
(ESG)
Non-financial and Sustainability
Information Statement
Our TCFD summary
Commercial review
Chief Financial Officer’s review
How we manage risk
Governance
Risk report
Climate-related disclosures
Financial statements
Additional information
Operating environment
Driving customer-centric digital
growth in a dynamic environment
Impact areas
What we are seeing
Our response
And looking ahead
Uncertain
economic
outlook
Changing
customer
needs
While the UK economy has proven more resilient than previously
forecast, growth has remained muted. Inflation has been more
persistent than expected, requiring the BoE to raise interest rates
to levels not seen for 15 years. Higher inflation and higher rates
have added to cost of living challenges, but the labour market has
remained strong, with unemployment increasing only gradually.
This has underpinned strong wage growth, supporting household
finances. Towards the end of 2023 the rate of inflation has started
to fall, alongside increased expectations of higher for longer rates.
The rate backdrop and higher prices for customers have led
to a more muted housing market, particularly for new purchases,
which has been reflected in lower demand and lower house prices
this year. Consumer spending has remained resilient, although there
are signs of customers modestly adapting their spending. The stock
of Business lending has also continued to reduce over the year.
Within credit provisioning, we continue to
reflect Oxford Economics’ latest economic
scenarios through our IFRS 9 models, with a
weighting to downside, conservative forecasts.
The Group has tightened affordability criteria
and reflected higher living costs, higher interest
rates and the impact of inflation in key criteria.
The latest base case forecasts, supplied by
Oxford Economics, anticipate inflation falling
back to 3% in 2024. Growth is expected to
be muted until 2025, and unemployment is
expected to rise gradually, peaking around
4.5% in 2024. The UK economy is expected
to take some time to recover and the current
low growth trajectory is expected to persist.
The Group has strengthened its coverage
ratio to 84bps, which remains well above
pre-pandemic levels. We are continuing
to monitor each portfolio closely for any leading
signs of affordability stress, and while we
expect arrears to rise, we feel we are well
provided against a downturn in the economy.
Structural housing imbalances should support
house prices over time but will continue to
challenge affordability for first time buyers.
A lower supply of workers and an ageing
workforce should support employment,
absent major technological shifts from
the likes of AI.
In a backdrop where higher cost of living is a key focus, customers
are looking for good value. Higher rates have driven changes in
customer behaviour across banking products. On lending, such
as mortgages, ‘rate shocks’ and more expensive credit have led
customers to adjust household budgets to absorb higher repayments,
but given tighter underwriting standards since the global financial
crisis (GFC), existing mortgage customers have typically had the
headroom to be able to absorb higher costs, with arrears levels yet
to significantly increase.
On savings products, given the higher rate backdrop, customers
have been more prepared to move their money into term deposit
products in search of higher yields. This shift, and the higher cost
of living has seen non-interest bearing current account volumes
decline across the market, as customers also start to run down
account surpluses built up during the pandemic.
We remain ready to provide support
to customers where they need it. We have
adopted the Mortgage Charter (see page 54)
and proactively offered support to customers
in need, including vulnerable customers and
those struggling to adapt to digital banking.
Pleasingly uptake to date has remained limited
but we continue to monitor trends closely.
We have passed on interest rate rises
to customers, proactively managing the deposit
mix. We remain focused on growing relationship
deposits. Our linked saver offers good value for
our PCA customers and we have consistently
offered attractive Term pricing, and have seen
our deposit mix shift towards TDs this year.
In a higher rate environment, we expect
customers to continue to be focused on
achieving good value. We have launched a
series of differentiated, simple products that
reward customers’ loyalty and this remains
our focus for the future.
Our current accounts, cashback offers, credit
card instalments and M-Track for Business all
give customers innovative features and clear
propositions. We have also ensured our linked
saver product offers our PCA customers
good value.
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Purpose in action
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Key performance indicators (KPIs)
Operating environment
Business model
Strategic priorities
Environmental, social and governance
(ESG)
Non-financial and Sustainability
Information Statement
Our TCFD summary
Commercial review
Chief Financial Officer’s review
How we manage risk
Governance
Risk report
Climate-related disclosures
Financial statements
Additional information
Operating environment
Impact areas
What we are seeing
Our response
And looking ahead
Rapidly
accelerating
digital
technology
and threats
Technological disruption continues to accelerate in UK banking, with
investment in digital infrastructure essential. Customer preference
for digital channels continues to grow, with Statista estimating 93%
of the UK population used online banking in 2022. This requires a
shift from legacy technology and service platforms, towards digital,
self-service models, supported by AI and machine learning. The
Group will also need to adapt to the potential emergence of central
bank digital currencies (CBDC).
We are also seeing threats to customers and banks increase as
criminals take advantage of opportunities offered by new technology,
as digitisation across society increases, accelerated by the pandemic.
With the UK offering a universal language, faster payments
technology and a highly digital society, digital fraud and crime are
relatively more prevalent than in other economies.
It is estimated £88bn is laundered through the UK each year, second
only to the US. UK consumers lost £1.2bn through fraud in 2022
according to UK Finance, with c.80% started online and through
social media. Government statistics also show that over half of
medium and large UK businesses experienced cybercrime attacks
in the last 12 months, with AI contributing to increased threats.
We continue to invest in our digital strategy,
supporting our ability to grow and be more
efficient. The deployment of chatbots and
improved journey digitisation this year has
supported customers in achieving outcomes
more quickly, driving cost-efficiency (see page
28). We will continue to invest in improved
technology, automation and digital propositions
as we move into the final year of our three-year
digital strategy in FY24. This will allow us to
deliver improved customer outcomes and
generate benefits from efficient servicing.
Given the evolving threats from criminals
greater use of technological capabilities, we are
launching a 3-year programme of investment,
expected to total c.£130m. This will upgrade our
financial crime and fraud prevention capability,
as well as improving our cyber security and
data management.
We expect that the current trends towards the
digitisation of society will continue, requiring
continued investment to meet customer
expectations and ensure safe, secure banking.
We also anticipate that organisations will need
to continue to support customers with the
implications of these changes.
We therefore expect the pace of technological
change to remain elevated in the years ahead,
and will continue to invest in upgrading our
propositions, digital customer experience,
automation and the ability to keep the Bank,
and our customers safe and secure against
emerging threats.
We expect AI, CBDC and other tech
developments to offer both opportunities
and challenges to existing banking models,
and will remain alert to emerging risks
from criminal actors making use of these
advancements.
Sustainability is becoming an increasingly important factor for
all stakeholders, with banks playing a crucial role in delivering
sustainable finance and inclusion. Stakeholder expectations
for all companies to support and enable better environmental
and societal impacts is increasing. Investors are increasingly
taking steps to incorporate ESG factors into their investment
decisions. Climate-related prudential and regulatory focus,
such as governmental policy on the transition to a low-carbon
economy, adds to the growing need to demonstrate progress
beyond good financial performance.
Growing
sustainability
agenda
We continue to execute on our ESG strategy
to support a sustainable future and enhance
our ESG-related disclosure, providing more
insight for stakeholders. This has been reflected
in improved ESG ratings from the key agencies
in recent years. In 2023 we have also
implemented clear net-zero targets and road
maps to deliver this, a year ahead of required
timelines, supported by robust KPIs. We will
support businesses and mortgage customers
as they transition to net-zero. Please refer to
our Climate-related disclosures from page 240,
and expanded information on progress
against our ESG priorities on pages 31 to 50.
We expect a continued focus on sustainability
in the years ahead, despite volatility in the
political environment. Recent UK Government
proposals will take time to be reflected
through key scenarios and we continue
to focus on supporting the transition to
a low-carbon economy.
We continue to see delivering sustainable
outcomes as good for all stakeholders and
expect those stakeholders to continue to
increase their demands on corporate actors
and the banking sector for progress to a more
sustainable future, across all elements of ESG.
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Strategic priorities
Environmental, social and governance
(ESG)
Non-financial and Sustainability
Information Statement
Our TCFD summary
Commercial review
Chief Financial Officer’s review
How we manage risk
Governance
Risk report
Climate-related disclosures
Financial statements
Additional information
Operating environment
Impact areas
What we are seeing
Our response
And looking ahead
Continuing
competitive
backdrop
Demanding
regulatory
agenda
The UK financial services market remains competitive. In mortgages
competition has remained strong, reflecting the long-running trend
of excess liquidity being deployed into mortgages at scale by the
large UK banks. However, this has met with lower customer demand
this year as higher rates raise the cost of mortgages to consumers.
This has subdued the housing and mortgage markets and this
mismatch of strong supply and lower demand has continued to
put downward pressure on mortgage returns.
The deposit market has also slowed as customers have rationally
reduced excess deposits to meet higher costs and repay debts,
while also looking to secure higher yields on their savings. Lenders
are looking to attract deposit funding to help repay government
borrowing schemes. These factors have increased competitive
intensity and pricing across the deposit market, particularly for term
deposits. Competition in certain segments of the market is less
intense however, with fewer active players, including credit cards
and SME lending.
UK banks are subject to ongoing monitoring and oversight from
the Prudential Regulation Authority (PRA) and Financial Conduct
Authority (FCA) among others. The regulatory landscape continues
to evolve to maintain the financial stability and support positive
and safe outcomes for customers.
An important focus this year has been on the implementation of the
first stage of Consumer Duty regulations, with further requirements
to be met in 2024. Regulators remain focused on sustainable
outcomes and the role banks play in supporting the transition to
net zero. Stress-testing results in July were an important milestone
for the sector and the regulator has subsequently confirmed there
will be a more limited stress-test for the sector in 2024.
The regulatory environment around payments, financial crime and
fraud is also evolving. For example, Authorised Push Payment fraud
is growing and is the most common type of fraud in the UK, and
primarily originates online on social media platforms. In 2024 new
regulations from the Payment Services Regulator will require banks
to fully reimburse customers who fall victim to APP fraud in almost
all cases, regardless of fault or source of the fraud.
We continue to develop best-in-class
propositions and experiences to target strong
growth in our key target segments. We are
focused on deepening customer relationships
and launching new propositions to target
above-market growth in the Unsecured and
Business markets, where competition is less
intense. In Mortgages, we remain focused on
balancing volume and price carefully against
the subdued, but competitive backdrop. We
also continue to successfully target growth in
relationship deposits and new current accounts,
while also remaining competitive for term
money, as we optimise our cost of funding
and repay TFSME ahead of schedule.
We expect that the mortgage market will
remain competitive, and are focusing on
exploring opportunities to grow in less
well-served segments, while balancing
volumes and returns. We expect deposit
markets will also continue to be competitive,
as TFSME repayment requirements continue
until 2026 and customers seek good returns
on their money.
We may see innovative Fintech offerings take
on some of the less concentrated areas of
banking markets. We expect to see continuing
challenges to profitability and returns for
some market participants, which may lead
to consolidation across the sector in the
years ahead.
We have invested significantly in 2023 to
ensure full compliance with Consumer Duty
requirements (see page 21 for more). The
Group remains focused on ensuring that current
and future customer products and services
meet conduct standards and regulatory
expectations.
Given the strengthening regulatory framework
around payments, and higher stakeholder
interest in the risks and cost of fraud and
financial crime, we are investing to improve our
capability and resilience against these issues.
The investment in stress testing capabilities
ensured we were well positioned to participate
in the BoE’s stress testing regime for the
second time. The Bank remained significantly
above all reference rates in the ACS against
a severe economic scenario. We continue to
maintain prudent buffers above all regulatory
requirements and internal risk appetite metrics,
across capital, funding and liquidity.
We do not expect to see any reduction
in regulatory focus across the sector
in the years ahead, and believe that a
well-regulated banking sector remains
in the interest of all stakeholders.
As the landscape changes, we expect
banks will continue to be required to respond
to ongoing prudential and conduct-driven
initiatives, as well as climate stress testing,
reviews and other projects. We also expect an
increasing regulatory focus on fraud, financial
crime and cyber resilience in the years ahead.
Ongoing evolution of longer-term capital
requirements, ensuring fair treatment
of customers and financial stress testing are
also expected to remain areas of regulatory
focus for the sector.
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Strategic priorities
Environmental, social and governance
(ESG)
Non-financial and Sustainability
Information Statement
Our TCFD summary
Commercial review
Chief Financial Officer’s review
How we manage risk
Governance
Risk report
Climate-related disclosures
Financial statements
Additional information
Business model
Creating value for stakeholders
What we do
and where
Key sources
of value
Driven by our
operating model
We are the UK’s 6th
largest bank serving
c.6.6m customers
in the retail and small
and medium-sized
business banking
markets
Mortgages
For homeowners and
landlords; working
with intermediaries
Personal banking
Offering rewarding
current accounts and
savings, credit cards
and insurance
Business banking
Helping small and
medium businesses
save and grow
Supporting society
Contributing to the
greater good
Highly recognised
brand
The power of the
Virgin brand which
resonates with
customers
Digital platform
Developing a
modern, open
banking ready
platform
Full-service
capability
Able to serve
customers in
all markets
People with
purpose
Our colleagues,
empowered by
A Life More Virgin
Valuable
relationships
With customers,
suppliers, strategic
partners, regulators
and our investors
We secure funding and
capital from these
sources (liabilities) ...
Customers place their
trust in us to keep their
deposited money safe ...
... we conduct maturity
transformation to turn short-term
liabilities into long-term assets ...
... to deliver customer
lending (assets) and
other services
Personal
Customer
deposits
Business
Customer
deposits
We support our customers through bringing together our capabilities across:
Banking
operations
Payments,
service,
operations
and technology
Risk
management
Keeping our
Bank safe
and within
our prudent
risk appetite
Governance
and oversight
As a Tier 1
bank we
adhere to
stringent
regulations
Resilience
and security
Ensuring
resilient IT,
protecting the
Bank and our
customers
Sustainability
Embedded into
all our business
practices and
being a
long-term
force for good
Investors
Wholesale
funding/capital
Liabilities cost us interest
-£
How we make money
Income
Interest and fees earned minus interest paid …
Credit losses
Operating costs
Tax
Profit
… minus the costs
of taking risks and
incurring losses
… minus the costs of running
our Bank
... minus tax
... leaves us with profits,
or newly generated
equity and capital
Mortgages
Unsecured
lending
Business
lending
Assets earn us
interest and fees
+£
... to enable
further business
investment and
growth as well
as supporting
capital returns
And delivering for
our stakeholders
Customers
Rewarded, satisfied
happy customers
Colleagues
Engaged colleagues
able to give their
best
Investors
Earning strong,
sustainable returns
Society
Supporting society
with positive
outcomes
Partners and
suppliers
Growing with
our partners
in supportive
relationships
Government
and regulators
Contributing tax and
to safe, sustainable
banking competition
What makes
us different?
Purpose
Making you happier
about money
Values
The Virgin Group’s
unique Values
Brand
A powerful,
non-banking brand
Innovation
New digital products and
working with partners
Market position
Scale positions
with room to grow
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Strategic priorities
Environmental, social and governance
(ESG)
Non-financial and Sustainability
Information Statement
Our TCFD summary
Commercial review
Chief Financial Officer’s review
How we manage risk
Governance
Risk report
Climate-related disclosures
Financial statements
Additional information
Strategic priorities
Delivering our Purpose-led
digital strategy
Implementing our digital
strategy is supporting good
outcomes for customers,
strengthened returns for
investors, and will ensure
the Bank remains safe and
resilient in the long term.
Continued progress as we digitise the Bank
Following a comprehensive review of the
Group’s strategy during 2021 and in view of the
changing operating environment, as well as the
need for a sustainable competitive advantage,
the Board decided to accelerate the next stage
of our development.
Aligned to our strategic ambition to become the
UK’s best digital bank, our strategic priorities
are designed to support profitable financial and
customer growth through innovative, digital
propositions, targeted efficiency improvements,
all while ensuring a robust balance sheet that
can support sustainable returns over time.
Reflecting on the evolving backdrop in 2023,
the strategy remains the right one. Ensuring
we continue to improve our efficiency, while
offering valued products to customers, gives
Virgin Money the ability to build stronger and
deeper customer relationships. Against a
backdrop of high inflation, where consumers
are focused on getting more value from their
banking products, and with the acceleration
of new technologies, our digital strategy will
drive improved returns and growth over time.
Regulatory developments over the course
of the year, including the implementation of
Consumer Duty, are fully aligned to Virgin
Money’s purpose and strategic ambition as we
remain focused on delivering good outcomes
for all our customers.
As we enter the final year of our current plan
cycle, there remains more work to do but
the business has good underlying momentum
and is increasingly well placed.
Delivering our strategic priorities will enable the
Group to become an efficient, growth-oriented
bank offering differentiated customer
experiences and unique rewards, driving
sustainable double-digit returns over time for
our shareholders, and ensuring we are a force
for good in society.
During FY24 our management team will work
with the Board to develop the next phase of
our strategy. We look forward to updating the
market on our objectives for our next strategic
cycle in the second half of 2024.
David Duffy
Chief Executive Officer
Our strategy to accelerate our
digital transformation remains
the right one. We’ve had two
good years of delivery and
are focused on implementing
further positive changes for
our customers.
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Operating environment
Business model
Strategic priorities
Environmental, social and governance
(ESG)
Non-financial and Sustainability
Information Statement
Our TCFD summary
Commercial review
Chief Financial Officer’s review
How we manage risk
Governance
Risk report
Climate-related disclosures
Financial statements
Additional information
Strategic priorities
... drives our
strategic priorities…...
Delighted customers
and colleagues
See pages 20 to 24
Pioneering growth
See pages 25 to 26
Our Purpose
Making you happier about money ...
... and our long-term vision for each priority ...
with short-term actions to accelerate our progress towards our ambition
of becoming the UK’s best digital bank
... with aligned
sustainability goals
Delighting customers by delivering outstanding experiences through digital-first
interaction, supported by delighted colleagues working in a healthy, flexible,
digital environment
> Automate, digitise and improve the key digital customer journeys and pain points
> Be known for our Purpose, our unique colleague proposition and disruptive culture
Open doors
Work with customers, colleagues and communities to
encourage sustainable practices and economic activity
that creates shared prosperity.
See pages 43 to 46
Pioneering growth. Our unique brand and straightforward, digitally-accessible
products with market-defining rewards help attract and retain digitally-savvy
target customers
> Develop and deliver exciting new digital propositions
> Build best-in-class digital customer experiences and rewards offerings
Build a brighter future
Deliver innovative products and services that help
our customers make a positive impact on society
and the environment.
See pages 38 to 42
Super straight forward
efficiency
See pages 27 to 28
Super straightforward efficiency. We are automating the Bank to drive efficiency
and effectiveness, enabling us to deepen our relationships with customers and deliver
strong financial results
Investing c.£275m to:
Put our (carbon) foot down
Reduce the negative impacts of our operations,
suppliers and partners on society and the environment.
> Deliver c.£200m of gross savings, to reinvest in growth and absorb inflation
See pages 34 to 37
> Rationalise property footprint including stores and offices
> Enable future productivity and implement Agile
Discipline and
sustainability
See pages 29 to 30
Discipline and sustainability. Our strategy ensures we are here for the long term, and
creates positive outcomes for all our stakeholders in a consistent and sustainable way
> Maintain a strongly capitalised and resilient balance sheet, to deliver strong
profitability and returns
> Sustainable business generating positive outcomes for our customers, shareholders
Straight-up ESG
Align our strategic goals to ESG and embed them
in all areas of the business with robust targets, tracking
and disclosures.
and society
See pages 47 to 50
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Environmental, social and governance
(ESG)
Non-financial and Sustainability
Information Statement
Our TCFD summary
Commercial review
Chief Financial Officer’s review
How we manage risk
Governance
Risk report
Climate-related disclosures
Financial statements
Additional information
Strategic priorities
Delighted
customers
and colleagues
Customers
We will delight our customers by
delivering outstanding customer
experiences through digital-first
interaction.
Group Smile score
2023
2022
2021
Complaints per 1,000
accounts
2023
2022
2021
49%
46%
51%
4.0
4.2
3.7
What have we achieved in 2023?
We continue to progress on our strategic shift
towards digital-led banking as set out in our
accelerated digital strategy at FY21. This
envisaged a three-year programme of change
and investment, recognising that achieving
our digital and customer ambitions would take
time and substantial effort.
In last year’s report we reflected on the
challenges we had been facing around the
implementation of our strategy, given pressure
on customer service and higher complaints
arising from elevated customer demand
following a series of rapid interest rate changes.
These challenges have continued into this year,
while the higher rate backdrop has also led to
concerns across the industry about mortgage
customers’ ability to afford higher repayments.
The Group deployed significant resources in
2023 to drive improvements in these areas,
including additional internal resources and
temporary third-party support to help address
the service and complaints challenges. While
this contributed to a higher cost out-turn for
the year, it was an important decision and the
right thing to do for our customers.
We can see our investment and efforts being
reflected in better outcomes on key metrics.
Call waiting times have reduced by 65%
on average in Q4, compared to peak levels.
This has resulted in an improvement in key
customer experience metrics including the
Group’s Smile score (for definition, see page
379) which has improved to 49%, reversing
the trend of decline over the past three years,
although there remains more work to do to
improve this score further.
Complaints rates also saw an inflection point,
reflecting significant efforts to address the
complaint backlogs with additional resources.
Tackling the backlog and improving key
processes, such as ISA maturities, has driven
an improvement enabling us to release the
majority of the temporary resources employed
to support our efforts. Driving a further
reduction in complaints remains an important
area of focus for the Bank in FY24. For more
on our approach to complaints, see page 29.
Digitising the Bank
The Group remains committed to plans set
out in FY21 to digitise and automate our
operations. This will continue to be a key focus
in 2024.
After pausing digitisation work in H1 to
support customer service, key initiatives were
re-accelerated in H2. This included reassessing
how customers interact with our key channels,
and as a result of this work the Group reduced
its branch footprint by 30%.
The Group continues to automate key customer
journeys with around half of processes now
completed, with more to follow in FY24.
Highlights include the implementation of
chatbots, with the deployment of Redi
(see page 28), offering a 24/7 digital service to
handle customer queries swiftly and accurately.
Further process improvements across key
products, such as ISA maturities, which had
been a significant driver of complaint volumes,
have also been implemented with a reduction
in inbound customer calls as a result.
As we continue to digitise, and mindful of the
challenging backdrop for customers, we remain
committed to supporting all our customers on
the transition to digital banking. We have
established a dedicated Customer Care team
who proactively contact vulnerable and
potentially vulnerable customers who may be
impacted by our digitisation projects. This team
offers customers one-to-one support to help
achieve the right outcomes for their banking
needs. We have also enriched our Customer
support hub, https://uk.virginmoney.com/
service/support-hub/cost-of-living/free-help-
and-support/ available to all customers and
non-customers, offering support and advice to
those struggling with the higher cost of living.
Sarah Wilkinson
Chief Operating Officer
We’ve made significant
progress in improving customer
service and are increasingly
well placed to drive further digital
improvements for customers.
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Environmental, social and governance
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Non-financial and Sustainability
Information Statement
Our TCFD summary
Commercial review
Chief Financial Officer’s review
How we manage risk
Governance
Risk report
Climate-related disclosures
Financial statements
Additional information
Strategic priorities
Delighted customers and colleagues continued
Changes in regulation and legislation
Over the course of the year there have been
a number of sector-wide initiatives and updates
to key regulations, which will help to ensure
customers are fully supported.
What will we achieve in the coming years?
We remain convinced that moving to a digital-
led customer proposition is the best way to
delight customers in the medium term, but
recognise we have work to do to fulfil that,
and to ensure all customers are supported.
The Group has fully implemented the initial
requirements for Consumer Duty in July this
year assessing c.2,300 communications to
customers and c.60 products (see Purpose
in action box opposite for more). The
implementation of off-sale product
requirements is expected by July 2024
and the Group remains well-placed to deliver
the final requirements.
Virgin Money has also fully implemented
the requirements of the Mortgage Charter,
(see page 54 for more), which offers additional
support to customers concerned about the
impact of higher interest rates as well as taking
its own measures to support customers who
may be at risk of experiencing financial hardship.
Finally, in line with our purpose the Group
remains committed to supporting its savings
customers with attractive propositions,
and has an ongoing programme of proactive
communication to ensure customers are aware
of alternative products which may offer them
a better home for their money (see page 58
for more).
Updated management team
During 2023, we have also consolidated
leadership of the customer and digital functions
under our new Chief Operating Officer, Sarah
Wilkinson. This brings together responsibility
for these important operations in one function
to ensure we continue to support customers
across the Bank, as well as driving further
automation and process improvement over time.
In FY24, we will continue to refine our
propositions and deliver service enhancements
to drive improvements in our Smile scores.
Our focus remains on attracting digitally-
engaged customers, but also on continuing
to support existing customers, promoting the
benefits of digital adoption for faster and easier
self-service, while also providing support
in difficult times.
Alongside our target for Digital Primacy, our
measure for assessing customer migration to
digital-only engagement with us (see pages
27 to 28), we are targeting for 80% of Personal
customer interactions to be digital (2023:
c.63%; 2022: c.50%). PCA digital adoption has
improved since we began targeting this in 2019,
rising from 51% to 70% (2022: 67%) reflecting
good progress towards our target of greater
than 80% by FY24. Added together, these
developments should drive an improvement
in the Group Smile score from 49% at FY23.
Our embedding of Agile methodologies will
be an important enabler of changes that
will be delivered across our customer-facing
technology and processes. Detailed service
design work is underway, and this will drive
change, delivering automation to improve the
customer experience. The upcoming
implementation of our new complaints system
will support better root cause analysis, which
will further enable us to address the issues
causing complaints, at source.
Purpose in action
Delivering good customer outcomes
The FCA’s Consumer Duty went live on
31 July, setting higher and clearer standards
of consumer protection across financial
services, to drive good outcomes for
customers. Over the past year, as a business
we have assessed all on-sale products and
key customer journeys, carried out fair
value assessments and reviewed customer
communications, with any material gaps now
closed. The work undertaken has not only
immediately enhanced customer outcomes
but also strengthened our key frameworks
including governance, third parties and
outcome testing ensuring everything
we do and every outcome we achieve is
driven by our Purpose of Making you happier
about money.
Our programme of work continues, with
the final phase looking to assess off-sale
products and close the lower priority gaps
identified in phase one, all while operating
in a new Consumer Duty world encouraging
colleagues to speak up where they think
further improvements could be made.
All colleagues have completed Consumer
Duty training, which ensures good customer
outcomes are embedded in our ways of
working regardless of role, with new feeds
of data and management information
allowing us to continually monitor and
react to the outcomes our customers are
receiving. This wealth of new insight and
understanding will allow us to develop our
customer strategies and prioritise actions to
make our customers happier about money.
We will further expand our use of technology
to solve customer service challenges. While
chatbots have been deployed successfully
into the customer journey, we will continue
to expand these and focus on optimisation
to drive improved levels of resolution, ensuring
customers get what they need first time,
as often as possible. Where that isn’t possible,
we will make sure enough skilled colleagues are
available to provide tailored support.
Finally, we will continue our work on Consumer
Duty, to ensure the regulations are embedded
and meet the second phase requirements by
the deadline of Summer 2024.
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Business model
Strategic priorities
Environmental, social and governance
(ESG)
Non-financial and Sustainability
Information Statement
Our TCFD summary
Commercial review
Chief Financial Officer’s review
How we manage risk
Governance
Risk report
Climate-related disclosures
Financial statements
Additional information
Strategic priorities
Delighted customers and colleagues continued
Colleagues
Our customers will be supported
by delighted colleagues working
in a healthy, flexible, digitally-led
environment.
Colleague engagement
2023
2022
2021
80%
79%
68%
Group Diversity indicators
2022 2023 2025 Target
55%
52%
45-55%
4%
8%
10%
6%
7%
10%
Senior Gender(1)
Senior Ethnicity(1)
Group Ethnicity
(1) Senior defined as top three levels
Our Purpose of Making you happier about
money extends to our colleague population.
It drives the way that we think about our
colleague support and engagement, so that
they are energised and committed to delivering
the best experience for our customers.
What have we achieved in 2023?
Through the course of the last financial year,
we have delivered a People Strategy focused
on becoming the employer of choice in financial
services, differentiated by, and known for,
our Purpose, our unique colleague proposition
and a positively distinctive culture.
We have focused on the following four areas:
Engagement, Experience, Attraction and
Retention and Diversity & Inclusion.
We have made good progress, with colleague
engagement remaining high despite a
challenging backdrop, however we have further
work to do in meeting our Diversity, Equity
and Inclusion (DE&I) representation targets.
Experience
Through the course of the year we have
continued to evolve our ‘A Life More Virgin’
(ALMV) colleague proposition.
Engagement
We believe colleague engagement is vital
to the delivery of our strategy and support
of our customers.
Our latest survey of colleague engagement
has shown very positive results. This year,
over three-quarters of colleagues took the
time to share their views with us, which is an
outstanding response rate. We measure the
heartbeat of colleague sentiment across Virgin
Money through our sustainable engagement
score, an index of six questions that define
how colleagues feel about working here.
This year, we’ve seen another strong sustainable
engagement score of 80%, up 1% from last year.
Within the detail there are three data points
that are really striking: 82% of colleagues say
they are proud to work here. 69% of colleagues
believe our processes and services are
designed to provide the best possible outcome
for our customers. While this is an increase of
14% since last year, it is not yet where we want
it to be, and remains an area of focus for the
Leadership Team. Finally, and encouragingly,
94% of colleagues feel that they can be
themselves at work.
There are a number of ways in which our
colleagues can engage with the Exec team
and Board; through ‘Straight Up’ Q&A sessions,
live online chat/Q&A sessions post results,
‘Colleague Connect’ sessions with our
Non-Executive Directors, or simply dropping
by to say hello. We use the latest technology
to ensure that those not available to attend
in person get the best experience from replays
of the engagement events. Overall, we had
almost 15,000 engagement touchpoints
with colleagues through the year, double
the total number of employees.
This allows a truly flexible approach, allowing
teams and colleagues to establish the rhythm
that best suits their lives while ensuring we
meet operational and customer requirements.
It also delivers location flexible hiring, allowing
us access to wider talent pools, and gender
neutral parental leave inclusively supporting
new parents and families. We also provide
wellbeing days in addition to annual leave
to specifically encourage colleagues to
look after themselves physically, mentally
and emotionally.
Despite much public debate about mandating
employees back to the office, we find that
the approach set out above works well for
our employees and our customers. 88% of
colleagues tell us that ALMV enables them
to balance their work goals with other priorities
in their life, but this does not come at a cost
to productivity; 86% of colleagues tell us their
department constantly looks for ways of
improving customer outcomes.
ALMV enables international working for eligible
colleagues which we’ve managed through
introducing a digital tool. ALMV has also
changed how and when we work and we’ve
invested heavily in our leadership community
to give them the skills and confidence to lead
in this new hybrid world.
Within the flexibility offered by ALMV, a core
part of the colleague experience is in our main
hubs. We have continued to invest in our
hubs and have welcomed our first batch of
colleagues to our new Bothwell Street head
office in Glasgow. Our new home is in purpose-
built offices at 177 Bothwell Street, Glasgow’s
most environmentally-friendly building which
is designed with wellness at its heart, including
a roof terrace complete with seating spaces
and Scotland’s first rooftop running track.
Across the Virgin Group there was a new online
platform launched in September called ‘Virgin
Family’ which is the new home for employees
to get news, join communities, learn about
the brand, secure discounts and deals, and
collaborate with colleagues across the Virgin
companies. Available for colleagues via laptop
and mobile devices this is a groundbreaking
initiative which really makes our colleagues feel
even more a part of the Virgin Family community.
During the year we introduced HaRi (Human
Resources meets artificial intelligence) to our
colleagues. HaRi has made it easier and quicker
for colleagues to get to the answers to over
200 of our most common HR-related questions.
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Strategic priorities
Delighted customers and colleagues continued
Syreeta Brown
Group Chief People and Communications Officer
We have delivered a
People Strategy focused on
becoming the employer of
choice in financial services.
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Non-financial and Sustainability
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Our TCFD summary
Commercial review
Chief Financial Officer’s review
How we manage risk
Governance
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Climate-related disclosures
Financial statements
Additional information
Attraction and retention
We have seen a significant and consistent
overall increase in applications for jobs at Virgin
Money since the launch of ALMV and a notable
increase in applications from candidates from
under-represented backgrounds.
We continue to evolve our employer brand
and use a broad range of recruitment marketing
methods to attract under-represented talent,
coupled with partnerships, community groups,
and charities. Throughout 2023 we’ve
highlighted our credentials as an inclusive
and desirable employer:
1. Our Disability Confident status reaffirms
our support and encouragement for people
who consider themselves to have a disability
to progress within the workplace
2. Our partnership with Black Professionals
Scotland continues to grow, enabling us
to access their network to share vacancies
and participate in careers events with them
3. We continue to be a Women in Finance
signatory and achieved our Women in
Finance representation target for 2023 (45%)
4. In 2023 we were awarded a Gold Award by
Stonewall and are now in the top 100 in the
Workplace Equality Index
5. We attended several external events, sharing
our ALMV story, and have been shortlisted
for a People Management Award by the
CIPD for the best flexible working initiative
We’ve been making progress against our
significant representation targets, set out in the
table on the next page. Our FY25 targets relate
to target representation in our workforce across
all levels of the Bank (excluding gender which
is within our top 3 levels of leadership) and
our 2030 targets focus on achieving balanced
representation within our top pay quartile.
Diversity, Equity and Inclusion
Data is vital to our understanding of perceived
equity within our colleague experience, and
how connected and included colleagues feel.
Our commitments under the Women in Finance
and the Race at Work Charters reflect our belief
that capturing and reporting data is crucial to
support progress against our bold aspirations.
Our new BRAVER index provides us with
valuable insight on the extent to which
colleagues feel connected, included and treated
fairly at Virgin Money, and we were very
pleased to have a score of 87% for our first
BRAVER index inclusion rating.
Policy and process both play a crucial role
in creating equity in the workplace. This year
we launched our Carers Guidance to bring
clarity to a complex subject, and support
and empower our leaders to bring balance,
fairness and equity to the way we support our
working carers. From a process perspective,
our Enable Network, which is dedicated to
supporting colleagues with disabilities or caring
responsibilities, undertook a full review of our
reasonable adjustments process to reduce
friction and delay in the experience for
colleagues requesting adjustments
or equipment.
Our colleague disclosure rates continue to be
high, with 83% of colleagues disclosing at least
one aspect of their characteristics with us,
such as ethnicity, sexual orientation or disability.
A review across all protected characteristics
within our colleague population shows a gradual
increase in each category, and a reduction in
the percentage of colleagues who have ‘not
shared’ characteristics relating to their identity.
We had a mean gender pay gap of 26.4%
in 2023, and the table at the foot of the next
page sets out the composition of our workforce
as of 30 September 2023. For more detail,
see our 2023 gender pay gap report at
www.virginmoneyukplc.com/our-people/
diversity-and-inclusion/gender/
Our colleague networks continue to perform
critical work to help us better understand and
improve colleague experiences and the drive
for equity. We have 3,290 members across
all six (Aspire, Balance, Embrace, Enable, Vets &
Vibrant) networks and have run multiple events
and initiatives throughout the year. Vibrant
(LGBTQ+) won the Best Employee Network
award at the Proud Scotland awards in June,
and all networks have had a productive year
working together to create sustained focus
on inclusion.
Build a BRAVER and more inclusive culture
In the Summer of 2023 we formally launched
BRAVER, an enterprise-wide allyship campaign
anchored around six principles: Believe,
Reflect, Accountable, Vulnerable, Empathy
and Recognise. It is designed to bring to life
the behaviours and practices that promote
equity and inclusion and provides all colleagues
with a practical means of being an active ally.
We hope this will provide the energy,
momentum and clarity needed to create and
sustain a more consciously inclusive culture
across Virgin Money. You can see more on our
new BRAVER allyship framework in the Purpose
in action box on the following page.
What will we achieve in the coming years?
While we have achieved our short-term gender
representation targets, we have not achieved
our ethnicity targets, and both remain areas
of focus for us. Central to achievement of
our targets is creating accountability and
awareness within our leadership population.
This will be aided by the launch of our new
BRAVER allyship framework which encourages
both accountability for DE&I outcomes but also
systematic self-reflection on bias to disrupt
and improve decision making.
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Purpose in action
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Chief Executive Officer’s introduction
Key performance indicators (KPIs)
Operating environment
Business model
Strategic priorities
Environmental, social and governance
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Non-financial and Sustainability
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Our TCFD summary
Commercial review
Chief Financial Officer’s review
How we manage risk
Governance
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Ethnicity Senior Leaders(1) (2)
Financial statements
LGBTQ+ all colleagues(2)
Additional information
Disability all colleagues(2)
Ethnicity all colleagues(2)
Strategic priorities
Delighted customers and colleagues continued
We regard people leaders (at every level) as
critical in the role of driving diversity, equity
and inclusion. Inclusion is already embedded
as one of our six leadership expectations and
is written into our behaviours, our Code of
Conduct, and all people processes. We continue
to develop the capability of people leaders
and work is underway to ensure that the
BRAVER principles are embedded within
these frameworks and across all development
journeys. The Leadership Team all have
localised plans designed to support both the
achievement of our representation targets and
nurturing an inclusive culture where colleagues
feel connected and included.
We will be providing both digital and in-person
development in 2024 to support leaders and
hiring managers to ensure recruitment and
talent advancement decisions and experiences
are equitable and fair. We will also embed the
principle of proportionate representation
within our talent programmes and introduce
a targeted mentoring programme for
under-represented talent.
Building on the success of our career
sponsorship programme for colleagues from
ethnically under-represented backgrounds
in 2022, we recently concluded our career
sponsorship programme for our Enable Network
(for colleagues who consider themselves to
have a disability or have caring responsibilities),
with a cohort of 21 colleagues. We have seen
50% of the cohort go on to make a career
change during or post programme due to
the sponsorship. We are about to commence
the career sponsorship programme again
but are taking a more intersectional approach
to this and will be opening it for applications
to colleagues from across all our
colleague networks.
Progress against our representation targets (data as at 30 September 2023)
Gender Female Senior Leaders(1)
FY23
51.6%
7.5%
4.4%
6.4%
7.1%
FY25 target
2030 target
45-55%
10%
Group-wide
4%
Group-wide
8%
Group-wide
10%
Group-wide
45-55%
at top quartile
by pay
14%
at top quartile
by pay
5%
at top quartile
by pay
10%
at top quartile
by pay
14%
at top quartile
by pay
(1) Definition of senior leaders is based on the top three layers of the organisation, and is consistent with our 2023 Women in Finance
submission, and longer-term targets.
(2) Based on colleague disclosure.
Current year vs previous year actuals (data as at 30 September 2023)
2023
2022
2023
2022
Female
(Number/%)
Male
(Number/%)
Female
(Number/%)
Male
(Number/%)
Ethnically
under-
represented
Ethnically
under-
represented
group(2)
group(2)
Board
3 (38%)
5 (62%)
2 (29%)
5 (71%)
1 (13%)
1 (14%)
Senior management
L0-2(1)
29 (49%)
30 (51%)
29 (48%)
32 (52%)
All colleagues
4,702 (58%)
3,343 (42%)
4,408 (58%)
3,178 (42%)
12%
7%
7%
6%
(1) For the purposes of meeting the Companies Act requirements we have defined Senior Management as layers 1 and 2.
As members of the Board, Executive Directors are excluded.
(2) Colleagues from an ethnic minority background as a percentage of colleagues who have shared their ethnicity.
Purpose in action
BRAVER: Creating a groundswell for good…
At Virgin Money we have made a visible
commitment to diversity, equity and inclusion
for all our colleagues and future colleagues.
We work hard to create a welcoming and
friendly culture, and through the introduction
of A Life More Virgin we have a wonderfully
inclusive approach to the world of work.
We know how important it is that our
workplace is reflective of our customers
and communities that we serve so we’re
always striving to do more to ensure
colleagues feel connected and included.
We have active and committed colleague
networks that do an amazing job of driving
initiatives and conversations. Our HR team
work hard to drive programmes of activity
that agitate positive change too, but to make
a real mindset shift in our culture it requires
commitment from everyone. That’s where
our brilliant colleagues come in. We know
colleagues want to play their part and with
the right support we believe they play a
critical role in reflecting our commitment
to diversity, equity and inclusion that will
help accelerate us towards our objectives.
Colleagues can all do this through being
active allies for inclusion and we have
worked hard this year on accelerating our
journey and illustrating what being an active
ally really means.
Our BRAVER allyship mission
We are on a mission to make allyship really
practical and simple for colleagues so that
everyone can play their part. To do this we
have surfaced the behaviours and practices
that promote equity and inclusion. These can
all be found in our BRAVER allyship model,
which is a practical framework for allyship.
We support our colleagues on their journey
to be BRAVER by providing a rich BRAVER
hub of content, stories, learning and
information on what they can do to activate
BRAVER individually, in their teams, and with
our customers.
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Key performance indicators (KPIs)
Operating environment
Business model
Strategic priorities
Environmental, social and governance
(ESG)
Non-financial and Sustainability
Information Statement
Our TCFD summary
Commercial review
Chief Financial Officer’s review
How we manage risk
Governance
Risk report
Climate-related disclosures
Financial statements
Additional information
Strategic priorities
Pioneering
growth
Our unique brand and
straightforward, digitally-
accessible products with market
defining loyalty rewards help
attract and retain digitally-savvy
target customers.
Total active relationship
customer accounts
2023
2022
2021^
3.8m
3.6m
3.3m
^ As at October 2021 due to availability of source data
Target lending segment
asset growth
2023
2022
2021
(3)%
9%
7%
What have we achieved in 2023?
Over the course of the past few years, we have
progressively upgraded and refreshed our key digital
propositions and product sets, launching attractive
new offerings to customers. This in line with our
strategy to attract digital-first customers to the Brand,
with whom we can grow deeper relationships over
time. In 2023 this approach has delivered 5% growth
in our active relationship customer accounts, driven
by growth in BCAs and credit cards in particular.
As we move forward, we will strengthen our digital
propositions with the ability to establish empathetic,
warm and engaged relationships with our customers,
as we accompany them through their lives.
We will fulfil their day to day banking needs with
understanding and competency, as well as supporting
them in managing life’s big financial decisions.
We remain committed to our strategy to optimise
both sides of our customer balance sheet. In lending,
this targets growing our share of Business and
Unsecured, whilst maintaining our mortgage market
share in the medium term. For deposits, we are
focused on growing relationship deposits, that is,
our current accounts and linked savings.
In 2023, the market backdrop evolved significantly,
with higher interest rates a key feature, driving
strong customer demand for higher rate deposits,
but with more subdued demand in mortgages.
Against this backdrop, we’ve achieved strong
momentum by leveraging our previous investments
as our digital propositions continue to attract
customers across our target lending segments,
delivering 9% loan growth compared to 7% in 2022.
Relationship deposit balances also increased 2%
during the year, including c.150k new current account
sales, as customers were attracted to competitive,
compelling digital customer propositions.
Our Business bank has continued to make strong
progress across both sides of the balance sheet,
against a weak sector backdrop throughout the year.
Our Moneyfacts 5 star-rated BCA continues to be
well received. It offers debit and credit cashback,
as well as innovative online solutions such as our
digital dashboard M-Track, to help support
businesses in their growth ambitions.
We have also continued to refine and expand
digital onboarding, which has significantly improved
our customer conversion ratios from interest
to purchase. As a result, we have continued to see
robust growth adding nearly 40k accounts, with BCA
sales 18% higher compared to last year, and 22
consecutive months of net inflows since relaunch.
Business lending volumes have also grown strongly
through the period, benefiting from our sector
specialist relationship managers and our focus on
resilient sectors that can grow across economic
cycles. We know our customer base well and have
a good understanding of the credit and business
opportunities across these key sectors. Our sector
expertise has therefore enabled us to grow BAU
lending balances by 11% in 2023, against a continued
subdued backdrop which has seen market balances
reduce c.3% over the year.
In Unsecured we moderated the pace of growth
in 2023 reflecting the more uncertain environment,
although market demand remained buoyant.
We continued to focus on driving improved
profitability across the portfolio. We saw good
growth in our cards business where our market share
rose to c.8.5%. This was driven by resilient demand
from existing customers, and stronger growth
in Virgin Atlantic credit cards as travel spend picked
up over the course of the year. Progress on our
digital wallet continues with the launch of the first
iteration of the wallet to Virgin Atlantic card
customers in the second half.
In Mortgages, against a subdued market backdrop,
where approvals were c.30% lower than in 2022,
our balances reduced by only 1%. Competition across
the sector has seen spreads remain tight throughout
the year and we have continued to balance pricing
and volumes carefully. Whilst house purchase
volumes have reduced, we have maintained our
strong retention rates for existing customers,
averaging 74% across the year (2022: 73%).
Allegra Patrizi
Managing Director, Business and Commercial
I am focused on ensuring
we are putting customers
at the heart of everything
we do, leveraging the
power of the Brand and
taking into account not
just their obvious banking
needs but also their fears,
aspirations and dreams.
Coupled with our attractive
digital propositions, this
means we’re well placed
to make our customers
happier about money.
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Operating environment
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Strategic priorities
Environmental, social and governance
(ESG)
Non-financial and Sustainability
Information Statement
Our TCFD summary
Commercial review
Chief Financial Officer’s review
How we manage risk
Governance
Risk report
Climate-related disclosures
Financial statements
Additional information
Strategic priorities
Pioneering growth continued
With growth in Mortgages subdued, but growth in
Business and Unsecured building well, our strategic
objective to move the balance sheet to a richer
yielding mix is continuing, with mortgages now
down to 79% from 81% at FY21.
In the PCA market, we have seen ongoing
competition from high street banks offering up-front
incentives. In the higher rate environment, we’ve
also seen customers holding lower average balances
in current accounts. Our strategy has been to offer
competitive, rewarding propositions, offering
attractive rates on our linked saver products along
with other exclusive product offers for our PCA
customers. This has supported c.110k of PCA sales
this year (2022: 131k), offsetting attrition and
the migration of customer balances. New current
account acquisition across business and personal,
together with competitive linked saver products
have enabled us to maintain the mix of relationship
deposits as a percentage of total deposits at 53%,
following significant growth in previous years.
Looking at the wider deposit market, customers
rationally moving their savings to higher rate term
deposits has been a clear trend, with the more
attractive rates on offer giving customers a clear
incentive to do so. We recognised this trend early,
and have remained competitive for term money
across the year, rewarding customers and allowing
the Group to lock in funding at relatively good
spreads. Over the course of the year, this has driven
strong (57%) growth in our term deposit base, which
now make up 32% of deposits (2022: 21%), while
non-linked variable savings balances have reduced
by 43%. This resilience and careful management
of mix across deposits, has meant that in a very
competitive market, we have been able to maintain
and grow our deposit balances by 2%.
In fee income generating lines, after the launch of
our new travel insurance product last year, we have
delivered c.375k new travel sales during FY23. We
also relaunched our investment proposition, Virgin
Money Investments, alongside our JV partner abrdn.
See the purpose in action box opposite for more.
What will we achieve in the coming years?
The Group continues to have significant
opportunities for growth. We will be mindful of the
uncertain economic environment and will deliver
moderate, prudent growth in 2024, targeting
profitable growth on both sides of our balance sheet,
and particularly in our target segments, building on
the Virgin brand affinity that exists with customers
across the Group.
In FY24 we will target 5-10% growth across
Unsecured and Business lending. We will continue
to drive growth in digitally-originated lower-cost
current accounts and relationship deposits, while
providing good value to all of our deposit customers.
We will look to maintain our share of relationship
deposits, while we leverage our investments in the
propositions launched to date. Over time, we will
look to further unlock the strength of the Virgin
brand, coupling it with improved digital propositions
and enhanced human relationships, when it counts.
As part of this wider and enhanced proposition,
our new Virgin Money Investments platform
is expected to deliver growth as it targets an
underserved market for simple, jargon-free investing.
We will also continue to expand our fee-earning
insurance propositions, including a new digital home
insurance product.
In Mortgages, we will seek to maintain our
market share in the medium term. We will
explore opportunities to improve our propositions
and service to intermediaries.
We will also make further progress on our
all-encompassing integrated app for Virgin Money,
using the technology from our digital wallet as
the foundation and we are well placed to launch
the first iteration of this during 2024.
Our focus on sustainable lending remains strong
and we will continue our roll-out of greener
Mortgage propositions, embed our Sustainable
Business Coach and increase our lending
to sustainability changemakers.
Purpose in action
Virgin Money Investments
Virgin Money Investments is on a mission
to make it easier to build a brighter future
for our customers through investing.
We identified that investing is a world
that can seem daunting and expensive
for many people, who don’t always feel
happy about how they would invest their
money. Some don’t think they’re wealthy
enough, some don’t know where to start,
and some don’t have the confidence.
That’s why in April, we launched our
new investment service. It was designed
with our Purpose in mind, seeking to
make investing easy and understandable
for everyone, and giving customers
confidence to help them feel happy about
investing. We offer a range of investment
products tailored to reflect customers’
approach to risk, with a simple fee
structure and no hidden charges.
With a digital platform including helpful
guides and an online investment coach,
everything can be done online via a
dedicated app, making managing your
money as easy as possible.
Since launching, our high impact ‘Kiss
my ISA’ advertising has resonated with
consumers and we’re already starting
to disrupt the market. We’ve attracted
2,000 new customers and £10m assets
under management (AUM) since launch,
adding to the over 150,000 customers
who already trust us to look after roughly
£3.5bn in AUM.
Growth in investments is a key strategic
ambition for Virgin Money and the
launch of our new service is a key part
of achieving that aim. In November,
we launched our straightforward digital
pensions proposition, based upon
the same vision – to help people build
a brighter future by giving them the
confidence to take control of
their pensions.
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Who we are
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Chief Executive Officer’s introduction
Key performance indicators (KPIs)
Operating environment
Business model
Strategic priorities
Environmental, social and governance
(ESG)
Non-financial and Sustainability
Information Statement
Our TCFD summary
Commercial review
Chief Financial Officer’s review
How we manage risk
Governance
Risk report
Climate-related disclosures
Financial statements
Additional information
Strategic priorities
Super
straightforward
efficiency
Our Bank leverages technology to
drive efficiency and effectiveness,
enabling us to reinvest in our
customer service and deliver
strong financial results.
Gross annualised cost savings
(cumulative)
2023
£130m
2022
Target
£69m
£200m
Underlying cost:income ratio(1)
52%
2023
2022
2021
52%
58%
(1) Hedge ineffectiveness is now presented as an
adjustment to underlying as detailed on page 381.
The comparative periods have been adjusted
accordingly.
Digital primacy
2023
2022
H122(2)
61%
56%
51%
(2) As at March 2022 due to availability of source data
What have we achieved in 2023?
At FY21 we set out our digital strategy in line
with our ambition to become the UK’s best
digital bank. A key element of the strategy
was to further improve the cost efficiency and
productivity of the Group by investing in greater
digitisation. As part of this we targeted delivery
of approximately £175m of additional annualised
cost savings by FY24, enabled by c.£275m
of restructuring investment.
Since setting the plan, inflation has been higher
and more enduring than was initially expected,
running at around 15% in total over the last two
financial years. The persistence and scale of
inflation has superseded our initial expectation
that we could deliver absolute cost reductions
while reinvesting to cover inflation and growth
initiatives. With inflation driving costs for
salaries, suppliers and change delivery much
higher than had been expected, this has
represented a significant headwind. In addition,
the technological environment continues to
evolve at pace, with new opportunities, threats
and regulatory requirements emerging and we
have needed to factor in these additional
investment needs.
We have also refreshed our leadership and
structure to reflect these challenges and the
increasing demands of being a more highly
regulated, tier 1 bank. Sarah Wilkinson joined
as Chief Operating Officer early in 2023,
bringing together our customer and digital
functions under her combined leadership.
Bringing a new perspective, Sarah and her
revamped team have reviewed our plans and
progress, making decisions to reprioritise or
accelerate projects as necessary.
Against this more challenging backdrop, we
continue to focus on ensuring we are delivering
an efficient platform capable of supporting our
growth ambitions, while we absorb the impact
of higher inflation and investment. We are
increasing our targeted cost savings from
c.£175m to c.£200m after making further good
progress during 2023. We have delivered
£130m of annualised run rate savings to date,
driven by ongoing digitisation, organisational
design and property changes, and sourcing
benefits.
As highlighted previously, we paused some
restructuring activity at the start of the year
to focus on supporting customers. Since then,
given the improvement in customer metrics, we
have been able to pick up the pace again in the
second half of this year. We have also been able
to release some of the external resource costs
that were required to support service in the first
half. We have now spent £213m on restructuring
activity, and expect to spend the majority of the
remaining c.£60m in FY24 as we drive out the
final efficiencies from the programme.
From a property perspective, the Group
announced in the second half that it will be
closing an additional 39 stores, as it adapts to
changing customer demand. Following these
latest changes, the store network will reduce
by 30% to 91 stores. The Group’s property
footprint, with recent office rationalisation,
is now at c.440k sq ft, against a target of
c.300k sq ft by FY24, from our c.900k sq ft
start point. Good progress is also being
made on the project to relocate our Glasgow
colleagues to new, state-of-the-art and highly
efficient offices in Bothwell Street (see page
35), which we expect to occupy in late 2023.
From an IT development perspective, our
existing core platform remains resilient and
robust, and we will continue to invest in
upgrading legacy components. Our digitisation
activity and migration to a cloud-based
operating environment is making progress using
the Microsoft Azure platform, focused on
building new applications, products and
services on our cloud infrastructure. Existing
applications are being assessed and reviewed
to ensure we modernise the technology estate
generally before migrating these elements to
the cloud, with a number of applications being
retired as we drive simplification across the
digital estate.
Clifford Abrahams
Chief Financial Officer
We continue to focus on driving
efficiency through the business
by delivering our gross cost
savings and focusing on
automation, while also
reinvesting for the future.
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Financial statements
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Strategic priorities
Super straightforward efficiency continued
The new Azure technology architecture has
underpinned the introduction of our new
‘conversational banking’ platform, with Redi,
our digital host, being deployed to our credit
card customers in March, with plans to roll out
to PCA customers soon (see the Purpose in
Action box for more). As a result, the
percentage of customer interactions through
calls has reduced from c.70% at FY21 to 37%
as at the end of FY23 (2022: c.50%). Digital
Primacy, our key measure for assessing
customer migration to digital-only engagement
with us, improved to 61% (2022: 56%), while
non-digital account numbers also reduced, now
down to 0.5m from a start point of 1.3m in FY21.
As highlighted last year, we continue to
implement Agile methodologies across the
Group to support improved change delivery.
The existing tribes continue to mature and
deliver good solutions, with an aligned
customer-focused digital mindset.
Following an assessment of the progress of
the project to upgrade the mortgage platform
and challenges identified during testing,
we now anticipate a significant deferral and
redesign as we implement the upgraded
capability. We remain committed to launching
improved capability for our mortgage customers
and brokers over time, and there remains no
impact on day-to-day trading.
Other product implementations have proven
successful this year, including the launch of
digital VM Investments with our joint venture
(JV) partner abrdn. Strong technology
partnerships remain crucial for us, and we
continue to work with Microsoft, Global
Payments and Mastercard on a range
of infrastructure and proposition developments.
Overall, the Group has delivered an underlying
cost:income ratio of 52% for FY23, which
although higher than our expectations at the
start of the year, is significantly improved on
our starting position in FY21 of 58%.
What will we achieve in the coming years?
2024 will see more progress on our journey
towards becoming a digital bank, as we
implement further technology solutions and
service redesign to support cost efficiency
and strong customer service, while enabling
the delivery of new digital propositions. We will
continue to invest to ensure we upgrade our
infrastructure and have the required core
capabilities for the future.
Given inflationary pressures to date, we have
not yet been able to manage nominal costs to
a level that would support achieving our target
of an underlying cost:income ratio below 50%.
We still aim to make progress on this metric over
time, and remain focused on cost optimisation.
We are aiming for more customer journeys to
be digitised, and have good line of sight to
delivering the required changes, particularly via
the deployment of agile change methodologies.
We also continue to look at the latest
technological opportunities to leverage cloud
technology to improve customer service.
Improvements in data management will also
support personalisation and the ability to
cross-sell across the Virgin Group.
We will continue to strategically optimise our
property footprint and such changes will also
deliver a further reduction in the Group’s Scope
1 and 2 greenhouse gas (GHG) emissions
as we deliver lower operational emissions
in the future (see pages 34 to 37).
Our initiatives will enable continued delivery
against our updated annualised cost savings
target of c.£200m, and we expect the majority
of the remaining c.£60m restructuring spend
to be incurred in FY24. We continue to plan to
reinvest cost savings in further digital initiatives
and customer propositions, and to absorb
cost inflation.
Alongside our growth ambitions, we believe
that delivering greater efficiency will support
sustainable value creation for shareholders and
an enhanced competitive position. We remain
committed to delivering an underlying
cost:income ratio of less than 50% in the
medium term, enabling us to compete
effectively in a rapidly changing digital
marketplace.
As we move to the end of this strategic cycle,
we will set out a road-map for further digital
efficiency at our next strategic update,
planned to take place during 2024.
Purpose in action
Redi in action
With many of our customers now using our
apps, the ability to independently self-serve
and get instant responses has been our
focus point as we work towards delivering
outstanding digital experiences.
Never losing the human element when
our customers need it the most was also
important in our design. Redi recognises
when a customer needs more support
and will pass customers to our friendly
Virgin Money digital team when it matters.
This year, we launched our first virtual
assistant ‘Redi’ across our credit card apps.
Powered by Microsoft AI, customers can ask
Redi a question and it’ll answer straightaway
– giving customers instant answers to their
burning questions.
With purpose at the heart of what we do,
collaborating with our partners at IBM
Consulting, we’ve been bold in our design
– giving Redi a super slick look and feel
to differentiate from the rest. With our
inimitable Virgin Money tone of voice,
Redi chats to customers naturally, giving
to-the-point helpful advice aiming to
give customers expert answers to a huge
range of account queries. From setting up
payments to changing details and more.
So far, with over half a million chats, Redi
is living our purpose of making customers
feel happier about money. Helping many
customers self-serve due to its knowledge
and helpfulness, it has resulted in one of
the leading Smile score performances across
the Bank.
Find out more here: uk.virginmoney.com/
cards/redi
“It has been a true pleasure working with
the Virgin Money team and enabling them to
become a truly Conversational Bank. Redi has
fast become one of the most integrated and
advanced assistants in the market and we
have deeply enjoyed helping drive the Bank
forward in their aims.” – Michael Conway,
Data and AI Leader, IBM Consulting UK
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Non-financial and Sustainability
Information Statement
Our TCFD summary
Commercial review
Chief Financial Officer’s review
How we manage risk
Governance
Risk report
Climate-related disclosures
Financial statements
Additional information
Strategic priorities
Discipline and
sustainability
Building and operating the Bank
for the long term, creating positive
outcomes for our customers
and all our stakeholders on a
consistent and sustainable basis.
Statutory RoTE
c.8% in FY24
2023
2022
2021
3.9%
10.3%
10.2%
Announced shareholder
distributions
30% payout ratio
dividend
supplemented by buybacks, subject
to Board and regulatory approval
Total payout level,
including announced buybacks
2023
2022
2021
142%
57%
4%
What have we achieved in 2023?
Our focus remains on delivering disciplined and
sustainable growth, ensuring our Bank is built to
last and delivering consistent positive outcomes
for customers and all stakeholders. Aligned to
that, we have been particularly focused on
ensuring our resilience against a challenging
external backdrop.
During 2023, the macroeconomic environment
remained mixed, with low unemployment
supporting the resilience of the economy,
but high inflation persisting, resulting in multiple
BoE base rate increases. Against this backdrop,
the Group remained robustly positioned with
its defensive balance sheet, including stable
funding and liquidity, a healthy capital position
and increased provision coverage. We also
maintained our disciplined approach to credit,
achieving modest, profitable lending growth
in our target areas.
A key achievement this year was the Group’s
successful participation in the BoE’s ACS
where we performed resiliently, remaining
significantly in excess of reference rates on
both a transitional and non-transitional basis.
This demonstration of the sustainability of
our business against a very severe downturn
scenario supported our confidence in being
able to deliver further capital distributions
this year. In line with our capital framework,
the Board has announced a further £150m
share buyback, adding to the £50m share
buyback announced post ACS in August,
which is now complete.
A key focus for markets in 2023 has been
on liquidity and funding resilience, particularly
in light of the issues seen at SVB, US regional
banks and Credit Suisse. The Group has
maintained a prudent approach throughout with
a stable funding base where customer deposits
represent c.80% of total funding, of which
72% are insured via the Financial Services
Compensation Scheme. As a further sign
of our deposit-gathering strength, the Group
reported deposit inflows of 2% across the year,
despite market-wide headwinds from deposit
migration. Our LDR has therefore reduced to
109% from 111% at FY22.
In light of the market volatility, we have
conservatively held more liquidity during
the period, with the 12-month average LCR
increasing to 146% as at the end of September
(2022: 140%), comfortably in excess of both
regulatory requirements and the Group’s
more prudent internal risk appetite metrics.
The stability of our funding sources is also
highlighted in the 12-month average NSFR ratio,
which remained stable at 136% (2022: 134%).
The Group has a number of well-established
wholesale funding programmes and proven
markets access. During the year, the Group
successfully issued MREL and secured funding
in different currencies and expanded its
breadth of debt investors, demonstrating
the strength of the franchise. This supported
the repayment of £1.0bn of TFSME this year,
ahead of its contractual maturity.
Credit quality has also remained resilient this
year, despite an uncertain macroeconomic
backdrop, testament to our consistent
underwriting and defensively positioned
portfolio. So far there has been limited impact
from higher mortgage rates, with customers
Purpose in action
Complaints
At FY22 we recognised that we needed
to take action to improve our complaints
performance. We had seen a significant
spike in complaints volumes driven by
elevated levels of customer demand and a
shortage of operational resources following
multiple base rate changes in late 2022.
Our complaints handling performance
was not where we wanted it to be and
the complaint backlogs we were seeing
did not provide a good, timely experience
for customers in line with our Purpose.
Recognising this, the Group committed
significant temporary resources to address
the existing backlogs. We also addressed
areas of customer dissatisfaction, driving our
digitisation agenda and revamping processes
to improve the customer experience in
general. While incoming complaint volumes
reduced in the first half, the overall stock of
complaints remained elevated as we worked
through the backlog. In the second half of
the year our efforts were successful
with complaints per thousand reducing
from 4.2 to 4.0, and the average age of
open complaints reducing from well over one
month to less than 10 days, with roughly half
of all new complaints now being resolved in
three days, from about a quarter in the first
half of 2023. This improved performance,
along with efforts to address root causes,
has enabled us to release much of the
temporary additional resource that we had
employed to support complaints handling.
Finally, our new digital complaints platform,
operated via Microsoft Dynamics, is due to
be rolled out in the coming months. This will
support further operating efficiency and
speed up the production of key insights
into complaints and so improve our ability
to analyse root causes and drive better
customer outcomes, leading to less
complaints and making our customers
happier about their experience with
Virgin Money.
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Environmental, social and governance
(ESG)
Non-financial and Sustainability
Information Statement
Our TCFD summary
Commercial review
Chief Financial Officer’s review
How we manage risk
Governance
Risk report
Climate-related disclosures
Financial statements
Additional information
Strategic priorities
Discipline and sustainability continued
able to manage higher payments having been
originally stressed for affordability at higher
interest rate levels. Our business lending
continues to perform well benefiting from our
focus on resilient, specialist sectors and the
benefits of our relationship manager-led model
where we remain close to our customers.
Finally in our unsecured lending we have seen
an increase in credit card arrears reflective of
the maturation of the portfolio and the weaker
credit environment, but we remain very well
provided against further deterioration.
During the year, the Group refreshed the
economic assumptions being used within
IFRS 9 models from its third-party provider
Oxford Economics. The weighted
macroeconomic scenarios reflect a more
uncertain outlook over the medium term,
with a recession now expected in 2024 and a
decline in the House Price Index (HPI) across
2023-2025. Alongside this, latest bureau data
indicates rising levels of customer indebtedness
in the economy. The combination of these
factors has led to higher than expected credit
loss provisions of £617m at FY23 (FY22:
£457m), primarily reflecting a higher modelled
provision. Overall coverage therefore stepped
up significantly to 0.84% at FY23 (FY22: 0.62%),
above pre-pandemic levels (FY19: 0.50%).
This provides significant cover against a
worsening in arrears performance, and credit
card coverage has increased in particular,
to c.7%, from less than 4% at FY21.
Despite the challenging operating environment,
we were pleased that Fitch Ratings have
recognised the Group’s progress and stability
with the Group’s Long-Term Issuer Default
Rating moving to Positive Outlook reflecting
an improving risk profile, robust asset quality
and stable profitability. Additionally, we were
pleased to maintain our ‘low risk’ status from
Sustainalytics and ‘Leader’ status from MSCI,
evidencing the Group’s enhanced disclosure
in an increasingly scrutinised field, and our
commitment to continual improvement of our
sustainability practices.
In 2023, the Group has further developed our
Commercial net zero targets and road maps,
building on our Mortgages and priority Business
sectors completed in 2022, to include all
Business sectors and moving towards the
completion of all in-scope lending. We continue
to develop our green products and services
such as introducing, and extending, our
Green Rewards for Mortgages, enhancing
our Sustainable Business Coach data capture
and reporting functionality, and delivering
c.7% of business lending to sustainability
changemakers, which remains in line with our
2027 target of 10%. Further detail of our 2023
achievements can be found on pages 31 to 50.
What will we achieve in the coming years?
As we enter the final year of the digital
strategy launched at FY21, we remain focused
on delivering a robust and resilient Bank,
well-positioned for consistent and sustainable
growth. The economic environment has been
challenging, however the resilience of our
customers, alongside attractive, Purpose-led
propositions and consistent underwriting,
will enable us to target profitable growth
while maintaining a defensive balance sheet,
facilitating continued capital generation that
supports sustainable distributions, growth
and investment.
As new technologies emerge we remain
focused on safeguarding the Bank and our
customers. We remain vigilant to the evolving
expectations, threats and challenges we face,
as well as rising stakeholder expectations.
The rapidly increasing prevalence of online
channels and social media are driving higher
instances of fraud and financial crime in the UK,
while cybercrime represents another area of
significant development, with new technologies
including AI increasing the sophistication and
risk of attacks. Underpinning the defence
against such attacks and broader reporting
is strong data management. As an O-SII bank,
adoption of the BCBS 239 data standard will
be an area of increased focus for us in the
years ahead.
In order to maintain our vigilance against
all forms of fraud and financial crime we will
increase our digital investment in this space
from FY24. We will implement upgraded
technology and increase the sophistication of
our processes with the goal of providing our
customers with the best possible protections
against criminal actors.
As a result, we are announcing a c.£130m
investment programme over the next 3 years.
As a tier 1 bank, this investment will significantly
upgrade our financial crime prevention
and cyber defence capabilities, while also
strengthening our risk data aggregation
and internal risk reporting practices, in line
with regulatory requirements.
In line with our net zero commitments,
we will focus on enhancing our green products,
propositions, and customer education
programmes, all of which remain key
components in the realisation of our net zero
road maps and targets. We will also further
embed climate risk across the business with
enhancements to our stress testing, credit
decisioning, policies and frameworks.
We will continue to support our customers as
they navigate unexpected challenges, develop
our purposeful partnerships further to help
bridge the digital divide and reduce the poverty
premium, and deepen our relationship with
our new charity partner Mind, in association
with the Scottish Association for Mental Health,
following the success of our partnership with
Macmillan (see page 7).
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Non-financial and Sustainability
Information Statement
Our TCFD summary
Commercial review
Chief Financial Officer’s review
How we manage risk
Governance
Risk report
Climate-related disclosures
Financial statements
Additional information
Environmental, social and governance
Overview of progress made
in our ESG strategy ...
As we reflect on our progress we’re pleased to have made important strides in the execution
of our ESG strategy this year but there remains a lot more to do ...
Against a volatile backdrop, we’ve continued to
make good progress in embedding sustainable
practices across our business and supporting
a more sustainable and inclusive future for our
customers, colleagues and society.
As we deliver and expand our climate strategy,
the Group’s financed emissions calculations
now cover the most material carbon intensive
sectors on our balance sheet.
We have evolved our Commercial transition
plans to cover c.85% of the Group’s portfolio,
across the most material lending sectors, as
outlined by the Net Zero Banking Alliance
(NZBA). To track this, the Group also expanded
the modelling and methodology, with estimates
showing an 11% decrease from FY22 on a
like-for-like basis.
We’ve continued to develop propositions and
tools to support our customers today and
provide insight into their needs tomorrow,
including bespoke reports through our
Sustainable Business Coach and thought
leadership events with our Agri customers.
Whilst we are pleased with our progress to date,
we recognise the rapidly evolving landscape
that requires continued focus on developing
data capabilities and our understanding, to
continue to make progress to net zero.
Following our successful bid to the Green Homes
Finance Accelerator discovery grant, we’ve been
working with Rightmove and Sero to research
and design a new retrofit mortgage proposition,
with the aim of encouraging and educating
customers on achieving a net zero home.
We’ve delivered financial education support
and resources and refreshed our ‘S’ strategy,
strengthening the alignment between our
Customer and Community plans and leveraging
partnerships and insight to amplify our impact.
Continuing to support our customers,
colleagues and communities through the
current economic backdrop, we’ve focused
on two super-themes of digital inclusion and
financial education: important topics where we
are already having strong impact, and which are
aligned to our Purpose of “Making you happier
about money” and our ambition to be the UK’s
best digital bank.
We’re delighted to have exceeded our
Macmillan fundraising target of an additional
£500k, and as we prepare to onboard our next
charity partner, we are integrating the learning
from our work with Macmillan within our broader
vulnerable customer focus.
We’d like to thank Macmillan for a wonderful
partnership over the last 3 years and for giving
us the opportunity to work together in making a
tangible difference in the lives of those affected
by cancer.
A large focus this year has been on supporting
customers who find themselves in vulnerable
situations. With rising interest rates impacting
the mortgage market, we have signed up to
the Mortgage Charter, proactively contacted
150,000 mortgage customers with our
cost-of-living assistance communication,
and our customer care team have contacted
32,000 customers in potentially vulnerable
circumstances.
FY23 marks our fourth year as a signatory
of the UN Environment Programme Finance
Initiative (UNEP FI) Principles for Responsible
Banking and, in accordance with the principles,
we’ve sought Limited Assurance on our report.
We’ve continued to make strong progress
on our first key impact area of Climate and
have confirmed our second key impact area
as Financial Inclusion.
We’ve enhanced our sustainability-related
disclosures through FY23, augmenting the
content on our ESG hub. Through this and
proactive engagement with the key agencies,
we have retained our AA rating with MSCI and
‘Low’ risk rating with Sustainalytics, our Moody’s
Analytics rating remained stable.
Maintaining a watching brief on emerging
regulations, we have participated in
consultation around new sustainability-related
standards and continue to assess the
impending requirements for our disclosure.
Looking ahead to FY24, we are focused
on executing and evolving our plans and
ensuring we’re continuing to address the
economic challenges our customers, colleagues
and communities face. We’ll strive to achieve
higher and more sustainable returns for our
investors, while meeting the needs and
expectations of our broader stakeholders.
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Strategic priorities
Environmental, social and governance
(ESG)
Non-financial and Sustainability
Information Statement
Our TCFD summary
Commercial review
Chief Financial Officer’s review
How we manage risk
Governance
Risk report
Climate-related disclosures
Financial statements
Additional information
Environmental, social and governance
Strong foundations for a sustainable future
Guided by our Purpose of Making you happier about money, we seek to drive
social and environmental impact through everything we do.
Goals
Strategic priorities
ESG principles
2030 aspirations
SDG alignment
1
Put our (carbon)
foot down
2
Build a brighter
future
3
Open doors
4
Straight-up ESG
Reduce the negative impacts
of our operations, suppliers
and partners on society and
the environment.
Net Zero Operational emissions
Super straight forward
efficiency
Pioneering growth
Deliver innovative products
and services that help our
customers make a positive
impact on society and
the environment.
Reducing carbon emissions by at least half
across everything we finance.
Work with customers, colleagues
and communities to encourage
sustainable practices and
economic activity that creates
shared prosperity.
Align our strategic goals to ESG
and embed them in all areas of
the business with robust targets,
tracking and disclosures.
Empower and enable those most in need to gain
digital access and vital skills to better manage
their finances.
Work towards the eradication of poverty premium
for our customers.
Sponsor diverse talent at every level and achieve
a diverse top-quartile of the organisation (gender,
ethnicity, disability, LGBTQ+).
Variable remuneration linked to ESG progress.
Delighted customers
and colleagues
Discipline and
sustainability
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(ESG)
Non-financial and Sustainability
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Our TCFD summary
Commercial review
Chief Financial Officer’s review
How we manage risk
Governance
Risk report
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Financial statements
Additional information
Environmental, social and governance
FY23 highlights
100%
(1)
of electricity
generated from
renewable sources
16%
reduction of
scope 1 and 2
emissions YoY
Zero
waste to landfill
since 2014
£317m*
energy and
environment
lending
11%
reduction in
financed emissions
>£1.6m
Virgin Money
Foundation grants
distributed
£1.5m
three-year fundraising
total for Macmillan
charity partnership
£>4.5m
additional benefits
confirmed or uplifted
through Turn2Us
benefits calculator
>32k
31k
Customers supported
by a call from our
care team
pupils participating
in our Make £5 Grow
scheme
88%
of colleagues
feel ALMV allows
flexibility to create
work–life balance
2023 Ethnicity
Awards Finalist
for Network
Group (ERG)
Mortgage
Industry Mental
Health charter
Signatory
Scottish Agri team
first to complete
RSABI mental
health first aid
awareness
training
Gold
Stonewall award
Putting VMUK top
100 in the workplace
equality index
(1) Where available and where Virgin Money are responsible for the supply, 100% of gas and electricity in our UK stores and offices is generated from green sources.
c.8% of the Group’s energy utilisation is not from renewable sources, due to either a lack of control or availability.
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Non-financial and Sustainability
Information Statement
Our TCFD summary
Commercial review
Chief Financial Officer’s review
How we manage risk
Governance
Risk report
Climate-related disclosures
Financial statements
Additional information
Strategic report
Environmental, social and governance
1
Put our
(carbon)
foot down
Sustainable Development Goal (SDG) alignment
Ensure sustainable consumption
and production patterns
Take urgent action to combat
climate change and its impacts
Virgin Money Annual Report & Accounts 2023
Reduce the negative impacts
of our operations, suppliers
and partners on society and
the environment.
Given the varying timelines for our supply chain
to achieve net zero, we are updating our 2030
Aspiration to focus on Scope 1 and 2 emissions,
where we have direct control. We expect to
be Net Zero in terms of our own Operational
emissions by 2030.
Approach
We’ve set ambitious targets to change the
way we operate as a business and reduce
our impact on climate and the environment.
Execution of our property strategy is well under
way and work with our suppliers is evolving.
We have updated our Operational targets
to align with Science-Based Targets Initiative
(SBTi) guidance and now expect to reduce
Scope 1 emissions by 42% by 2030, from a
2022 baseline. We have disclosed priority
Scope 3 category emissions targets and road
maps for the first time, ensuring our compliance
with NZBA and TCFD.
GHG emissions are reported in accordance
with the GHG Protocol, which sets a global
standard for how to measure, manage and
report emissions. Scope 1 and 2 location based
emissions for the past 12 months are 16%
lower than the prior year on a combined basis.
Our ALMV colleague proposition supports our
Scope 3 ambitions and our target for business
travel is to maintain travel carbon emissions
per full time equivalent (FTE) below 50% of
2019 base level (FY19: 0.27tCO2e per FTE).
We are on track to achieve our target of net
zero in all direct and indirect emissions by 2050.
Key achievements in 2023
Property
Reducing energy consumption remains at
the core of our operational climate aspirations
and net zero journey. We’ve continued to install
low-carbon and energy efficient measures
across our stores and hubs, including the
ongoing rollout of smart metering and our
LED lighting retrofit programme.
Improved performance monitoring through
Triana dashboards has been key to better
understanding our energy and water metering
data. It’s enabling us to undertake site level
interrogation and benchmarking of our building
data, and utilize insight reports to indicate how
we can manage consumption across our sites.
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Environmental, social and governance
(ESG)
Non-financial and Sustainability
Information Statement
Our TCFD summary
Commercial review
Chief Financial Officer’s review
How we manage risk
Governance
Risk report
Climate-related disclosures
Financial statements
Additional information
Suppliers
We are continuing to deliver the Carbon
Disclosure Project (CDP) Supplier Engagement
Programme, in which we request our suppliers
to report their environmental data which helps
us to understand their progress to date in
reducing their emissions and any future plans.
We support our suppliers disclosing to CDP
by delivering webinars and providing access
to resources, which has been particularly
important for any suppliers new to the
programme in 2023.
We achieved a response rate of 87% from
178 suppliers (2022: 94% of 100 suppliers),
compared to an industry average of 63%.
This equates to 74% of total FY21 supplier
spend and, as we continue to engage
our suppliers and increase the number
that disclose to CDP, the Group improves
the accuracy and reliability of our reporting.
This year, we’ve calculated and disclosed
our Scope 3 Category 1: Purchased Goods
and Services and Category 2: Capital Goods
emissions for the first time. A spend-based
methodology was used to calculate the Scope 3
Category 1 and 2 emissions, using data from
both CDP and supplier spend.
Environmental, social and governance
Put our (carbon) foot down continued
1
Where the Group is responsible for the supply
and where available, 100% of gas and electricity
in our UK stores and offices is generated from
green sources(1), including a solely 100% green
gas product(2) from April 2021. Our use of paper
is falling year-on-year with a 17.4% reduction
from FY22 and we have sent zero waste
to landfill.
We estimate the savings in FY23 from all our
initiatives to be 1,607tCO2e when measuring our
Scope 1 and Scope 2 location based emissions.
We are advancing towards our overall goal to
reduce location-based energy consumption by
50% in FY25.(3)
Colleagues
ALMV has significantly changed our working
patterns, introducing Colleague Personas, Team
Rhythms, and location-less hiring. Much of our
workforce have been enabled to work remotely,
resulting in a significant reduction in employee
commuting and associated emissions. We
recognise that there is still a need for business
travel and as part of our Team Rhythms,
we encourage colleagues to consider the
environmental impact when arranging team
gatherings. We have enhanced our travel policy
and travel booking tool to encourage colleagues
to consider more environmentally friendly
travel options when they are available.
We’ve captured colleague commuting and home
working data throughout FY23 and developed
a methodology and data model to measure the
associated GHG emissions. This data model –
the average-data method – involves estimating
emissions from employee commuting, based
on average (e.g. national) commuting patterns
combined with secondary colleague contract,
transport and activity data.
(1) c.8% of the Group’s energy utilisation is not from renewable sources, due to either a lack of control or availability.
(2) We purchase a renewable gas guarantee of origin backed Green Gas Plus product.
(3) Calculated using the average emissions intensity of the grids on which energy consumption occurs, using mostly grid-average
emission factor data.
Introducing 177 Bothwell Street
our new home from Q1 2024
How we’re evolving our office footprint
The building is fitted with the latest energy
efficient equipment, including LED lighting
and highly efficient, heat-recovery air
conditioning systems to reduce consumption.
Powered by 100% renewable energy
with zero-carbon emissions, the power
is supplied from a local wind farm located
in South Lanarkshire.
We’ve signed a green Memorandum
of Understanding to work collaboratively
to reduce energy usage at the site.
The building is EPC ‘A’ rated which means
best practice in building operational energy
performance (BREEAM rated ‘Excellent’).
Plasterboard is 100% recycled, with other
mixed construction wastes recycled or
diverted to energy from waste.
We’ve engaged with as local a supply chain
as possible, most within central Scotland
and using local wholesalers based within
10 miles from the site.
Training and employment for local people has
been the focus, including apprenticeships
and partnering with a local recruitment
agency, ‘Search’.
We’re encouraging colleagues to switch from
commuting in their cars to walking, using
public transport, or cycling and are providing
318 internal cycle spaces.
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Progress against aspirations and targets (Streamlined Energy and Carbon Reporting (SECR))
Environmental, social and governance
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Business model
Strategic priorities
Environmental, social and governance
(ESG)
Non-financial and Sustainability
Information Statement
Our TCFD summary
Commercial review
Chief Financial Officer’s review
How we manage risk
Governance
Risk report
Climate-related disclosures
Financial statements
Additional information
Scope 1 & Scope 2 Emissions Location Based
Scope 1 emissions(2) location based (tCO2e)
Scope 2 emissions(3) location based (tCO2e)
Total Scope 1 & 2 location based emissions (tCO2e)
Intensity ratio: location-based CO2e emissions per FTE
(Scope 1 and 2) (tonnes/FTE)
Scope 1 & Scope 2 Emissions Market Based
Market-based Scope 1 emissions (tCO2e)
Market-based Scope 2 emissions (tCO2e)
Intensity ratio: market-based CO2e emissions per FTE
(Scope 1 and 2) (tonnes/FTE)
Energy (gas and electric) – measured by kWhm
Water consumption – measured by m3 volume
Scope 3 emissions (tCO2e)
Category 1(4) – Purchased Goods & Services
Category 2(4) – Capital Goods
Category 5(5) – Waste Generated in Operations
Category 6 – Business Travel
Category 7(6) – Employee Commuting and Homeworking
Actual 2022
(last year)
Actual 2023
(this year)(1)
2023 target
Future targets
3,395
2,677*
-10% (met)
2025: -50% to 1,850t
6,891
10,376
1.49
747
989
0.25
47,473
41,765
–
–
0
313
_
6,002*
8,679
1.23*
473*
926*
0.20*
42,001
35,900
48,544
2,039
0
755
3,700
2030: Net zero(7)
-10% (met)
2024: -10% to 5,402t
n/a
n/a
n/a
n/a
-10%
-10%
Continue to source 100% biogas(8)
Continue to source 100%
renewable electricity(8)
n/a
2025: -50%to 30,000 kWhm
2025: -50% to 45,000
75% of suppliers (by spend)
to have committed to or have
approved science-based targets
by FY28
Target 1: Zero waste to landfill
Maintain travel carbon emissions
per FTE below 50% of 2019 base
level (FY19: 0.27tCO2e per FTE)
No target due to no expected
change to ALMV
(1) The reporting period for GHG emissions in the Group ran from 1 July 2022 to 30 June 2023.
(2) Generated from the gas and oil used in all buildings where the Group operates; emissions generated from Group-owned and leased vehicles used for business travel;
and fugitive emissions arising from the use of air conditioning and chiller/refrigeration plant to service the Group’s property portfolio.
(3) Generated from the use of electricity in all buildings from which the Group operates.
(4) Reporting period is FY21 based on FY21 spend and CDP 2022 data. This is the most recent year of measurement and CDP emissions intensity data is in arrears.
(5) The calculation methodology for waste emissions is currently under review and will be disclosed in FY24 reporting.
(6) Based on February 2023 data, applied across 12 months .
(7) Target set in line with SBTi guidance and tooling.
(8) Where available and where Virgin Money is responsible for the supply rather than a third-party landlord or property owner.
c.8% of the Group’s energy utilisation is not from renewable sources, due to either a lack of control or availability.
Basis of GHG reporting
The Group GHG reporting is undertaken
in line with the requirements of the Companies
(Directors’ Report) and Limited Liability
Partnerships (Energy and Carbon Report)
Regulations 2018. These regulations are also
know as Streamlined Energy and Carbon
Reporting. Further details on the Group’s
GHG emissions and energy consumption
is available within the Climate-related
disclosures at page 240.
Independent limited assurance
The Group engaged Ernst & Young LLP (EY)
to undertake an independent limited assurance
engagement over selected metrics in the
current year, highlighted with a * throughout
this ESG report, using the assurance standards
ISAE (UK) 3000. A limited assurance
engagement consists principally of applying
analytical procedures, making inquiries of
persons responsible for the subject matter.
EY has issued an unqualified opinion over
the selected information. EY’s full assurance
report is available at: virginmoneyukplc.com/
corporate-sustainability/esg-hub.
The basis of preparation for the scope and
methodology of assured metrics, is available at:
virginmoneyukplc.com/corporate-sustainability/
esg-hub.
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(ESG)
Non-financial and Sustainability
Information Statement
Our TCFD summary
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Chief Financial Officer’s review
How we manage risk
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Key Challenges and what’s next
Property
Our property strategy sets out a clear path
to reduce our overall location-based energy
consumption by 50% in FY25 from where
we started in FY20. We’ll continue to deliver
this through the rationalisation of stores and
data centres and the ongoing installation of
low-carbon and energy efficient measures
across the estate.
A key focus in FY24 will be in our controls
management. We are investing in building
management systems (BMS) which allow us
to be proactive and remotely manage our sites,
ensuring minimal energy wastage and savings.
We’ll also utilise a new Minimum Energy
Efficiency Standard (MEES) compliance and net
zero capex planning platform which will enable
us to create a robust property-centred net zero
budget and action plan as well as advising other
work areas such as offsetting strategies and
awareness/education campaigns.
We are introducing systematic sustainability
building annual inspections (AI’s) from Q1 2024,
to help to identify energy saving and sustainable
solutions across our hubs and stores.
Colleagues
We will continue to closely monitor our business
travel activity and encourage our employees
to consider the environmental impact when
making their travel decisions. Our target for
business travel is to maintain travel carbon
emissions per FTE below 50% of 2019 base
level (FY19: 0.27tCO2e per FTE).
Suppliers
The Group had previously set an ambition to
achieve net zero supplier emissions by 2030.
However, given the challenge of suppliers
having different timescales to net zero,
we are updating our 2030 aspiration to focus
on Scope 1 and 2 emissions, where we have
direct control. We now expect to be Net Zero
in terms of our own Operational emissions
for Scope 1 and 2 by 2030.
We continue to set interim targets to ensure
we reduce emissions from our supply chain
including 75% of suppliers (by spend) to have
committed to or have approved science-based
targets by FY28. As a baseline, in 2022,
42 suppliers in the CDP Supplier Engagement
Programme committed to science-based
targets, representing 38% of total FY21 spend.
We realise there are limitations: many of our
suppliers are large corporations already on net
zero journeys independent of Virgin Money, but
we also have smaller suppliers who are yet to
define a net zero approach. Our commitment to
develop the Group’s CDP Supplier Engagement
Programme will help us continue to develop our
supplier road map to achieve net zero. Using
insight from the survey responses will help
improve data and track targets, as well as gain
a better understanding of the environmental
impacts and issues in our supply chain.
We will be strengthening our focus on
sustainability within our supplier tendering
and selection process, embedding climate
into procurement processes, to further
understand supplier transition plans and
science based targets. We will be looking for
suppliers to tell us how their proposed products
and solutions are considering the sustainability
impact, which will feature in our scoring
methodology and influence the outcome
of supplier selection.
Also, in FY24, our Supplier Relationship
Managers will be working more closely with our
key suppliers to understand their sustainability
road map, encouraging them to commit to
setting science-based targets and disclose
to CDP. Supplier Relationship Managers will
continue to receive CDP training through
webinars and access to resources and online
tools, building competency and awareness.
Operational Emissions
We will maintain low levels of market-based
emissions through sourcing of green electricity
and green gas and will continually reduce our
consumption. We will continue to disclose
operational scope 3 emissions’ evolving to
reflect the latest science and guidance,
combined with continued data quality
improvements and the Group’s ability to
measure the impact of specific actions.
For more detailed information on our net zero
plans and targets, see pages 240 to 272 in the
Climate-related disclosures.
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Non-financial and Sustainability
Information Statement
Our TCFD summary
Commercial review
Chief Financial Officer’s review
How we manage risk
Governance
Risk report
Climate-related disclosures
Financial statements
Additional information
Strategic report
Environmental, social and governance
2
Build a
brighter
future
SDG alignment
Ensure access to
affordable, reliable,
sustainable and modern
energy for all
Promote sustained,
inclusive and sustainable
economic growth, full and
productive employment
and decent work for all
Build resilient infrastructure,
promote inclusive and
sustainable industrialisation
and foster innovation
Virgin Money Annual Report & Accounts 2023
Ensure sustainable
consumption and
production patterns
Take urgent action
to combat climate
change and its impacts
Protect, restore and promote
sustainable use of terrestrial
ecosystems, sustainably
manage forests, combat
desertification, and halt and
reverse land degradation
and halt biodiversity loss
Deliver products and
services that help our
customers make a positive
impact on society and
the environment.
Approach
We serve millions of people and businesses
across the UK and believe we can make a
real difference through supporting the UK’s
transition to a low carbon future. We recognise
the role our products and services play, both
within the Group’s environmental sustainability
strategy and in the fight against climate
change. As we continue to embed sustainability
across our business, we are growing our suite
of greener products and services, considering
how we can incorporate sustainable elements
into new propositions. We aim to support our
customers to develop more sustainable
practices, creating a more sustainable and
inclusive future for people and businesses.
Key achievements in 2023
We’ve made strong progress against
our science-based targets in FY23.
We’ve expanding our calculated emissions
to 85% of the lending portfolio and set
science-based targets for 82% of the book,
ensuring our compliance with NZBA and
Climate-related disclosures.
Mortgages
We are on a mission to improve the energy
efficiency of UK homes; our strategy to
achieve our aspirations covers four priorities:
> Enhance the quality of our data to
strengthen our analysis and monitor the
impact of climate change from our portfolio
> Grow customer awareness and support
customers to develop an understanding
of their transition plan to a more
energy-efficient home
> Expand our Green lending proposition
to encourage customers to make more
sustainable borrowing choices
>
Improve the EPC profile of our portfolio
We’ve made it our ambition to drive growth
in green lending products and services and,
after a successful application, we’re delighted
to have been awarded a Green Homes Finance
Accelerator (GHFA) discovery phase grant.
In partnership with property search portal
Rightmove and energy tech specialist Sero,
we’ve designed a proposition – the Green
Makeover Mortgage – that will enable
customers to make energy efficient home
improvements and support the UK’s transition
to Net Zero.
The project aims to educate customers on
retrofit options available to decarbonise their
home and the benefits of doing so, while also
providing finance options to implement the
changes. Driving green finance innovation
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Non-financial and Sustainability
Information Statement
Our TCFD summary
Commercial review
Chief Financial Officer’s review
How we manage risk
Governance
Risk report
Climate-related disclosures
Financial statements
Additional information
Environmental, social and governance
Build a brighter future continued
2
50% of mortgage
portfolio EPC C+
rated by 2030
FY22 38%
FY23 39% (1)
50% increase
every year
in value
of new greener
mortgage lending
FY22 £131m
FY23 £226m
is an important element of Virgin Money’s
strategy as we look to reinforce our aspiration
to halve our financed emissions by 2030 and
deliver Net Zero by 2050.
We aspire to improve the EPC profile of
our Mortgages portfolio. Despite existing
challenges regarding EPCs, and the need
for government support to improve them,
they remain a part of measuring our success
against our sustainability ambitions and in
FY23 we are on track with our aspiration,
with 39%(1) rated C or above.
Our exclusive Green reward product offers
£250 cashback to both residential and BTL
customers who borrow to make energy saving
upgrades to their property, and our Greener
mortgage product offers lower rates for
residential mortgages on properties rated
EPC A-B. We have made slower progress than
planned this year due to the tougher mortgage
environment and cost of living challenges.
of green mortgage products and will support
customers with the most relevant offering
to decarbonise their homes.
With rising base rates impacting the mortgage
market we have implemented several options
to support our homeowners and proactively
ensure that we identify, contact and help
customers in potential difficulty. We’ve also
signed up to the government’s Mortgage
Charter to give mortgage customers the right
support in the current environment of financial
strains and uncertainty, and our customer
website provides a new range of support
options for those who need it.
The Group achieved a 57% increase (£82m)
year-on-year, against a target of 50%, taking
the total new greener mortgage lending to
£226m. We continue to explore the suitability
Business
In 2022, we launched the Sustainable Business
Coach (SBC) app: a smart digital coach which
uses methodology developed by non-profit
organisation Future-Fit. The app can help in
setting targets and measuring progress against
ESG-related goals and helps businesses of any
size to assess and improve their sustainability.
The SBC is embedded within our credit risk
assessment for all lending >£2.5m.
During 2023 we carried out several
enhancements to optimise app functionality
including the addition of downloadable reports
and sector score comparisons, allowing
customers to share their individual reports with
stakeholders. We’ve also introduced additional
climate-focused questions through which
we gain greater insight into how Business
customers are thinking about sustainability.
As the SBC app is embedded in our annual
review process, we use the data to measure
the ESG score of our portfolio, helping us
understand where additional help and focus
is needed. We’re starting to gain greater insight
into our customers’ behaviours through the
data generated such as: 13% of businesses
power more than 75% of their operations
through renewable energy, 27% of respondents
have already mapped their supply chain for
social and environmental issues and 15% of
businesses fully engage their local communities
in their decisions. This data will inform how
we support our customers moving forward.
(1) 39% where a positive match is made. (29% of the full mortgage portfolio, including properties which have not been matched to EPCs).
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(ESG)
Non-financial and Sustainability
Information Statement
Our TCFD summary
Commercial review
Chief Financial Officer’s review
How we manage risk
Governance
Risk report
Climate-related disclosures
Financial statements
Additional information
Environmental, social and governance
Build a brighter future continued
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£500m in Energy
and Environment
Lending by FY27
FY22 £224m
FY23 £317m*
10% Lending
to Sustainability
Changemakers
by FY27
FY22 5.3%
FY23 6.7%
By 2027 our ambition is for 10% of all business
lending balances to be through Sustainability
Changemakers, whose core goods and services
drive social or environmental change, such as
reducing dependency on non-renewable energy
sources and reclamation and recycling of waste.
Changemakers are spread across our business
portfolio and are sector agnostic, but does
incorporate the majority of the customers within
our Energy and Environment portfolio. Eligibility
is determined by the positive impact section of
the Sustainable Business Coach, derived from
the Future-Fit Business Benchmark, which is
free to access guidance for businesses seeking
to transition their business across E, S and G
goals. We’re delighted to be on track with 6.7%
of business lending balances at FY23.
The Portfolio ESG score is the average score
received by Virgin Money customers through
Sustainable Business Coach assessment.
Responses are self-certified, our ESG score
for FY23 was 56%.
We continue to offer a Sustainability Linked
Loans proposition (defined as loans Virgin
Money generates without an arrangement
fee where the customer has met the pre-set
ESG related criteria).
We’re progressing well towards our Energy and
Environment £500m of lending target by FY25,
achieving £317m* at end FY23.
Our focus on growth and optimising support for
our business customers includes our continued
commitment to support SMEs. New digital tools
(M Track, Marketplace) provide SMEs with
data-led solutions to manage their finances and
business more efficiently. Through investment
in technology, Relationship Managers have
increased capacity to spend time with customers
to support with their business needs.
Virgin Money is chairing the inaugural
Partnership for Carbon Accounting Financials
(PCAF) Business Loans and Unlisted Equity
Working Group. The purpose of the group is
to establish common challenges banks face in
measuring financed emissions for its business
loan portfolios and work collectively to enhance
the underlying PCAF methodology. The group
formed in June 2023 and contains membership
across several other UK financial institutions.
We’re an active participant in UK Finance’s ESG
for SME working group which meets bi-monthly,
sharing common challenges and opportunities
to support SMEs in an environmental and
socially considerate transition.
We offer our Agri customers 0% arrangement
fees through the E Fund when a farmer
completes a carbon audit and is going to invest
in emission reducing initiatives, like renewable
energy, energy efficiency initiatives or activities
that reduce greenhouse gases.
Throughout FY23 we’ve actively engaged
across the sector, hosting multiple events to
raise awareness of sustainability challenges and
thought leadership. We’ve undertaken our 3rd
annual survey across the Agri sector, seeking
to understand key challenges since FY22 and
where our customers feel their greatest areas
of focus will be in FY24, ensuring we’re better
prepared to support them.
Virgin Money was a panelist at UK Finance’s
Commercial Finance June 2023 conference
session focused on ESG, recognising the
breadth of work achieved by the bank.
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Strategic priorities
Environmental, social and governance
(ESG)
Non-financial and Sustainability
Information Statement
Our TCFD summary
Commercial review
Chief Financial Officer’s review
How we manage risk
Governance
Risk report
Climate-related disclosures
Financial statements
Additional information
Environmental, social and governance
Build a brighter future continued
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Key Challenges and what’s next
Key focus in FY24 is the execution of our
net-zero road maps and targets as we continue
to provide resources and propositions which
support our customers on their transition to
low carbon.
Enhancing the quality of our data is key to
our strategy in FY24, focussed on improving
the quality of data inputs to develop our
calculations, and for automation in several
key areas. Using enhanced data and continuing
industry collaboration, the insights gleaned
allows us to continue evolving and respond to
external influences from regulators, government
and consumer behaviour. We’ll also embed
further climate considerations within the credit
decisioning process through the use of data.
For more detailed information on our net zero
plans and targets, see pages 240 to 272 in the
Climate-related disclosures.
Mortgages
We’ll continue our work with strategic partners
to develop the Green Makeover Mortgage
proposition, extending Virgin Money’s green
lending in the Mortgage market, supporting
customers when buying a more energy
efficient property or improving the efficiency
of their home.
We aspire to increase customer awareness and
help customers to develop an understanding of
their transition plan to a more energy efficient
home. We aim to encourage customers to act
more sustainably, either through the option of
a great deal for purchasing an energy efficient
property or retrofitting their existing homes.
Through this work, we are developing enduring
strategic partnerships that support and
facilitate the transition of UK homes to net zero.
We plan to enhance the data quality of the
estimated emissions within our mortgage
portfolio. For example, we’ll explore capturing
property consumption for mortgage customers
and aim to develop an emissions tool to
assess loan CO2e value, giving us a better
understanding of the loan’s impact. This will
enable us to better support customers, future
proofing our business on a loan-by-loan basis.
Business
We’re already on the road to 2050 and want
to support our business customers to take
advantage of the new opportunities to create
a sustainable future for everyone. It’s the right
thing to do, is good for improving business
reputation and, with increased pressure from
the supply chain and regulatory landscape,
now is the time to act.
Through our relationship managers, we’ll use
the SBC app to gain a better understanding
of how a business behaves and the role
of products and services in supporting
environmental and social change.
Improving key sustainability data capture
points from customers is an area of focus
for our relationship managers, which will help
us to learn about their transition plans on a
customer-by-customer basis.
Deepening our awareness of the impact our
lending portfolio has on our ability to achieve
our climate strategy will continue.
We will explore opportunities to develop
initiatives and seek to pro-actively finance the
UK’s climate transition, leveraging the balance
sheet to support cross sectoral customer
decarbonisation.
From Virgin Money’s perspective, we recognise
the dependency on significant government
and regulatory intervention to support the
introduction of an effective economic
infrastructure. We aim to drive climate-led
action, targeting the sub-sectors most
impacting our financed emissions and so
further supporting the UK’s net zero ambitions.
From the start of FY24, we will introduce an
emissions reduction policy which impacts the
highest emitting sub-sectors of our portfolio
(Air, Chemicals, Shipping and Oil & Gas). We’ll
require businesses with exposure over £2.5m
in these sub-sectors to measure their scope 1
and 2 emissions, have an emissions reduction
plan, and be making investment in the delivery
of the emissions reduction plan. We’ll require
this information to be shared annually for the
duration of the lending facility and will be a
key enabler in encouraging customers in these
pockets of the economy to accelerate action.
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Build a brighter future continued
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Virgin Money’s Agri E Fund helps a first-generation
farming family make the leap from traditional dairying
to an automated carbon net zero pathway.
Virgin Money launched the Agri E Fund in 2022
with the aim of helping farmers to invest in
emission reducing initiatives, like renewable
energy, energy efficiency initiatives or activities
that reduce greenhouse gases.
Eligible farmers benefit from 0% arrangement
fees on term borrowing over £50,000 to be
used for investing in activities which meet any
of the Green Loan Principles.
Alongside the Agri E Fund, we partnered with
Carbon Metrics to produce a net zero report
aimed at helping farmers understand the
background to climate change, what it means
for the industry and how they can start to
adapt their businesses to meet the challenge.
The Throups run a 700-acre farm near
Keighley in West Yorkshire and needed to
make improvements to their commercial cattle
and sheep operation. They secured a Rural
Payments Agency (RPA) grant towards the
planned investment and turned to Virgin Money
to support the remaining substantial costs
of the new infrastructure they needed to
futureproof the farm.
To qualify for the Agri E Fund loan and its
reduced arrangement fee, the Throups
commissioned a professional carbon audit
that measured the carbon performance
of every aspect of their farm and they were
able to identify an environmental dimension
to their plans that qualified them to benefit
from the Agri E Fund.
Helping our farming customers get to grips with
the carbon net zero challenge and understand
the importance of having their own carbon
journey mapped out is a fundamental objective
in our lending strategy. Through the fund
we are encouraging farmers to use carbon
emission reduction as a route not just to an
environmentally sustainable future but to a
much more commercial approach to farming.
For more information on our Agri E Fund please
see our website: https://uk.virginmoney.com/
business/agriculture/
“The process of the carbon audit wasn’t difficult
but it was very detailed,” says Ian Throup
“Information had to be gathered and assessed,
and the consultants made detailed
recommendations on how and where we could
make improvements. We’re looking forward to
our second audit because we know we are
already reducing our carbon footprint as a
result of the investment we’ve been able to
make. We’re cutting carbon and increasing
productivity, and the changes we’ve been able
to make to our infrastructure are making us
more efficient and reducing our use of diesel,
and most importantly the cows have adapted
well to the system.”
Lynne Throup
We have been able to depend on
Virgin Money since we first started
banking with them in 2007.
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Open
doors
SDG alignment
End poverty in all its
forms everywhere
Achieve gender equality and
empower all women and girls
Promote sustained, inclusive
and sustainable economic growth,
full and productive employment
and decent work for all
Reduce inequality within
and among countries
Virgin Money Annual Report & Accounts 2023
Work with customers,
colleagues and communities
to encourage sustainable
practices and economic
activity that creates
shared prosperity.
Approach
As the UK and our customers continue to
face economic challenges, we want to bring
our Purpose to life, to inspire and illustrate
how it impacts our colleagues, customers and
communities. Inclusion and access are at the
heart of our digital strategy and underpin our
work on tackling the poverty premium.
Throughout FY23 we’ve revisited our ‘S’
strategy and committed to align our activity
across our Customer and Community
stakeholder groups around super-themes
of digital inclusion and financial education.
As we enhance insight from our own data and
through strategic partnerships, we’ve more
clearly defined our Goal 3 2030 Aspiration
and are developing robust delivery plans.
Key achievements in 2023
Customers
We’ve established some powerful initiatives
to support the estimated 14 million people in
the UK paying the poverty premium. In 2022,
we teamed up with Good Things Foundation
(GTF) and after a successful pilot across 16 of
our stores, we’ve now got 50 stores who offer
a 20GB free data-loaded O2 SIM card to people
experiencing data poverty. Our specially trained
store colleagues are available to help users
register SIMs, show them how to get online and
offer tips on how to stay safe when browsing.
Further boosting the support available to
people living in digital poverty, we have
donated around 200 devices to the Good
Things Foundation’s National Device Bank,
helping put technology and training in
the hands of those who would otherwise
be digitally excluded due to poverty.
We have worked with the Centre for Social
Justice (CSJ) to develop a report called Left
Out: How to tackle digital exclusion and reduce
the poverty premium. The report highlights
some of the key challenges around digital
access and the financial impact this has on
individuals – particularly those on lower incomes
– when it comes to purchasing essential goods
or services. The report also makes strong
recommendations on how businesses and the
Government can help to tackle this challenge.
Our dedicated cost of living hub provides
advice on dealing with price rises, cutting bills
and signposts support services for people that
need extra help, and has been accessed more
than 60,000 times throughout FY23.
In addition to direct support for customers, we
are working with the industry and third parties
to work towards a more inclusive banking sector
that eradicates inequity and aids those most
in need. Continuing our work with Turn2us,
50k customers have accessed the Benefits
Calculator on our website and identified an
additional £4.5m in unclaimed benefits since
its launch.
We’re a signatory of the Mortgage Industry
Mental Health Charter and chair the steering
group. The charter is based around six key
principles, including developing mental health
awareness among employees, encouraging
open conversations about mental health and
supporting employees who may be struggling.
The Group is committed to offering meaningful
support to our customers finding themselves
in vulnerable circumstances and has introduced
a specialist support team – our Customer
Care Team – trained to deal with specific
circumstances where extra care and more
bespoke support is required.
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There’s a wealth of research that indicates
poverty is associated with higher rates of
domestic, economic and financial abuse.
Our frontline colleagues are often a safe place
for victim-survivors escaping abuse and an
important part of our support is understanding
their specific circumstances and what help
they need from us.
These conversations are sometimes
challenging for our customers, and so we have
focused on dedicated training and resources.
Our colleagues have access to a domestic,
economic and financial abuse support toolkit,
and a dedicated customer hub. We’ve also
developed a specific ‘customers with
vulnerabilities’ colleague training module which
is intended to prepare and support colleagues
interactions with vulnerable customers.
The team has already made calls to over
32,000 customers that we’ve identified as
in need of this more specialist support.
Colleagues
To help us create a more inclusive future,
we’ve launched our brand-new BRAVER
Framework (an enterprise-wide Allyship
framework for inclusion). We have a strong desire
to create a diverse workforce that reflects the
customers we serve and to build on the inclusive
and fair culture we have here at Virgin Money.
Our new BRAVER index is an aggregated
measure of the extent to which colleagues feel
connected, included and treated fairly at Virgin
Money and provides us with valuable insight,
We were very pleased to have a score of 87%
for our first BRAVER Index inclusion rating.
We’re encouraging braver conversations to
shift mindsets and create sustainable change.
We’ve asked colleagues and teams across
the business to make their BRAVER promise
by telling us what they’ll do to be BRAVER
going forward.
Our Inclusion Networks have 4,800 members
across all 6 networks and provided a full
calendar of events during FY23 including: daily
challenges during Race Equality Week to help
colleagues think differently and to take action;
awards events to recognise those leading the
charge, raising awareness and demonstrating
what it means to embrace our culturally diverse
backgrounds. Vibrant (LGBTQI+) won the best
employee network award at the Proud Scotland
awards in June 2023, and all networks have
had a productive year working together to
create sustained focus on inclusion.
We’re pleased to report that we are within our
target to have 45-55% female representation
at 51.6% in our senior manager population and
57.1% in our Executive team. For more detail on
our DE&I commitments and targets, please see
page 24 in Customer and Colleagues section
of the Strategic report.
We’ve refreshed and relaunched our colleague
Career hub, designed to help our colleagues
develop in their role and beyond. Our Career
Journey Framework is designed to put
colleagues in the driving seat. It allows them
to own their own personal development, build
future opportunities, and continue to receive
regular formal performance reviews. We’ve also
launched a new external Careers hub, providing
information on working at Virgin Money. For more
information see the Colleagues pages on 23.
Colleagues have access to a suite of financial
wellness resources, including Virgin Money-
Minded – a financial wellness site providing
support with topics including common money
worries, spending, saving, and planning, and
tips about how to manage rising energy costs.
Following a one-off payment in 2022 to help
with the cost of living, most colleagues will
have received two salary increases during
2023, to ease the growing pressure on finances
and support colleagues and their families.
We’ve delivered a Developing Your Toolkit
webinar, including a focus on mental health,
which we recognize makes up a significant part
of our colleague’s overall wellbeing. Colleagues
had the opportunity to hear about ‘different
ways to look after your mental health’, including
the ‘Five Ways to Wellbeing’.
Our annual celebration of our Purpose took
place in March 2023. PurposeFest 23 saw three
days worth of celebration and discussion led by
speakers from our leadership team and guests
from Macmillan cancer support, Turn2us, Good
things foundation, Virgin Money Foundation and
Virgin StartUp. Sessions included Leveraging
Virgin to accelerate sustainability, Make money
count for everyone, and How to be BRAVER
with diversity, equity and inclusion.
Our colleagues have settled in to our ALMV
colleague proposition, enabling us to delight
customers, support communities, and ultimately
achieve our business priorities. ALMV has
also given us a unique voice in the external
conversations about the future of work.
Throughout 2023 we attended several external
events sharing our ALMV story and have been
shortlisted for a People Management Award by
the CIPD for the best flexible working initiative.
While we see other businesses mandate how
and where their employees work, the flexibility
offered by ALMV is a core part of our business
strategy and it’s here to stay.
Communities
Alongside the work we’ve done to support
digital inclusion and financial education through
our partnership with GTF and Turn2us, we also
recognise the impact that money worries can
have on our customers’ mental health. We
signpost a range of organisations that offer
support through our Cost of Living Hub and
other points of customer contact.
In FY23 we have donated c£418k to two
not-for-profit organisations specialising in debt
management that we refer customers onto
– Step Change and PayPlan – both of whom
are recognised as key providers of free-to-
consumer debt advice, and are authorised
and regulated by the FCA.
The Group’s annual donation to the Virgin Money
Foundation has enabled the Foundation to
award 350 grants totalling more than £1.6million
through its four grant programmes. The grants
were awarded to initiatives located in areas in
the top 20% of the Index of Multiple Deprivation
or Scottish Index of Multiple Deprivation, with
76% of funds being spent in areas in the top 5%
of either index. Over 85,000 households were
supported by the organisations the Foundation
funded through its main grants programme.
In addition to its grants supporting community
organisations, the Foundation provided
leadership development grants to existing
and emerging social entrepreneurs.
During the year the Group confirmed that it
would be extending its commitment to the
Virgin Money Foundation. Over the years ahead
the Foundation will be working to address
digital exclusion in local communities.
2023 was the first year of the relaunched
Make £5 Grow entrepreneurship programme
with online resources and videos aligned
to the financial education framework giving
real experiences of running a business.
The total number of pupils who have
participated since launch is now over 185,000.
Virgin Money exited our Clydebank premises
at the end of September – moving to our new
head offices in Bothwell Street (see page 35
for more information). Having been an employer
in the local area for 32 years, we were keen to
leave a lasting legacy in the community and have
donated £100k to be used as an endowment
fund. £15k has been allocated to Golden
Friendships – a local charity which supports
the young, elderly, disabled and vulnerable –
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to fund a new sound and lighting setup which
will support events to become fully inclusive,
and provide a wider reach within the community.
raised throughout the 3 years of partnership
to over £1.5 million, which is the sum of all the
fundraising and additional donations.
The remaining £85k will be placed in an
Endowment fund managed by Foundation
Scotland with the annual return being allocated
to causes within the Clydebank area.
Our colleagues in Treasury partnered with
HR teams to welcome pupils from schools
in London, Newcastle and Glasgow into our
offices to gain an understanding of the breadth
of career opportunities available in Virgin
Money. Providing insight into some of the varied
roles available – including financial markets and
responsible banking – the aim was to engage
and inspire young people to consider Virgin
Money as a future employer.
Macmillan
We carried out four key Macmillan moments
over the year, Last Hour of Pay, Macmillan
March, the Mighty Hikes series and World’s
biggest coffee morning. Reaching new heights,
145 colleagues took on the tallest peak in
the UK, Ben Nevis, raising over £67k (including
matching) in important funds for Macmillan
Cancer Support. More than 1500 colleagues
donated their last hour of pay in December
2022 to raise over £57k (including matching).
Our Macmillan Guides have referred nearly
100 customers to Macmillan for direct support,
identifying >£53k in additional emergency
grants and welfare support. We’ve also delivered
enterprise-wide training, including first contact
cancer support training, to all frontline
colleagues and delivered an ‘always on’
social media campaign which has reached
3 million customers.
As we come to the end of our 3-year
partnership with Macmillan, we’re delighted to
announce that we’ve raised £346k during FY23,
with fundraising over the past 2 years of £656k
against our £500k target. This takes the total
Key challenges and what’s next
Customers
Helping households with the increased cost of
living will continue to be an important challenge
facing the UK for the foreseeable future. Our
customers remain at the heart of our Purpose
and by helping people become more digitally
enabled, we aim to improve their lives for the
better. Focusing on our super themes of digital
inclusion and financial education, we will
increase digital access, opportunity, training
and resources across the UK to benefit those
who need it most.
We remain committed to tackling the poverty
premium, which is currently paid by about one
fifth of the population, and continue to aspire
towards it’s eradication for our customers.
Over the next five years we aim to measure the
levels of exposure on our Customer book and,
with the help of partners, implement solutions
to help customers avoid energy, credit and
payment-related premiums.
We are working with the Smart Data Foundry to
establish triggers of the poverty premium and
impacts of the cost of living to better develop
drivers and develop solutions for our customers.
We are extending our partnership with
Turn2us for a further twelve months and
will be expanding our relationship to promote
their social grants tool alongside the
benefits calculator.
Our Customer Care team will continue to
identify and contact customers who may be
impacted by our digital ambitions, supporting
customers with digital education and making
sure no customers are left behind.
By the end of FY24, we will offer Databank
support through all our stores and explore more
initiatives to ease the strain of cost-of-living
crisis, building digitally-enabled money
management tools, developing digital
partnerships and new propositions,
all supporting our super themes of digital
inclusion and financial education.
Colleagues
We’ll be embedding our BRAVER framework
in our colleague experience across the bank
and recognising colleagues who are showing
great bravery and leadership by making their
BRAVER promise. We will introduce our brand
new BRAVER Influencers – colleagues who
care deeply about our culture at Virgin Money,
who make it a place where all colleagues can
be themselves and thrive, people who love to
challenge the status quo and who can influence
others to invest in becoming BRAVER every day.
We are building a BRAVER mentoring programme
to attract and advance underrepresented talent,
and we’ll be hosting a ‘Steps to Success’ career
event in collaboration with Black Professionals
Scotland in January. Ensuring we attract and
retain good representation at all levels of the
Group is one of our key metrics under Goal 3.
You can read more on this in Colleagues,
pages 22 to 24.
To mark World Mental Health Day on Tuesday
10 October, our Vibrant network will team up
with Stonewall to shine the spotlight on mental
health in the LGBTQI+ community. In this
60-minute interactive workshop, colleagues
will be shown stats to reflect on and learn
how to be a better ally and support positive
LGBTQI+ mental wellbeing.
With more and more people experiencing
mental health issues, it’s important we can all
spot the signs and be mental health advocates
for ourselves and others.
Our annual financial inclusion event for
colleagues will be hosted in December, with
the aim of showing the impact colleagues can
Databank Case Study
Montrose store were delighted to be
selected for the initial Databank pilot and,
once training was complete, reached out
to their local community groups to raise
awareness of the programme. The store
has a great relationship with the local
Job Centre, who were keen to hear more
about the Databank and the overall work
from Good Things Foundation.
The first introduction was an individual
who had no mobile data, which was directly
impacting their ability to look for work
or complete job applications, and were
currently reliant on the local library for
internet access.
Following the referral, the Job Centre
reported that the individual had been able
to invest more time on their job application
and had been successful in securing a job.
Through the Databank support, we were able
to provide 6 months mobile data and provide
a much needed lifeline. The individual was
so impressed with our service, they’ve
subsequently opened a current account
to receive their new salary.
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have on customers in vulnerable circumstances when
we get it right, as well as learning about external
support that is available for customers.
Communities
Our Purpose of Making you happier about money
drives us to put what we know about money to better
use for those in our communities who need it most.
Through our super-themes of digital inclusion and
financial education, we are increasing digital access,
opportunity and resources and helping people to make
improved decisions about their money; with the aim
of improving social inclusion and financial confidence
from school age and beyond.
Through our charitable donation, the Virgin Money
Foundation will continue to work to make a real and
lasting difference in the places that need it most,
by working in partnership with organisations that
are tackling digital exclusion in local communities
and by investing in community activities that close
the digital divide.
We’re proud to announce that Mind, the leading mental
health charity across England and Wales, and SAMH
(Scottish Action for Mental Health) are our new charity
partners for FY24. We’ve already begun working with
Mind and SAMH to define and implement a programme
of volunteering and fundraising events driven by our
Purpose and to deliver on our super-themes of digital
inclusion and financial education.
As a legacy of our Macmillan relationship and
Macmillan Guides, work is ongoing in our Vulnerable
Customers and Inclusion team to establish a long term
support solution for other vulnerable customer groups.
We will learn from the invaluable experience of
working with Macmillan to influence the design and
implementation of an escalated 1-2-1 support model.
We’ll continue to deliver our flagship financial education
programme, Make £5 Grow, to make young people feel
happier about money. We’ll be looking to identify new
partners to broaden our financial education offering
and to reach as many young people as possible to
support them with their money.
Progress against aspirations and targets
2030 Aspirations
Empower and enable those most in
need to gain vital skills and digital access
to better manage their finances.
Work towards the eradication of the
poverty premium for our customers
Sponsor diverse talent at every level
and achieve a diverse top-quartile
of the organisation
FY24 Goal
Support 51k(1) individuals
with financial and digital
wellbeing resources
(1) 51k includes pupils participating
in Make £5 Grow scheme
FY24 Goal
£200k Charity Partnership
fundraising.
FY24 Goal
Senior Gender Diversity
45-55%
Overall Ethnic
Representation:
10% by FY25, 14% by FY30
Overall LGBTQ+:
4% by FY25, 5% by FY30
Overall Disability:
8% by FY25, 10% by FY30
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Chief Financial Officer’s review
How we manage risk
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Straight-up
ESG
SDG alignment
Promote peaceful and inclusive
societies for sustainable
development, provide access to
justice for all and build effective,
accountable and inclusive
institutions at all levels
Virgin Money Annual Report & Accounts 2023
Align our strategic goals
to ESG and embed them
in all areas of the business
with robust targets,
tracking and disclosures.
Approach
Straight-up ESG means strong support
and accountability across the Virgin Money
Leadership Team, with ESG and climate
leadership embedded throughout our
Governance framework.
The ESG hub on our Corporate Website
contains links to our ESG-related statements
and policies to help all stakeholders understand
what we’re doing to be a responsible business.
We’re committed to being transparent about our
progress and challenges through our reporting
and disclosures and, given the increasing
external expectations on sustainability-related
disclosure, we know that aspiring for
environmental and social change is not enough:
we must hold ourselves accountable for
achieving our goals.
Key achievements in 2023
Governance
Our Board has oversight of climate change
risk and holds our business to account on ESG.
We have continued to embed Climate and
ESG into all relevant Board and sub-Board
committees and provide quarterly updates
on our ESG Goals and Climate strategy,
with Board and the Board Risk Committee
(BRC) overseeing the Groups performance
as a responsible business.
We have a dedicated monthly Environment
Committee, chaired by the Group Chief
Financial Officer, which provides direction on
our climate strategy, oversees execution, and
tracks progress against targets. Throughout
FY23 the Environment Committee has approved
new policies to underpin our approach to
climate-related credit risk, and agreed the
proposed methodology and approaches for
calculation of financed emissions. More detail
on these can be found in our Risk Management
section of the Climate-related disclosures,
pages 261 to 265.
The Committee also discusses the Group’s
sustainability-related performance against
peers and is kept updated with expectations
from external regulations and emerging
standards, ensuring Virgin Money maintains
compliance.
We have a well-established ESG working group
that act as custodians of the ESG strategy and
drive delivery of all related activity and targets.
The working group, which meets monthly,
is a collaborative forum at practitioner level,
encouraging business leads to share progress
and updates on plans, provide challenge and
bring a coordinated approach to the delivery
of our ESG strategy.
The ESG working group works closely with
the Purpose Council to ensure the Group’s ESG
strategy and our Purpose are fully integrated.
Colleague Engagement
Across the Group, we have highly engaged,
customer focused colleagues with significant
expertise and experience and we want to
keep building on that. Our Sustainability hub
was designed with colleagues in mind and
includes helpful and educational resources to
inspire colleagues, and improve knowledge and
understanding of our strategy and four goals.
All colleagues complete regular training on
ESG related topics through our Professional
Passports and throughout FY23, we’ve
undertaken bespoke training within specific
areas of the business to upskill, including:
training our Supplier Relationship Managers
on CDP; Business Relationship Managers
trained on new Sustainable Business Coach
functionality; our customer-facing Agri team
have completed RSABIs first mental health
training, specifically focused on supporting
their farming customers; and more broad
and general upskilling on Sustainability across
our Stores Network and through our Learning
in a life more Virgin framework.
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Operating environment
Business model
Strategic priorities
Environmental, social and governance
(ESG)
Non-financial and Sustainability
Information Statement
Our TCFD summary
Commercial review
Chief Financial Officer’s review
How we manage risk
Governance
Risk report
Climate-related disclosures
Financial statements
Additional information
Environmental, social and governance
Straight-up ESG continued
4
We’ve been tracking colleague sentiment
throughout the year as part of our quarterly
engagement surveys and have seen an uplift
of 4 points in response to the visibility of
sustainability in decision making: we know
we have more to do in this space.
Disclosure
The evolving nature of sustainability and climate
disclosure recommendations continues to be a
key consideration for the Group.
We comply with all relevant ESG related
regulation and standards, including the Task
Force on Climate-related Financial Disclosures
(TCFD) standards, NZBA, United Nations
Principles of Responsible Banking (UN PRB),
Modern Slavery Government Registry, and
Women in Finance Charter. We have embedded
the principles within our policies and
procedures, in line with regulatory expectations,
including through our robust governance
framework. For more detail on our Climate-
related disclosure (TCFD) summary, please
see pages 52 to 53.
We’re committed to increasing visibility of
the actions we’re taking to deliver against our
Purpose and be a responsible business. We
continuously review the policies and positioning
statements within our external facing ESG hub
and maintain a watching brief on the regulatory
landscape for both imminent and emerging
sustainability-related standards and regulations,
ensuring we remain compliant and identifying
where we can take a more proactive approach.
We recognise the importance of globally
established ESG rating agencies in helping
to give our investors an accurate, fair and
transparent view of our ESG performance.
Throughout the year we have continued to
proactively respond to several key ESG surveys
and sustainability assessments, earning a stable
rating from Moody’s Analytics and retaining
our ‘Low’ risk rating with Sustainalytics.
FY23 is our fourth submission as a signatory
to the United Nations Principles of Responsible
Banking, which requires the Group to obtain
limited assurance on questions 2.1, 2.2, 2.3 and
5.1 of the UN PRB response. We have engaged
EY – as our current auditors – to undertake this
activity and their report can be found within our
ESG hub. The full UN PRB report can be found
on pages 338 to 365.
Modern Slavery
In March, the Board approved an updated
Modern Slavery Statement. Virgin Money has
a zero-tolerance approach to modern slavery,
and we are committed to doing business
with honesty and integrity. We do not tolerate
slavery, trafficking or forced labour in any
part of our business or any supply chain.
We are continuing to progress observations
from the PWC review of our Modern Slavery
governance, to enhance our approach through
our Modern Slavery working group. For FY24
the working group will take a closer look into
our processes, supply chain and ways to raise
awareness of Modern Slavery indicators.
During FY23 we revisited our definition of ‘high
risk’ suppliers to ensure we continue to maintain
appropriate focus on Modern Slavery within
the supplier relationship manager processes.
Further information on how we manage risk in
our supply chain can be found in the ESG hub:
https://www.virginmoneyukplc.com/downloads/
pdf/VM014-Supplier-Code-of-Conduct.pdf.
Modern slavery and human trafficking are
included in our bespoke Modern Slavery
learning module which is mandatory for
colleagues to complete on an annual basis.
Our Modern Slavery Statement can be accessed
here: https://www.virginmoneyukplc.com/
corporate-sustainability/modern-slavery-
statement/.
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(ESG)
Non-financial and Sustainability
Information Statement
Our TCFD summary
Commercial review
Chief Financial Officer’s review
How we manage risk
Governance
Risk report
Climate-related disclosures
Financial statements
Additional information
Environmental, social and governance
Straight-up ESG continued
4
Key Challenges and what’s next
Governance
As we augment our Goal 3 delivery plans
around our super themes of Digital Inclusion
and Financial Education, we will be
incorporating targets, reporting requirements
and overall governance within our existing
frameworks. We will continue to further embed
climate and broader sustainability principles
through our committees, risk framework, credit
policies and supplier engagement processes.
We will track and report progress on our ESG
Goals and Climate related KPIs through the
governance framework outlined on page 256
of the Climate-related disclosures.
We have built sustainability targets within
our annual scorecards and embedded an ESG
scorecard within Leadership Team remuneration
(LTIP), which incorporates a carbon emissions
Scope 1 & 2 target alongside measures for
colleague engagement and leadership diversity.
The ESG scorecard contributes a 15% weighting
to the overall FY23 LTIP, and the table below
includes the metrics we will use to measure and
track the Group’s performance, maintaining our
2030 aspiration of linking variable remuneration
to ESG progress. The Remuneration Committee
will determine outcomes against the scorecard
based on an assessment of performance
against these measures alongside progress
towards the Group’s 2030 ESG aspirations.
Colleague Engagement
We will deliver a series of sustainability related
‘campaigns’ to engage colleagues around key
themes throughout the year. We will review
the current approach to assessing colleague
engagement in sustainability and use this to
inform our engagement approach for FY24
and beyond.
We are committed to ensuring colleagues have
the necessary training and access to resources
which enable them to support our customers
through these challenging economic times.
Colleagues will undertake regular ESG related
compliance training with 4 professional
passports delivered quarterly – all contain ESG
related material plus an ESG specific training
module once a year. An important element
in achieving our ESG strategy relies on our
colleagues feeling empowered and informed.
We want to create an inclusive culture where all
colleagues can be a driving force, contributing
to and proud of our success, so our
sustainability team will support the business
areas in responding to training needs
throughout FY24.
As part of our sustainability building inspections
(AI’s), Regional facility managers (RFMs) will be
delivering a recycling training and awareness
programme through our site sustainability
champions. RFMs will be feeding back to
champions on site visits, highlighting any
identified sustainability opportunities and
risks, enabling us to identify and manage
improvements across our stores and hubs.
Disclosure
FY24 will be our 5th year of reporting progress
to the United Nations Principles of Responsible
Banking. Throughout the year we will look to
refresh our impact assessment as a means
to validating our key areas of sustainability-
related focus. We will also be preparing for
an expanded scope of Limited Assurance
on our ESG targets and disclosures.
The Group is also preparing for the launch of
the UK Government’s Sustainability Disclosure
Standards (UK SDS) due July 2024, which
will be based on International Sustainability
Standards Board (ISSB) Standards.
The ISSB Standards fully incorporate the
recommendations of the Climate-related
disclosure framework, as well as consolidating
key elements from other market-leading
investor-focused sustainability reporting
initiatives, to deliver a global baseline. UK SDS
will only divert from this baseline if absolutely
necessary for UK-specific matters. In the
meantime, we will remain consistent with the
updated 2021 Climate-related disclosure
recommendations.
We are considering the development of
additional environmental reporting, such as
the Taskforce on Nature-related Financial
Disclosures (TNFD) and the impact our
Business has on nature. We recognise it is
a complex topic with cross dependencies
on our Climate ambitions, so will develop our
understanding and plans in line with emerging
guidelines and standards.
More information can be found within our
Climate-related disclosures on pages 240-272.
Our ESG resource hub is a great tool for raising
the visibility of ESG and the processes which
guide our decision-making. We will continue
to work with stakeholders across the business
to enhance our disclosures and add more
positioning statements and policy summaries,
covering topics that we believe are relevant
to our businesses and that are of interest to
investors and other stakeholders.
Modern slavery
Our Modern slavery working group will continue
to review areas of enhanced governance which
includes a closer look into our processes and
supply chain and working through the PWC
recommendations highlighted in their report
to implement suggestions where possible.
The design and delivery of a Purpose and
Modern Slavery refresher training pack will
support supplier managers with supplier
interactions and risk identification.
Variable remuneration linked to ESG progress
Demonstrating progress against the Group’s short, medium and long term targets for:
1. Senior colleague gender representation(1)(2)
2. Senior colleague ethnic minority representation(1)(2)
3. Group-wide ethnic minority representation(1)
4. Carbon emissions, Scope 1 and 2
5. Net zero plan delivery (financed emissions reduction)
6. Colleague engagement
(1) As a percentage of the population declared.
(2) L0-3 population.
Our ESG scorecard tracks our progress
in creating a sustainable future and
the inclusion of an ESG scorecard within
our LTIP ensures that Executive Director
remuneration is aligned with the Group’s
aspiration to drive positive social and
environmental impact through
everything we do.
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Environmental, social and governance
Straight-up ESG continued
4
Making lives
happier
The Virgin Money Foundation provides
grant funding and leadership support
to local charities based in communities
within the top 20% of the Index of
Multiple Deprivation (IMD), helping
people to create positive and lasting
change in their neighbourhood.
Our impact in FY23 | What we’ve done
£1,643,592
awarded in grants to make a difference
20
Community Enterprise
Leaders
Awarded grants and leadership development through
Leading The Way
40 Community
Anchors
given grants for vital work to support neighbourhoods
impacted by the cost of living crisis. Across Glasgow and
the North East of England, these community anchors have
worked with over 85,000 households.
11
Young
Change Makers
awarded grants and leadership development to grow
their initiatives
350 grants awarded
347 neighbourhoods helped
across the UK
76% awarded to communities
in top 5% of IMD
Glasgow
North East England
Here’s to changing even more lives next year
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Operating environment
Business model
Strategic priorities
Environmental, social and governance
(ESG)
Non-financial and Sustainability
Information Statement
Our TCFD summary
Commercial review
Chief Financial Officer’s review
How we manage risk
Governance
Risk report
Climate-related disclosures
Financial statements
Additional information
The Virgin Money Foundation exists to make
a real and lasting difference in communities
that need it most. It does this by working
in partnership with organisations that are
committed to regenerating their local areas
and investing in community activities that
have a meaningful impact.
Established in 2015, the Virgin Money Foundation
has now awarded more than £13 million in
funding to incredible initiatives over the last
seven years. This money has supported
projects and programmes that tackle poverty,
support people experiencing homelessness,
help address racial inequity, and promote social
change in local communities.
As we move into FY24, the Bank and
Foundation will be working even more closely
together, utilising knowledge and expertise
across both organisations, leveraging our
combined strengths to increase our impact
within communities.
Virgin Money CEO David Duffy said: “The Virgin
Money Foundation helps Virgin Money to live
out our purpose. They bring that purpose to life
by supporting communities who have a vision
for change in their area – whether that is
through supporting projects that help people
through tough economic times, enabling Virgin
Money colleagues to volunteer their time or
skills, or by providing much needed money
to enable community leaders to make a real
impact in their neighbourhoods. They have
programmes which go right to the heart of
communities. And they really do show that
big changes do start locally.”
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Business model
Strategic priorities
Environmental, social and governance
(ESG)
Non-financial and Sustainability
Information Statement
Our TCFD summary
Commercial review
Chief Financial Officer’s review
How we manage risk
Governance
Risk report
Climate-related disclosures
Financial statements
Additional information
Non-financial and Sustainability Information Statement
We continue to evolve our non-financial disclosures in line with emerging recommendations and principles,
ensuring we remain compliant with the reporting requirements in sections 414CA and 414CB of the Companies Act.
Reporting
requirement
Policies and standards
which govern our approach
Risk management and
additional information
Page
Reporting
requirement
Policies and standards
which govern our approach
Risk management and
additional information
Environmental
matters
Environmental and Social Policy
Climate Change Policy
Sensitive Sector Statement
Responsible Lending Policy^
Colleagues
Code of Conduct Health & Safety Policy
Physical & Personal Security Policy^
Whistleblowing Policy
Fit and Proper
Diversity and Inclusion Policy
A Life More Virgin^
Human rights
Modern Slavery Statement
Data Privacy Policy
Supplier Code of Conduct
Information Security Policy
Data Protection policy
ESG
How we manage risk
Climate-related Disclosures
Stakeholder engagement
Climate risk
Colleagues
ESG
How we manage risk
People risk
Governance
Conduct risk
31-50
68-72
240-272
98-104, 254
72, 238
22-24
31-50
68-72
235
73-164
70, 126, 233
ESG
Governance
Regulatory and compliance risk
Risk Committee report
Operational Risk
31-50
73-164
72, 126, 233
123-127
71, 234-236
Social matters Open Doors Policy
Political Involvement, communications
and Donations Policy
Volunteering Policy^
Colleagues
ESG
Stakeholder engagement
Director’s report
How we manage risk
Risk Committee report
Credit risk
Economic crime risk
Strategic and enterprise risk
Anti-
corruption
and anti-
bribery
Anti-Bribery & Corruption Policy
Anti-Money Laundering and Counter
Terrorism Financing Policy
Fraud and Cyber-Enabled Crime Policy
Sanctions and Embargoes Policy
How we manage risk
Risk Committee report
Economic crime risk
Operational Risk
ESG
Our Purpose
Climate-related Governance
31-50, 89
3-7
256-260
Description of principal risks
and impact on business activity
Stakeholders
Third Party Risk Management
Supplier Code of Conduct
Policy embedding due diligence
and outcome
Stakeholder Engagement
98-104
How we manage risk
Risk report
How we manage risk
Risk report
Description of the business model
We are Virgin Money
Creating value for stakeholders
Governance
^ Internal policies
ESG Governance and Committee
Charters^
Purpose Framework^
Climate Change Policy
Sensitive Sector Statement
The Companies (Strategic Report) (Climate-related Financial Disclosure) Regulations 2022 amend
sections 414C, 414CA and 414CB of the Companies Act 2006, placing requirements on the Group
to incorporate climate disclosures in our annual report. We believe these have been addressed
within this years climate-related disclosures on pages 240 to 272, and as such we have referenced
the location of each disclosure within Our TCFD summary overleaf.
Non-financial KPIs
Our strategic priorities
ESG
Commercial review
CFO review
Page
22-24
31-50
98-104
159-164
68-72
123-127
171-208
72, 236
71
68-72
123-127
72, 236
71, 234-236
68-72
166-238
68-72
166-238
2
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19-30
31-50
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59-67
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Environmental, social and governance
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Our TCFD summary
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Risk report
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Our TCFD summary
In compliance with the FCA’s Listing Rules, the Group has made disclosures consistent with the TCFD 2021 Recommendations and Recommended Disclosures, including the appropriate annexes
and supporting guidance. Additionally, following amendment of sections 414C, 414CA and 414CB of the Companies Act 2006, the Group has indicated in the below table which of the climate-related
disclosures, outlined in Section 414CB, are addressed by the TCFD recommended disclosures, alongside the pages of the 2023 Annual Report and Accounts where these are located.
Key points
Future focus
Location
CA 414CB
Strategy: Disclose the actual and potential impacts of climate-related risks and opportunities on the business, strategy and financial planning where such information is material.
a) Describe the climate-related risks and opportunities the organisation has identified over the short, medium and long term.
> The Group has published its first transition plan, aligned to the Transition Plan Taskforce
(TPT) draft guidelines, outlining the risks and opportunities in each high-risk sector.
> The initial transition plan will be progressed in line with final TPT guidance.
241-251;
(d)
> Enhancements to data capture and quality to support the identification, quantification
261-263
> Climate-related risks and opportunities have been identified and assigned potential
and mitigation of climate-related risks and opportunities.
time horizons.
> Continue to develop and identify propositions to provide support and education to decarbonise.
b) Describe the impact of climate-related risks and opportunities on the organisation’s businesses, strategy and financial planning.
> The Group has considered the potential impact of climate-related risks and opportunities
on the Group’s financial position and performance.
> Published transition plans cover 85% of total customer lending and provide a forward-looking
> Further embedding of climate change within the financial planning process. The Group does
not have an internal carbon pricing framework, but continues to consider the implementation
of appropriate tools and methodologies that may support delivery of our climate strategy.
view across the high-risk sectors identified by the NZBA of our journey to net zero.
> Continue analysing high-risk sectors, with increased engagement across our customer bases
241-254
(e)
and new sector-specific green propositions.
c) Describe the resilience of the organisation’s strategy, taking into consideration different climate-related scenarios, including a 2°C or lower scenario.
Climate-related disclosures
> A base scenario analysis capability has been established. The exercise was not refreshed
> Continue to implement improvements and address modelling limitations, to develop
265
(f)
for FY23, given the lack of material changes to the inputs and business model since last year.
second-generation climate scenario analysis models.
Financial statements
Additional information
> Scenario analysis insights used to inform forecasts, plans and the measurement of impacts
to the Internal Capital Adequacy Assessment Process (ICAAP) and in financial reporting.
> Enhance scenario analysis and interrogate outputs to assess financial impacts and implications
for strategic planning, including delivery of our net zero commitments.
Governance: Disclose the organisation’s governance around climate-related risks and opportunities.
a) Describe the Board’s oversight of climate-related risks and opportunities.
> The Board monitored the Group’s progress towards its climate-related targets on a monthly
basis and received updates on the execution of our net zero strategy on a quarterly basis.
> The Board will continue its regular oversight, engagement and challenge on climate-related
256-257
(a)
strategy and activity.
> Consideration and approval of key climate-related topics, including the Group’s FY23 net zero
> The Group’s governance framework will be reviewed to ensure it includes sufficient focus
strategy and targets and the FY23 Climate Risk Assessment.
on ESG topics, including climate-related risks and opportunities.
b) Describe management’s role in assessing and managing climate-related risks and opportunities.
> Senior Management Regime responsibilities have been simplified, with the Chief Financial
> Management’s role in assessing climate risk will be enhanced by improved data coverage.
258-260
(a)
Officer now assuming sole responsibility for climate-related matters.
> There will be focus on collating, enhancing and automating ESG and climate-related activity,
> The Environment Committee, and other relevant forums, have made significant progress
reporting and disclosures.
with the Group’s climate-related goals, strategy and targets.
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Our TCFD summary
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How we manage risk
Governance
Risk report
Climate-related disclosures
Financial statements
Additional information
Our TCFD summary
Key points
Future focus
Location
CA 414CB
Risk management: Disclose how the organisation identifies, assesses, and manages climate-related risks.
a) Describe the organisation’s processes for identifying and assessing climate-related risks.
> Our annual Group-wide Climate Risk Assessment was carried out, identifying climate risk
> Continue to develop methodologies to identify, assess and manage climate-related risks.
261-263
(b)
drivers and potential impacts on principal risks across differing time horizons.
> Portfolio data is modelled by third-party specialist providers and monitored for mortgages
to understand climate risk drivers across the portfolio.
> Larger Business lending customers continue to complete our ‘climate risk survey’, which helps
provide information on the proportion of borrowers taking action to reduce emissions.
b) Describe the organisation’s processes for managing climate-related risks.
>
In FY24, we will analyse the outputs from our second-generation climate scenario analysis
models to support climate risk management.
> Climate-related data will be improved, with better availability, coverage and quality.
> Further embedding of climate-related controls across the business.
> The Group has an engagement strategy approach for each high-risk sector.
> Starting in FY24, we will require emission reduction plans for new lending to Business customers
263-264
(b)
> Credit assessments for larger Business customers consider qualitative climate risk aspects.
in certain higher-emitting sectors.
> ESG impacts are considered as part of the Group’s change risk assessments.
> Progress future incorporation of climate-related data in credit decisioning processes
for Mortgages.
c) Describe how processes for identifying, assessing and managing climate-related risks are integrated into the organisation’s overall risk management.
> Climate risk has been embedded in our RMF and three lines of defence model.
> Further consideration of controls to mitigate against greenwashing.
261
(c)
> Risk Appetite Statement (RAS) measures have been developed alongside a Climate Risk Policy
> Further development of RAS and other management information and metrics to support
Statement and Standard, which sets out minimum controls, roles and responsibilities.
the monitoring of climate-related risks.
Metrics and targets: Disclose the metrics and targets used to assess and manage relevant climate-related risks and opportunities where such information is material.
a) Disclose the metrics used by the organisation to assess climate-related risks and opportunities in line with its strategy and risk management process.
> Climate-related metrics across the Group’s operations, supply chain, financed emissions and
sustainable financing are all monitored with regular reporting through governance forums.
> ESG objectives and metrics are embedded within Group and functional scorecards. ESG-related
LTIP metrics are vesting for the first time this year and continue to be included in scorecards
going forward.
> The Group will continue to identify and track appropriate metrics to measure progress
243-253;
(h)
against our climate ambitions.
260-266
> Continue to enhance data and metrics to assess climate-related risks and opportunities
and to monitor progress against targets.
b) Disclose Scope 1, Scope 2, and, if appropriate, Scope 3 greenhouse gas (GHG) emissions, and the related risks.
> Disclosure of Scope 1, 2 and 3 emissions, with additional Scope 3 categories included
> Continue to enhance emissions calculations, improve data quality and expand coverage.
252-253;
(h)
in FY23 and enhancements to methodology and data quality.
> Strengthen the focus on sustainability within the supplier tendering and selection process,
266-271
> Supply chain disclosures have been enhanced to include supplier emissions and further
including climate-related enhancements to our Supplier Performance Management Programme.
information on our CDP Supplier Engagement Programme, including target setting.
c) Describe the targets used by the organisation to manage climate-related risks and opportunities and performance against targets.
> We continue to have targets in place in relation to our own operations and financed emissions.
> Continue to expand coverage within the sectors disclosed across Scope 3.
243-253;
(g)
> Financed emissions targets and baselines have been updated to reflect improvements in our
> The Group will continue to monitor performance against science-based targets and revise
FY23 modelling.
these in line with available science and the latest and most ambitious pathways.
266;
271-272
> Our 2030 and 2050 net zero aspirations were recalibrated, so that we now achieve net zero
direct emissions by 2030, and indirect emissions by 2050.
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Growing in our
target segments
Mortgages
Story of the year
The mortgage market has been weaker during
2023, given higher interest rates which have
dampened consumer demand, alongside wider
cost of living challenges. This is demonstrated
by mortgage approvals across the industry
being down c.30% compared to last year.
As a result, across the market gross lending
in calendar 2023 is expected to be below
the UK Finance forecast from December 2022
of £275bn.
With mortgage rates resetting at a much higher
level than customers have enjoyed over the
last decade, the resulting impact on customer
affordability has driven lower demand for
new house purchases. This has also started
to exert some limited downwards pressure
on house prices.
Given the changing rate environment customer
product rates have also been volatile. There
was a particular period of market disruption
following the mini-budget at the start of our
financial year, and again in the second half
of the year, as swap rates moved appreciably
higher on both occasions.
With lower housing market activity and
consumer demand, competition has remained
intense throughout the year. The long-running
trend of excess liquidity being deployed into
mortgages at scale by the large UK banks
has continued, meaning that customer rate
increases have not always kept pace with the
increases in swap rates. This has added further
pressure to mortgage margins and returns.
Against this backdrop, the Group has continued
to optimise for long-term value in Mortgages.
Our gross lending for the year was c.£8bn
(2022: £9.5bn) and balances reduced by 1%
to end the year at £57.5bn. This was reflected
in a broadly stable market share of 3.5%.
In common with peers, we remained focused
on maximising retention and support of existing
customers. The product transfer market has
increased in size as the higher rate environment
has created potential affordability hurdles for
customers looking to move to a new lender.
Against that backdrop, the Group delivered a
retention rate of 74% during 2023 (2022: 73%).
While continuing to trade for value, we have
optimised our proposition to support our
customers. This includes improvements
to our residential stress testing approach,
as well as multiple propositional enhancements
to optimise our trading performance in a
competitive market.
Purpose in action
Mortgage charter adoption
At Virgin Money, we have always sought
to help customers in difficult times, in line
with our Purpose. The recent rapid increases
in interest rates have created challenges for
customers faced with significantly higher
mortgage payments when either their
variable rate increases, or their current
fixed rate deal, written during a time of
historically low rates, ends.
Thankfully, given our prudent underwriting
and the higher standards across the industry
generally since the GFC, the vast majority
of customers have been able to meet their
new higher repayments.
Working with the government and the other
major lenders, Virgin Money has also signed
up to a new Mortgage charter designed to
provide additional support and peace of mind
for mortgage customers concerned about
higher rates. We also made a financial
contribution to support an extensive marketing
campaign across the UK to promote customer
awareness of the charter.
The charter was launched on 26 June,
and Virgin Money worked rapidly to implement
it on 19 July, ahead of the government’s
28 July deadline. While we already offered
our customers a number of the charter’s
requirements, such as tailored support,
product switching without affordability checks
and providing information well ahead of the
end of existing deals, we supported the
charter’s aim to raise customer awareness of
these facilities. In addition, we signed up to
new charter commitments, promising to give
customers at least one year from their first
missed payment before we repossess a
property they are living in, while also allowing
customers to switch to interest-only payments
for six months or extend their mortgage terms
without penalty.
So far, we’re glad to report that only a low
number of our existing customers have
needed to use these facilities, but our
customers are aware that we are here
to help them and provide tailored support,
if they need it.
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Mortgages continued
We recognise some of our mortgage customers
are dealing with challenges to their budgets
from a higher cost of repayments. During the
year, we have improved our processes to better
support customers impacted by the increased
cost of living. Our online cost of living support
hub was launched and we have also undertaken
pro-active outreach to potentially impacted
customers to signpost help and support
available. While already having forbearance
policies in place, we also successfully adopted
the Mortgage Charter in July in order to help
residential mortgage borrowers worried about
higher rates (see the Purpose in action box
on the previous page for more).
Despite the higher rate environment, asset
quality remains strong with three-month plus
arrears of 0.6%, below the industry average of
0.8%. Overall, the mortgage book is weighted
towards owner occupied (74%) with an average
loan to value (LTV) of 53% and less than 1% of
balances greater than 90% LTV. 91.5% of the
portfolio remain on fixed rates, meaning the
vast majority of customers have certainty on
their repayments. Our underwriting criteria
remain consistent; average loan-to-income on
residential approvals in 2023 was <3x and we
maintain prudent rental and borrower income
requirements for BTL customers.
Looking ahead
While the economy has been resilient to
inflationary pressures, house purchase approvals
are likely to remain subdued given the
combination of higher interest rates and cost
of living pressures weighing on demand.
Customers will still need to re-finance as
existing product deals reach the end of their
terms and this will support product transfer
and remortgage volumes.
Taken together, we expect market sentiment
to remain muted over the course of the next
financial year.
Supporting our customers through the recent
cost of living challenge has been a key focus
this year and this will continue to be the case.
Our prudent approach to underwriting gives
us confidence that maturing customers will
be able to manage higher rates from an
affordability perspective, however we remain
on hand to support customers that show signs
of financial difficulty.
We expect margins to remain tight in the near
term as lenders continue to compete. Certain
market segments such as first time buyers have
seen stronger margins and these underserved
segments present opportunities to target
higher risk-adjusted returns. We will continue
to optimise for value and will seek to maintain
our share of the market in the medium term.
Following an assessment of the progress of
the project to upgrade the mortgage platform
and challenges identified during testing,
we now anticipate a significant deferral and
redesign as we implement the upgraded
capability. We remain committed to launching
improved capability for our mortgage customers
and brokers over time, and there remains no
impact on day-to-day trading.
From a sustainability perspective, delivering our
green agenda remains a key long-term ambition.
Our ‘Green rewards’ incentive offers cashback
to existing customers that are taking additional
borrowing for energy efficiency measures.
We are also pleased to be partnering with Sero
and Rightmove to help customers make their
homes more energy efficient, which will also
support our net zero aspirations.
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Business model
Strategic priorities
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(ESG)
Non-financial and Sustainability
Information Statement
Our TCFD summary
Commercial review
Chief Financial Officer’s review
How we manage risk
Governance
Risk report
Climate-related disclosures
Financial statements
Additional information
Commercial review
Unsecured
Story of the year
The market for unsecured credit remains strong
and continued to grow in 2023. During 2023,
there were c.6m credit card sales, broadly
stable year-on-year. Credit card industry
balances grew c.9% year-on-year to £68bn,
albeit still c.£5bn below the pre-COVID peak,
with balance growth a function of higher retail
spend and balance transfers.
Against this market backdrop, we moderated
our rate of growth this year, as we have
tightened credit policy and implemented pricing
changes to manage the book for profitability.
As a result, our credit card balances grew
£0.6bn (11%) in FY23 (2022: 21%), as we
steadily increased our market share of credit
card balances to c.8.5%. Our personal loans and
overdraft balances reduced by £0.2bn (or 24%),
while we work to re-purpose and improve the
overall proposition ahead of a future re-launch.
In the cards market, balance growth has been
supported by strong customer behaviours in
retail spend and refinancing through balance
transfers. Our co-branded Virgin Atlantic card
partnership also continues to perform well,
with balances in this segment up 21% this year.
This reflects that spend on these cards is more
geared to travel which has picked up this year
as consumers have looked to travel more.
During 2023, we also continued with our
diversification strategy, including measured
growth to customers with historic impaired
credit, via appropriate pricing for risk. We also
fully launched Slyce, supporting around 30k
customers with Buy Now Pay Later functionality
in a regulated credit environment. Together,
these balances comprised c.1% of card lending
at FY23 and we’ll continue to use customer
data to calibrate our offering going forward.
Our app-based cashback proposition also
continues to be well received, giving customers
access to cashback across 60+ retailers.
Almost 600,000 cards customers are now
enjoying access to this facility (2022: c.500k).
Our credit card customers remain digitally
engaged, with c.99% of all service interactions
executed digitally and we have continued to
invest to improve the customer experience
further. During the year, we fully launched Redi,
our AI virtual assistant, with over half a million
customers having already used the functionality
in the first six months since launch. The virtual
assistant is now linked to our core systems,
enabling real-time changes to customer
accounts and has improved servicing while
reducing cost.
We recognise that higher living costs and the
uncertain economic environment are adding
pressures to individuals in the UK. This year,
we have undertaken pre-emptive tightening
of underwriting to further support credit quality.
Overall, retail spend per active customer is
broadly stable year-on-year, despite inflation,
as our customers are managing their total
outlays and adjusting behaviour accordingly.
Repayment rates have also remained stable,
with performance as expected, given the more
affluent nature of our customer base.
This year, the arrears rate on our cards book
has risen from low levels, with 30-day plus
arrears increasing to 1.9% (2022: 1.3%) against
the industry average at 1.7%. This reflects
the age profile of our book and recent
diversification strategy. Our arrears
performance on most recent cohorts is typically
lower than the industry average, however our
cards book comprises a higher percentage of
balances from recent originations that have a
higher rate of arrears, relative to more mature
balances, where arrears are lowest. Personal
loan and overdraft 30-day plus arrears are now
1.6% (2022: 1.5%).
Through the IFRS 9 models, the Group has
increased coverage on the unsecured portfolio
from 4.8% to 6.9% over the course of the year,
driven by updated economics and bureau data.
The provision anticipates a continued increase in
credit card arrears, but we remain well protected.
Looking ahead
In line with our strategy, we will continue to
target measured growth in Unsecured lending
in 2024, within our existing risk appetite, with
a continued overall weighting of new card
acquisition towards low risk segments.
We are also working hard to refresh our Personal
Loan proposition as we re-enter the market for
new business in 2024 to support expansion of
our overall Unsecured market share, with a fully
digitised end-to-end proposition.
We have a strong pipeline of propositions
to drive further efficiencies into 2024.
These include an Agile decisioning system,
and utilising enhanced data across the UK
consumer base to optimise our credit policy
and maximise our opportunities.
We are planning to further enhance our
capabilities around the Mobile App and
Redi to support proactive servicing, in-app
approvals, Open Banking payments and
other tailored content.
During 2024, we will also aim to deliver virtual
credit card issuance. This will enable instant
issuance to customers, while delivering cost
efficiencies and sustainability benefits through
lower use of physical plastic.
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Business
Story of the year
Over the course of the year, we have driven
further customer growth in Business Banking
alongside continued improvements to the digital
proposition and customer experience. We have
delivered growth in both lending and deposits,
a strong performance against a weaker market
backdrop where competition remains significant.
Our BCA continues to be a cornerstone product,
offering a fee-free period, debit card cashback,
free business management tools and discounts
to accountancy packages. It enjoys a 5-star
rating from Moneyfacts and the strength of
this proposition has driven an 18% increase
in BCA sales year-on-year, with 22 consecutive
months of net account inflows since the
product was launched.
In our lending franchise, we continue to target
defensive segments where we have specialised
expertise and a strong franchise. Overall,
business lending balances increased by 6%
during the year to £8.7bn, despite the
continued reduction in government scheme
lending, as we increased our market share
of balances in a subdued overall market that
reduced by c.3%.
During the year, we have maintained a focus
on optimising onboarding and servicing
journeys in order to improve the customer
experience. As a consequence, we have
seen an increase in the percentage of calls
answered, reduced the average time to answer
and improved our digital onboarding and
Business Internet Banking Smile scores.
Asset quality has remained strong during
the year; 30+ days past due (DPD) levels
(excluding government scheme lending)
remained stable at 0.3% (2022: 0.3%).
We recognise the pressures businesses are
facing in the current economic environment,
and will continue to support customers
with our business lending expertise, using our
relationship model to offer advice. We remain
defensively positioned with a lending portfolio
that is diversified across a number of
different sectors.
Despite challenging operating conditions,
we continue to see a stable trading performance
amongst the majority of businesses in our
portfolio. While interest rate and consumer
demand pressures are impacting businesses,
our customers are continuing to demonstrate
resilience to inflation, and the ability to pass
price rises on to protect profitability.
We remain underweight in Commercial Real
Estate exposures relative to the market at c.1%
of overall Group lending and we maintain limited
exposures to retail and entertainment sectors,
which are being disproportionately impacted
by consumer cost of living pressures.
While we do expect demand for business
lending to remain muted given the backdrop,
we are confident we will be able to deliver
further growth in our lending in 2024, offsetting
the ongoing run-off of Government scheme
lending. We will aim to continue our strong
momentum from this year by focusing
on our existing resilient segments, while also
deepening our expertise.
Looking ahead
We will continue with our strategy to grow
BCA volumes, building a larger customer
base with account primacy. We will acquire
more customers through further optimising
the digital BCA and onboarding journey.
We remain focused on supporting customers
with enhanced digital functionality, supporting
easier self-service. Beyond next year, we will
also build and launch digital deposits as we look
to optimise the cost of our overall funding base.
During 2024, we will refresh our existing
propositions, including our BCA, as we
target further growth in relationship deposits
and we will also launch new Business
Marketplace offers.
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Our TCFD summary
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Chief Financial Officer’s review
How we manage risk
Governance
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Financial statements
Additional information
Commercial review
Current accounts
and Personal deposits
Story of the year
As interest rates have picked up through 2023,
the UK savings market has seen a material shift
out of household current and instant access
deposit accounts into term deposits, given the
more attractive rates on offer. Alongside this mix
shift, the annual rate of growth for household
deposits has slowed to 1.7%, below the c.3%
rate of growth last year.
Against that market backdrop, competition has
intensified with rates on term deposits gradually
increasing with higher swap rates, while rate
pass through on instant access accounts has
also increased. At the same time, the PCA
market has remained competitive, with banks
offering up-front cash incentives to attract
customers to switch.
We’ve been pleased with our deposit growth
this year, given the challenging backdrop.
During 2023, we have continued with our
strategy to grow relationship deposits, despite
the market-wide headwinds from deposit
migration. Overall, relationship deposits
increased 2% during the year to £35.4bn,
and continue to make up 53% of total customer
deposits. Within that, personal relationship
deposits have grown by 4% this year. This
performance has been supported by the
strength of our core PCA proposition, which
includes a digital on-boarding and servicing
experience, competitive rates including an
attractive linked saver account, and access
to exclusive products. We were pleased to
be awarded Best Current Account Provider
by Moneyfacts for the second year in a row,
reflecting the strength of this proposition.
During 2023, we proactively increased our
participation in the market for term deposits
early in the year, recognising deposit migration
would intensify at higher rates. This strategy
enabled us to lock in term funding at attractive
spreads from the start of our financial year.
Consequently, personal term deposits increased
by 59% during the year to £20.2bn. This helped
to offset balance attrition and churn from
non-linked savings accounts where balances
reduced by 46% in the year.
Looking ahead
We expect the deposit market to remain
competitive and expect to see customers
continue to seek value, reflecting the rate
environment and as they deal with higher living
costs. Against this backdrop, we feel we are
more defensively positioned relative to some
in the market, given our existing, higher mix of
term deposits and given the rates we offer our
customers, which have tended to be generally
higher than other major market participants.
We will continue with our longer-term strategy
to increase the level and mix of relationship
deposits within overall customer deposits,
although we expect this to be delivered at a
slower pace in the short term relative to our
performance over the last few years. We will
also continue to participate in the market for
term deposits and variable savings where it
remains economic to do so.
Our ambition is to deepen and broaden
our customer relationships and transform
how we serve customers to become their
preferred digital banking partner, delivering
on our Purpose of Making our customers
feel happier about money.
Purpose in action
Our commitment to supporting customers
At Virgin Money, we are committed to helping
savers. Our award-winning products include
market leading ISA rates, as well as highly
competitive savings and current account
interest rates. We are increasing our proactive
communication with our customers to help
them get better rates, and have actively
managed our book to significantly reduce
balances in non-interest bearing accounts.
This year, we have had over seven million
customer contacts, via email, social media,
and in-app messaging, promoting our best
savings rates and price increases. Over time,
we have reduced non-interest bearing
accounts to now stand at just 1% of our total
book, in contrast to much higher proportions
at a number of high-street banks.
All of our new current accounts come with
a linked saver, that is attractively priced
and our M Plus and Club M current accounts
both pay interest on the first £1k. We are
proactively engaging with our savers to check
their account and interest rate, and encourage
them to consider their options. We are
particularly focused on historical, low interest
accounts to ensure customers know about
alternative higher interest accounts we
have available.
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Our TCFD summary
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Financial statements
Additional information
Chief Financial Officer’s review
Resilient performance despite a
challenging operating environment
2023 was an important year as we demonstrated momentum
in strategic delivery and profitable growth, while maintaining
a robust balance sheet, funding and capital position.
CFO review contents
Page
Analysis of:
Underlying income
Underlying costs
Impairments
Adjusting items and statutory profit
Balance sheet
Capital
Outlook and guidance
Overview of Group results –
statutory basis
61
62
62
63
64
65
66
67
Review of the year
The Group performed resiliently this year, with
solid financial momentum and further strategic
delivery. During the year, the Group made
further improvements to customer propositions,
supporting a 5% growth in total active
relationship customer accounts to 3.8m
customers. Operating profit improved relative
to 2022, supported by the combination of
the higher rate environment and growth in
targeted lending and deposits. Alongside this,
an increased credit impairment charge and
higher adjusting items relative to last year
resulted in lower statutory profit and a statutory
RoTE of 3.9%, down from 10.3% in FY22. Capital
remained strong during the period, with CET1
at 14.7% (2022: 15.0%), supporting total returns
to shareholders of £272m, including a full year
dividend of 5.3p and the announcement of a
total of £200m of share buybacks for FY23.
We were pleased to deliver lending growth in
our target areas during the year, while overall
customer lending was stable at £72.8bn.
Mortgage balances reduced 1.1% during
the period to £57.5bn, as the higher rate
environment and wider cost of living pressures
tempered purchase activity. Business lending
increased 6% overall, as growth in BAU
balances offset ongoing reductions in
government-backed lending. Unsecured
balances continued to perform strongly,
growing 6% during the year to £6.5bn.
This year, we reduced the pace of growth in
Unsecured lending relative to 2022, reflecting
a disciplined approach to profitability.
We continued to attract new deposits during
the year, despite a competitive backdrop,
supporting overall deposit growth of 1.9%.
The Group maintained a conservative balance
sheet position, including strengthened provision
coverage and robust funding and liquidity.
Credit provisions of £617m (2022: £457m)
59
Clifford Abrahams
Chief Financial Officer
We’ve delivered a strong
operating performance in FY23
and enter FY24 with good
business momentum. We’re
investing to safeguard the Bank
and customers, supporting
sustainable returns over time.
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Environmental, social and governance
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Non-financial and Sustainability
Information Statement
Our TCFD summary
Commercial review
Chief Financial Officer’s review
How we manage risk
Governance
Risk report
Climate-related disclosures
Financial statements
Additional information
Statutory profit before tax
£345m
2022: £595m
NIM
1.91%
2022: 1.85%
CET1 ratio
14.7%
2022: 15.0%
LCR (12-month average)
146%
2022: 140%
Underlying profit before tax
Underlying cost: income ratio
Capital distributions announced
NSFR (12-month average)
£593m
2022 (restated)(1): £776m
Statutory RoTE
3.9%
2022: 10.3%
51.9%
2022: 52.5%
Cost of risk
42bps
2022: 7bps
£272m
2022: £267m
136%
2022: 134%
Dividend per share
Relationship deposit growth
5.3p
2022: 10p
+2%
2022: +13%
(1) Hedge ineffectiveness is now presented as an adjustment to underlying earnings as detailed on page 381. The comparative period has been adjusted accordingly. This restatement does not impact the statutory results of the Group.
Basis of
preparation note
Statutory basis: The statutory results
are set out at the end of this section
on page 67.
Underlying basis: The results are adjusted
to provide a management view of the
Group’s performance. A reconciliation
from the underlying results to the
statutory basis is shown on page 67
and rationale for the adjustments is
shown on page 381.
are equivalent to a coverage ratio of 0.84%
(2022: 0.62%). Funding and liquidity remain
strong, with the 12-month average LCR ratio
increasing to 146% (2022: 140%) and 12-month
average NSFR stable at 136% (2022: 134%).
Underlying profit before tax in 2023 was
£593m, a reduction compared to last year
(2022: £776m), as higher operating income
was more than offset by a higher level of
impairments compared to last year’s low charge.
NIM of 1.91% (2022: 1.85%) improved year-on-
year, given the higher rate environment and
strategic execution, supporting growth in
underlying income of 8% relative to 2022.
Underlying costs were 6% higher compared
to 2022 as gross cost savings from the
restructuring programme helped to mitigate
inflation, but with higher investment and
temporary customer service related costs.
Taken together, this resulted in a stable
underlying cost:income ratio of 52%
(2022: 52%). Credit impairments of £309m
(2022: £52m) were significantly higher
year-on-year, mainly reflecting higher modelled
ECL given updated macroeconomic assumptions
and bureau data, in anticipation of a continued
increase in arrears, resulting in an increased
level of provision coverage overall.
The Group continues to expect to return to
its target CET1 range of 13 – 13.5% in FY24,
as capital generation through profitable growth
supports ongoing shareholder distributions,
growth and investment back into the business.
The £150m share buyback announced at
FY23, which adds to the £50m share buyback
announced in August, will be deducted from
CET1 in Q1 2024.
Looking ahead, we will be undertaking a new
three year investment programme, expected
to cost c.£130m. This investment will improve
our financial crime prevention capabilities,
as well as supporting the enhanced data
quality work required of tier 1 banks. While this
delays delivery of our previously announced
FY24 targets, it is critical we adapt to the
fast-evolving environment in order to safeguard
the Bank and our customers further.
I am confident that the Group is well positioned
to navigate the current economic backdrop with
good financial momentum, including a strong
margin, targeted growth, and a robust balance
sheet. We remain focused on investing to
digitise the Bank in the near term, which will
drive further cost efficiency and improved
customer experience, while also investing to
improve our overall resilience across the medium
term. The combination of these factors will
support improved shareholder returns over the
coming periods and delivery of our commitment
to distribute surplus capital in line with our
capital framework.
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Non-financial and Sustainability
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Our TCFD summary
Commercial review
Chief Financial Officer’s review
How we manage risk
Governance
Risk report
Climate-related disclosures
Financial statements
Additional information
while Unsecured fee income was modestly
lower in the second half of the year, reflecting
changes to packaged accounts and reduced
associated fees, aligned with Consumer Duty
regulations. Business fee income was lower
relative to 2022, following the strategic decision
by the Group to change its payments partner
and expand its relationship with Global
Payments, resulting in an initial reduction
of merchant services income.
Underlying net interest income
Underlying non-interest income(1)
Total underlying operating income
NIM
2023
£m
1,716
157
1,873
1.91%
Restated
2022
£m
1,592
150
1,742
1.85%
Change
8%
5%
8%
6bps
4%
Average interest-earning assets
89,810
86,275
(1) Hedge ineffectiveness is now presented as an adjustment to underlying non-interest income as detailed on page 381.
The comparative period has been adjusted accordingly. This restatement does not impact the statutory results of the Group.
NII and NIM
NII increased by £124m or 8% relative to 2022,
driven by an expansion of the Group’s NIM as it
continued to benefit from higher rates, including
from the reinvestment of the structural hedge.
Asset yields increased 171bps compared
to 2022, reflecting the rising interest rate
environment throughout the year. Average
mortgage lending was broadly stable during
the period, reflecting weaker market demand
in light of higher rates and lower new purchase
activity. Customer rates for new and retained
mortgages increased as a function of the base
rate environment, though spreads remained
tighter reflecting continued strong competition.
Taken together, the average mortgage yield
increased by 46bps, supporting higher
mortgage interest income. In Business, interest
income increased by £251m in the year, driven
by higher average balances, while the yield
of the book also improved, given the rate
environment and a reduced proportion of
lower-yielding government-backed lending.
In Unsecured, interest income increased by
£67m in the year, driven by growth in average
balances, owing mainly to growth in the credit
card book. Elsewhere, the average yield on
the Group’s liquid assets increased 321bps
reflecting the higher rate environment across
the financial year.
The balance of the Group’s structural hedge
reduced in the second half of the year from
c.£32.0bn to c.£29.5bn, reflecting the impact
of deposit migration from behaviourally stable
deposits. During the year, the Group generated
£401m of total gross interest income from the
structural hedge, including the legacy hedge
contribution, benefiting from ongoing hedge
reinvestment at higher prevailing rates.
Liability rates on average interest bearing
liabilities increased 185bps relative to 2022.
During the year, the Group continued with its
strategy to grow relationship deposits, and
these balances grew by 2%. This was despite
the impact of the higher rate environment,
which drove increased levels of deposit
migration from current accounts across
the industry. The Group also participated in
the market for term funding during the year,
offsetting migration from non-linked variable
savings balances. Wholesale funding costs
increased in the year, driven by higher average
balances, change in mix following issuance
throughout the year, and higher rates
corresponding to the rate environment.
Non-interest income
Non-interest income of £157m was 5% higher
when compared with 2022 and 7% lower when
excluding fair value movements. Mortgage fee
income was broadly stable during the period,
Average balance sheet
Interest earning assets
Mortgages
Unsecured lending
Business lending(1)
Liquid assets
Due from other banks
Swap income/other
Other interest earning assets
Total average interest
earning assets
Total average non-interest
earning assets
Total average assets
Interest bearing liabilities
Current accounts
Savings accounts
Term deposits
Wholesale funding
Other interest bearing liabilities
Total average interest
bearing liabilities
Total average non-interest
bearing liabilities
Total average liabilities
Total average equity
Total average liabilities
and average equity
Net interest income
2023
Interest
income/
(expense)
£m
Average
balance
£m
57,980
1,537
6,547
8,496
16,000
782
–
5
474
582
657
13
600
–
Average
yield/(rate)
%
Average
balance
£m
2022
Interest
income/
(expense)
£m
Average
yield/(rate)
%
2.65
7.24
6.85
4.11
1.67
n/a
n/a
57,996
1,272
6,100
8,263
13,059
853
–
4
407
331
117
2
104
–
2.19
6.67
4.00
0.90
0.22
n/a
n/a
89,810
3,863
4.30
86,275
2,233
2.59
2,378
92,188
15,739
26,005
19,603
18,321
170
3,229
89,504
15,829
30,895
12,894
16,169
145
(203)
(433)
(597)
(909)
(5)
(1.29)
(1.67)
(3.05)
(4.96)
n/a
(46)
(147)
(149)
(296)
(3)
(0.29)
(0.48)
(1.16)
(1.83)
n/a
79,838
(2,147)
(2.69)
75,932
(641)
(0.84)
6,531
86,369
5,819
92,188
7,903
83,835
5,669
89,504
1,716
1.91
1,592
1.85
(1) Includes loans designated at fair value through profit or loss (FVTPL).
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Underlying costs
For the year ended 30 September
Staff costs
Property and infrastructure
Technology and communications
Corporate and professional services
Depreciation, amortisation and impairment
Other expenses
Total underlying operating and administrative expenses
2023
£m
367
40
126
173
95
170
971
2022
£m
375
42
116
114
116
151
914
Underlying cost: income ratio
51.9%
52.5%
(0.6)%pts
Underlying operating expenses increased 6%
year-on-year to £971m, while the cost:income
ratio remained stable at 52%. During the year,
the Group’s restructuring activity delivered
further cost-efficiencies, taking the total
annualised gross savings since FY21 to £130m.
Relative to last year, the Group also benefited
from a c.£25m higher net pension benefit, and
a lower depreciation charge following past
changes to depreciation and amortisation
practices. These benefits were offset, mainly by
higher staff costs (net of the pension benefit),
given wage inflation and higher corporate and
professional services fees, mainly reflecting
additional resource to support the improvement
of customer service levels, and additional
regulatory related investment.
Impairments
Change
As at 30 September 2023
Credit
provisions
£m
(2)%
(5)%
9%
51%
(18)%
12%
6%
Mortgages
Unsecured:
of which credit cards
of which personal loans
and overdrafts
Business
Total
of which Stage 2
of which Stage 3
57
429
392
37
131
617
400
128
Gross
lending
£bn
57.8
6.8
6.1
0.7
8.7
73.3
6.3
1.1
Coverage
ratio
bps
Net cost
of risk
bps
% of
loans in
Stage 2
% of
loans in
Stage 3
–
430
483
86
44
42
4.7
24.1
21.7
44.3
22.8
8.6
1.0
1.7
1.8
0.9
4.7
1.5
10
665
688
488
160(1)
84
633
1,393
(1) Government-guaranteed element of loan balances excluded for the purpose of calculating the Business and total coverage ratio.
As at 30 September 2022
Mortgages
Unsecured:
of which credit cards
of which personal loans
and overdrafts
Business
Total
of which Stage 2
of which Stage 3
Credit
provisions
£m
56
284
246
38
117
457
268
104
Gross
lending
£bn
58.5
6.5
5.5
1.0
8.1
73.1
5.7
1.0
Coverage
ratio
bps
Net cost
of risk
bps
% of
loans in
Stage 2
% of
loans in
Stage 3
(5)
322
347
161
(112)
7
5.3
17.3
13.9
34.9
18.7
7.8
1.0
1.2
1.3
0.9
4.6
1.4
9
466
481
388
159(1)
62
472
1,124
(1) Government-guaranteed element of loan balances excluded for the purpose of calculating the Business and total coverage ratio.
ECL provisions increased to £617m at FY23
(2022: £457m), resulting in higher aggregate
provision coverage of 84bps (2022: 62bps).
This was mainly due to higher modelled ECL,
particularly in credit cards, in anticipation of
a continued increase in arrears and reflecting
revised macroeconomic assumptions and credit
bureau data. The updated economic outlook
forecasts a slower recovery in the outer years
compared to September 2022, whilst updated
credit bureau data was also weaker.
Accordingly, the modelled and individually
assessed (IA) ECL increased by £168m to
£540m (2022: £372m), while Management
Adjustments (MAs) reduced to £76m (2022:
£85m). The combination of these factors
resulted in a £309m impairment charge during
the period (2022: £52m), equivalent to a cost
of risk of 42bps (2022: 7bps).
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The key macroeconomic assumptions used
in the Group’s IFRS 9 modelling were updated
based on scenarios provided by our third party
provider Oxford Economics. The weightings
applied to the scenarios were unchanged
from FY22 and included 10% to the Upside
scenario, 55% to the Base scenario and 35%
to the Downside scenario. The weighted
macroeconomic scenario includes a 0.6%
contraction in GDP in 2024, peak unemployment
of 5.1% in 2025 and a decline in the HPI across
2023-2025.
To supplement the modelled ECL provision,
the Group applied expert credit risk judgement
through MAs, designed to account for factors
that the models do not incorporate. Through
this process, the Group applied MAs of £76m
(2022: £85m). These include cost of living
MAs of £15m (2022: £57m), which were lower
in the year given these impacts are now better
reflected in the modelled ECL outcome.
During the period, the new Loss Given Default
(LGD) model in Business lending was fully
implemented, resulting in the removal of
a negative MA (£(15)m) that was held at 2022,
given it is now reflected in the modelled output.
There was also an increase in Unsecured MAs,
relating to a revised debt sale agreement.
During the year, loans classified as Stage 2
increased from 8% of the portfolio at FY22
to 9%. 96% of stage 2 balances remain
<30 DPD. Stage 3 assets as a percentage of
Group lending remained broadly stable at 1.5%
(2022: 1.4%). The Group’s credit provisioning
assumes that arrears continue to increase over
the next financial year.
Across all portfolios, the Group has provision
coverage that remains above pre-pandemic
levels. In Mortgages, the coverage ratio of
10bps is considered appropriate. The portfolio
continues to evidence good underlying credit
performance, with no significant deterioration
in asset quality, despite a marginal increase
in late-stage arrears.
Unsecured lending book coverage ratio of
665bps encompasses both the 688bps of
coverage for our credit card portfolio, and
488bps of coverage for our smaller personal
loans and overdrafts book. In addition to
the impact of current macroeconomics,
the modelled provision increased due to a
weakening of credit bureau data, and higher
early-stage arrears compared with prior years.
Overall arrears levels remain modest across
the portfolio with 97% of balances not past
due (2022: 98%).
In Business, the coverage ratio of 160bps
is stable relative to FY22. There has been
a limited change in underlying asset quality
performance and, as yet, no significant increase
in specific provision recognition. The lending
book continues to be biased away from sectors
likely to experience more disruption from
higher inflation such as hospitality and retail,
towards sectors expected to be resilient,
such as agriculture, health and social care.
Adjusting items and statutory profit
Underlying profit on ordinary activities before tax
Adjusting items
– Restructuring charges
– Acquisition accounting unwinds
– Legacy conduct costs
– Hedge ineffectiveness(1)
– Other items
Statutory profit on ordinary activities before tax
Tax expense
Statutory profit for the year
Underlying RoTE
Statutory RoTE
TNAV per share
2023
£m
593
(131)
(29)
(12)
(16)
(60)
345
(99)
246
7.6%
3.9%
359.8p
Restated
2022
£m
776
(82)
(35)
(8)
13
(69)
595
(58)
537
13.3%
10.3%
383.0p
(1) Hedge ineffectiveness is now presented as an adjustment to underlying as detailed on page 381.
The comparative period has been adjusted accordingly. This restatement does not impact the statutory results of the Group.
Overview
The Group made a statutory profit before tax
of £345m (2022: £595m) after deducting
£248m of adjusting items (2022: £181m).
TNAV per share reduced 23.2p in 2023
to 359.8p. The key drivers of the reduction
were -14.4p of negative cash flow hedge
reserve movements in the year, given rate
changes and -25.2p from a lower pension
surplus, offsetting +9.8p from retained earnings
and +8.4p from share buybacks during the year.
Restructuring charges
Restructuring charges totalled £131m in the
year, driven by charges related to the Group’s
digital investment. This included c.£58m for
the delivery of IT changes and c.£73m for the
closure of stores, changes to the operating
model and lower property footprint. The Group
continues to expect to incur a total of c.£275m
of restructuring costs to implement its digital
strategy across FY22-24; after spending £213m
to date, the majority of the remaining costs are
expected to be incurred in FY24.
Acquisition accounting unwinds
The Group recognised fair value accounting
adjustments at the time of the Virgin Money
acquisition that unwind through the income
statement over the remaining life of the related
assets and liabilities. The £29m charge during
the year included an £8m accelerated charge
related to mortgage balances which were
in their promotional period on the date of
acquisition but have now expired. There are now
c.£15m of IFRS 3 balances remaining, which are
expected to materially unwind in 2024.
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Legacy conduct
Charges of £12m were incurred relating to legal
proceedings and legacy claims arising in the
ordinary course of the Group’s business.
Hedge ineffectiveness
Hedge ineffectiveness largely represents timing
differences that will reverse out over the lives
of derivatives that are used in economic hedges
but can result in volatility between reporting
periods. Charges of £16m were incurred in
respect of hedge ineffectiveness and rate
volatility in the period.
Balance sheet
As at 30 September
Mortgages
Unsecured
Business(1)
Total customer lending
Relationship deposits(2)
Non-linked savings
Term deposits
Total customer deposits
Wholesale funding
of which TFSME
Loan to deposit ratio (LDR)
Liquidity coverage ratio (LCR) (12-month average)
(1) Of which, £625m government lending (2022: £963m).
(2) Current account and linked savings balances.
Other items
Other items includes a c.£45m intangible
write-off recognised in the year in relation to
the Group’s mortgage digitisation programme.
This follows challenges identified during testing,
resulting in a significant deferral and redesign
as we implement the upgraded capability.
Customer lending and deposits
At an aggregate level, Group lending was
broadly stable at £72.8bn, as growth in
Business and Unsecured lending offset
a reduction in Mortgages. Total customer
deposits increased by 1.9% to £66.6bn.
Taxation
There was a £99m tax charge in respect
of £345m of statutory profit before tax,
reflecting an effective tax rate of 29%.
2023
57,497
6,519
8,738
72,754
35,394
9,741
21,474
66,609
16,658
6,200
109%
146%
2022
58,155
6,163
8,247
72,565
34,649
17,048
13,663
65,360
17,012
7,200
111%
140%
Change
(1.1)%
5.8%
6.0%
0.3%
2.2%
(42.9)%
57.2%
1.9%
(2.1)%
(13.9)%
(2)%pts
6%pts
Mortgage balances reduced 1.1% to £57.5bn,
with reduced demand reflecting slower market
activity and demand, owing to the higher rate
environment, affordability pressures and wider
cost of living considerations. Against this
subdued market backdrop, the Group traded
to preserve profitability, although competition
remained intense resulting in completion
spreads remaining below book spreads during
the financial year.
Business lending increased overall by 6.0%
during the year to £8.7bn, driven by growth
in non-government scheme lending, which
increased by 11.4% to £8.1bn. This performance
was supported by the strength of our franchise
and sector specialisms in our target market
segments. Government-scheme balances
declined 35.1% to £0.6bn as expected, as
borrowers made contractual repayments.
Unsecured lending increased 5.8% in the
year, driven mainly by credit card growth.
This performance was supported by resilient
demand from existing customers and ongoing
new credit card sales as the Group maintained
its c.8% market share of balances. During the
year, the Group observed customer behavioural
activity outperforming assumptions, resulting
in the card EIR asset performing better than
expected. Personal loans and overdraft
balances reduced £0.2bn during the year
to £0.7bn, in line with expectations.
Customer deposits increased by £1.2bn or 1.9%
during the financial year to £66.6bn. The Group
continued to execute against its strategy and
optimise its mix of deposits during the period,
as relationship deposits grew by £0.7bn,
supported by strong customer propositions
and competitive rates. The Group actively
increased its participation in the term deposit
market early in the year to offset deposit
migration. Term deposits increased by £7.8bn
and were acquired at attractive spreads,
locking in term funding at pricing below swaps.
Non-linked saving balances reduced by £7.3bn
during the period, given higher attrition and
churn from the back book and as the Group
prioritised the good value opportunities initially
available in the term deposit market.
Wholesale funding and liquidity
During the period, the Group’s LDR reduced
to 109% (2022: 111%). The Group has a
stable funding base with customer deposits
representing c.80% of total funding. The Group’s
customer deposits are weighted towards retail
customers (75%), with the balance being from
business customers, predominantly small and
medium sized enterprises. Of the total customer
deposit book, 72% is insured via the Financial
Services Compensation Scheme. Of balances
that are uninsured, a proportion are fixed term
and/or would incur a charge if customers
wanted to withdraw their money.
The Group has a number of well-established
wholesale funding programmes and proven
markets access. During the year, the Group
successfully issued €500m and £300m of
MREL senior notes and c.£1.8bn of residential
mortgage-backed securities (RMBS) and
covered bonds, while at the same time repaying
£1.0bn of its TFSME drawings (£6.2bn
outstanding as at 30 September 2023). On an
overall basis, wholesale funding reduced from
£17.0bn at FY22 to £16.7bn as at FY23. Of our
total debt securities in issue, only 19% (£1.9bn)
has less than one year to effective maturity,
reflecting term issuance roll-downs (the Group
has negligible short-term wholesale funding).
The Group has £0.3bn of TFSME maturing in
FY24, £2.5bn maturing in FY25, and £2.5bn
maturing in FY26, with the remaining £0.9bn
subject to term extension beyond FY26. The
Group plans to continue to repay TFSME well
ahead of contractual maturity to reduce the
refinancing risk further.
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The stability of the Group’s funding sources is
highlighted in its NSFR ratio, which remained
stable on a 12-month average basis at 136%.
The Group’s 12-month average LCR increased
6% points to 146% (2022: 140%), continuing
to comfortably exceed both regulatory
requirements and the Group’s more prudent
internal risk appetite metrics. The Group’s
c.£14bn prime liquid asset portfolio is primarily
comprised of cash at the BoE (c.65%), UK
Government securities (Gilts) (c.10%) and AAA
rated listed securities (e.g. bonds issued by
supra-nationals and corporate covered bonds)
(c.25%). The liquid asset portfolio is fully
hedged from an interest rate, inflation and FX
risk perspective and any movements in fair
value are recognised in CET1 via the Income
Statement or FVOCI reserve.
Capital
CET1 ratio (IFRS 9 transitional)
CET1 ratio (IFRS 9 fully loaded)
Total capital ratio
MREL ratio
UK leverage ratio(1)
The Group also has unencumbered pre-
positioned collateral at the BoE representing
c.£6.9bn of secondary liquidity drawing
capacity via the Bank’s Sterling Monetary
Framework, which does not form part of the
liquid asset portfolio for LCR or internal stressed
outflow purposes. This has increased from
c.£4.3bn at FY19 and over time, the stock of
unencumbered pre-positioned collateral will
increase as remaining TFSME drawings are
repaid. In addition, the Group has a further
c.£18.4bn of unencumbered assets eligible
and readily available but not currently
pre-positioned at the BoE.
implementing mortgage hybrid models) and
16bps of Additional Tier 1 (AT1) distributions
and related costs. Adjusting items consumed
c.60bps while there was 29bps of accrual for
expected dividends and 41bps from £100m of
share buybacks announced during the period.
Dividends of c.£72m relating to FY23 resulted
in a payout level of 37%. This is higher than
the Group’s 30% payout level in its dividend
policy, reflecting a one-off adjustment in
FY23 for certain non-cash adjusting items.
The announcement of an additional £150m
share buyback will reduce CET1 resources
in Q1 2024.
In Business, RWAs increased by c.£0.8bn
mainly as a result of higher customer balances,
excluding government-backed balances that
carry a 0% risk weight. Unsecured RWAs
were broadly stable in the period, despite
the increase in customer lending during the
financial year, due to higher provisions reducing
the EAD for the cards portfolio. Non-credit
RWAs were £3.3bn, c.£0.2bn higher than 2022,
driven by higher operational risk RWAs.
MREL
The Group’s transitional MREL ratio remained
broadly stable during the period at 9.3%
(2022: 9.0%) of Leverage Exposures, or 31.9%
when expressed as a percentage of RWAs
(2022: 32.1%). This provides prudent headroom
of £1.3bn or 1.5% above the binding loss-
absorbing capacity (LAC) requirement of 7.8%
of Leverage Exposures, or 5.3% above the
binding LAC requirement of 26.6% when
expressed as a percentage of RWAs.
2023
14.7%
14.3%
21.2%
31.9%
5.0%
2022
15.0%
14.6%
22.0%
32.1%
5.0%
Change
(0.3)%pts
(0.3)%pts
(0.8)%pts
(0.2)%pts
–%pts
4.3%
(0.9)%
–%
12.8%
Risk-weighted assets (RWAs) (£m)
25,176
24,148
of which Mortgages (£m)
of which Unsecured (£m)
of which Business (£m)
9,072
4,819
6,990
9,155
4,817
6,196
Unless where stated, data in the table shows the capital position on a Capital Requirements Directive (CRD) IV ‘fully loaded’ basis
with IFRS 9 transitional adjustments applied.
(1) The prior year leverage ratio has been restated from 5.1% following an adjustment to exclude encumbered note cover and
payments system collateral balances.
Overview
The Group maintained a robust capital position
with a CET1 ratio of 14.7% and a total capital
ratio of 21.2% (IFRS 9 transitional basis).
The Group’s CET1 ratio on an IFRS 9 fully loaded
basis was 14.3%. The Group’s latest Pillar 2A
requirement has a CET1 element of 1.7%.
Overall, the Group continues to maintain a
significant surplus above its CRD IV CET1
capital requirement, inclusive of the combined
capital buffer (or MDA threshold) of 10.7%.
CET1 capital
The Group’s transitional CET1 ratio reduced
by 30bps over the year. Total underlying capital
generation of 145bps was driven by 199bps
of underlying profit, offset by 38bps from higher
RWAs (including the anticipated impact of
RWAs
Overall, RWAs increased by c.4% during
2023 to £25.2bn. In Mortgages, RWAs reduced
by £0.1bn as the impact of lower exposures
and stronger HPI more than offset a c.£0.4bn
post model adjustment for the expected impact
of implementing mortgage hybrid models.
CET1 capital movements(1)
Opening CET1 ratio
Capital generated (bps)
RWA growth (bps)
AT1 distributions (bps)
Underlying capital generated (bps)
Restructuring charges (bps)
Acquisition accounting unwind (bps)
Conduct (bps)
Hedge ineffectiveness (bps)
Hybrid mortgage impact (bps)
Foreseeable ordinary dividends (bps)
Share buyback (bps)
Other (bps)
Net capital absorbed (bps)
Closing CET1 ratio
(1) This table shows the capital position on a CRD IV ‘fully loaded’ basis with IFRS 9 transitional adjustments applied.
2023
15.0%
199
(38)
(16)
145
(40)
(9)
(4)
(5)
(28)
(29)
(41)
(19)
(30)
14.7%
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Non-financial and Sustainability
Information Statement
Our TCFD summary
Commercial review
Chief Financial Officer’s review
How we manage risk
Governance
Risk report
Climate-related disclosures
Financial statements
Additional information
Chief Financial Officer’s review
FY24 outlook
In FY24, we anticipate full year NIM of 190-
195bps, reflecting the benefit of structural
hedge reinvestment and a higher yielding asset
mix, offset by ongoing competitive pricing
pressures in mortgages and deposits.
The Group continues to expect to incur
restructuring charges reflecting its ongoing
digitisation programme, with the majority of the
remaining c.£60m expected to be incurred in
FY24. We now expect our strategy to digitise
the Bank to deliver around £200m (previously
c.£175m) of annualised gross cost savings,
generating headroom to absorb inflation and
reinvestment, as we focus on improving legacy
components of our infrastructure. The Group
will also invest c.£130m across FY24-26 in
its financial crime prevention programme,
of which c.£40m is expected to be incurred
in FY24.
The Group now expects to deliver a broadly
stable underlying cost: income ratio in FY24.
This excludes the additional costs associated
with the financial crime prevention programme
in FY24, which will be excluded from underlying
performance and reported separately as a
notable item. The Group expects its cost of risk
for FY24 to normalise around its through the
cycle average of c.30-35bps.
Consistent with our strategy to diversify the
balance sheet, we anticipate 5-10% growth
in target lending segments of Unsecured and
Business relative to FY23 and to trade tactically
in the mortgage market to maintain market
share across the medium term.
The Group expects to issue £1.5bn-2.0bn of
secured issuance in FY24 subject to deposit
flows and relative cost. Capital and MREL
issuance is expected to be broadly limited
to maintaining the current surplus to
regulatory requirements.
By FY24, the Group expects to be operating
in its target CET1 range of 13-13.5%.
The Group anticipates nominal shareholder
distributions in FY24 around the same level
as FY23, comprising a target 30% full year
dividend payout level, supplemented with
buybacks, which will be subject to Board
and regulatory approval, reflecting an ongoing
assessment of surplus capital, regulatory
developments, market conditions and the
macroeconomic outlook.
Overall, the Group now expects to deliver
a c.10% underlying RoTE in FY24, excluding
costs associated with the financial crime
prevention programme and the cash flow
hedge reserve. The Group expects to deliver
a c.8% statutory RoTE in FY24.
Medium-term outlook
In the medium term the Group’s digital
acceleration will support the delivery of
valuable and differentiated propositions to
drive profitable growth. The Group will continue
to target diversification on both sides of the
balance sheet, delivering growth in Unsecured
and Business lending, while maintaining our
mortgage market share.
The Group continues to target an underlying
cost:income ratio of <50%, while we are
committed to delivering sustainable double-
digit statutory returns in the medium-term,
with further detail to be provided at a Capital
Markets Day during FY24.
Clifford Abrahams
Chief Financial Officer
22 November 2023
Guidance
FY24 outlook
Medium-term outlook
NIM
FY24 NIM of 190-195bps
Income
Volume growth and improving
margin to drive expansion
Underlying costs
Cost:income to remain broadly stable
in FY24(1)
Underlying costs
Cost:income ratio to reduce
below 50%
Cost of risk
Cost of risk to be in the range
of 30-35bps
Investment
c.£275m across FY22-24; majority
of remaining c.£60m to be incurred
in FY24
Expect to spend c.£40m in financial
crime prevention programme in FY24
Growth
Targeting lending growth
in Unsecured and Business;
maintaining mortgage market
share over medium term
Investment
Expect to spend c.£130m in financial
crime prevention programme
between FY24-26
CET 1
CET1 in target range of 13–13.5%
CET 1
Remain in target CET1 range
RoTE
Committed to generating sustainable
double-digit statutory returns
Capital distribution
FY24 distributions around FY23
nominal level; dividends (30% payout);
buybacks subject to Board and
regulatory approval
RoTE
Underlying RoTE of c. 10%(2)
Statutory RoTE of c.8%
(1) Excluding financial crime prevention programme from FY24.
(2) Excluding financial crime prevention programme from FY24 and cash flow hedge reserve.
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Operating environment
Business model
Strategic priorities
Environmental, social and governance
(ESG)
Non-financial and Sustainability
Information Statement
Our TCFD summary
Commercial review
Chief Financial Officer’s review
How we manage risk
Governance
Risk report
Climate-related disclosures
Financial statements
Additional information
For the year ended 30 September
Net interest income
Non-interest income
Total operating income
Operating and administrative expenses
Operating profit before impairment losses
Impairment losses on credit exposures
Statutory profit on ordinary activities before tax
Tax expense
Statutory profit after tax
2023
£m
1,687
140
1,827
2022
£m
1,576
140
1,716
(1,173)
(1,069)
654
(309)
345
(99)
246
647
(52)
595
(58)
537
The Group has recognised a statutory profit before tax of £345m (2022: £595m). The reduction
in statutory profit is primarily driven by higher credit impairment losses, following the low charge
last year and higher adjusting items, primarily reflecting restructuring costs in the year. From FY24,
the Group will no longer report on both an underlying and a statutory basis; the income statement
will be reported on a statutory basis, with notable items separated out to enable the reporting of
Adjusted Income and Expenditure.
2023 income statement
Net interest income
Non-interest income
Total operating income
Total operating and
administrative expenses
before impairment losses
Operating profit before
impairment losses
Impairment losses
on credit exposures
Profit on ordinary
activities before tax
Financial performance
measures
RoTE
Cost: income ratio
Basic EPS
Statutory
results
£m
Restructuring
charges
£m
Acquisition
accounting
unwinds
£m
Legacy
conduct
£m
1,687
140
1,827
–
–
–
29
–
29
(1,173)
131
–
654
131
29
(309)
–
–
–
–
–
12
12
–
Hedge
ineffectiveness(1)
£m
–
16
16
Other
£m
Underlying
results
£m
–
1
1
1,716
157
1,873
–
59
(971)
16
60
902
–
–
(309)
345
131
29
12
16
60
593
3.9%
64.2%
14.0p
2.0%
0.4%
0.2%
0.2%
0.9%
7.6%
(6.5)%
(1.5)%
(0.6)%
(0.7)%
(3.0)%
51.9%
7.1p
1.6p
0.6p
0.9p
3.2p
27.4p
Performance measures(1)
Profitability
RoTE
Cost: income ratio
Return on assets
Basic earnings per share (EPS)
2023
2022
Change
3.9%
64%
0.27%
14.0p
10.3%
62%
0.60%
32.4p
2022 income statement
(6.4)%pts
2%pts
Net interest income
Non-interest income
(0.33)%pts
Total operating income
(18.4)p
(1) For a definition of each of the performance measures, refer to ‘Measuring the Group’s performance’ on pages 372 to 380.
Reconciliation of statutory to underlying results
The statutory basis presented within this section reflects the Group’s results as reported in the
financial statements. The underlying basis reflects the Group’s financial performance as presented
to the CEO, Executive Leadership Team and Board and excludes certain items that are part of
the statutory results. The table below reconciles the statutory results to the underlying results,
and full details on the adjusted items to the underlying results are included on page 381.
Statutory
results
£m
Restructuring
charges
£m
Acquisition
accounting
unwinds
£m
Legacy
conduct
£m
Hedge
ineffectiveness(1)
£m
–
(13)
(13)
–
(13)
–
(13)
Restated
underlying
results
£m
Other
£m
–
7
7
62
69
–
69
1,592
150
1,742
(914)
828
(52)
776
–
–
–
82
82
–
82
16
16
32
3
35
–
35
–
–
–
8
8
–
8
1,576
140
1,716
(1,069)
647
(52)
595
10.3%
62.3%
32.4p
Total operating and
administrative expenses
before impairment losses
Operating profit before
impairment losses
Impairment losses
on credit exposures
Profit on ordinary
activities before tax
Financial performance
measures
RoTE
Cost: income ratio
Basic EPS
1.4%
0.6%
0.1%
(0.2)%
1.1%
13.3%
(4.5)%
(1.9)%
(0.4)%
0.7%
(3.7)%
52.5%
4.3p
1.8p
0.4p
(0.7)p
3.6p
41.8p
(1) Hedge ineffectiveness is now presented as an adjustment to underlying non-interest income as detailed on page 381.
The comparative period has been adjusted accordingly. This restatement does not impact the statutory results of the Group.
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Key performance indicators (KPIs)
Operating environment
Business model
Strategic priorities
Environmental, social and governance
(ESG)
Non-financial and Sustainability
Information Statement
Our TCFD summary
Commercial review
Chief Financial Officer’s review
How we manage risk
Governance
Risk report
Climate-related disclosures
Financial statements
Additional information
How we manage risk
Data-driven
risk management
Effective risk management supports the delivery
of our strategic objectives and fulfils our Purpose
With greater challenges from factors such
as the cost of living, increasingly demanding
regulatory expectations, geopolitical
uncertainty, the pace of technological change
and higher incidences of fraud and financial
crime, our focus is on supporting our
stakeholders by continually improving the
risk profile of the bank. We focus on driving
better outcomes through more impactful risk
management, meaning that we continue to build
capability by investing in our data and systems
and challenging how risks are managed.
Our approach to risk management
Our Purpose and Values play a big part in our
risk culture by setting out what we want to do
and how we want to do it. Our culture is shifting
favourably, with clear roles and responsibilities
as defined in our refreshed three lines of
defence model, and a higher level of challenge
through assurance and documented risk
opinions, to help drive better and more
sustainable risk outcomes.
The Group uses its Risk Management
Framework (RMF) to manage and control risk,
which helps to:
> support decision making, planning and
prioritisation through providing a greater
understanding of business activity
and volatility;
> provide a consistent approach to risk
management activities including clear roles
and responsibilities, insightful reporting
and appropriate oversight; and
> support delivery of all strategies, including
sustainability and growth.
The RMF applies to all areas of the Group and
is the responsibility of the Board. It is approved
on an annual basis and is subject to ongoing
review to ensure that it remains fit for purpose.
Risk appetite
Risk performance is measured through RAS
metrics and risk assessments, supported by
lessons learned activities. Risks to future
performance are considered through stress
testing and scenario analysis, with ongoing
monitoring.
Emerging and evolving risks
The Group defines emerging and evolving risks
as current or future risks arising from internal
or external events, with a material unknown
or unpredictable component, and the potential
to significantly impact the future performance
of the Group, or prevent delivery of good
outcomes for our customers. Emerging and
evolving risks are continually assessed through
a horizon scanning process, considering all
internal and external factors, with escalation
and reporting to the Board.
Susan Poot
Chief Risk Officer
Driving better outcomes
for our stakeholders
through impactful
risk management.
2023 developments
In 2023, we refreshed elements of the
RMF, with the introduction of new risk
and control taxonomies and enhanced
impact analysis. These updates will be
rolled out along with a new integrated
risk management system in 2024, helping
drive improvements to our data driven
control effectiveness assessments.
With increasing sophistication of
fraudsters and cyber criminals, we are
investing more into our fraud, financial
crime and cyber capabilities, bringing
improved skills as well as technology.
This supports managing risks as our
digital strategy builds momentum and
also recognises the increasing regulatory
drive to strengthen controls.
Risk has overseen key regulatory
developments, including Consumer Duty,
and complex change programmes,
in support of our strategic objectives.
Additional focus has been given to:
IT infrastructure and boosting digital
capabilities; change risk management;
strengthening operational risk and model
risk disciplines; and enhancing the
economic crime operating framework.
The RAS was refined and continues
to support the Group, ensuring the
appropriate balance between supporting
growth objectives and operating within
acceptable risk levels, considering the
uncertain macroeconomic environment
with higher interest rates.
Our Risk teams are becoming more
impactful, with data driven approaches
and a renewed focus on our control
environment, through improved guidance
and increased monitoring of testing,
supporting effective risk management
and better outcomes for our stakeholders.
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Business model
Strategic priorities
Environmental, social and governance
(ESG)
Non-financial and Sustainability
Information Statement
Our TCFD summary
Commercial review
Chief Financial Officer’s review
How we manage risk
Governance
Risk report
Climate-related disclosures
Financial statements
Additional information
How we manage risk
Emerging and evolving risks are assigned an inherent and residual risk, based on expected impact and time to fully crystallise (from >12 months to 3+ years), in line with the definitions outlined in the RMF.
Areas of enhanced risk attention are the uneven macroeconomic outlook, changing regulatory expectations and scrutiny, the ongoing geopolitical uncertainty and accelerated technological change.
Emerging and evolving risks
Risk trend since 2022 Increase
Economic &
political risks
The tightening of monetary policy could lead to a further slowdown in economic growth and a technical recession in the UK. Economic weakness in the
higher rate environment is impacting consumer confidence and has led to subdued housing market activity. These risks, in aggregate, could further impact
customer resilience and consequently debt affordability.
Geopolitical tensions have increased with ongoing conflict in Ukraine and the outbreak of hostilities in the Middle East. There is an increased risk that events
will escalate and although the Group’s direct exposures to these areas is very limited, there is the risk of a broader macro shock from conflict. The economic
impact to date has fuelled inflationary pressures to the price of goods and services, further contributing to the rising cost of living.
Political risks are closely monitored and the forthcoming general election could drive changes to the UK political environment, which could have wide
ranging implications for the Group that must be carefully managed.
The Group maintains robust capital and liquidity levels, with stress testing against a range of severe but plausible market scenarios performed to understand
and mitigate risks to financial resilience.
Regulatory
change
Firms remain subject to high levels of oversight and a complex programme of regulatory change from a number of different regulatory bodies. In particular,
evolving financial crime regulation and changing expectations of customer interventions, alongside continued technological change, is driving a need for
investment to protect our customers and to enhance our resilience and capability in these areas.
Third-party
risk
Technological
change
Data
stewardship
The regulatory landscape requires ongoing responses, specialist resource and funding to execute multifaceted and large-scale change projects, to ensure
compliance. The Group’s designation as an Other Systemically Important Institution (O-SII) in December 2022 heightens this risk.
The Group works with regulators to ensure it meets its obligations and any implications from upcoming regulatory activity are incorporated into the strategic
planning cycle.
There are complex and significant dependencies on third-party suppliers, including outsourcing of certain activities, which require effective management
of the levels of risk that arise as a result, particularly for key activities that could impact operational resilience.
Dependencies on a particular supplier for multiple business capabilities could mean a single failure disrupts multiple aspects of the business. These risks
are closely managed and mitigated through our third-party RMF.
Technological developments, such as generative Artificial intelligence (AI), continue to accelerate and could progress before associated risks and
opportunities are fully understood. In turn, the landscape of security threats we must face into is also expanded. Managing and replacing ageing technology
platforms at the required volume, pace and scale is complex and needs careful management.
Delivering change sustainably and managing execution risk is a priority for the Group. Stable, scalable, and secure technology architecture is essential to
ensure our customers are provided with the best level of sustained service, while supporting the bank’s growth strategies and digital ambitions. The Group
has a multi-year programme of investment to upgrade propositions across key areas such as financial crime prevention and cyber defence.
The Group’s digitisation strategy, combined with changing regulatory requirements and technological advancements such as Cloud solutions, places
increasing importance on the effective use of quality and timely data. This, combined with a clear governance and ownership structure around data is
central to our digital success.
Risks and opportunities, including in relation to data ethics need to be fully understood, even more so as we face into rapid AI developments. The Group
is developing AI use cases responsibly by mitigating the inherent bias and ethical risks. A comprehensive framework of controls is in place to manage and
mitigate data risks, with continued investment into data management capabilities.
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Board Chair’s introduction
Chief Executive Officer’s introduction
Key performance indicators (KPIs)
Operating environment
Business model
Strategic priorities
Environmental, social and governance
(ESG)
Non-financial and Sustainability
Information Statement
Our TCFD summary
Commercial review
Chief Financial Officer’s review
How we manage risk
Governance
Risk report
Climate-related disclosures
Financial statements
Additional information
How we manage risk
Principal risks
The Group’s principal risks are those which could result in events or circumstances that might threaten the Group’s business model, future performance, solvency, liquidity and reputation. The Group’s
principal risk categories are consistent with those outlined in the Interim Financial Results 2023. An overview of the Group’s principal risks and mitigating actions is set out below and overleaf,
while further information on all of the Group’s principal risks can be found on pages 171 to 238 of the Risk report.
Credit risk
Financial risk
Financial risk includes capital risk, funding risk, liquidity risk, market risk and pension risk,
all of which have the ability to impact the financial performance of the Group, if not
managed correctly.
Conduct risk
The risk of undertaking business in a
way which fails to deliver good customer
outcomes and causes customer harm,
and may result in regulatory censure,
redress costs and/or reputational damage.
The risk that a retail or business customer or
counterparty fails to pay the interest or capital due
on a loan or other financial instrument. Credit risk
needs to be managed through the life cycle of
each loan from origination to repayment, redemption,
write-off or sale. It manifests in the products that the
Group offers and in which it invests and can arise in
respect of both on- and off-balance sheet exposures.
Mitigating actions
– The Group applies detailed lending policies,
credit strategies and standards which outline the
approach to lending, underwriting, concentration
limits and product terms.
– Credit risk is managed through risk appetite and
risk limits reflected in approved credit frameworks,
policies and controls.
– The Group carries out ongoing monitoring and
approval of individual transactions, regular asset
quality reviews and independent oversight of credit
decisions and portfolios.
– Significant portfolio monitoring and assessment
of aggregate risks is in place to remain close to any
signs of portfolio deterioration, covering areas such
as product, industry, geographical concentrations
and delinquency trends.
– Stress test scenarios are prepared regularly to assess
the adequacy of the Group’s impairment provisions
and the impact on RWAs and capital.
Focus
– The Group remains focused on continued and timely
support for customers experiencing financial difficulty,
as well as horizon scanning in relation to expected
events and outcomes, given the ever-changing
external environment.
– The Group will put in place all necessary measures
to ensure readiness for any potential economic
downturn and consequent customer support.
Mitigating actions
– Funding and liquidity risk is managed in line with Board-approved standards, including
the annual Internal Liquidity Adequacy Assessment Process (ILAAP), strategic funding
plans and recovery planning.
– The Group completes an annual ICAAP which assesses the impact of severe, yet
plausible, stress events to ensure that the appropriate level and type of capital underpins
the strength of the balance sheet in both normal and stressed conditions. The Group also
participates in the BoE ACS, which tests the resilience of major UK banks to a severe
stress scenario.
– Board-approved risk appetite measures ensure financial risks are monitored and managed
in accordance with internal and regulatory requirements and in support of the Group’s
strategy.
– Market risks (interest rate and foreign exchange risks) are managed in line with
established policies and allocation of capital.
– Pension risk is overseen by the Asset and Liability Committee (ALCO) and is considered
in detail as part of the ICAAP with ongoing reports provided to the Board Risk Committee.
Focus
– The Group’s focus is to manage the balance sheet through the uncertain economic
environment and cost of living crisis.
– The economic environment creates interest rate uncertainty, which presents potential
for adverse operational impacts, changes to customer behaviour and pressure on margins.
– The PRA timeline for implementing Basel 3.1 has been extended. We will look to
understand potential impacts on capital requirements across, for example, operational
and credit risks.
– The ways climate risk can be incorporated into capital models will be a focus of attention.
– The growth of digital currencies, particularly any developments in Central Bank Digital
Currency, will be assessed for potential impacts on financial disintermediation.
Mitigating actions
– Clearly defined conduct risk policy
framework requirements and policies.
– Continuing development of a customer-
centric culture aligned to the Group’s
Purpose, to deliver good customer
outcomes.
– Ongoing reporting of risk appetite
measures to the Executive Risk
Committee and the Board.
– Consideration of conduct risk in product
and proposition development.
– Risk-based monitoring of compliance
with regulation and assessment of
customer outcomes.
Focus
– The Group remains focused on seeking
to ensure that customers remain
supported and that current and future
products and services meet conduct
standards and regulators’ expectations.
– Development will continue in the Group’s
capabilities to support customers with
good outcomes, including vulnerable
customer groups, and in line with the
FCA’s New Consumer Duty.
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Purpose in action
Board Chair’s introduction
Chief Executive Officer’s introduction
Key performance indicators (KPIs)
Operating environment
Business model
Strategic priorities
Environmental, social and governance
(ESG)
Non-financial and Sustainability
Information Statement
Our TCFD summary
Commercial review
Chief Financial Officer’s review
How we manage risk
Governance
Risk report
Climate-related disclosures
Financial statements
Additional information
How we manage risk
Model risk
Strategic and enterprise risk
Operational risk
The potential for adverse consequences
from decisions based on incorrect or misused
model outputs and reports.
The risk of significant loss of earnings or damage
from decisions or actions that impact the long-
term interests of the Group’s stakeholders; or from
an inability to fund or manage required change
projects, or adapt to external developments.
The risk of loss or customer harm resulting from inadequate or failed internal
processes, people and systems or from external events, incorporating the
inability to maintain critical services, recover quickly and learn from
unexpected/adverse events.
Mitigating actions
– Strategic and enterprise risk is addressed through
Mitigating actions
– The Group has an established operational risk framework to identify, manage and
Mitigating actions
– The Group has a model risk policy framework
in place to manage and mitigate model risk,
which encompasses the end-to-end model
life cycle.
– The model risk policy standard defines
roles and responsibilities in terms of model
risk management and is subject to oversight
by the Model Governance Committee.
the Board-approved five-year Strategic and
Financial Plan.
– The Group routinely reviews its change portfolio
to ensure that investment is directed towards
regulatory compliance, resilience of processes
and systems, and delivering on our Purpose
and strategy.
– A suitably qualified Independent Model
– The Group considers strategic and enterprise risk
as part of ongoing risk reporting. The management
of identified strategic risks is allocated to members
of the Group’s Executive Leadership Team by
the CEO.
Focus
– Continue to enhance strategic risk oversight
capability and provide targeted assurance
on Group strategy.
Validation function conducts model validations
prior to model implementation, both when a
model is changed and on a periodic basis.
– The Model Risk Management team has been
strengthened, with recruitment of a new Head
of Model Risk to enhance our capabilities and
to increase focus on key regulatory projects.
Focus
– The increased use of Machine Learning creates
new risks and opportunities. Our Model RMF
is actively considering the risk associated with
these models in our policies and incorporating
them in our model risk practices in a
proportionate way. The future use of models
to support climate risk will also be a focus.
– The BoE’s Supervisory Statement 1/23 Model
Risk Management Principles for Banks,
is an important development in the
management of model risk. A self-assessment
is in progress and a new Model Inventory
solution is being developed for 2024.
– Model monitoring is an important part of our
framework and will support our assessment
of any long-term effects from COVID-19 and
risks from increased cost of living/inflation.
mitigate operational risks.
– An Operational Resilience framework exists which includes regular testing and
enhancements to remain within agreed Important Business Service impact tolerances.
– A change management framework is in place to govern the execution and safe delivery
of business change.
– The Third Party Risk Framework has been enhanced to ensure that supplier
relationships are controlled effectively.
– Internal and external loss events are categorised using Basel II categories for
consistent assessment, monitoring and reporting of risks and events, including themes
and remediation action required.
– A framework is in place to ensure risks from individual changes are managed
effectively, in line with the Group’s risk appetite, with appropriate second-line oversight.
– Policies, controls and frameworks are in place to mitigate cyber and information
security risks. The Group continues to invest in developing and enhancing its controls
and defences, and carries out robust due diligence prior to working with third parties.
Focus
– The implementation of a new integrated risk management system will be the catalyst
for improvements in risk identification and control assessments, that will enrich data
and enable process-driven control monitoring and testing.
– The Group will focus on management of resilience risks arising from the increasing
change portfolio. It will build on delivery of compliance with resilience regulations
this year, which included mapping of Important Business Services and stress
testing exercises.
– Continued focus of supplier management is required to safeguard the provision,
enablement and delivery of critical processes through third parties.
– A 3-year programme will commence in 2024 to further our cyber security capabilities,
focusing on a centralised control path.
– A programme will start in FY24 to reduce complexity of legacy systems, as well as
increase stability and effectiveness of funding, gradually over the next 5 years.
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Purpose in action
Board Chair’s introduction
Chief Executive Officer’s introduction
Key performance indicators (KPIs)
Operating environment
Business model
Strategic priorities
Environmental, social and governance
(ESG)
Non-financial and Sustainability
Information Statement
Our TCFD summary
Commercial review
Chief Financial Officer’s review
How we manage risk
Governance
Risk report
Climate-related disclosures
Financial statements
Additional information
How we manage risk
Regulatory and compliance risk
Economic crime risk
Climate risk
The risk of failing to comply with relevant regulatory requirements
and changes in the regulatory environment, or failing to manage
a constructive relationship with our regulators.
The risk that products and services will be used to
facilitate financial crime, resulting in harm to customers,
the Group, or third parties.
The risk of exposure to physical and transition risks
arising from climate change.
Mitigating actions
– Clearly defined regulatory and compliance policy framework
Mitigating actions
– Safeguarding our customers and consistent with the
This includes money laundering, counter terrorist
financing, sanctions, fraud, and bribery and corruption.
requirements and policies.
– Ongoing reporting of RAS measures to the Executive Risk Committee
and the Board.
– Proactive and coordinated engagement with the Group’s key regulators.
– Oversight of regulatory and compliance risks and issues in relevant
governance bodies.
– Continual assessment of evolving regulatory requirements,
including regulatory business plans and thematic reviews.
Focus
– The Group will continue to respond to regulatory change and
associated requirements for system and process developments
as these evolve across the banking industry, covering both the
prudential and conduct risk agenda.
– Prioritisation and development will continue with enhancements
to existing regulatory capabilities and systems, and implementation
of regulatory changes and new regulatory requirements.
Group’s Purpose, there is an established financial crime
and fraud risk framework, with clearly defined policy
statements, standards and RAS measures reported
to the Executive Risk Committee and the Board.
– Continued monitoring of existing, new and emerging
risks and threats as a result of new laws and regulations,
industry trends and economic and environmental factors.
– Increased resource and capability within the Economic
Crime Risk team.
– Operation of a framework of risk-based systems
and controls, to minimise the extent to which products
and services can be used to commit or be subject
to financial crime.
– The Group has become an approved signatory to the
Contingent Reimbursement Model Code and successfully
implemented Confirmation of Payee, both supporting
better outcomes for our customers.
Focus
– Implementing the Group’s 3-year c.£130m investment
programme in financial crime prevention and cyber
defence systems, to strengthen our capabilities and
to protect our customers.
– Continued enhancement of systems and controls in
response to the known threat of economic crime within
the UK and the increasingly demanding regulatory
expectations.
– Monitoring of emerging fraud and financial crime
regulation and careful management of any customer
interventions.
– Maintain focus on improving our operating model and
economic crime control environment, with improved
payment profiling and targeted interventions to mitigate
fraud risks.
Mitigating actions
– A climate risk policy framework has been established
to identify and manage exposure from climate risk,
with roles and responsibilities clearly defined across
the Group.
– The Group maintains a sensitive sector policy which
outlines the Groups appetite to sensitive sectors.
– An ESG focused Group-wide data programme supports
our improvement of our climate data availability
and quality.
– A Group-wide Climate Risk Assessment is undertaken
to support first line identification of climate-related
risk drivers.
– RAS measures are in place to monitor physical and
transitional climate-related risks.
– The Group undertakes scenario analysis to assess
possible future climate-related risks and exposures
that may impact the Group.
Focus
– The Group will continue to develop capability to identify,
manage and monitor climate risk.
– Continued investment to further develop data capability
to inform strategy and support customers’ transition
to a low carbon economy.
– Continued development of models and methodologies
to support quantification of climate risk.
– We will maintain focus on the Group’s net-zero ambitions.
– Monitoring of emerging regulation, disclosure standards
and market practice.
72
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Governance
Board Chair’s introduction
Our Board of Directors
Our Executive Leadership Team
Governance report
Stakeholder engagement and Board
decision making (Section 172(1) statement)
74
80
86
87
98
Governance and Nomination Committee report 108
Audit Committee report
Risk Committee report
Directors’ remuneration report
Directors’ report
115
123
129
159
Giovanni
Digital & Innovation
Giovanni is one of our upcoming
digital apprentices helping us on
our mission to be the UK’s best
digital bank.
Virgin Money Annual Report & Accounts 2023
73
Strategic report
Governance
Board Chair’s introduction
Our Board of Directors
Our Executive Leadership Team
Governance report
Stakeholder engagement
and Board decision making
(Section 172(1) statement)
Governance and Nomination
Committee report
Audit Committee report
Risk Committee report
Directors’ remuneration report
Directors’ report
Risk report
Climate-related disclosures
Financial statements
Additional information
74
80
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87
98
108
115
123
129
159
Board Chair’s
introduction
Introduction
I am pleased to present the Governance report
for 2023.
Good corporate governance underpins a culture
focused on delivering the long-term sustainable
success of Virgin Money. During the year the
Board has continued to focus on overseeing the
delivery of the Group’s strategy for the benefit
of all of our stakeholders. In this Governance
report we have set out how the Board operated
during the year, its key areas of focus in Board
meetings and how the Board has taken into
account different stakeholder interests in its
decision making, driven by our Purpose.
Board oversight of strategy and support
for customers in challenging times
As Virgin Money moves into the final year of
the strategy set out at our Capital Markets Day
in 2019, the Board has continued to monitor
progress on our digital transformation while
continuing to safeguard service and improve
customer experience.
In line with our strong customer focus, during
the year the Board has been kept updated on
how Virgin Money is supporting customers
recognising the ongoing challenging external
environment including the impact of rising
interest rates and cost of living pressures.
The Board is fully committed to doing the right
thing by our customers through competitive
rates, innovative products and proactive
communication. You can read more in the
Stakeholder engagement and Board decision
making section of this report beginning on
page 98.
Stronger consumer outcomes driven
by our Purpose
As described on page 95, the Board was closely
engaged throughout the year on the progress
made in embedding the FCA’s new Consumer
Duty requirements, which came into effect in
July. Our Purpose of Making you happier about
money is synonymous with providing good
customer outcomes.
Corporate governance focus
From a governance perspective, the Board –
supported by the Governance and Nomination
Committee – undertook in-depth reviews
of the Board succession plan covering both
contingency arrangements and medium and
longer-term changes. The Board has now agreed
a detailed timetable of succession plan activity
to ensure an orderly process. In line with the
Board succession plan, we confirmed in an
announcement in May 2023 that Darren Pope
will step down as Chair of the Remuneration
Committee when a successor is appointed and
he will thereafter remain on the Board as a
non-executive director. The process to appoint
his successor is now in the final stages.
74
David Bennett
Board Chair
The Board has continued
to focus on overseeing
the delivery of the Group’s
strategy for the benefit
of all of our stakeholders.
Virgin Money Annual Report & Accounts 2023Governance
Strategic report
Governance
Board Chair’s introduction
Our Board of Directors
Our Executive Leadership Team
Governance report
Stakeholder engagement
and Board decision making
(Section 172(1) statement)
Governance and Nomination
Committee report
Audit Committee report
Risk Committee report
Directors’ remuneration report
Directors’ report
Risk report
Climate-related disclosures
Financial statements
Additional information
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Board Chair’s introduction
Corporate Governance Code
The Company’s statement of compliance
with the UK Corporate Governance Code 2018
is on page 79.
During the year the Board and its committees
considered the Financial Reporting Council’s
(FRC) consultation on the proposed changes to
the Code. The Board awaits the updated Code
when it is published in 2024 which will be a
key consideration in continuing to evolve the
Group’s corporate governance framework.
In closing, I would like to thank my Board
colleagues for their contribution and
commitment during the year.
David Bennett
Board Chair
22 November 2023
An externally facilitated Board Performance
Review was conducted by Korn Ferry this year,
which also included an evaluation of the Board’s
committees. The process followed and the key
recommendations and actions agreed by the
Board are described in the Governance and
Nomination Committee report beginning on
page 108. Korn Ferry concluded that the Board
is effective and no significant concerns or
issues were raised.
Making the most of time together
The Board benefited from holding more
meetings in person during 2023 at key points
in the financial calendar which also meant
that more informal sessions could be arranged,
including strategy sessions, deep dives and
briefings. Importantly, the Board was also able
to resume in person colleague sessions as
part of the broader Workforce Engagement
Programme to hear first hand colleagues’
feedback on working at Virgin Money. The
Workforce Engagement Programme is a critical
part of the Board’s calendar and you can read
more about what we covered during the year
on page 93.
The Board was also pleased to hold another
physical Annual General Meeting (AGM) in
London in February and members of the Board
met with investors, customers and other
stakeholders throughout the year.
75
Virgin Money Annual Report & Accounts 2023Governance
Strategic report
Governance
Board Chair’s introduction
Our Board of Directors
Our Executive Leadership Team
Governance report
Stakeholder engagement
and Board decision making
(Section 172(1) statement)
Governance and Nomination
Committee report
Audit Committee report
Risk Committee report
Directors’ remuneration report
Directors’ report
Risk report
Climate-related disclosures
Financial statements
Additional information
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Our Board in 2023
Board and committee composition and attendance at scheduled meetings from 1 October 2022 to 30 September 2023(1)
Board member
David Bennett (Board Chair)
Executive Directors
Clifford Abrahams
David Duffy
Non-Executive Directors
Geeta Gopalan
Elena Novokreshchenova
Darren Pope
Tim Wade
Sara Weller
Governance and
Nomination
Committee
Audit
Committee
Risk
Committee
Remuneration
Committee
Independent
5/5
–
–
5/5
5/5
5/5
5/5
5/5
–
–
–
6/6
6/6
6/6
6/6
–
–
–
–
7/7
7/7
7/7
7/7
–
7/7
(on appointment)
–
–
7/7
7/7
7/7
7/7
–
No
No
Yes
Yes
Yes
Yes
No
(1) Data is based on scheduled meetings from 1 October 2022
to 30 September 2023. Additionally, the Risk and Audit
Committees held two joint meetings during the year and
also ad hoc meetings of the Board and Board committees
took place.
(2) The Board comprises Non-Executive Directors that provide
an appropriate combination of skills, experience and
knowledge. The chart below shows the skills, experience and
knowledge on the Board as at 30 September 2023 based on
Directors’ self-assessment. Only direct or practical career
experience is reported – the majority of Non-Executive
Directors have indirect experience across all categories, for
example gained from other Board positions. The skills matrix
is reviewed annually by the Governance and Nomination
Committee and Board.
Board
10/10
10/10
10/10
10/10
10/10
10/10
10/10
10/10
Skills, experience and knowledge of the Non-Executive Directors(2)
Financial services/retail/
commercial banking
Financial markets/
wholesale banking/treasury
2
Finance/accountancy/auditing
3
Risk management
Business transformation/major
change programmes
Digital/innovation
Direct Indirect
Technology infrastructure/
operations
6
Customer experience
3
2
Brand/marketing/distribution
ESG – environment,
sustainability and climate change
6
6
2
ESG – social, inclusion,
diversity
Compliance/banking
regulation/government
Corporate governance/
listed board/IR
4
2
2
3
3
4
4
2
3
6
4
6
2
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Strategic report
Governance
Board Chair’s introduction
Our Board of Directors
Our Executive Leadership Team
Governance report
Stakeholder engagement
and Board decision making
(Section 172(1) statement)
Governance and Nomination
Committee report
Audit Committee report
Risk Committee report
Directors’ remuneration report
Directors’ report
Risk report
Climate-related disclosures
Financial statements
Additional information
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Our Board in 2023
Board composition as at 30 September 2023
The charts on the right illustrate the Board
composition as at 30 September 2023.
When measured against the targets in the
Board Diversity and Inclusion Policy (Policy)
which applied for FY23, we met our target
to have at least one Director from an ethnic
minority background on the Board. Women’s
representation on the Board was 37.5%, which
falls slightly short of our 40% target, none of the
senior Board positions were held by a woman.
Further details of the Board’s approach to
diversity and inclusion and the Policy and
targets to apply for FY24 are set out on pages
109 and 110 of the Governance and Nomination
Committee report.
Director tenure
As at the date of this report, all Directors
have a tenure not exceeding nine years(3).
Each Director’s date of joining the Group
is included in their biography on pages 80 to 84.
Composition by role
Composition by age
Composition by tenure(3)
Board Chair
Independent Non-Executive Directors
Non-Executive Directors
Executive Directors
1
4
1
2
55 and below
56 and over
1
7
0 to 3 years
3 to 6 years
6 to 9 years
37.5%
12.5%
50%
Composition by gender diversity
(3) In the case of Geeta Gopalan and Darren Pope, tenure is
calculated relative to the date they each joined the Board of
Virgin Money Holdings (UK) PLC (now Virgin Money Holdings
(UK) Limited). Virgin Money UK PLC (formerly CYBG PLC)
acquired Virgin Money Holdings (UK) PLC on 15 October 2018.
Female 3 Male 5
77
Virgin Money Annual Report & Accounts 2023Governance
Strategic report
Governance
Board Chair’s introduction
Our Board of Directors
Our Executive Leadership Team
Governance report
Stakeholder engagement
and Board decision making
(Section 172(1) statement)
Governance and Nomination
Committee report
Audit Committee report
Risk Committee report
Directors’ remuneration report
Directors’ report
Risk report
Climate-related disclosures
Financial statements
Additional information
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Board and Executive
Management Diversity
Reporting table on gender identity or sex
as at 30 September 2023(1)(2)
Principal Board committees
Number
of Board
members
Percentage
of Board
members
Number of
senior positions
on the Board
(CEO, CFO, SID
and Chair)
Governance and
Nomination
Committee
Percentage of
Governance and
Nomination
Committee
members
Percentage of
Audit
Committee
members
Audit
Committee
Risk
Committee
Percentage of
Risk Committee
members
Remuneration
Committee
Percentage of
Remuneration
Committee
members
Number in
executive
management
Percentage of
executive
management
Men
Women
Not specified/prefer not to say
5
3
0
62.5%
37.5%
0%
4
0
0
3
3
0
50%
50%
0%
2
2
0
50%
50%
0%
2
2
0
50%
50%
0%
3
2
0
60%
40%
0%
3
4
0
42.9%
57.1%
0%
Reporting table on ethnic background
as at 30 September 2023(1)(2)
White British or other White (including minority-white groups)
Mixed/Multiple Ethnic Groups
Asian/Asian British
Black/African/Caribbean/Black British
Other ethnic group, including Arab
Not specified/prefer not to say
Number
of Board
members
Percentage
of the Board
Number of
senior positions
on the Board
(CEO, CFO, SID
and Chair)
Governance and
Nomination
Committee
Principal Board committees
Audit
Committee
Risk
Committee
Remuneration
Committee
Number in
executive
management
Percentage of
executive
management
7
0
1
0
0
0
87%
0%
13%
0%
0%
0%
4
0
0
0
0
0
5
0
1
0
0
0
3
0
1
0
0
0
3
0
1
0
0
0
4
0
1
0
0
0
6
0
0
1
0
0
86%
0%
0%
14%
0%
0%
(1) Board members were asked to report on their gender identity and ethnicity in their responses to information sought to support the annual review by the Governance and Nomination Committee of the structure, size and composition of the Board.
(2) Executive management members who are not also Board members were requested to disclose their gender identity and ethnicity data individually. The data in respect of the two executive management members who are also Board members have been included
in both the Board data and in the executive management data in the tables above.
78
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Strategic report
Governance
Board Chair’s introduction
Our Board of Directors
Our Executive Leadership Team
Governance report
Stakeholder engagement
and Board decision making
(Section 172(1) statement)
Governance and Nomination
Committee report
Audit Committee report
Risk Committee report
Directors’ remuneration report
Directors’ report
Risk report
Climate-related disclosures
Financial statements
Additional information
74
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The UK Corporate
Governance Code 2018
Our compliance with the Code
The Board confirms that throughout the financial year ended 30 September 2023 Virgin Money has
complied with all relevant provisions of the UK Corporate Governance Code 2018 (Code), which is
available at www.frc.org.uk
The Governance section of this Annual Report & Accounts provides details of how we have applied
the principles and related provisions of the Code during the reporting period. We have aligned this
section of the Governance report with the five sections of the Code.
1. Board leadership and Company Purpose
Our Board of Directors
How our Board operates
Board activities during the year
Stakeholder engagement and Board
decision making (Section 172(1) statement)
2. Division of responsibilities
Board roles
3. Composition, succession and evaluation
Governance and Nomination Committee report
Board composition and independence
Diversity and the Board
Review of the Board’s effectiveness
4. Audit, risk and internal control
Audit Committee report
Risk Committee report
Internal control
5. Remuneration
Directors’ remuneration report
80
80
87
92
98
107
107
108
108
109
109
111
115
115
123
128
129
129
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Strategic report
Governance
Board Chair’s introduction
Our Board of Directors
Our Executive Leadership Team
Governance report
Stakeholder engagement
and Board decision making
(Section 172(1) statement)
Governance and Nomination
Committee report
Audit Committee report
Risk Committee report
Directors’ remuneration report
Directors’ report
Risk report
Climate-related disclosures
Financial statements
Additional information
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Board Chair
Our Board
of Directors
Committee membership
AUDIT
GOV
Audit
Committee
Governance and
Nomination Committee
REM
RISK
Remuneration
Committee
Risk
Committee
Chair
David Bennett
Board Chair
GOV REM
Joined the Group
October 2015 and became Board Chair
in May 2020.
Skills, experience and contribution
> Deep experience gained over 35 years
in retail banking and financial services.
> Extensive experience in strategic
planning and implementation.
> Significant board governance
experience including at chair level.
> Credibility with stakeholders.
> Strong leadership qualities.
David is an experienced Board Chair and
Non-Executive Director. He brings extensive
experience of retail banking, strategy,
risk management, corporate activity and
organisation, operational and structural change
gained from his long career in financial services.
He has the governance expertise and external
insight required to lead an effective Board
which is critical to the long-term success of the
Group. Prior to becoming Board Chair in 2020,
David had been Deputy Board Chair since 2015
and therefore has the experience of the Group
and track record needed to support the Board
and executive in delivering the medium and
longer-term strategy. His extensive business
career includes time as Group Finance Director
of Alliance & Leicester plc for six years before
becoming its Group Chief Executive. Following
the acquisition of Alliance & Leicester plc by
Banco Santander he was Executive Director
on the Board of Abbey National plc. He was
formerly Chairman of Homeserve Membership
Limited and Together Financial Services
Limited, was a Non-Executive Director on the
Board of Bank of Ireland (UK) PLC, Chairman
of Ashmore Group plc and has significant
Non-Executive Director experience in listed
environments which has included easyJet plc
and CMC Markets PLC. During his time at
easyJet plc, David advocated research into
alternatives to jet fuel and reducing fuel
consumption in order to reduce the impact
aviation has on climate change. David has
experience working with various charities,
supporting and promoting sustainability
throughout the industry.
External appointments
Chairman of Allfunds Group plc, Non-Executive
Director of PayPal (Europe) S.a.r.l. et Cie, S.C.A.,
Chair of Paypal UK Ltd and Non-Executive
Board member of the Department for Work
and Pensions.
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Strategic report
Governance
Board Chair’s introduction
Our Board of Directors
Our Executive Leadership Team
Governance report
Stakeholder engagement
and Board decision making
(Section 172(1) statement)
Governance and Nomination
Committee report
Audit Committee report
Risk Committee report
Directors’ remuneration report
Directors’ report
Risk report
Climate-related disclosures
Financial statements
Additional information
74
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98
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115
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Our Board of Directors
Executive Directors
David Duffy
Executive Director and
Chief Executive Officer
Joined the Group
June 2015.
Skills, experience and contribution
> Extensive retail and commercial
banking experience in the UK and
internationally built over a period
of more than 30 years.
> Significant strategic and financial
leadership experience including
strategic planning and development,
business and cultural transformation.
> Proven ability to build and lead strong
management teams.
> Deep industry understanding and
credibility with key stakeholders.
David was previously a member of TheCityUK
Advisory Council, a past president of the
Banking and Payments Federation of Ireland,
a former Director of the European Banking
Federation and previously held the role of
HM Treasury Fintech Envoy for England,
supporting the Chancellor and the late Her
Majesty’s Treasury by advocating the Fintech
industry across England.
External appointments
David is Senior Independent Director,
Nominations and Remuneration Committee
Chair and Appeals Committee Chair of UK
Finance Limited, the industry body representing
leading firms providing finance, banking,
markets and payments-related services in
or from the UK, and a Board member of
The Northern Powerhouse Partnership.
David has significant international banking
and financial services experience in developed
and emerging markets, gained from a career
spanning over three decades. During his career
David has lived and worked in Europe, the
Americas, Asia and Africa. He brings deep
industry understanding to the Board as well as
strong executive leadership which is critical
to his role as Chief Executive Officer (CEO).
His drive, energy and commitment to customers
as well as his proven ability to build and lead
strong management teams and transform
businesses brings significant value to all of
Virgin Money’s stakeholders. David is committed
to driving positive social and environmental
impacts across all areas of Virgin Money, further
supported by his role as Senior Independent
Director (SID), Nominations and Remuneration
Committee Chair and Appeals Committee Chair
of UK Finance Limited, advocating firms to
embed climate responsibility into their
governance and strategy.
Prior to joining the Group, David was appointed
to the role of CEO at Allied Irish Banks plc (AIB)
by the Irish Government where he led the
restructuring and recovery of AIB following
the financial crisis. David was also previously
the CEO of Standard Bank International where
he had responsibility for operations in the UK,
Europe, Latin America and Asia. Prior to this
role David was the Head of Global Wholesale
Banking Network with ING Group with
responsibility for all regional CEOs in the global
network and President and Chief Executive
of the ING wholesale franchises in the United
States and Latin America.
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Strategic report
Governance
Board Chair’s introduction
Our Board of Directors
Our Executive Leadership Team
Governance report
Stakeholder engagement
and Board decision making
(Section 172(1) statement)
Governance and Nomination
Committee report
Audit Committee report
Risk Committee report
Directors’ remuneration report
Directors’ report
Risk report
Climate-related disclosures
Financial statements
Additional information
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Our Board of Directors
Executive Directors
Non-Executive Directors
Clifford brings extensive executive
experience across international financial
services to the Board. His broad
knowledge gained as a Chief Financial
Officer (CFO) of publicly listed financial
services companies is of great value to
the Board. Clifford’s proven track record
of delivery of commercial results, risk
management and business change and
development including digital propositions
is crucial to supporting Virgin Money in
the delivery of its strategy. Clifford is
responsible for financial management and
reporting, strategy, investor relations and
sustainability. Prior to joining Virgin Money,
Clifford was Group CFO at ABN AMRO
Bank having joined in that role in 2017.
Previous roles include Group CFO at the
Dutch insurer Delta Lloyd Group, ten years
at Aviva in several senior financial roles
including CFO of Aviva Investors, CFO of
UK & Ireland Life Insurance and CFO of
UK & Ireland General Insurance. In the early
part of his career Clifford spent 12 years at
Morgan Stanley in the Financial Institutions
Group, most latterly as Managing Director.
External appointments
None.
Clifford Abrahams
Executive Director and
Chief Financial Officer
Joined the Group
March 2021.
Skills, experience and contribution
> Extensive international executive
experience at leading financial
services businesses.
> Deep experience as Chief
Financial Officer.
> Significant strategic and financial
experience, including on integration
and digital transformation.
Tim’s background as an experienced
Chief Financial Officer (CFO), his breadth
of financial services experience and the
industry knowledge he has gained from
over 20 years at both executive and
non-executive director level is excellent
grounding for his role as Chair of the Audit
Committee. His extensive accounting,
financial services audit, prudential
oversight and corporate governance
knowledge, including considerable
experience as an audit committee chair,
strengthen the Board. Tim’s current roles
are within companies in the financial
services industry which have detailed
commitments and programmes of work
relating to ESG matters. His previous
non-executive director roles include
Macquarie Bank International Limited,
Friends Life Group Limited, Monitise plc
and The Access Bank UK Limited. He was
a Managing Director at AMP Group,
responsible for both its Bank and the Virgin
Direct (now Virgin Money) joint venture.
Earlier in his career he was Group CFO at
Colonial Limited in Melbourne, Australia
where he oversaw the company’s IPO
and was involved in its acquisition by
Commonwealth Bank.
External appointments
Non-Executive Director and Chair of the
Audit Committee of RBC Europe Limited,
and Non-Executive Director and Chair of
the Audit and Risk Committee of Chubb
Underwriting Agencies Limited and Senior
Independent Director and Chair of the
Audit Committee of ClearBank Group
Holdings Limited.
82
Tim Wade
Senior Independent
Non-Executive Director
AUDIT GOV REM RISK
Joined the Group
September 2016.
Skills, experience and contribution
> Deep financial services experience
including banking and insurance.
> Considerable board experience
including as an audit committee chair.
> Deep knowledge of accounting,
auditing and associated regulatory
issues.
> Chartered accountant and
experienced Chief Financial Officer.
Virgin Money Annual Report & Accounts 2023Governance
Strategic report
Governance
Board Chair’s introduction
Our Board of Directors
Our Executive Leadership Team
Governance report
Stakeholder engagement
and Board decision making
(Section 172(1) statement)
Governance and Nomination
Committee report
Audit Committee report
Risk Committee report
Directors’ remuneration report
Directors’ report
Risk report
Climate-related disclosures
Financial statements
Additional information
74
80
86
87
98
108
115
123
129
159
Our Board of Directors
Non-Executive Directors
Geeta Gopalan
Independent
Non-Executive Director
RISK AUDIT GOV REM
Joined the Group
October 2018.
Skills, experience and contribution
> Extensive business leadership,
management and board experience.
> Experience in the UK and
internationally across a range of
industries including financial services,
retail banking, payments, digital
innovation and the social sector.
> Deep understanding of the digital
economy and interest in emerging
technologies.
> Strong strategic, risk and governance
experience.
Geeta’s extensive financial services, retail
banking and payments industry experience
gained over more than 25 years strengthen
the Board. Her understanding of the
digital economy and interest in emerging
technologies including the use of data
and analytics in financial services enhance
Board discussions with respect to the
Group’s digital strategy in particular. Her
extensive experience in the retail banking
and payments industries mean she has
a strong focus on customer conduct and
fairness considerations and in delivering
customer-focused outcomes. Her broad
risk and governance experience is highly
relevant to her role as Chair of the
Risk Committee. Geeta was formerly
Non-Executive Director and Chair of
the Remuneration Committee of Ultra
Electronic Holdings Plc, Non-Executive
Director and Chair of the Risk Committee
at Wizink Bank S.A., Executive Chair
of Monitise Europe, a Non-Executive
Director at VocaLink and Vice Chair of
the Big Lottery Fund England, one of
the largest funders of the third sector
in England. Among the many roles in her
career, Geeta was Director of Payment
Services with HBOS plc and previously
Managing Director, UK Retail Bank and
Business Development Head EME at
Citigroup. She is a chartered accountant.
External appointments
Senior Independent Director and Chair
of the Audit Committee of Funding Circle
Holdings Plc, Non-Executive Director
and Chair of the Remuneration Committee
of Dechra Pharmaceuticals PLC, Non-
Executive Director of Intrum AB (publ) and
Trustee of the Old Vic Theatre Trust 2000.
Elena’s extensive understanding of
customer centric digital first organisations
and the technology ecosystem gained
over a 20 year international career, brings
a wealth of experience to the Board.
Elena’s most recent role was Managing
Director Europe Digital at Entain plc
and before that she was Executive
Vice President of International at Remitly,
a leading disruptor in the app first
digital remittance space, appointed to
internationalise, scale and drive company
growth as a leading digital money transfer
provider. Prior to this, Elena held senior
tech product and general management
positions at Expedia Inc. She also brings
an invaluable strategic perspective
from her time spent in the management
consulting role at Strategy& (part of
PricewaterhouseCoopers LLP) as well as
a strong financial acumen from her risk
and debt finance roles at Barclays PLC.
Elena is a strong advocate for diversity
and inclusion in the technology sector and
is a member of the ‘Women in Payments
Group’ and the Worshipful Company of
International Bankers. She is a regular
speaker at technology summits and forums.
Elena has hired, scaled and managed
multi-culture, ethnic, gender diverse
pan-European teams and implemented a
number of diversity and inclusion initiatives
across the organisations she has worked in.
External appointments
None.
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Elena
Novokreshchenova
Independent
Non-Executive Director
AUDIT GOV REM RISK
Joined the Group
March 2021.
Skills, experience and contribution
> Extensive experience in leading
disruptive technology organisations
across a range of sectors and
growth stages.
> Proven track record in formulating
and executing on digital strategy
and transformation.
> Deep understanding of delivering
value within innovative customer-
centric businesses.
> Significant strategic and risk
management experience.
Virgin Money Annual Report & Accounts 2023Governance
Strategic report
Governance
Board Chair’s introduction
Our Board of Directors
Our Executive Leadership Team
Governance report
Stakeholder engagement
and Board decision making
(Section 172(1) statement)
Governance and Nomination
Committee report
Audit Committee report
Risk Committee report
Directors’ remuneration report
Directors’ report
Risk report
Climate-related disclosures
Financial statements
Additional information
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Our Board of Directors
Non-Executive Directors
Darren Pope
Independent
Non-Executive Director
REM AUDIT GOV RISK
Joined the Group
October 2018.
Skills, experience and contribution
> Extensive retail banking and financial
services background.
> Significant board level strategic
and financial leadership experience
including investor relations, strategy,
corporate development, treasury
and finance.
> Governance and deep regulatory
experience.
> Strong experience of boards at both
executive and non-executive level.
Darren brings considerable and highly
relevant experience in retail banking and
financial services from a career spanning
more than 30 years, during which he held
senior and board level positions as a
Chief Financial Officer (CFO) and finance
director. His in-depth understanding of
financial and risk matters and experience
of managing relations with investors and
regulators provides an excellent foundation
for his role as Chair of the Remuneration
Committee. Darren has strong experience
of board governance including as a senior
independent director and as chair of audit
committees. At Network International
Holdings plc, Darren has led the board
on the development and monitoring of all
components of the ESG strategy and has
provided input to the ESG strategies of
other boards he is involved in. His previous
appointments include Senior Independent
Director and Chair of the Audit Committee
of Equiniti Group plc and CFO of TSB Bank
plc where he led the divestment of the
TSB business from Lloyds Bank plc and
its subsequent IPO and takeover. Prior to
that he held several executive and senior
retail banking and finance roles at Lloyds
Banking Group plc.
External appointments
Senior Independent Director and Chair
of the Audit Committee at Network
International Holdings plc, Non-Executive
Chairman at HSBC Innovation Bank Limited
and Non-Executive Director and Chair of
the Audit Committee at Hargreaves
Lansdown plc.
Sara is an independent Non-Executive
Director of BT Group plc (BT) and a
member of BT’s Audit & Risk and
Nominations Committees and she chairs
the Responsible Business Committee.
This committee develops and oversees
BT’s business approach to sustainability,
including environmental commitments,
diversity targets and social inclusion
programmes. Sara is the Chair of the
Money and Pensions Service, an arm’s
length body of the Department for Work
and Pensions focused on improving
financial capability and decision making
of those most in need of help. Sara is
also currently Chair of the Remuneration
Committee at New College, University
of Oxford. Sara’s previous roles include
managing director of Argos and various
senior positions at J Sainsbury, including
deputy managing director and serving
on its board between 2002 and 2004.
Sara was a Non-Executive Director of
Lloyds Banking Group from February 2012
to May 2021, United Utilities Group from
March 2012 to July 2020 and she was
also a member of the Stop MS Campaign
Board, part of the MS Society charity until
July 2023. She was also the lead non-
executive director at the Department for
Work and Pensions from April 2017 until
April 2020. She has also previously been
a Non-Executive Director of Mitchells &
Butlers and held senior management roles
at Abbey National and Mars Confectionery.
External appointments
Independent Non-Executive Director of
BT Group plc, Chair of the Money and
Pensions Service board and Chair of the
Remuneration Committee at New College,
University of Oxford.
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Sara Weller CBE
Non-Executive Director
GOV
Joined the Group
October 2022.
Skills, experience and contribution
> A broad perspective coming from
a background in retail, fast moving
consumer goods and financial
services.
> Strong board experience at both
executive and non-executive level.
> Extensive business leadership
experience in the UK and
internationally.
Sara is the Representative Director
of Virgin Enterprises Limited.
Virgin Money Annual Report & Accounts 2023Governance
Strategic report
Governance
Board Chair’s introduction
Our Board of Directors
Our Executive Leadership Team
Governance report
Stakeholder engagement
and Board decision making
(Section 172(1) statement)
Governance and Nomination
Committee report
Audit Committee report
Risk Committee report
Directors’ remuneration report
Directors’ report
Risk report
Climate-related disclosures
Financial statements
Additional information
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Our Board of Directors
Group Company Secretary
Lorna was appointed Group Company
Secretary in January 2019 and prior
to that was Company Secretary from
October 2014. She has broad experience
and knowledge gained from nearly
30 years in the Group having held various
roles in personal and business banking,
wholesale banking, risk management
and legal and governance areas.
Lorna McMillan
Group Company
Secretary
Joined the Group
September 1994.
Skills, experience and contribution
> Extensive board, governance and
general management experience.
> Significant banking and risk
management experience.
> Extensive financial services experience
gained over nearly 30 years.
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Strategic report
Governance
Board Chair’s introduction
Our Board of Directors
Our Executive Leadership Team
Governance report
Stakeholder engagement
and Board decision making
(Section 172(1) statement)
Governance and Nomination
Committee report
Audit Committee report
Risk Committee report
Directors’ remuneration report
Directors’ report
Risk report
Climate-related disclosures
Financial statements
Additional information
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Our Executive
Leadership Team
The Executive Leadership Team is responsible for delivering the
initiatives that underpin the Group’s strategic priorities as detailed
in the Strategic report. The team operates under the direction
and authority of the Chief Executive Officer.
Read the biographies of our Executive Leadership Team members on our website
(www.virginmoneyukplc.com/about-us/executive-leadership-team).
David Duffy
Chief Executive Officer
Clifford Abrahams
Chief Financial Officer
Syreeta Brown
Group Chief People and
Communications Officer
Allegra Patrizi
Managing Director,
Business and Commercial
James Peirson
General Counsel and
Purpose Officer
Susan Poot
Chief Risk Officer
Sarah Wilkinson
Chief Operating Officer
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Strategic report
Governance
Board Chair’s introduction
Our Board of Directors
Our Executive Leadership Team
Governance report
Stakeholder engagement
and Board decision making
(Section 172(1) statement)
Governance and Nomination
Committee report
Audit Committee report
Risk Committee report
Directors’ remuneration report
Directors’ report
Risk report
Climate-related disclosures
Financial statements
Additional information
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Board leadership and Company Purpose
How our
Board operates
The role of the Board and our governance framework
The Board is collectively responsible for promoting the
long-term sustainable success of the Group generating
value for shareholders, ensuring the interests of all
stakeholders and the Group’s contribution to wider
society are fully understood and considered. You can
read more about how the Board engages with
stakeholders and the Directors’ statement of compliance
with their duties under section 172 of the Companies
Act 2006 on pages 98 to 104.
At the date of this report, the Board comprises eight
members, being the Board Chair, two Executive
Directors, four independent Non-Executive Directors
and one Non-Executive Director appointed by Virgin.
The names of the Directors together with their
biographies, including their skills, experience and
contribution to the Board and their significant external,
including director, appointments are on pages 80 to 84.
Board governance framework
Virgin Money UK PLC Board(1)
Responsible for the overall leadership of the Group
Governance
and Nomination
Committee
> Reviews the composition
of the Board
> Considers succession
planning arrangements
for Board, Board
committee and
Executive Leadership
Team roles
> Recommends
to the Board the
appointment of
new Directors and
reappointment of
serving Directors
> Oversees the annual
Board Performance
Review
Audit Committee
Risk Committee
> Assesses the integrity
of the Group’s financial
and regulatory reporting
and disclosures
> Monitors and
recommends to the
Board the Group’s
RAS and RMF
> Oversees the
effectiveness
of the Group’s
financial controls
> Reviews the activities
and performance of
Internal Audit and the
External Auditor
> Reviews and
monitors the Group’s
whistleblowing
procedures
> Monitors the Group’s risk
profile including principal
and emerging risks
and financial and non-
financial internal controls
> Reviews the
effectiveness of systems
and controls for the
prevention of bribery
and fraud
> Oversees conduct
and compliance
> Reviews the
effectiveness of
the Risk function
Remuneration
Committee
> Develops and
recommends the
remuneration strategy
and policy for the Group
> Engages with investors
on aspects of the
Directors’ remuneration
policy
> Reviews and approves
the remuneration
of the Board Chair,
Executive Directors,
Executive Leadership
Team members and
certain other senior
Group employees
> Oversees other
remuneration issues
Read more on pages
108 to 114.
Read more on pages
115 to 122.
Read more on pages
123 to 127.
Read more on pages
129 to 158.
(1) From time to time the Board may also establish special purpose committees to assist it in overseeing specific areas and usually such committees
operate only for a defined period. The Board established a Digital & Technology Committee in FY23 to undertake specific oversight and deep dive
reviews of major technology change programmes. See page 113 for more information on the Digital & Technology Committee.
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Strategic report
Governance
Board Chair’s introduction
Our Board of Directors
Our Executive Leadership Team
Governance report
Stakeholder engagement
and Board decision making
(Section 172(1) statement)
Governance and Nomination
Committee report
Audit Committee report
Risk Committee report
Directors’ remuneration report
Directors’ report
Risk report
Climate-related disclosures
Financial statements
Additional information
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Board leadership and Company Purpose
How our Board operates continued
The Board’s role is to provide leadership of
the Company and to set the Group’s strategy,
including our ESG strategy, ensuring the
necessary resources, policies and procedures
are in place for the Group to meet its strategic
priorities and to monitor and measure
performance against them. The Board
establishes and maintains an effective risk
management and internal control framework
and determines the nature and extent of the
risks the Group is willing to take to achieve
its long-term strategic ambition through the
approval of the Group’s risk appetite. The Board
is responsible for setting the Group’s Purpose,
values and behaviours and under the leadership
of the Board Chair, establishes the Company’s
culture regularly assessing and monitoring
culture for alignment with our Purpose and
values. You can read more about how the Board
discharged its role during the year in the Board
activities section of this report starting on page
92, which sets out the key focus areas and
decisions of the Board.
Our governance framework, encompassing
the Board, Board committees and the executive
committees (described on page 168) facilitates
the delivery of Virgin Money’s Purpose-driven
strategy and decision making. The Board is
the ultimate decision-making body for matters
of Group-wide strategic, financial, regulatory,
cultural, governance or reputational significance
and the decisions reserved solely for the Board
are set out in the Board Charter available on
our website (www.virginmoneyukplc.com).
The Board is supported in its work by its
committees, as illustrated in the ‘Board
governance framework’ diagram on page 87,
which make decisions and recommendations
on matters delegated to them as set out
in each committee Charter (available at
www.virginmoneyukplc.com). Each Board
committee has a membership comprising
Non-Executive Directors only and has an
experienced Chair. The Board agenda includes
time at the start of the meeting for each
committee Chair to report on the main points
of discussion at a committee meeting and
on any recommendations for the Board’s own
decision making. This structure enables the
Board to prioritise its time on a more strategic,
forward-looking agenda. You can read more
about the focus areas of each Board committee
in their own reports beginning on page 108.
The Board has delegated the responsibility for
making and implementing operational decisions
and for running the Group’s business on a
day-to-day basis to the Chief Executive Officer
who is supported by the Executive Leadership
Team, and other executive committees, to help
him discharge his responsibilities, with the
Board retaining ultimate responsibility for
providing oversight and holding management
to account through constructive challenge,
advice and support.
ESG embedded in our governance framework
Our ESG strategy and driving a positive social
and environmental impact is a core part of
our broader Group strategy and there is clear
alignment between our ESG goals and our
strategic priorities. The Board governance
framework supports the Board in overseeing
the progress being made against these goals
and the future areas of focus through regular
updates at Board and committee meetings,
informed by external insights when required.
Through the strategic planning process the
Board reviews and challenges whether our
ESG priorities remain the right ones when
considering stakeholder perspectives.
You can read more about our ESG goals,
key achievements in 2023 and areas of future
focus, including specific climate-related risks
and opportunities, on pages 31 to 53.
Board members possess a variety of skills
and experience relating to ESG matters which
are highlighted in the Directors’ biographies
on pages 80 to 84.
The Board delegates some ESG oversight
and decision making to the principal Board
committees as outlined in the diagram on
page 89 and further information on each
committee’s ESG activities during the year is
included in their individual reports beginning
on page 108.
Board and committee operations
The Board held ten scheduled meetings during
the year and attendance is set out on page 76.
During the year the Board switched to a hybrid
approach to its meetings, holding an increasing
number in person in October, March, May, June,
July and September with the others taking place
virtually. The Board also holds ad hoc meetings
when matters of a time-critical nature need
escalating for information or decision. During
the year, the Board Chair continued the practice
of holding several meetings of Non-Executive
Directors without the Executive Directors
present and the Senior Independent Director
met with Non-Executive Directors without the
Board Chair present to undertake the annual
review of the Board Chair’s performance.
All Directors are expected to attend each Board
meeting and the meetings of Board committees
of which they are a member. In the rare event
that a Director is unable to attend a meeting,
they nonetheless receive the agenda and
papers and have the opportunity to discuss
with, or notify, the relevant Chair or the Group
Company Secretary of any matters they wish to
raise and to confirm their support or otherwise
for the matters on the agenda requiring a
decision. The Board or committee Chair then
represents those views at the meeting.
The Board Chair leads the agenda setting
process, which is summarised below, with the
Group Company Secretary who maintains a
rolling calendar of items to be covered by the
Board during the year. The process ensures
that the Board’s time is prioritised to focus on
the most material strategic and business critical
items, including those items reserved for its
own decision making.
The Board Chair ensures Board meetings are
structured to facilitate open discussion, debate
and challenge, with relevant members of the
management team invited for specific agenda
items to participate in the discussion, respond
to any questions arising and to ensure they
can quickly take forward any follow-up actions.
Depending on the topic, internal and external
subject matter experts are also invited to join
Board and committee meetings which provides
Directors with the opportunity to gain deeper
insight and build their knowledge.
Matters route to the Board and Board
committees via the executive governance
framework and relevant items are recommended
to the Board for approval from Board
committees. This escalation process ensures
the Board is engaged on the right matters
and has the right information to help Directors
make decisions.
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Strategic report
Governance
Board Chair’s introduction
Our Board of Directors
Our Executive Leadership Team
Governance report
Stakeholder engagement
and Board decision making
(Section 172(1) statement)
Governance and Nomination
Committee report
Audit Committee report
Risk Committee report
Directors’ remuneration report
Directors’ report
Risk report
Climate-related disclosures
Financial statements
Additional information
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Board leadership and Company Purpose
How our Board operates continued
Board ESG responsibilities
Virgin Money UK PLC Board
Responsible for the long-term sustainable success of Virgin Money
Governance
and Nomination
Committee
> Keeps the Board’s composition,
skills and experience (including
with regard to ESG matters)
under review to ensure sufficient
diversity on the Board
> Recommends the Board
Diversity and Inclusion Policy
to the Board, monitors
implementation of the policy
and progress towards achieving
the targets set for gender and
ethnicity on the Board
> Tracks progress on targets for
gender diversity across senior
roles and the broader workforce
> Ensures diversity and inclusion
is given sufficient prominence
in succession planning and
talent management
Audit Committee
> Oversees the Group’s financial
statements and non-financial
disclosures, including climate-
related financial disclosures
> Considers, and recommends to
the Board, whether the Annual
Report and Accounts is fair,
balanced and understandable
and provides the information
necessary for shareholders to
assess the Group’s performance,
business model and strategy
including in relation to
ESG matters
>
In conjunction with the
Risk Committee, approves the
statement on risk management
and internal controls, including
climate risk, for inclusion in
the Annual Report and Accounts
Risk Committee
> Advises the Board on
Remuneration
Committee
> Ensures the Group’s approach
to remuneration rewards the
delivery of the Group’s strategy,
including the sustainability
strategy, with performance
metrics aligned to Group KPIs
and strategic priorities
> Approves the annual
Gender Pay report
> Ensures long-term incentives
are appropriately aligned to short
and medium-term ESG targets
> Reviews progress on the Group’s
diversity targets and considers
how the Group’s remuneration
policies and practices deliver
fair outcomes for colleagues
the principal, current and
emerging risks facing the Group
including receiving reports on
the risk profile associated with
climate change; oversees
the approach to climate risk
disclosures; and oversees
the activity to embed the
identification, assessment
and management of climate
change into the risk
management process
> Recommends to the Board the
Group’s RAS which includes
climate risk
>
In conjunction with the
Audit Committee, approves the
statement on risk management
and internal controls, including
climate risk, for inclusion in the
Annual Report and Accounts
> Approves policy statements
aligned to principal risks.
Supporting policy standards
govern ESG-related topics
including sustainability
and responsible lending
The process for agenda setting, the focus
of the Board’s time, quality of reporting and
escalation of issues are regularly reviewed
as part of the Board Performance Review
with improvements made where necessary to
ensure the ongoing effectiveness of the Board.
During the year an externally facilitated Board
Performance Review was conducted which
is described in detail in the Governance and
Nomination Committee report on page 108.
During Board days, time is also allowed
for committee meetings, strategy sessions,
deep dives and other more informal sessions
for example into areas of strategic importance
or on emerging issues of relevance to
the Board.
Between Board meetings, Directors are
provided with regular updates on material
issues from the Chief Executive Officer and
members of the Executive Leadership Team.
The management of all Board committees
is on the same basis as the Board. Details of
committee membership and attendance at
meetings are set out on page 76 and you
can read about committee activities during
the year in each committee report beginning
on page 108.
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Strategic report
Governance
Board Chair’s introduction
Our Board of Directors
Our Executive Leadership Team
Governance report
Stakeholder engagement
and Board decision making
(Section 172(1) statement)
Governance and Nomination
Committee report
Audit Committee report
Risk Committee report
Directors’ remuneration report
Directors’ report
Risk report
Climate-related disclosures
Financial statements
Additional information
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Board leadership and Company Purpose
How our Board operates continued
Board agenda setting and meeting process
Start of the
Board year
Setting the
agenda for
each Board
meeting
The Board Chair and Group Company Secretary agree a calendar of Board agenda
items for the year; the Chief Executive Officer and Executive Leadership Team
also input.
The Group Company Secretary drafts the Board agenda and discusses it with the
Board Chair, also keeping the Chief Executive Officer updated. The prioritisation
and allocation of time for the most material matters is agreed.
The Board pack
is prepared
and issued
The Group Company Secretary reviews all reports to ensure they are succinct and
focused on the most relevant information. The Board pack is then published on a
secure electronic Board portal usually one week prior to the Board meeting to ensure
Directors have sufficient time to fully prepare for the meeting and request additional
information if necessary.
The Board day
The Board Chair holds a private session with Non-Executive Directors to agree
the matters of concern or focus which they would specifically like to discuss during
the meeting.
A typical Board meeting will start with reports from each Board committee Chair and
an update from Directors on key messages from workforce engagement sessions
followed by a report from the Chief Executive Officer covering progress on strategic
delivery and various internal and external stakeholder matters. The Board then
focuses on matters requiring its approval followed by updates from Executive
Leadership Team members on financial and business performance, customer
experience and customer service, other stakeholder matters and risk and
governance topics. Following the Board meeting, Non-Executive Directors usually
hold a further private session without management present.
After the
meeting
The Group Company Secretary produces the minutes and circulates actions from
the meeting and meets with the Board Chair to review the effectiveness of the
meeting and to agree the immediate points of follow up.
Information and support
The Board Chair, working with the Group
Company Secretary and with the support
of management, is responsible for ensuring
communication flows between the Board and
its committees and that information received
by the Board is of high quality to inform sound
decision making and to promote the success
of Virgin Money. In addition to the main Board
papers, supplementary background material
is regularly provided via a Board Library on the
electronic Board portal and Directors can seek
clarification or further detail from management
where necessary. All Directors have access
to the advice of the Group Company Secretary
and other resources to support them in
performing their role. Additionally, in appropriate
circumstances, Directors may obtain, at the
Group’s expense, independent professional
advice where they judge it necessary to
discharge their responsibilities as Directors.
Professional development and induction
The Board Chair is responsible for leading the
development and training of the Board taking
into account a range of factors including the
output of the annual Board Performance Review
and the evaluation of each Director’s own
performance. Directors have access to a wide
range of briefing and training sessions and
other professional development opportunities.
Directors are committed to their own
professional development and undertake the
training they consider necessary to assist them
in carrying out their duties and responsibilities.
The Group Company Secretary maintains
a training and development log for each
Non-Executive Director which is an input
to the periodic review of their training and
development needs with the Board Chair and
she also coordinates Board training activities
for the year.
During 2023, collective Board training topics
reflected the areas of focus for the Board and
included externally facilitated sessions to test
how the Group would respond to a resolution
scenario in relation to the BoE’s Resolvability
Assessment Framework including the Board
and senior management responsibilities; a
session focusing on cybersecurity capabilities
and industry standards; and an incident
management exercise focusing on a
cyberattack. Internally facilitated training
included a session focusing on the new
Consumer Duty requirements and the work
to embed the duty across Virgin Money and
additionally Directors undertook the same online
‘Professional Passport’ training as colleagues
which in 2023 covered topics such as the Code
of Conduct; ESG; anti-bribery, fighting fraud,
financial crime and tax evasion; vulnerable
customers; and the Group’s whistleblowing
programme. Committee specific training is
agreed with committee Chairs as needed.
The Board Chair ensures that each new
Director receives a formal induction tailored
to their individual requirements, skills and
experience which the Group Company
Secretary coordinates. The aim of the induction
is to bring Virgin Money and its strategic
journey to life and to equip the new Director
with the knowledge necessary to perform their
role. Induction activity therefore aims to build
an understanding of the Group’s strategy,
business and markets; an awareness of
current challenges and opportunities; a link
with colleagues both at leadership and
operational level; an understanding of the
Group’s main stakeholder relationships and
areas of focus including regulators, government,
major shareholders including Virgin Group
Holdings Limited; and an appreciation of the
framework within which the Board operates
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Board performance
The effectiveness of the Board governance
framework incorporating the Board, its
committees and individual Directors is reviewed
annually in line with the requirements of the
Code. You can read more about the 2023 Board
Performance Review in the report of the
Governance and Nomination Committee on
page 111 and in the reports from each other
Board committee.
Strategic report
Governance
Board Chair’s introduction
Our Board of Directors
Our Executive Leadership Team
Governance report
Stakeholder engagement
and Board decision making
(Section 172(1) statement)
Governance and Nomination
Committee report
Audit Committee report
Risk Committee report
Directors’ remuneration report
Directors’ report
Risk report
Climate-related disclosures
Financial statements
Additional information
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How our Board operates continued
including Virgin Money’s culture. Additionally,
a Director taking on a senior management
function role as prescribed under the Senior
Managers and Certification Regime undertakes
a full and formally documented handover of
responsibilities with the outgoing role holder
and induction is also tailored if any new or
serving Director is taking on a specific Board
role such as a committee Chair.
Various delivery methods are used for induction
activity including meetings and deep dive
sessions with members of the Executive
Leadership Team and other internal or external
subject matter experts where appropriate
including the External Auditor and advisers;
site visits to stores and operational areas;
tailored reading and briefing packs and external
training. All new Directors receive a copy of
the Group’s Non-Executive Director Handbook
which provides a single reference source for
information about the corporate governance
of the Group, their role as a Director, Board and
committee operations and Board policies and
operations. The induction plan and Handbook
are supported by additional reference material,
including past Board and committee papers,
available on the Board portal. Depending on
an incoming Director’s experience, a serving
Non-Executive Director may act as mentor
to provide additional support during their first
few months and regular one-to-one meetings
take place with the Board Chair throughout
the induction period to check progress.
Sara Weller, who joined the Board on
3 October 2022, received a tailored induction
following the approach and covering the topics
outlined above.
Monitoring time commitment
Non-Executive Directors are informed of
the minimum time commitment required prior
to their appointment and they are expected
to devote sufficient time to the Company to
discharge their duties effectively. A Director’s
preparation for, and attendance at, Board
and Board committee meetings is only part of
their role as time is also required for meetings
with customers, shareholders, regulators
and colleague events and for professional
development and training, for example.
When making new appointments, the Board
considers other demands on a Director’s time
and prior to appointment a prospective new
Director must disclose all of their existing
significant commitments including significant
director appointments, as defined in the Board
Charter, and other appointments along with the
time involved. An analysis is undertaken of the
time a Director will have available for their Virgin
Money Board role given the other demands
on their time, the output of which is reported
to the Governance and Nomination Committee.
Any concerns about capacity or potential
over-boarding are discussed with the incoming
Director and actions to address these concerns
are agreed, such as reducing the number of
external commitments. For serving Directors,
proposed external appointments must be
agreed with the Board Chair and disclosed to
the Board before taking on the role and similarly
to incoming Directors an assessment is also
undertaken of a range of factors including
capacity and time commitment, independence
and conflicts of interest. The Board reviews the
expected minimum time commitment for Virgin
Money roles annually and the Governance and
Nomination Committee periodically reviews the
number of external appointments held by each
Director reporting to the Board.
External appointments, including significant
director appointments, are set out in each
Director’s biography on pages 80 to 84.
No Director took on a new significant director
appointment, as defined in the Board Charter,
during the year and no Executive Director has
either taken up more than one non-executive
director role at a FTSE 100 company or other
significant appointment. Following this year’s
general review, the Board is satisfied that
all external appointments held by Directors
are appropriate and that each Director has
sufficient time to undertake their Virgin Money
roles effectively taking into account their
other commitments.
Managing conflicts of interest
There is a well-embedded process for the
Board’s management of conflicts of interest and
authorisation of certain conflicts as permitted
under its powers. Each Director is required
to notify the Board of any actual or potential
situational or transactional conflicts of interest
and must keep the Board updated on any
changes to the factors and circumstances
surrounding such conflicts. Actual or potential
conflicts of interest are assessed when a new
Director joins the Board and are periodically
reviewed, with time at the outset of each Board
meeting for Directors to declare any conflicts
in relation to the matters on the Board’s agenda.
Situational conflicts can be authorised by the
Board in accordance with the Companies Act
2006 and the Company’s Articles of Association.
The Board considers each request for
authorisation on a case-by-case basis and
has the power to impose conditions or
limitations on any authorisation it grants. Details
of all Directors’ conflicts of interest are recorded
in a register maintained by the Group Company
Secretary and reviewed by the Board annually.
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Strategic report
Governance
Board Chair’s introduction
Our Board of Directors
Our Executive Leadership Team
Governance report
Stakeholder engagement
and Board decision making
(Section 172(1) statement)
Governance and Nomination
Committee report
Audit Committee report
Risk Committee report
Directors’ remuneration report
Directors’ report
Risk report
Climate-related disclosures
Financial statements
Additional information
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Board activities
The Board’s engagement in the
strategic planning process
Building on the operating rhythm established
in prior years, the Board participated in a series
of strategy focused discussions leading to the
production of the final Strategic and Financial
Plan approved by the Board in October.
This included round table discussions in May,
July and September informed by management
presentations and stakeholder input and
more informal updates and information sharing
sessions. Further information on the Group’s
strategy is set out on pages 18 to 30 of the
Strategic report. The Board retained its focus
on overseeing and monitoring execution of the
Strategic and Financial Plan through receiving
regular reports and monitoring KPIs as noted in
the ‘Key areas of focus in FY23’ section below.
Throughout this year’s strategic planning
process the Board considered the Group’s
strategy in the context of a volatile
macroeconomic and changing geo-political
environment. While the outlook remains
uncertain in the short term, the Board agreed
that the Group’s prudent risk appetite and
positioning on liquidity, funding and capital and
the ongoing focus on customers and digitisation
positions Virgin Money for success and that the
Purpose-led, digital strategy remains the right
one despite the changing environment.
In considering strategic matters the Board
also considered the views and interests of
shareholders and other stakeholders, which
remains a key area of focus for the Board, and
you can read more about this in our stakeholder
engagement and Board decision making section
of this report beginning on page 98. The Board
had particular regard to the financial pressures
customers may face given the challenges on
cost of living due to inflation and rising interest
rates and was kept informed on the support
being delivered for our customers. The Board
heard about various support measures including
our cost of living hub driven by our Purpose,
which anyone can access on Virgin Money’s
website, offering competitive savings rates
and boosting our support through government
initiatives such as the Mortgage Charter. You
can read more about how we are supporting
customers in the Strategic report on page 20.
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Strategic report
Governance
Board Chair’s introduction
Our Board of Directors
Our Executive Leadership Team
Governance report
Stakeholder engagement
and Board decision making
(Section 172(1) statement)
Governance and Nomination
Committee report
Audit Committee report
Risk Committee report
Directors’ remuneration report
Directors’ report
Risk report
Climate-related disclosures
Financial statements
Additional information
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Board activities continued
Key – Group strategic priorities
Super
straightforward
efficiency
Stakeholders
CU Customers
CO Colleagues
Delighted customers
and colleagues
Discipline and
sustainability
Pioneering
growth
S
I
Society
Investors
PS Partners and suppliers
GR Government and regulators
Set out on the following pages are some of the key focus areas and decisions of the Board during the year and the links to our strategic priorities and the stakeholder groups central to those focus areas.
Key areas of focus in FY23
Matters approved
Other matters considered
Strategic priority
Stakeholder
Strategy setting
and monitoring
> Group’s Strategic and Financial Plan
> Held strategy sessions with management throughout
> Agreed a multi-year investment programme for the Group
including specific investment focused on improving
regulatory resilience
the strategic planning process for FY24
> Oversaw execution of the Strategic and Financial Plan
> Received updates on major projects initiated to further
simplify and strengthen operations, IT infrastructure,
cybersecurity and governance
Building an inclusive
and equitable
culture driven
by our Purpose
> Supported the five-year People vision and strategy
> Reviewed the annual MyVoice colleague engagement
> Agreed the Workforce Engagement Programme for the year
> Updated the Board Diversity and Inclusion Policy and targets
survey results and Pulse updates
> Received reports on the strength and depth of talent
and succession plans and on Virgin Money’s DE&I ambitions
and progress
> Received reports from the Whistleblowers’ Champion
including on the whistleblowing process and activity
> Kept updated on the evolution of the A Life More Virgin
colleague proposition including the financial, wellness
and career journey support for colleagues
> Tracked progress in continuing to embed our Purpose
of Making you happier about money
Customers
> Agreed the Consumer Duty implementation plan
> Kept updated on customer support strategies, including
> Supported the next phase of the Virgin Money Store strategy
for vulnerable customers, in view of cost of living pressures
> Supported proposed management actions to improve
customer experience and complaints management
> Had an in-depth session on complaints management
and improvements needed
> Deep dive on the customer proposition and progress
in Business lending
> Received reports on progress in personal and business lending
> Received reports from the Chief Operating Officer
on customer service, complaints, IT and operations
CU
CO
S
I
PS
GR
CO
S
CU
CO
S
GR
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Strategic report
Governance
Board Chair’s introduction
Our Board of Directors
Our Executive Leadership Team
Governance report
Stakeholder engagement
and Board decision making
(Section 172(1) statement)
Governance and Nomination
Committee report
Audit Committee report
Risk Committee report
Directors’ remuneration report
Directors’ report
Risk report
Climate-related disclosures
Financial statements
Additional information
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Board leadership and Company Purpose
Board activities continued
Matters approved
Other matters considered
Strategic priority
Stakeholder
Finance
> Strategic and Financial Plan, capital and funding plans
> BoE 2022 ACS Stress Test Results
>
ICAAP and ILAAP
> Launched further share buyback programmes
> Recommended the FY22 final dividend to shareholders
and approved the FY23 interim dividend
> Annual Report and Accounts (ARA), interim results
and trading updates and Pillar 3 disclosures
> Material Investments
> Received financial updates from the Chief Financial Officer
including key financial and KPI highlights, asset quality
and capital, funding and liquidity metrics
> Engaged on the corporate broker selection
and appointment process
> Reviewed macroeconomic, geo-political and market
conditions and the impact of these on the Group’s
performance and strategy and the response
Sustainability
and climate
> Reconfirmed the ESG Strategy, big goals and approved
> Received regular reports on progress with the ESG strategy
the net zero strategy and targets
> Considered an independent report from Risk on the
> ESG report and climate-related disclosures in the ARA
ESG strategy
> 2023 Modern Slavery Statement
> Agreed the Board statement on tax transparency
> Reviewed the Group’s position relative to PRA expectations
on the management of climate-related financial risk
Risk, regulatory
and governance
> The annual RAS and in-year changes
> Monitored the Group’s risk profile via reports from
> RMF
the Chief Risk Officer
> The self-assessment of operational resilience capability
> Had an in-depth session on cybersecurity and risk
and the operational resilience strategy
> Received reports on the Group’s participation in the BoE
> BoE Resolvability Assessment Framework self-assessment
cyber stress test
> Finalised the AGM Notice of Meeting and arrangements
> Agreed an action plan responding to recommendations
from the Board Performance Review
> Discussed regulatory matters including the PRA Periodic
Summary Meeting letter with the PRA
CU
CO
S
I
PS
GR
CU
CO
S
I
PS
GR
CU
I
GR
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Strategic report
Governance
Board Chair’s introduction
Our Board of Directors
Our Executive Leadership Team
Governance report
Stakeholder engagement
and Board decision making
(Section 172(1) statement)
Governance and Nomination
Committee report
Audit Committee report
Risk Committee report
Directors’ remuneration report
Directors’ report
Risk report
Climate-related disclosures
Financial statements
Additional information
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Board leadership and Company Purpose
Governance
spotlights
Delivering good customer outcomes
The FCA’s new Consumer Duty, which sets
higher and clearer standards of consumer
protection across financial services, came
into force in July 2023 requiring firms to
provide customers with products and services
that meet their needs and offer fair value
supported by information and communications
they can understand and the help they need,
when they need it. Our Purpose of Making
you happier about money is synonymous
with providing good customer outcomes
and at Virgin Money we’ve adopted the new
Consumer Duty by taking a Purpose-focused,
data-led decision-making approach ensuring
the Consumer Duty weaves throughout
everything we do from the conversations
we have with customers, to the products
we design, the policies we operate and the
suppliers we work with.
During the year the Board closely monitored
the implementation of Consumer Duty with the
Board Risk Committee overseeing related risks.
At the start of the implementation programme
in 2022 the Board appointed Non-Executive
Director Elena Novokreshchenova as
Consumer Duty Champion who worked with
the Board Chair, Chief Executive Officer and
Chief Operating Officer to ensure the topic
received focus in Board and senior stakeholder
discussions in addition to providing support
to management and attending and reporting
back on industry forums on the subject.
The timeline on the right shows how the Board
was kept engaged throughout the programme
by the Chief Operating Officer and senior
management.
Looking ahead, now that Virgin Money has
met the initial FCA requirements, there will
be more work to do over the coming months
to meet the second phase requirements by
Summer 2024, to further develop our product
and service design protocols, to mature the
Customer Outcomes Testing function and to
ensure the principles of Consumer Duty are
deeply embedded in every aspect of the way
we conduct business. The Board will continue
to keep closely involved in overseeing progress.
Focus of Board discussion or update
September 2022
> Briefing on programme mobilisation, key considerations and challenges;
overview of Board responsibilities
October 2022
February 2023
March 2023
April 2023
May 2023
June 2023
> Approved the implementation plan and approach; overviewed risks
and risk mitigation
> Deep dive on product and service assessments and gaps to Consumer
Duty outcomes
> Programme progress report; reviewed the proposed Customer Outcomes
Testing operating model
> Programme progress report; reviewed the refreshed materiality framework
for assessing product and service gaps
> Programme progress report; update on gaps identified from refreshed
materiality framework; update on risks and risk mitigation
> Consumer Duty training module launched for completion by all colleagues,
also completed by Directors
> Programme progress report; reviewed progress in remediating product
and service gaps, price and fair value assessments and customer
communications; update on establishing Customer Outcomes
Testing function
> All people leaders hosted a discussion on what embedding Consumer
Duty means for their team
> Role specific training and communications including for colleagues
interacting directly with customers
July 2023
> Programme progress report; reviewed independent reports from Risk
and Internal Audit
> Virgin Money meets the FCA’s 31 July deadline for Consumer Duty
September 2023
> Deep dive on looking ahead to fully embed the Consumer Duty
governance and operating model including on outcomes testing and price
and fair value assessments
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Virgin Money Annual Report & Accounts 2023Governance
Strategic report
Governance
Board Chair’s introduction
Our Board of Directors
Our Executive Leadership Team
Governance report
Stakeholder engagement
and Board decision making
(Section 172(1) statement)
Governance and Nomination
Committee report
Audit Committee report
Risk Committee report
Directors’ remuneration report
Directors’ report
Risk report
Climate-related disclosures
Financial statements
Additional information
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Board leadership and Company Purpose
Governance spotlights continued
Evolving our governance framework
aligned to our strategic priorities
The Board’s role in leading the development
of the Group’s culture, values and behaviours
The Group remains highly focused on driving
efficiency across the organisation and during
the year the Board provided input to a review
of the Group’s governance arrangements
initiated by the Chief Executive Officer.
The aim of the review, principally focused at
the executive committee level, was to ensure
that the governance framework supports
better execution at pace in a more agile
manner, removing duplication, improving
productivity, enhancing control with clarity
on roles, responsibilities and decision-making
authority.
The governance review is part of a broader
programme of work receiving Board focus
as we strengthen and improve our oversight,
risk management and operational competence
to meet the regulatory expectations of Virgin
Money as a systemically important firm.
Initial findings, opportunities and
recommendations were reported to the
Executive Leadership Team in March 2023
and covered committee structure; committee
use; providing clarity on how the governance
framework is used and where authority for
decision making and oversight sits; the
interplay with Agile ways of working; and
resetting cultural expectations. Additionally
a working group was established to focus
on process improvement opportunities.
Some of the key changes delivered included:
>
>
> setting up a new Operating Committee
chaired by the Chief Operating Officer
tasked with ensuring Virgin Money is well
run with an agenda spanning operational
performance, product and service
quality, oversight of major investment
programmes, customer experience and
customer outcomes;
realigning the Executive Leadership Team
to have a stronger focus on setting the
Strategic and Financial Plan and overseeing
its implementation and delivery;
removing four committees and other
steering groups from the framework and
transferring their responsibilities principally
to the new Operating Committee or to other
existing committees;
reviewing the risk, customer, conduct and
cost governance arrangements to ensure
the right level of oversight and controls
are in place while removing duplication.
This has included expanding the remit of
the Operational Risk Committee to be the
Non-Financial Risk Committee to cover all
non-financial risks; and
refreshing the guidance provided for Board
and committee reporting to ensure papers
are appropriately clear and focused with
the aim of materially reducing the volume of
papers produced for governance reporting
while improving quality.
>
>
Implementation plans taking forward the
recommendations were then mobilised
overseen by the General Counsel & Purpose
Officer on behalf of the Chief Executive Officer
with regular progress reports to the Executive
Leadership Team and Board throughout
the year.
In addition to this enterprise-wide review, the
Board and Board committees have kept the
Board governance framework under review
throughout the year including through the
Board Performance Review process described
in the Governance and Nomination Committee
report beginning on page 108.
The Board leads the development of Virgin
Money’s culture, values and behaviours led
by our Purpose which establishes us as a
bold, proactive, customer, colleague and
community focused business. The Board
assesses and monitors culture in various
ways to satisfy itself that the Company’s
purpose, values, strategy and culture
are aligned.
In October 2022 the Board was briefed
on the five-year People vision and strategy
covering colleague experience, enabling
growth and championing innovation themes.
Then in March 2023 the Group Chief People
and Communications Officer presented the
DE&I Strategy to the Board setting out a
series of practical ways to drive delivery
against the representation targets Virgin
Money has set itself. The Board has
monitored progress against these strategies
throughout the year.
Annually, in September, the Board receives
an in-depth report on the results of the
MyVoice colleague engagement survey
which measures employee sentiment and
gives insights on how colleagues feel about
working at Virgin Money. The Board was
pleased to learn that for 2023 sustainable
engagement had improved to 80% (from 79%
the previous year) with 82% of colleagues
reporting that they are proud to work at
Virgin Money. Throughout the year updates
following the Winter and Spring Pulse
surveys provided a check point on how
engagement is tracking and areas where
focus is needed, particularly as colleagues
feel the impact of the significant change
and transformation programmes underway
internally and the ongoing general economic
conditions and cost of living pressures.
Insights are also provided from the Culture
Assessments conducted by Internal Audit
which provide an independent analysis
of the culture in specific business areas
supplementing other culture measurement
tools. Culture Assessments use a
combination of surveys, leadership and
broader colleague focus groups and
selective in-depth interviews to measure the
alignment between Virgin Money’s intended
culture and the culture that colleagues
experience on the ground. Actionable
insights and areas of good practice are
identified. During the year the Culture
Assessment approach was refreshed and
a review was undertaken in the Business
Operations area with the outcomes reported
to the Audit Committee.
Our Workforce Engagement Programme
also provides Directors with insights on
the colleague experience at all levels across
Virgin Money. Board members engage
directly with colleagues on strategic and
other topics with outputs reported at the
next scheduled Board meeting following
each session ensuring these views are fully
considered in the Board’s decision making.
96
Examples of this are included in our s.172
report beginning on page 98. The key elements
of our Workforce Engagement Programme are
illustrated in the table on the right and the
combination of methods aims to provide
representation from across Virgin Money
ensuring the Board hears the broadest
spectrum of views. During the year the Board
hosted an in-person Colleague Connect session
at our Gosforth hub and members of the
Executive Leadership Team also hosted events
combining an in-person Q&A session and an
online element to maximise the opportunities
for colleagues to get involved.
Additional insight on the health of the
Company’s culture is gained from Board level
reporting from executives and includes insights
on colleague well-being, whistleblowing
disclosures, feedback following leadership and
organisational change and on Virgin Money’s
journey to building a fully inclusive workforce
and to improve diversity metrics. You can read
more about our inclusive workforce and culture
priorities in the Strategic report on page 23.
Virgin Money Annual Report & Accounts 2023Governance
Strategic report
Governance
Board Chair’s introduction
Our Board of Directors
Our Executive Leadership Team
Governance report
Stakeholder engagement
and Board decision making
(Section 172(1) statement)
Governance and Nomination
Committee report
Audit Committee report
Risk Committee report
Directors’ remuneration report
Then in March 2023 the Group Chief People
alignment between Virgin Money’s intended
Directors’ report
Risk report
Climate-related disclosures
Financial statements
Additional information
The Board’s role in leading the development
of the Group’s culture, values and behaviours
The Board leads the development of Virgin
feel the impact of the significant change
Money’s culture, values and behaviours led
and transformation programmes underway
by our Purpose which establishes us as a
internally and the ongoing general economic
bold, proactive, customer, colleague and
conditions and cost of living pressures.
community focused business. The Board
assesses and monitors culture in various
ways to satisfy itself that the Company’s
purpose, values, strategy and culture
are aligned.
Insights are also provided from the Culture
Assessments conducted by Internal Audit
which provide an independent analysis
of the culture in specific business areas
supplementing other culture measurement
In October 2022 the Board was briefed
tools. Culture Assessments use a
on the five-year People vision and strategy
combination of surveys, leadership and
covering colleague experience, enabling
broader colleague focus groups and
growth and championing innovation themes.
selective in-depth interviews to measure the
and Communications Officer presented the
culture and the culture that colleagues
DE&I Strategy to the Board setting out a
experience on the ground. Actionable
series of practical ways to drive delivery
insights and areas of good practice are
against the representation targets Virgin
identified. During the year the Culture
Money has set itself. The Board has
Assessment approach was refreshed and
monitored progress against these strategies
a review was undertaken in the Business
throughout the year.
Operations area with the outcomes reported
to the Audit Committee.
Annually, in September, the Board receives
an in-depth report on the results of the
Our Workforce Engagement Programme
MyVoice colleague engagement survey
also provides Directors with insights on
which measures employee sentiment and
the colleague experience at all levels across
gives insights on how colleagues feel about
Virgin Money. Board members engage
working at Virgin Money. The Board was
directly with colleagues on strategic and
pleased to learn that for 2023 sustainable
other topics with outputs reported at the
engagement had improved to 80% (from 79%
next scheduled Board meeting following
the previous year) with 82% of colleagues
each session ensuring these views are fully
reporting that they are proud to work at
considered in the Board’s decision making.
Virgin Money. Throughout the year updates
following the Winter and Spring Pulse
surveys provided a check point on how
engagement is tracking and areas where
focus is needed, particularly as colleagues
74
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Board leadership and Company Purpose
Governance spotlights continued
Examples of this are included in our s.172
report beginning on page 98. The key elements
of our Workforce Engagement Programme are
illustrated in the table on the right and the
combination of methods aims to provide
representation from across Virgin Money
ensuring the Board hears the broadest
spectrum of views. During the year the Board
hosted an in-person Colleague Connect session
at our Gosforth hub and members of the
Executive Leadership Team also hosted events
combining an in-person Q&A session and an
online element to maximise the opportunities
for colleagues to get involved.
Additional insight on the health of the
Company’s culture is gained from Board level
reporting from executives and includes insights
on colleague well-being, whistleblowing
disclosures, feedback following leadership and
organisational change and on Virgin Money’s
journey to building a fully inclusive workforce
and to improve diversity metrics. You can read
more about our inclusive workforce and culture
priorities in the Strategic report on page 23.
Key elements of our Workforce Engagement Programme
Purpose
Council
Colleague
Connect
Our Purpose Council oversees and manages the factors that are critical to Virgin Money being a successful Purpose-led business.
Non-Executive Directors are each invited to attend at least one Purpose Council meeting annually.
Topics discussed during the year at meetings attended by Directors have included the output from Purpose Squad Hits reviewing
how Purpose is being embedded in different teams; an update following the annual colleague PurposeFest event; the People Leader
‘Lead with Purpose’ development programme; an overview of the relationship between Purpose and the Consumer Duty and an
update from Virgin Group on the Better Business Act.
A refreshed approach to colleague listening sessions was introduced during 2023 with the launch of Colleague Connect sessions.
Through both in-person and virtual sessions Non-Executive Directors meet with colleagues for a focused discussion on topical
issues which has included how the A Life More Virgin (ALMV) colleague proposition is evolving including team rhythms and hybrid
working; cultural changes the new Consumer Duty will bring about; and key themes from the colleague engagement surveys. In May,
Directors met in person at our Gosforth Collaboration hub with colleagues from Finance, Customer Transformation and Operations
and Commercial teams to share views on current priorities and opportunities including customer service, supporting vulnerable
customers and ongoing digital transformation.
Leadership
conversations
These sessions bring together a panel of Non-Executive Directors with a small group of senior leaders on a quarterly basis to discuss
leadership challenges and opportunities across the Group. They also provide an opportunity for Non-Executive Directors to get to
know potential executive level successors.
During the year discussion topics have included how the ALMV colleague proposition is embedding; views on what Virgin Money’s
strategic ambition means in practice; customer experience and customer outcomes; leveraging the Virgin brand; and how to ensure
effective delivery of strategic priorities.
Focus groups
Focus groups are held with colleagues where more detailed and specific insights are sought beyond the more general conversations
that take place elsewhere in the Workforce Engagement Programme.
Examples during the year include colleague listening sessions on refining the ALMV colleague proposition with outputs reported to
the Board in March and the remuneration focused sessions hosted by the Chair of the Remuneration Committee and Head of Reward
and Employee Relations in September to seek views on remuneration topics with key themes reported to and discussed by the
committee. Further analysis into these themes will be undertaken and suggested actions reported back to the committee.
The definition of ‘workforce’ includes permanent, fixed term and zero hours colleagues along with contractors and agency workers.
The Board has kept the Workforce Engagement Programme under review during the year to ensure that the arrangements remain effective and continue to provide
meaningful insight into the views and experiences of colleagues. The Board has concluded that the current approach, described above, is effective. The Board has
therefore decided to continue leveraging existing channels of colleague engagement and utilising the formal elements of the Workforce Engagement Programme
through FY24 rather than adopting one of the methods described in the Code.
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Strategic report
Governance
Board Chair’s introduction
Our Board of Directors
Our Executive Leadership Team
Governance report
Stakeholder engagement
and Board decision making
(Section 172(1) statement)
Governance and Nomination
Committee report
Audit Committee report
Risk Committee report
Directors’ remuneration report
Directors’ report
Risk report
Climate-related disclosures
Financial statements
Additional information
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Board leadership and Company Purpose
Stakeholder engagement
and Board decision making
s.172 factor
Report section
Consequence of any
decision in the long term
Interests of employees
Fostering business
relationships with suppliers,
customers and others
Impact of operations
on the community
and the environment
Maintaining a reputation
for high standard of
business conduct
Acting fairly between
members of the Company
Strategy
Significant progress
in our ESG strategy
Our workforce
engagement and culture
Colleagues
Page
18-30
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100
Stakeholder engagement
98-106
Significant progress
in our ESG strategy
Climate-related
disclosures
31-53
239-272
Governance –
How our Board operates
87-91
Straight-up ESG
Directors’ report
47-50
159-164
How the Board has regard to the views
of stakeholders
Building and maintaining strong relationships
with our stakeholders is central to Virgin
Money’s Purpose-led strategy and culture
and is embedded in the Board’s responsibilities
and decision making. The Board is mindful of
its duty to act in good faith and to promote the
success of Virgin Money for the benefit of its
shareholders and with regard to the interests
of all of its stakeholders including colleagues,
customers, partners and suppliers, government
and regulators and the communities we operate
in and serve.
The Board is kept updated on all material issues
affecting stakeholders and stakeholder interests
and views through direct engagement and
through the reports and updates it receives
from management and external advisers.
s.172(1) statement
In the sections below we outline how Virgin
Money and its Board members engaged with
stakeholders during the year, and in doing so,
how Directors discharged their duties under
s.172(1)(a) to (f) of the Companies Act 2006
to promote the success of the Company for
the benefit of its shareholders as a whole.
The Board decision spotlights on pages 105
to 106 give further insight into the Board’s
decision making and stakeholder considerations.
Balancing the needs and expectations of
different stakeholders is always at the forefront
of Directors’ minds and the Board acknowledges
that some decisions may result in different
outcomes for each stakeholder group. More
information on the key areas of focus for the
Board in FY23 is set out in the ‘Board activities’
section beginning on page 92, in the Board
committee reports later in this Governance
report and elsewhere in this Annual Report
and Accounts as signposted in the table
on the left.
During the year the Directors continued to
exercise all their duties while having regard
to s.172 factors and other factors as they
considered proposals from management
and governed the Company on behalf of
its shareholders through the Board.
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Virgin Money Annual Report & Accounts 2023Governance
Strategic report
Governance
Board Chair’s introduction
Our Board of Directors
Our Executive Leadership Team
Governance report
Stakeholder engagement
and Board decision making
(Section 172(1) statement)
Governance and Nomination
Committee report
Audit Committee report
Risk Committee report
Directors’ remuneration report
Directors’ report
Risk report
Climate-related disclosures
Financial statements
Additional information
74
80
86
87
98
108
115
123
129
159
Board leadership and Company Purpose
Customers
We are committed to delivering outstanding
customer experiences and to making positive
changes every day for our customers, making
them feel happier about money.
How the Board has engaged with customers
The Board is kept updated on customer-related
matters through the regular reports it receives
from the Executive Leadership Team and other
senior managers including the reports from the
Chief Executive Officer, Managing Director,
Business and Commercial and Chief Operating
Officer at each Board meeting. Reports include
data on Smile Score, our key customer
experience metric, the Net Promoter Score
(NPS) customer loyalty measure, customer
retention and attraction and complaint volumes
and resolution. Additional insight is provided
from industry body data, external surveys and
research. All of these information sources
enable the Board to gain an in-depth
understanding of customer expectations,
behaviour and feedback, therefore informing
future decision making. The Board’s awareness
of matters impacting customers is also informed
by insight from Directors’ broader external
experience and board appointments including
positions held with industry bodies such as the
Chief Executive Officer’s appointment as Senior
Independent Director of UK Finance Limited,
the Board Chair’s role at the Department for
Work and Pensions and Sara Weller’s role as
Chair of the Money and Pensions Service board.
In March, Board agenda time was allocated to
looking in more detail at how Virgin Money’s
customer proposition is being evolved, aligned
to our digital bank strategy, to deliver more
rewarding modern money experiences
for customers. Directors heard how the outputs
from research on customer expectations
and preferences has helped shape the areas
of focus and given clear direction on how
the customer proposition and communications
platform will be developed. In June the Board
heard from the Head of Business Banking on
how the Business Bank strategy is progressing
including how a combination of digital and
human support is solving real business needs.
During the year the Board has been particularly
focused on the continued macroeconomic
pressures and the rising cost of living
challenges faced by customers and has
considered how Virgin Money can best provide
support. Reports from the Chief Risk Officer
on credit risk and asset quality gave insight
on customer pressure points. The Board has
heard how industry and political feedback has
been taken into account when putting in place
customer support measures.
The Board has also been kept informed of
progress in embedding the new FCA Consumer
Duty, ensuring Virgin Money provides
customers with products and services that
meet their needs and offer fair value. You can
read more in the Governance spotlight on
page 95.
For more information on our ‘Delighted
customers and colleagues’ strategic priority,
see the section on page 20.
Outcomes following engagement with customers
> Launched and enhanced products and
services aimed at helping customers
make a positive impact on society and
the environment including the Green
Mortgage Reward offer, Sustainable
Business Coach app and the Agri E Fund.
> Launched the new conversational
virtual assistant, Redi, providing 24/7
customer support.
> Significantly reduced onboarding journey
timescales and manual processing for
business customers.
> Launched Virgin Money Investments
giving customers access to a new digital
platform with a range of straightforward
investment products.
> Renewed our commitment to Cash Access
UK providing access to cash and basic
banking services in hubs across the UK.
> Ensured that customers have access
to additional support to help manage cost
of living challenges including signing up
to the Government’s new Mortgage
Charter; reviewing and improving savings
rates with proactive customer contact to
encourage customers to move to a higher
interest paying product; access to the
cost of living hub and the Turn2us
Benefits Calculator on the Virgin Money
website; and partnering with Youtility to
help customers save money on their bills.
> Approved the plans to implement the
new Consumer Duty across Virgin Money
products and services and undertook a
deep dive to understand how outcomes
testing and price and fair value
assessments will operate going forward
to ensure ongoing protection for
customers.
> Ensured the strategic and financial
planning process, and ongoing Board
reporting, considers lead indicators
about customer behaviour given the
ongoing economic volatility and the
uncertain outlook.
99
Virgin Money Annual Report & Accounts 2023Governance
Strategic report
Governance
Board Chair’s introduction
Our Board of Directors
Our Executive Leadership Team
Governance report
Stakeholder engagement
and Board decision making
(Section 172(1) statement)
Governance and Nomination
Committee report
Audit Committee report
Risk Committee report
Directors’ remuneration report
Directors’ report
Risk report
Climate-related disclosures
Financial statements
Additional information
74
80
86
87
98
108
115
123
129
159
Board leadership and Company Purpose
Colleagues
Colleagues who feel engaged and enthusiastic
about the work they do are critical to delivering
the best experience for our customers.
How the Board has engaged with colleagues
We want our colleagues to feel engaged and
motivated by the work they do and the Board
and its committees have various channels by
which it keeps itself engaged with colleagues’
views and sentiments.
The Workforce Engagement Programme
provides regular opportunities for interactive
communication between Directors and
colleagues throughout the year and is designed
to involve colleagues working at all levels and
in all functions across Virgin Money. At the start
of each Board meeting there is an opportunity
for Directors to report back on key messages
from any recent workforce engagement events
to ensure that, as appropriate, colleague views
are taken into account during Board discussions
and decision making. The Chief Executive
Officer and members of the Executive
Leadership Team also report on key messages
from colleague sessions they host whether
at an enterprise or local level. The Board keeps
the effectiveness of the Workforce Engagement
Programme under review and continues to
evolve it in line with the broader operating
rhythm. For example, in 2023 more in-person
sessions were introduced in colleague Hubs.
You can read more about the Workforce
Engagement Programme in the Governance
spotlight on pages 96 and 97.
The annual MyVoice colleague engagement
survey and Pulse checks are rich sources
of insight into colleague engagement and
sentiment. The Group Chief People and
Communications Officer reviews the results
with the Board which considers the key themes
from the survey responses and provides input
to the action to be taken to capitalise on
strengths and to address areas of opportunity.
As an example, feedback has helped shape how
the colleague proposition A Life More Virgin
(ALMV) (which we reported in the FY22 Annual
Report and Accounts) has evolved, the support
given to colleagues and the steps we are taking
to build a diverse and inclusive culture. The
Board considered the outputs of a ten-week
colleague listening programme in which over
2,500 colleagues participated sharing their
feedback on how ALMV is working for them,
their teams and the customers we serve, with
highlights being that generally colleagues feel
more energised, productive and empowered
with financial, mental and physical well-being
improving.
The Board considered how cost of living
pressures are also impacting colleagues
through feedback from workforce engagement
sessions, colleague surveys and from people
leaders and heard about the action being
taken to provide colleagues with access to
information and support.
Creating and sustaining a diverse workforce and
ensuring colleagues feel included while at work
is a key priority for Virgin Money. The Group’s
DE&I strategy sets out a series of practical ways
to ensure colleagues feel included and drive
delivery of the representation targets VMUK
has set to help evolve culture, mindsets and
behaviours. The launch of our new careers
site has created a more distinctive, engaging
employer brand attracting talent from across
diverse candidate segments. Progress against
our targets and other lead indicators is
monitored by the Board on a regular basis. The
Group’s six active colleague inclusion networks
provide an accessible way to assist colleagues
in finding their sense of belonging at work.
Non-Executive Directors attended Purpose
Council meetings as an additional way of
understanding how Purpose is being embedded
across Virgin Money. Purposeful People and
Purposeful Team nominations and awards
enable brilliant Purpose-centric achievements
to be recognised and the Board holds spotlight
sessions with award winners to hear first-hand
about how they have used Purpose to make a
difference for customers, communities or fellow
colleagues. As an example, one team had used
colleague feedback to improve the experience
when a new colleague joins Virgin Money. The
annual PurposeFest is an additional way that
colleagues can feed back on how Purpose is
being embedded in their local areas which the
Purpose Council then considers in developing
the go-forward Purpose plan.
The Board and its committees also received
regular updates on matters impacting
colleagues, for example from the Group Chief
People and Communications Officer on the
evolution and effectiveness of the Workforce
Engagement Programme and from the Chief
Operating Officer on the colleague impact
of store closures.
Internal Audit also continues to report to
the Board on the findings of regular Culture
Assessments carried out in business units.
Outcomes following
engagement with
colleagues
> Having heard feedback from the
ALMV colleague listening programme,
a guide was created for all colleagues
and people leaders to use for
reviewing team rhythms to help find
the right balance between delivering
for our customers and business, and
the individual needs of our colleagues.
> The new Career Journey Framework
was launched to which the bonus
scheme was also aligned; other
colleague policies were refreshed
and simplified.
> The Remuneration Committee
supported a 10% pay increase for
the majority of colleagues for 2023
set against increasing cost of living
pressures and economic uncertainty.
> The Board approved the revised
People strategy which, among its
deliverables, seeks to attract a more
representative and skilled workforce.
For more information on our ‘Delighted
customers and colleagues’ strategic priority,
see the section on page 20.
100
Virgin Money Annual Report & Accounts 2023Governance
Board leadership and Company Purpose
Investors
The Board has regular engagement with
shareholders to understand their expectations
and gain feedback on the Group’s overall strategic
goals and ambitions.
Strategic report
Governance
Board Chair’s introduction
Our Board of Directors
Our Executive Leadership Team
Governance report
Stakeholder engagement
and Board decision making
(Section 172(1) statement)
Governance and Nomination
Committee report
Audit Committee report
Risk Committee report
Directors’ remuneration report
Directors’ report
Risk report
Climate-related disclosures
Financial statements
Additional information
74
80
86
87
98
108
115
123
129
159
How the Board has engaged with investors
There is a comprehensive investor engagement
programme in place. Board members, along
with Investor Relations colleagues, held over 90
meetings with investors during the year covering
various topics including financial results,
delivery against strategy, wholesale debt
issuance programmes, our approach to capital
distributions, including share buybacks, and
input on key elements of the remuneration policy.
Our debt investor programme continued
along with our investor diversification strategy,
meeting with over 70 debt investors in nine
different countries over the year. The Chief
Financial Officer hosted the annual round table
event with our largest debt investors with the
event highlighting the crossover of interest of
debt and equity investors and the importance
of continuous open dialogue.
The Board receives regular reporting from the
Chief Executive Officer, Chief Financial Officer
and the Head of Investor Relations to ensure
Board members are kept up to date with market
and economic conditions and trends relevant
to the Group, along with expectations.
Reporting has highlighted investor sentiment
on share buybacks, capital distribution policy
and thematic questions on financial ratios,
measures, drivers of NIM, and capital trajectory.
Perspectives from brokers on market
conditions, and opportunities and headwinds
for the Group are taken into consideration by
the Board and a deep dive session with the
Company’s broker was held to discuss
challenges and strategic options.
The Board was pleased to invite shareholders
to attend the AGM held in London in February
2023, providing an opportunity for investors
to interact directly with the Board. Additionally,
shareholders were once again provided with the
option to submit questions prior to the meeting.
Outcomes following
engagement with
investors
> Feedback from investors helped shape
the strategic plan ensuring alignment
with shareholder interests.
> The Board approved the launch of the
initial repurchase of £75m of ordinary
shares in June 2022 and an extension
to the programme for a further £50m
of ordinary shares in November 2022.
A further ordinary share buyback of
£50m was launched in August 2023
following the Q3 trading update.
> Recommended a final dividend of
7.5p per ordinary share for FY22 to
shareholders for approval at the 2023
AGM; and declared an interim dividend
for FY23 of 3.3p per ordinary share.
> Approved the arrangements for the
2023 AGM, including a facility for
shareholders to submit questions in
advance; feedback received will help
shape plans for future AGMs.
> The Directors’ Remuneration Policy,
approved by over 97% of shareholders
at the 2023 AGM, reflected feedback
from investors to include a more
extensive summary on the personal
scorecard element for Executive
Directors.
> Debt programmes issued during
the year attracted a number of new
investors and were over subscribed
in challenging markets.
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Board leadership and Company Purpose
Partners and suppliers
We are able to deliver our strategy and serve
our customers with the support of our partners
and suppliers.
Strategic report
Governance
Board Chair’s introduction
Our Board of Directors
Our Executive Leadership Team
Governance report
Stakeholder engagement
and Board decision making
(Section 172(1) statement)
Governance and Nomination
Committee report
Audit Committee report
Risk Committee report
Directors’ remuneration report
Directors’ report
Risk report
Climate-related disclosures
Financial statements
Additional information
74
80
86
87
98
108
115
123
129
159
How the Board has engaged
with partners and suppliers
Usually Directors do not interact directly with
the Group’s partners and suppliers, however
they receive reports and updates from
management which allows them to oversee
supplier relationships and to keep up to date
on developments.
Following a successful external audit tender
process last year, the Board has been kept
abreast of the transition between Ernst & Young
LLP, the outgoing External Auditor, and
PricewaterhouseCoopers LLP (PwC) who,
subject to shareholder approval at the
2024 AGM, took over as External Auditor
on 1 October 2023.
The Group’s Modern Slavery Statement was
refreshed and independently risk assessed
by PwC; going forward management will
continue to work with our Supplier Relationship
Management team to ensure existing and
emerging modern slavery risks in our supply
chain are monitored.
Through briefings and regular updates, Board
members enhanced their understanding of how
suppliers can deliver key actions that will help
drive the Group’s ESG strategy and targets to
achieve net zero operations.
Updates were received on our partnership with
Virgin Red and from other Virgin companies.
Board members were also engaged on how
other Virgin companies have been gaining
strong commercial momentum despite
consumer concerns around inflation and
cost of living pressures.
Outcomes following
engagement with
partners and
suppliers
> Approved the Modern Slavery
Statement available on our website
at virginmoneyukplc.com
> Successfully launched the new
Virgin Money Investments proposition
with our JV partner abrdn, along with
our new Fintech partner and
investment platform provider FNZ.
> Supported the recommendation to
retain Goldman Sachs and appoint
JPMorgan as the corporate brokers
following a robust selection process.
> Relaunched the partnership with
our insurtech partner Hood Group
delivering a digitised travel insurance
proposition.
> Approved a service agreement with
E.Surv Limited to ensure there is one
single panel and valuation supplier
over the next three years.
> Expanded the Levelling Upstarts
programme giving Business customers
the opportunity to partner with MBA
and master’s students from leading
universities through digital workshops
to address barriers to productivity.
102
Virgin Money Annual Report & Accounts 2023Governance
Strategic report
Governance
Board Chair’s introduction
Our Board of Directors
Our Executive Leadership Team
Governance report
Stakeholder engagement
and Board decision making
(Section 172(1) statement)
Governance and Nomination
Committee report
Audit Committee report
Risk Committee report
Directors’ remuneration report
Directors’ report
Risk report
Climate-related disclosures
Financial statements
Additional information
74
80
86
87
98
108
115
123
129
159
Board leadership and Company Purpose
Government and regulators
The Board values the open, transparent and
supportive relationship it has with each of its
regulators as well as government bodies.
How the Board has engaged
with government and regulators
The Group maintains a regular dialogue with the
supervisory teams at the PRA and FCA and
meetings are held throughout the year between
them and individual Board members, the Chief
Executive Officer, Chief Financial Officer, Chief
Risk Officer and other members of the
Executive Leadership Team on specific topics.
During the year, the PRA and FCA both joined
meetings of the Board to speak about the
outcome of regulatory reviews, regulatory
expectations of Virgin Money as a systemically
important bank and regulatory priorities for the
coming period. The Board is kept updated
between meetings on key discussion topics
and points of feedback from the meetings
that members of the executive and senior
management teams have with the PRA and
FCA to ensure there is a regular flow of up-to-
date information.
Key regulatory engagement and representation
with the PRA and FCA throughout the year
featured topics such as: confirmation that
Virgin Money’s tax strategy remains robust
and effective; submission of the BoE 2022 ACS
stress test results and consideration of related
capital elements, including share buyback
activity; completion of Virgin Money’s first
ICAAP and capital plan as a systemically
important firm; ongoing activity related to the
Resolvability Assessment Framework, including
Executive Leadership Team fire-drill exercises
and capability enhancements in advance of the
next self-assessment submission. Consideration
was also given to Consumer Duty, operational
resilience, treatment of vulnerable customers,
and ongoing enhancements to Virgin Money’s
financial crime capabilities.
Engagement with UK Finance throughout the
year included matters such as: support for
customers following several increases to the
BoE base rate, in addition to related Purpose-
led activity around interest rate pass-through
on savings; input provided in response to the
BoE’s consultation on the case for a retail
central bank digital currency; access to cash
arrangements with Cash Access UK Limited;
and concluding elements of the Business
Banking Resolution Service.
Outcomes following engagement with government
and regulators
> Recognising the increased regulatory
expectations for Virgin Money as a Tier 1
bank, the Board and committees ensured
agendas were focused on priority areas
and that additional time was allowed for
fulsome discussions on a range of topics
including FCA Consumer Duty, the
Periodic Summary Assessment letter
and on the change and transformation
programmes to deliver the capability
expected by the regulators.
> Action plans were produced to respond
to regulatory reviews and the Board
was kept updated on progress.
> Changes were made to Virgin Money
interest-paying products reflective
of the increase in the BoE base rate.
> The second Resolvability Assessment
Framework self-assessment was
approved taking into account BoE
feedback on the first assessment.
> The ICAAP and the BoE’s ACS stress
test exercise were completed reflective
of regulatory expectations.
103
Virgin Money Annual Report & Accounts 2023Governance
Strategic report
Governance
Board Chair’s introduction
Our Board of Directors
Our Executive Leadership Team
Governance report
Stakeholder engagement
and Board decision making
(Section 172(1) statement)
Governance and Nomination
Committee report
Audit Committee report
Risk Committee report
Directors’ remuneration report
Directors’ report
Risk report
Climate-related disclosures
Financial statements
Additional information
74
80
86
87
98
108
115
123
129
159
Board leadership and Company Purpose
Society
Our ambition at Virgin Money is to be a positive
force for good in society and to demonstrate
our commitment through everything we do.
In 2023, we formed a new partnership with the
Good Things Foundation to help tackle digital
poverty and Virgin Money was the first bank
in the UK to sign up to the innovative National
Databank Programme providing people from low
income households or suffering data poverty
with access to free SIM cards.
The Virgin Money Foundation recently
celebrated the graduation of the second cohort
from the Young Change Makers, the Fellowship
Programme which supports young people aged
between 18 and 26 from across the Northeast
and the Northwest of England, and Yorkshire
and the Humber, who are passionate about
changing society for the better.
The Group remains committed to tackling
the poverty premium. The poverty premium
is the extra cost those on low incomes pay
to access essential services including utilities,
credit and insurance. Around 14 million people
in the UK pay a poverty premium. Working in
Partnership with Turn2us, we have helped
almost 29,000 people check their eligibility
for welfare benefits and tax credits and over
£1.7m in funds has been identified as a result.
The charity estimates that those who use the
calculator and find out they are entitled to
unclaimed benefits go on to receive an average
of £5,300 in additional funds each year.
How the Board has engaged
with our communities
As part of our ESG strategy, we work with
customers, colleagues and communities to
encourage sustainable practices and economic
activity that creates shared prosperity. Our
charity partnership with Macmillan continued
throughout the year in addition to colleague
fundraising activity supporting charities locally.
The Board and management actively encourage
and fully support our community work and
colleagues can make use of two volunteering
days, in addition to volunteering in their
own time, to give something back to their
communities or charities close to their heart.
The Board is kept updated through periodic
reports on progress with the ESG strategy and
on specific initiatives. You can read more in the
ESG section of the Strategic report beginning
on page 31.
In partnership with Macmillan, we worked to
encourage more people living with, or impacted
by, a cancer diagnosis to access support
including through the Macmillan Guides,
Macmillan Neighbours and local charity
champions. Following three inspiring years with
Macmillan, in November 2023 we announced
that our next charity partner will be Mind in
partnership with the Scottish Association
for Mental Health (SAMH), providing new
opportunities for colleagues to draw on their
skills and experience to be a force for good
in society.
Outcomes following
engagement with
our communities
> The Board approved the FY23 ESG
strategy and targets and was updated
on the progress made on these targets
throughout the year.
> The Virgin Money Foundation
achieved funding milestones of over
£10m to organisations based in the
Northeast of England and over £1m to
organisations in and around Glasgow.
The Foundation also provided a
one-off 10% increase on Community
Anchors’ Fund and Community
Anchors’ Glasgow Fund grants
awarded or drawn down during 2022
in response to the increasing cost
of living.
> The Foundation’s Colleagues in the
Community fund continued to provide
grants of up to £500 to charities
and community organisations which
colleagues support through
volunteering activity.
> The Foundation revamped its website,
considering user experience,
accessibility, design and stories.
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Virgin Money Annual Report & Accounts 2023Governance
Strategic report
Governance
Board Chair’s introduction
Our Board of Directors
Our Executive Leadership Team
Governance report
Stakeholder engagement
and Board decision making
(Section 172(1) statement)
Governance and Nomination
Committee report
Audit Committee report
Risk Committee report
Directors’ remuneration report
Directors’ report
Risk report
Climate-related disclosures
Financial statements
Additional information
74
80
86
87
98
108
115
123
129
159
Board leadership and Company Purpose
Board decision spotlights
The Board recognises that considering our stakeholders in key business decisions is fundamental to our ability to deliver Virgin Money’s strategy to be the best UK digital bank, to improve
performance and to generate long-term sustainable value. Balancing the needs and expectations of our stakeholders is always at the forefront of the Board’s thinking and it has remained a priority
given the challenging macroeconomic environment in 2023 and the uncertain outlook that remains. The Board acknowledges that some decisions it makes will result in different outcomes for each
stakeholder, but always uses our Purpose to guide its decision making and strives for a balanced and fair outcome for all.
Board decision spotlight – the Mortgage Charter
Board decision spotlight – store closures and access to cash
Virgin Money has signed up to the
Government’s Mortgage Charter (Charter)
which was announced by the Chancellor
of the Exchequer on 23 June 2023. The
Charter is intended to support mortgage
customers impacted by higher mortgage
interest rates, particularly those on fixed
term rates which were due to end in the
immediate future. Virgin Money has been
proactive in supporting its mortgage
customers and already offered a
comprehensive range of mortgage support
options. However, the Board has welcomed
the opportunity to enhance and add to these
existing options.
The new and enhanced measures and
tailored solutions for customers include:
> Customers approaching the end of a fixed
rate mortgage have the chance to lock
in a new deal up to six months ahead.
> Customers will not be forced to leave
their home without consent (unless in
exceptional circumstances) in less than
a year from their first missed payment.
> Customers can switch to interest-only
payments for six months.
In addition to providing support in shaping
the various measures put in place as part
of the Charter, the Board has monitored
customer demand and impact resulting from
the Charter options. As part of a spotlight
update from the Chief Risk Officer in
July 2023, the Board’s Risk Committee
considered the levels of early customer
demand for mortgage term extensions
and temporary switches to interest-only
mortgages as well as the potential impact
on forbearance volumes resulting from the
availability of these Charter measures.
Aligned to Virgin Money’s digital strategy,
the Board welcomed the digitisation work
undertaken to enable customers to self-
serve, which also helps Virgin Money service
customer demand effectively.
Virgin Money continues to support
customers with the management of their
mortgage repayments with the ultimate
aim of delivering better outcomes for
our customers.
As customers change the way they
choose to bank by switching more to online
channels, there has been less demand for a
physical presence in some areas in our Store
network. Reflecting this change in customer
behaviour, earlier this year the Board
approved the closure of 39 Virgin Money
Stores in locations where there had been a
significant decline in customers transacting
in-store.
The store closure decision was taken with
our Purpose firmly in mind and work was
undertaken with LINK, the UK’s largest
cash machine network, on behalf of Cash
Access UK to ensure no community was left
without the cash access and deposit service
it needed.
A detailed customer impact analysis was
undertaken based on the characteristics of
the stores and how they were being used by
customers. Each store was assessed on an
individual basis, with careful consideration
of the impact on the local area, as well as
the needs of vulnerable customers and the
accessibility of alternative services such as
free-to-use ATMs and Post Offices. Other
factors taken into account included footfall
and transaction volumes. The application
of the new Consumer Duty standards was
critical in the development of customer
treatment strategies, with the overall aim
of achieving good customer outcomes.
MI and insight data was produced to enable
progress to be tracked and the quality of
treatment strategies to be measured.
Particular consideration was given as to
how best to support any known vulnerable or
potentially vulnerable customers through the
changes. This led to the establishment of a
dedicated team of colleagues who proactively
provided enhanced, bespoke care for
vulnerable customers throughout the closure
process. Ahead of the closures, a range of
support services including digital workshops
and Post Office pop-up sessions were also
held to highlight the services available.
Stores continue to play a role in Virgin
Money’s business and the Bank has
continued to invest in its network,
refurbishing stores and ensuring colleagues
have the tools they require to support
customers.
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Strategic report
Governance
Board Chair’s introduction
Our Board of Directors
Our Executive Leadership Team
Governance report
Stakeholder engagement
and Board decision making
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Governance and Nomination
Committee report
Audit Committee report
Risk Committee report
Directors’ remuneration report
Directors’ report
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Board leadership and Company Purpose
Board decision spotlights continued
Board decision spotlight – supporting customers with cost of living pressures
A key area of focus for the Board throughout
the year has been the initiatives designed
to ease the strain of cost of living pressures
for customers.
The Board heard how Virgin Money is
continuing to support customers through a
dedicated cost of living hub. Accessed via
our website, it enables customers to quickly
and easily access tips, tools, expert advice
and other support to manage their finances.
During the year we continued to deliver on
our cost of living strategy and an internal
taskforce prioritised a series of immediate
and longer-term actions.
The Board supported work focused on
ensuring Virgin Money continues to offer
competitive rates for savers. Our award-
winning options include market-leading ISA
rates, as well as highly competitive savings
and current account interest rates. We are
increasing our proactive communication with
customers to encourage them to move to
a product offering a better savings rate,
and we have actively managed our book to
significantly reduce balances in non-interest
bearing accounts.
With rising base rates impacting the
mortgage market, we are extending our
product range to increase options, making
transfer across to new products easier than
ever, and proactively ensuring that we
identify, contact and help customers in
potential difficulty.
We are focused on growth and optimising
support for our business customers.
This includes our continued commitment
to supporting SMEs by offering access
to finance with growth in lending reported
across our book. Alongside this we are
continuing to invest in our digital offering
to help customers overcome barriers to
productivity and promote growth.
In addition to direct support for customers,
the Board was kept updated on the work with
industry bodies and third parties to achieve a
more inclusive banking sector that eradicates
inequity and provides assistance to those
most in need. The Board remains committed
to working closely with government and
industry bodies and doing more to help
customers through this difficult period.
Board decision spotlight –
share buyback programme
Following the inaugural share buyback
launched in June 2022, the programme was
extended in November 2022 and continued
through FY23 with a £50m programme
launched in August 2023.
The Board received briefings throughout the
year on the capital plan and the indicators
relevant to deciding to extend or launch
new programmes. These included regular
updates from the Chief Financial Officer on
the ongoing assessment of the surplus of
capital, the resilience of the capital position,
market conditions and the progress of
regulatory approval. The strong outcome
of the BoE’s ACS stress test was a key
component of the Board’s decision to
continue to return surplus capital to
shareholders.
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Strategic report
Governance
Board Chair’s introduction
Our Board of Directors
Our Executive Leadership Team
Governance report
Stakeholder engagement
and Board decision making
(Section 172(1) statement)
Governance and Nomination
Committee report
Audit Committee report
Risk Committee report
Directors’ remuneration report
Directors’ report
Risk report
Climate-related disclosures
Financial statements
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Division of responsibilities
Board roles
In line with the provisions of the Code there
is a clear division of responsibilities between
the Board Chair’s leadership of the Board
and the executive leadership of the Group.
The composition of the Board, which includes
an appropriate balance of Executive and
Non-Executive Directors, ensures that no
one individual or small group of individuals
dominates the Board’s decision making.
The diversity of skills, experience and
background on the Board, as described in
Directors’ biographies on pages 80 to 84
enables the Board to provide constructive
challenge and strategic guidance from a
broad and varied knowledge base.
A summary of the responsibilities of the
Board Chair, Senior Independent Non-Executive
Director, Chief Executive Officer and
Non-Executive Directors is set out in the
table opposite. The detailed responsibilities,
expected competencies, behaviours and
minimum time commitment for all Board roles
are agreed by the Board, periodically reviewed
and documented in the Charter of Key Board
Roles and Expectations.
Role
Responsibility
Board Chair
David Bennett leads the Board, is responsible for its overall effectiveness and for promoting high standards of
corporate governance. He leads in building an effective and complementary Board and sets the Board agenda.
He promotes a culture of openness and inclusion and encourages open constructive debate between all Directors
which challenges executives where appropriate. The Board Chair also leads Board succession planning and
ensures new Non-Executive Directors receive a formal, tailored induction in addition to ongoing professional
development for serving Directors. He seeks to ensure effective communication with shareholders and that the
entire Board has an understanding of their views.
Senior Independent
Non-Executive Director
Tim Wade provides a sounding board for the Board Chair, acts as a conduit for the views of other Directors
and shareholders when necessary, being available if shareholders have any concerns which contact through
the normal engagement channels has failed to resolve. Annually, Tim evaluates the Board Chair’s performance
in conjunction with the Non-Executive Directors.
Chief Executive Officer
(Executive Director)
David Duffy manages and leads the Group day-to-day. Supported by the Executive Leadership Team he makes
decisions on matters impacting the operations and performance of Virgin Money and leads the delivery of
the Strategic and Financial Plan approved by the Board. He assists the Board in considering strategic issues,
with the input of the experts on the Executive Leadership Team and following the Board’s lead actively promotes
the development of Virgin Money’s culture demonstrating the Group’s values and behaviours led by our Purpose.
Non-Executive Directors
Non-Executive Directors provide effective oversight, strategic guidance and constructive challenge enabled by
their diverse business and commercial experience, objective judgement and specialist advice. They help develop
and set the Group’s strategy, monitor its delivery and constructively challenge Executive Directors holding them
and management to account for the performance of the Group against agreed performance measures. Led by
the Governance and Nomination Committee they are responsible for the appointment and removal of Executive
Directors and determine the remuneration of Executive Directors through the Remuneration Committee.
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Governance and Nomination
Committee report
Audit Committee report
Risk Committee report
Directors’ remuneration report
Directors’ report
Risk report
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Composition, succession and evaluation
Governance and Nomination
Committee report
Introduction
As Chair of the Board and of the Governance
and Nomination Committee (Committee)
I am pleased to present the report on the
Committee’s activity during the year.
Committee purpose and responsibilities
The Committee is responsible, on behalf
of the Board, for:
>
>
reviewing the structure, size and
composition of the Board and its committees
to ensure an appropriate balance of skills,
experience, knowledge, diversity and
independence;
reviewing succession planning for the Board
and recommending the appointment of
Executive Directors, Non-Executive Directors
and the Board Chair;
> keeping the succession arrangements for
the Executive Leadership Team under review;
> overseeing the annual Board Performance
Review; and
> monitoring developments in corporate
governance and the impact on Virgin
Money’s governance framework.
The full details of the Committee’s
responsibilities are set out in its Charter
available on the Group’s website
(www.virginmoneyukplc.com).
Committee membership,
skills and experience
All Non-Executive Directors are members of the
Committee. The Chief Executive Officer, Group
Chief People and Communications Officer and
Group Company Secretary, who is secretary
to the Committee, attend all meetings.
Committee operations
During the year, five scheduled meetings were
held and there were three additional meetings
to consider Board and Executive Leadership
Team succession plan matters.
Further information on Committee members,
their skills and experience and meeting
attendance is in the ‘Our Board in 2023’
section on page 76 and in the Directors’
biographies on pages 80 to 84.
The Committee reviews its effectiveness each
year as part of the annual Board Performance
Review process, which in 2023 was externally
facilitated by Korn Ferry and is described in
the ‘Board and committee performance review’
section of this report on page 111. Additionally,
a review of the Committee’s activity relative
to its Charter was undertaken.
108
David Bennett
Chair of the Governance
and Nomination Committee
The Committee ensures the
Board has the right balance
of skills, experience and
diversity of viewpoints
and that there is effective
succession planning in place
to support Virgin Money’s
continued strategic journey.
Virgin Money Annual Report & Accounts 2023Governance
Strategic report
Governance
Board Chair’s introduction
Our Board of Directors
Our Executive Leadership Team
Governance report
Stakeholder engagement
and Board decision making
(Section 172(1) statement)
Governance and Nomination
Committee report
Audit Committee report
Risk Committee report
Directors’ remuneration report
Directors’ report
Risk report
Climate-related disclosures
Financial statements
Additional information
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Composition, succession and evaluation
Governance and Nomination Committee report continued
The results of the review confirmed that the
Committee is operating effectively with no
material recommendations identified for
follow-up or action. The feedback gathered by
Korn Ferry acknowledged the crucial role of the
Committee in relation to succession planning
and that the Committee and Board would
benefit from refreshed reporting on executive
and senior management succession planning,
talent and diversity, equity and inclusion under
the leadership of the Group Chief People and
Communications Officer which has been
introduced during the year.
The review also concluded that the Committee
operated and carried out its duties in line with
its Charter throughout the year. The Committee
Chair will continue to report to the Board on the
work of the Committee, ensuring all Directors
are fully sighted, including on Board succession
planning, which will continue to be a key priority
for the Committee in the coming year.
What was on the Committee’s agenda in FY23?
Key areas of focus for the Committee during the year
Round table discussions on the Board succession
plan and agreed the succession priorities;
progressed initial phases of Board succession
plan activity; received updates on executive
and senior management succession planning;
and supported the appointment of Allegra Patrizi
as Managing Director, Business and Commercial.
Oversaw the FY23 Board and committee
performance review process, recommended to
the Board an action plan to address key findings
and monitored its progress.
Progressed the search process to
identify a candidate to succeed Darren
Pope as Remuneration Committee Chair.
Reviewed corporate governance
developments including a report
on proposed changes to the Code.
Monitored progress being made
on broadening diversity and inclusion
across the Group.
More detail on the Committee’s activities during the year is contained in the following pages.
Activities during the year
Board and committee changes
Sara Weller joined the Board on 3 October
2022 as the Representative Director of Virgin
Enterprises Limited under the terms of the
Brand Licence Agreement between Virgin
Enterprises Limited and the Company. Sara
also became a member of the Committee on
this date.
Composition
A key responsibility of the Committee is to
regularly review Board and Board committee
composition to ensure Directors provide the
appropriate combination of skills, experience,
knowledge, diversity and independence.
Board size
Following feedback from the annual Board
Performance Review that the Board could
consider expanding its composition by one
or two members to create more capacity,
the Committee discussed optimal Board size
and agreed that overall, and taking into account
future Board changes, the size of the Board
continues to be effective, and is small enough
to operate efficiently and collaboratively as
a unit.
Skills and experience
During the year the Committee also reviewed
the Board skills matrix, reflecting Directors’
self-assessment of the skills and experience
they bring to the Board and considered the
collective skills profile relative to Virgin Money’s
current and future needs to identify any gaps.
The review was also informed by the outcomes
of the Board Performance Review process.
The Committee was satisfied that the Board
comprises members with skills, experience and
competencies aligned to the Group’s strategic
priorities and relevant to Virgin Money’s
business as a financial services provider.
Non-Executive Directors also bring broader
skills and experience in other important areas
including customer experience, business
transformation and technology-enabled change
and experience of environmental, sustainability
and climate risk issues. Board committees also
comprise Non-Executive Directors with a broad
range of skills and experience so that no undue
reliance is placed on one individual. The Board
skills matrix will continue to be reviewed by the
Committee and the Board at least annually.
Diversity
In reviewing Board and Board committee
composition, due consideration is also given
to the diversity profile and the Group’s diversity
and inclusion commitments. The Board is
committed to ensuring that its membership
is representative of the diverse societies and
communities it operates in. Recruitment of
Board members will consider candidates
from a wide pool including women, people
from a minority ethnic background, those with
a disability, in addition to drawing on other
differences and experiences such as in
knowledge and skills; age; educational,
professional and socio-economic background;
and cognitive and personal strengths.
The Board firmly believes that creating and
sustaining a diverse workforce at all levels
in Virgin Money and building a fully inclusive
culture is critical to the Group’s long-term
sustainable success, to foster decision making
that represents the broadest set of views
and perspective and to mitigate the risk of
‘group think’.
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Our Board of Directors
Our Executive Leadership Team
Governance report
Stakeholder engagement
and Board decision making
(Section 172(1) statement)
Governance and Nomination
Committee report
Audit Committee report
Risk Committee report
Directors’ remuneration report
Directors’ report
Risk report
Climate-related disclosures
Financial statements
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Composition, succession and evaluation
Governance and Nomination Committee report continued
As we reported in the FY22 Annual Report and
Accounts, the Board approved a revised Board
diversity and Inclusion Policy (Policy) reflecting
updated aspirational targets for gender and
ethnicity aligned to recommendations in the
FTSE Women Leaders Review and subsequently
in the amendments to the Listing Rules
published by the FCA in April 2022. This Policy
was reviewed during the year and is available
on our website at www.virginmoneyukplc.com.
The Policy targets applied during the year are
set out in the table below along with
performance against these targets as at
30 September 2023.
The Board aspires to have:
Performance as at 30 September 2023
> a membership comprising at least 40% women
37.5% of Directors are women
Directors by the end of 2023
> at least one of the senior Board positions
(Chair, Senior Independent Director, Chief Executive
Officer or Chief Financial Officer) held by a woman
None of the senior Board positions are held
by a woman
> at least one member of the Board who is from
a minority ethnic background
One member of the Board is from a minority
ethnic background
In setting the Policy targets the Board
recognises that due to its relatively small
size the appointment or departure of a single
Director can have a significant impact on the
achievement of its targets and therefore it is
acknowledged that in periods of Board change
there may be times when these targets are
not met.
The Policy’s objectives ensure that the
Committee and the Board follow an inclusive
process when recruiting Board members which
includes ensuring that the selection process is
based on the principles of fairness and respect,
that all appointments are made on the basis
of individual competence and merit measured
against objective selection criteria and that
when recruiting Board members due regard is
given to the benefits of diversity and inclusion.
Additionally, the Board aspires that the
membership of the Committee and each of
the Audit, Remuneration and Risk Committees
comprises at least 40% women with one
committee member in each case being from
a minority ethnic background. The reporting
tables on page 78 of the Governance report
set out the gender and ethnicity profile of
each principal Board committee as at
30 September 2023.
Based on current Board composition, the Board
recognises that its membership falls short of its
40% target for female representation and that
none of the senior Board positions are held by
a woman. However, through the succession
planning process, the Committee and Board
remain focused on meeting these targets in
the near term while continuing to ensure that
Board appointments are based on merit against
objective criteria.
Throughout the year one member of the Board
has been from a minority ethnic background,
meeting the target in the Policy.
The Committee will continue to keep Board
and Board committee composition under
review during 2024 as part of its succession
planning activity.
At a Group level, Virgin Money remains
committed to building a diverse and inclusive
workforce and culture. The Committee and
Board monitor progress through regular
reports from the Group Chief People and
Communications Officer and through other
means as described in the stakeholder
engagement section of this report. You can
read more about DE&I at Virgin Money in the
Strategic report, and see our progress in the
graphs, on pages 22 to 24.
Independence, election and re-election
of Directors
A majority of the Board comprises independent
Non-Executive Directors in line with the
requirements of the Code. The Committee
reviews the independence of Non-Executive
Directors annually having regard to the
independence criteria set out in the Code.
As part of this process the Committee reviews
the length of tenure of each Director in addition
to considering skills and experience, time
commitment and conflicts of interest leading
to the Committee recommending Directors for
election and re-election.
As a result of this year’s review, the Committee
and the Board judged all serving Non-Executive
Directors to be independent in line with the
Code except for Sara Weller, given her role
as the Representative Director of Virgin
Enterprises Limited. David Bennett was
considered independent on appointment
as Board Chair in May 2020.
The Board is of the view that all Directors bring
considerable knowledge, wide ranging skills and
experience to the Board, each making a valued
contribution and being effective and committed
to their roles. On this basis the Board intends to
recommend all serving Directors for re-election
at the 2024 AGM.
Succession planning
Ensuring robust plans are in place for orderly
succession to both Board, Executive Leadership
Team and senior roles is a key responsibility of
the Committee in addition to overseeing the
development of a diverse talent pool with
succession potential.
Effective succession planning helps Virgin
Money deliver on its strategic objectives now
and in the future by ensuring the Board and
Executive Leadership Team comprise the right
mix of knowledge, skills, experience and
diversity. The Committee and Board also
maintain a keen focus on attracting and
developing talented colleagues who have the
potential to become successors for key senior
and executive roles in the future.
Building on its work in 2022 and following
recommendations in this year’s Board
Performance Review, the Committee
undertook a further detailed review of the
Board succession plan covering contingency
arrangements for short-term unexpected
absences and for both medium and longer-term
changes. In undertaking this review, the
Committee considered the tenure of current
Non-Executive Directors, the benefits in the
regular renewal of the Board and its committees
to bring new and fresh perspectives and also
the target diversity and inclusion profile for the
Board. Following this review the Committee
agreed a detailed timetable of succession plan
activity to ensure an orderly process allowing
for sufficient transition time between current
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Stakeholder engagement
and Board decision making
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Governance and Nomination
Committee report
Audit Committee report
Risk Committee report
Directors’ remuneration report
Directors’ report
Risk report
Climate-related disclosures
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Composition, succession and evaluation
Governance and Nomination Committee report continued
and incoming Directors and reviewed progress
against this timetable at regular intervals. As a
result of this work the Board initiated a project
to profile, identify and appoint a successor to
Darren Pope as Chair of the Remuneration
Committee and, recognising that Geeta Gopalan
will reach her nine-year tenure in mid-2024,
succession activity in relation to the Chair of
the Risk Committee role was also initiated.
The Board Chair is responsible for developing
and maintaining a succession plan for the Chief
Executive Officer who in turn develops and
maintains plans for the Executive Leadership
Team. The Group Chief People and
Communications Officer works with Leadership
Team members to ensure there are succession
plans in place for each of the key roles in their
individual areas including having candidates
capable of providing immediate caretaker cover,
candidates who are ready to take on succession
positions now and those who will be in two
or three years’ time. During the year the
Committee and Board kept the leadership and
succession needs of the business under review
including monitoring the depth and diversity
of the succession pipeline. As part of this work
the Chief Executive Officer kept the Committee
updated on the evolution of the Commercial
function as Virgin Money moves into the next
phase of its development and journey to be
the UK’s leading digital bank, and in this context
supported the appointment of Allegra Patrizi
to the new role of Managing Director, Business
and Commercial.
More broadly, the Committee and Board also
discussed the different skill sets Virgin Money
will need in the future as it increasingly digitises
the business and the changes to the operating
model this will bring about and spent time
discussing changes in the Chief Operating
Officer’s area in particular. During the year, the
Workforce Engagement Programme (which is
described on page 97) included sessions with
Board members and small groups of colleagues
to discuss strategic topics which provided an
opportunity for Non-Executive Directors to get
to know potential future leaders.
Board and committee performance review
A review of the performance of the Board, its
Committees, the Board Chair and of individual
Directors takes place annually and is led by the
Board Chair with support from the Committee.
The annual evaluation is an opportunity to
identify ways to improve the efficiency of the
Board by maximising strengths and highlighting
areas for development as part of the Board’s
commitment to continuously improve its
performance. The FY23 Board Performance
Review was externally facilitated by Korn Ferry
(UK) Limited (Korn Ferry) who was appointed
following a selection process overseen by the
Committee. Korn Ferry has no other connection
with the Company or individual Directors other
than in the context of some prior executive
recruitment and Board skills review projects.
The 2023 review was conducted during a
period in which the Board was able to reflect
on the performance of the business and Board
during the COVID-19 pandemic and the
emergence into a hybrid working environment.
This period coincided with significant changes
in the Executive Leadership Team, ongoing
integration activity and the continued
implementation of Virgin Money’s digital-first
bank strategy. The review sought the views
of Directors on a range of topics including:
Board composition and dynamics; succession
planning; governance and information; Board
responsibilities and overall mandate; and
strategy and direction.
As part of the review, Directors were asked
to reflect on the role and effectiveness of each
of the committees in supporting the Board to
discharge its duties. Reports relating to the
Board committees were shared with the relevant
committee Chair for discussion at a committee
meeting. Further details on the committee
reviews are provided in each committee’s
own report within this Governance report.
All Directors in office at the start of 2023 were
subject to an individual effectiveness review.
Feedback on individual Directors was shared
with the Chair to discuss in one-to-one
meetings with Directors to inform individual and
continuing development. Similarly, Korn Ferry
provided Tim Wade, Senior Independent
Non-Executive Director, with feedback on the
Board Chair which Tim discussed in a one-to-
one meeting with David Bennett. All Directors
demonstrated commitment to their roles and
were deemed to be operating effectively.
Set out overleaf are details of how the external
review was conducted.
Conclusions from
the 2023 external
Board Performance
Review
> The Board is an effective one and
no significant concerns or issues
were raised.
> The Board discharged its duties
in respect of among other matters
regulatory and governance,
compliance, risk oversight, audit
and remuneration monitoring with
discipline and rigour.
> The Board operated well during the
difficult period of the pandemic and
through the transition to a hybrid
model, and played an important
role in supporting and challenging
management on the delivery of
the Group’s strategy, engaging
with the business as required.
> There is a strong and collaborative
Board culture operating.
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Governance
Board Chair’s introduction
Our Board of Directors
Our Executive Leadership Team
Governance report
Stakeholder engagement
and Board decision making
(Section 172(1) statement)
Governance and Nomination
Committee report
Audit Committee report
Risk Committee report
Directors’ remuneration report
Directors’ report
Risk report
Climate-related disclosures
Financial statements
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Composition, succession and evaluation
Governance and Nomination Committee report continued
The FY23 Board Performance Review
Selecting an external evaluator
(February-May 2022)
> The Committee agreed the scope and aims of the performance review which included an assessment of the
Board’s effectiveness relative to good corporate governance practice, an appraisal of how well the Board is
positioned to oversee and effectively govern delivery of Virgin Money’s strategy and a view on how the Board
and Directors align to organisational Purpose, values and behaviours.
> Several firms were asked to submit a proposal based on the review scope.
> Meetings were held with short listed firms to discuss their proposals for conducting the review; the Committee
recommended, and the Board subsequently approved, the appointment of Korn Ferry as external facilitator.
Scoping and planning
(June-September 2022)
> The Board Chair and Group Company Secretary held briefing calls with Korn Ferry to discuss and agree the
context and parameters of the review; the process to be followed and the timelines to be met; the Korn Ferry
personnel to be involved; and the key deliverables the review should aim to achieve.
One-to-one meetings
(October 2022)
Observing meetings
(October 2022)
> A schedule of documents to be provided as part of the review was agreed.
> A timetable of one-to-one meetings with all Directors and key executives was prepared.
> Korn Ferry met individually with each Director, the Group Company Secretary and relevant executives.
> A range of topics were discussed including the participant’s perspective on Virgin Money’s strategy, challenges
and opportunities; the mandate of the Board; Board composition; Directors’ contribution; Board dynamics and
culture; support provided to the Board and the performance and operation of the Board’s principal committees.
> Members of the Korn Ferry team observed the proceedings of a Board meeting and meetings of the Audit,
Risk and Remuneration Committees during October 2022.
> Korn Ferry were provided with the papers for these meetings to inform an assessment of the quality of the
information provided to the Board; other relevant corporate governance documents were also provided.
Draft report, final
report and action plan
(November 2022-March 2023)
> Korn Ferry’s report set out their independent analysis of Board and committee effectiveness based on learnings
from individual meetings, observations from Board and committee meetings and insights from reviewing Board
and committee papers and other documents.
> The report included Korn Ferry’s view of the areas of potential improvement in Board effectiveness and their
recommendations.
> The draft report was first reviewed with the Board Chair and Group Company Secretary and was then circulated
to the Board for discussion in a feedback session attended by Korn Ferry.
> The report was finalised following the Board discussion and an action plan responding to the key
recommendations was prepared by the Group Company Secretary, supported by the Committee and approved
by the Board.
> The Committee has monitored the progress of the action plan, periodically reporting to the Board.
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Governance report
Stakeholder engagement
and Board decision making
(Section 172(1) statement)
Governance and Nomination
Committee report
Audit Committee report
Risk Committee report
Directors’ remuneration report
Directors’ report
Risk report
Climate-related disclosures
Financial statements
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Composition, succession and evaluation
Governance and Nomination Committee report continued
Key areas of feedback and actions agreed
As part of their report, Korn Ferry set out their recommendations for continuous Board improvement aimed at further strengthening Board
effectiveness. These recommendations were a combination of Directors’ own suggestions and Korn Ferry’s experience of working with other boards.
A summary of the key recommendations, actions agreed by the Board and progress made is provided in the table below.
Area of feedback
Board
succession
plan
Key recommendations from
the 2023 performance review
Progress and actions taken
The Board should prioritise the continuing
development of a comprehensive
Board succession plan, which will give
consideration to future Board size,
committee membership and future
successors to key Board roles.
The Committee undertook detailed reviews of the Board succession plan and agreed a timetable of
priority succession plan activity including the target timing of Board appointments to provide for an
orderly period of handover and transition. During these reviews consideration was given to optimal
Board size; the skills and experience needed on the Board in the future including gaps that may arise
when Directors rotate off; and the diversity profile of the Board and its committees.
Initial phases of succession plan activity were progressed.
Board and
committee
meetings
Review the balance of in-person and
virtual meetings given the different
dynamic when Directors meet in
person which allows for a more
fluid conversation.
The Board Chair and Group Company Secretary reviewed the schedule of meetings and an additional
in-person Board day was added, meaning that for FY23 the Board will have held six physical meetings
timed at key points in the corporate calendar, including to coincide with strategy sessions. Additionally,
when the Board has met in-person, opportunities for informal interactions have been arranged including
Board dinners, deep dives with members of the executive team and colleague sessions as part of the
Board’s broader Workforce Engagement Programme, all of which benefit Board and broader stakeholder
relationships. This pattern of a combination of in-person and virtual meetings will be repeated in
subsequent years. The Board Chair keeps the use of virtual meetings under review to ensure they
remain effective.
Agree the remit, focus and composition
of a forum to improve Board oversight
of technology transformation and risk.
The Board established the Digital and Technology Committee as a short-term special purpose
committee chaired by Elena Novokreshchenova to assist the Board in overseeing, supporting and
challenging the plans to digitise Virgin Money including in relation to the delivery of major technology
change programmes and the execution risk. The committee worked closely with the new Chief
Operating Officer throughout the year and provided support as major change programmes were
reviewed and rescoped and as investments were prioritised.
Consider areas where the Board would
benefit from obtaining external insights
in respect of key matters.
Peer and industry perspectives were discussed as part of the strategic planning process.
Subsequently, external insights were provided through the externally facilitated sessions described
in the ‘Professional development and induction’ section and elsewhere in the Governance report.
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Stakeholder engagement
and Board decision making
(Section 172(1) statement)
Governance and Nomination
Committee report
Audit Committee report
Risk Committee report
Directors’ remuneration report
Directors’ report
Risk report
Climate-related disclosures
Financial statements
Additional information
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Composition, succession and evaluation
Governance and Nomination Committee report continued
Area of feedback
Board
leadership
and
engagement
with the
management
team
Key recommendations from
the 2023 performance review
Progress and actions taken
Ensure Non-Executive Directors
continue to challenge and support
the Executive Leadership Team in
the delivery of key outcomes for 2023.
Additional Board agenda time was allocated to topics within the remit of the new Chief Operating
Officer, recognising this is a critical role with a large focus; specific sessions were held on customer
experience and complaints; FCA Consumer Duty; major technology change programmes and
cyber security.
Members of the Executive Leadership Team attend Board and committee meetings to present papers
on matters within their area of responsibility and to provide the Board with an opportunity to challenge
and ask questions of management and likewise for management to seek input from the Board.
Deep dives and strategy sessions were used as means to get underneath particular matters attended
by executives and with external input.
Continue to ensure that issues for the
Board’s attention are clear in Board and
committee papers and that papers are
outcome focused.
The Board Chair and Group Company Secretary continue to review and challenge the quality of
Board papers to ensure they are concise and focused on the matters of relevance to the Board clearly
drawing out key points, stakeholder considerations, questions for the Board and the input or decision
required; report templates and guidance notes have been reviewed. Specific improvements have been
made to the reporting of progress of major change programmes including risk registers.
Conclusion and next steps
The Board recognises that the Group is entering the final year of the Strategic and Financial Plan it set out at the Capital Markets Day in 2019
and therefore remains focused on holding management to account in the delivery of key projects and milestones. The Board will also continue to
take action to improve its performance, particularly across the areas of focus highlighted in the 2023 Board Performance Review, such as further
progressing elements of the Board succession plan and future Board composition, and will undertake an internal review in FY24 to check progress.
Looking ahead
The Committee will continue to focus on ensuring the Group has effective Board, Board committee and executive management composition
and succession plans in place to support the delivery of the next phase of Virgin Money’s strategy.
David Bennett
Chair, Governance and Nomination Committee
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Stakeholder engagement
and Board decision making
(Section 172(1) statement)
Governance and Nomination
Committee report
Audit Committee report
Risk Committee report
Directors’ remuneration report
Directors’ report
Risk report
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Audit Committee report
Introduction
I am pleased to present the Audit Committee
(Committee) report for the year ended
30 September 2023 detailing the Committee’s
activities during the year and how it has
discharged its responsibilities and driven
positive outcomes. After each Committee
meeting I update the Board on these activities
and advance any matters or issues arising
from those meetings that require the Board’s
attention or approval. As Chair, I meet regularly
with the external audit lead partner, Group
Director Internal Audit (GDIA) and management
to discuss specific items of focus.
Committee purpose and responsibilities
The Committee’s role is to review and evaluate
the quality and integrity of the Group’s financial
reporting, processes, policies and disclosures,
and to oversee and drive an effective and
efficient financial control environment within the
Group on behalf of the Board. The Committee
is responsible for monitoring and scrutinising
the activities and effectiveness of the Group’s
external auditor (External Auditor) and the
Group’s Internal Audit function, and also reviews
and monitors the whistleblowing procedures
of the Group.
The charter for the Committee, which sets
out more details on the Committee’s scope,
membership and attendance, management,
responsibilities, reporting and governance,
is available on the Group’s website
(www.virginmoneyukplc.com).
Committee membership, skills
and experience
The Committee is comprised of the independent
Non-Executive Directors, other than the Board
Chair. This enables the Committee to act
independently of management and focus
on protecting the interests of shareholders
in relation to financial reporting and long-term
value. The Committee members also sit on
the other Board committees which promotes
efficiencies and alignment of outputs and
outcomes across all finance, risk, remuneration
and governance and nomination matters.
The Board Chair, Chief Executive Officer,
Chief Financial Officer, Chief Risk Officer,
Group Financial Controller, GDIA and the
External Auditor also attend all meetings.
Additional representatives from across the
Group attend for specific agenda items to
provide additional input as appropriate,
including the Head of Chief Compliance
Office and the Head of Tax.
Tim Wade, Chair of the Committee, an
experienced Chief Financial Officer and a
chartered accountant, is deemed to have
recent and relevant financial experience for the
purposes of the Code. Information on each of
the Committee members, including their skills
and experience and meeting attendance, is set
out in the ‘Our Board in 2023’ section on pages
76 to 78 and in the Directors’ biographies on
pages 80 to 84.
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Tim Wade
Chair of the Audit Committee
As part of its work, the Audit
Committee oversees and
challenges the management
of financial and regulatory
reporting in place across
the Group to help deliver
and sustain an effective
control environment.
Virgin Money Annual Report & Accounts 2023Governance
Strategic report
Governance
Board Chair’s introduction
Our Board of Directors
Our Executive Leadership Team
Governance report
Stakeholder engagement
and Board decision making
(Section 172(1) statement)
Governance and Nomination
Committee report
Audit Committee report
Risk Committee report
Directors’ remuneration report
Directors’ report
Risk report
Climate-related disclosures
Financial statements
Additional information
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Audit, risk and internal control
Audit Committee report continued
Committee operations
During the year, the Committee held six
scheduled meetings and there was one
additional meeting focusing on regulatory
reporting specifically. Private sessions of
the Committee took place before each meeting
with the External Auditor or GDIA attending
as required. Private sessions continue to prove
useful as they provide members with the
opportunity to raise specific questions and
conduct more detailed discussions in relation
to matters of importance for the Group without
management being present.
In recognising the common interest in issues
relevant to both the Committee and the Risk
Committee, two scheduled joint Audit and
Risk Committee meetings were also held in
the year where matters including the FY22
Annual Report and Accounts and the Pillar 3
disclosures were discussed and recommended
to the Board, and the Risk Management
Assurance Plan and Internal Audit Plan
were discussed and approved.
Driven by our Purpose we seek to regularly
validate and take steps to enhance the
operation of the Committee for the benefit
of all stakeholders impacted by its decisions.
Ensuring that the Committee has appropriate
opportunity, resources, skills and experience
to discharge its responsibilities is key to this.
This year, an externally facilitated Board
effectiveness review was carried out by Korn
Ferry, which included a review of the role and
effectiveness of the Committee. The review
concluded that the Committee is operating
effectively and has the appropriate degree
of oversight and right level of balance in its
discussions leveraging the input of both
non-executives and executives as part
of discussions. While it has a busy set of
responsibilities, the review found that these are
dealt with in a measured, delivery focused and
constructive way. No material recommendations
were made requiring specific action, however the
Committee will continue to keep its effectiveness
under review and take action as necessary in
the spirit of continuous improvement.
As has become routine, at the start of the
year the Committee also carried out a review
of its activity during the prior 12 months relative
to its Charter, which concluded that the
Committee operated and carried out its duties
as specified in its Charter and has been well
supported by management, the Internal Audit
function and the External Auditor over the
period. It continues to receive reliable and
robust information from management and
Committee discussions have been open,
inclusive and constructive with good
engagement and challenge from Committee
members. The review did not identify any
significant developments that impact
the Charter.
What was on the Committee’s agenda in FY23?
Key areas of focus for the Committee during the year
Reviewing the integrity
and quality of the Group’s
published financial
information, including
the interim and full year
results announcements,
the Annual Report and
Accounts and Pillar 3
disclosures.
Reviewing and challenging
the calculation of ECL
provisioning outcomes,
management adjustments
and the assessment and
disclosure of other critical
accounting estimates and
judgements including EIR.
Assessing the
effectiveness of the
external audit process
during FY23 and
overseeing the plan for
the transition from Ernst
& Young LLP (EY) to
PricewaterhouseCoopers
LLP (PwC) as External
Auditor in accordance
with mandatory tender
requirements.
Assessing the design and
progress of development
plans intended to evolve
and adapt the Group’s
IFRS 9 approach and
processes to enhance
and rationalise the
model landscape.
Responding to the
evolving disclosure
requirements, including
the climate-related
reporting and net zero
strategy.
Reviewing the s.166
Skilled Persons Review
produced for the
PRA in connection
with regulatory
capital reporting.
More detail on the Committee’s activities during the year is contained in the following pages.
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Governance and Nomination
Committee report
Audit Committee report
Risk Committee report
Directors’ remuneration report
Directors’ report
Risk report
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Financial statements
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Audit Committee report continued
Activities during the year
Significant financial reporting judgements
The areas of judgement considered, key conclusions reached, and actions taken by the Committee during the year, are detailed below. This included consideration of management’s review of the
critical accounting estimates and judgements, with the conclusion that they had been applied appropriately and the disclosures presented were sufficient. There were no changes to the Group’s critical
accounting estimates and judgements in the year. Through the activities described below, the Committee has ensured that appropriate rigour has been applied to the 2023 Annual Report and Accounts.
Key area of review and challenge
Key discussions, decisions and recommendations
Accounting, tax
and financial
reporting
The appropriateness of the Group’s financial statements, including
the content of the Interim Financial Report, Annual Report and
Accounts, related results announcements, quarterly trading updates
and supporting analyst presentations.
The Committee:
> reviewed the process for producing reports under the remit of the Chief Financial Officer and the level of involvement of
cross-functional subject matter experts, which included monitoring the procedures in place to ensure that all contributors
attested to the completeness, accuracy and appropriateness of the disclosures;
Accounting
policies and
practices
The material accounting policies, disclosure obligations, changes
in accounting requirements, and the Group’s use and explanation
of alternative performance measures (APMs). Further detail on APMs
can be found in the ‘measuring the Group’s performance’ section
of the Annual Report and Accounts commencing on page 372.
> considered the impact of any unusual items or matters brought to its attention on the Group’s financial statements and
announcements;
> considered carefully if the external reporting met the requirements to be suitably ‘fair, balanced and understandable’; and
> considered carefully whether the financial statements provided a true and fair view of the state of affairs and profit or loss
of the Group
The Committee:
> reviewed, with both management and the External Auditor, the material accounting estimates and judgements, significant
accounting policies and disclosures for the Group’s interim and annual financial statements;
> received regular updates from the Accounting Policy Team and External Auditor on key changes and developments in financial
reporting requirements;
> reviewed the approach to APM adjustments and received regular updates on the determination and presentation of APMs,
which provided evidence of how the Group’s financial performance on a statutory basis reconciled to the underlying view
as presented by management;
> agreed with management’s conclusions on the items to be adjusted in presenting an underlying position including the addition
of ‘hedge ineffectiveness’ as an adjusting item in the year; and
> continued to emphasise the importance of placement and prominence of the statutory reporting basis over APMs and
monitored the Group’s compliance with the guidelines on the disclosure of APMs.
Impairment
losses on loans
and advances
The Group’s loans and advances held at amortised cost are subject
to impairment losses which are measured on an ECL basis.
The Committee:
> reviewed regular reports from management in relation to the level of ECL impairment provisioning and assessed the
The process of calculating the collectively assessed element of the
ECL balance for both the 12-month ECL allowance (Stage 1) and the
lifetime ECL allowance (Stages 2 and 3) requires the use of significant
estimates and judgements over issues such as the estimation of the
probability of default (PD), macroeconomic indicators, scenarios and
weightings in arriving at a probability weighted forward-looking ECL
allowance, and the use of management adjustments to augment the
modelled output where appropriate.
The Group’s ECL allowance reflects the impact of economic
uncertainty, inflationary and cost of living pressures and how these
have affected our customers in 2023.
Further information on and disclosures relating to the Group’s ECL
impairment allowance are set out in the credit risk section of the
Risk report starting on page 171 and in note 3.1.1.1.
assumptions underpinning the ECL allowance, such as the economic uncertainty and the emergence of the inflationary
and cost of living pressures on the Group’s customers;
> reviewed and challenged the inputs (including the macroeconomic scenario selection and associated weighting changes
in the year) and resulting output of the base models, with a particular focus on probabilities of default, and the estimate
of future recoveries;
> provided continuous review and challenge of the level of management adjustments included within the ECL impairment
allowance and the rationale for their inclusion, including the decisioning around whether to refresh economic scenarios applied;
> monitored and challenged the approach and progress of the plans to redevelop the IFRS 9 model landscape;
> assessed outputs against peer and wider industry benchmarks including the enhanced disclosures recommended
by the Taskforce on Disclosures about Expected Credit Losses (DECL III) issued in September 2022; and
> agreed that the judgements and assumptions used were necessary and appropriate as at 30 September 2023.
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Audit Committee report continued
Strategic report
Governance
Board Chair’s introduction
Our Board of Directors
Our Executive Leadership Team
Governance report
Stakeholder engagement
and Board decision making
(Section 172(1) statement)
Governance and Nomination
Committee report
Audit Committee report
Risk Committee report
Directors’ remuneration report
Directors’ report
Risk report
Climate-related disclosures
Financial statements
Additional information
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Key area of review and challenge
Key discussions, decisions and recommendations
Effective
Interest Rate
(EIR)
Deferred
tax assets
The Group offers a range of mortgage and credit card products,
interest income on which is recognised using the EIR method.
This provides a level yield over the anticipated behavioural life
of the product.
In addition, certain fees and costs that are directly attributable
and integral to the generation of a financial instrument are deferred
and released to the income statement over the expected life of
the relevant product. Further information on and disclosures relating
to the Group’s use of EIR accounting are set out in note 2.1.
The Committee:
> received regular updates from management on the operation of the EIR models and how these impacted the Group’s results;
> reviewed and challenged the inputs, methodologies and assumptions applied to these models, in particular those around
customer repayment profiles and behaviours;
> reviewed and challenged the inputs, methodologies and assumptions in the model risk reserve review; and
> was satisfied that the inputs, methodologies and assumptions used by management in operating EIR accounting for the Group
as at 30 September 2023 are appropriate and supportable in an uncertain economic environment.
The largest elements of the Group’s deferred tax asset are historic
losses and capital allowances.
The Committee:
> reviewed the recoverability of deferred tax assets throughout the year;
In assessing the recoverability of the deferred tax asset on the
balance sheet, management has exercised judgement over the
forecast future profitability of the Group and the number of years
over which to take account of future profits (i.e. the period over
which profits can be reliably estimated).
Further information on and disclosures relating to the Group’s
deferred tax asset position are set out in note 2.4.
> considered the judgements made by management over the forecast future profitability of the Group and the time horizon
over which the use of tax losses was foreseeable in light of the continuing and progressively tightening restrictions on
their use; and
> agreed that the recognition of a deferred tax asset balance as at 30 September 2023 was appropriate.
Retirement
benefit
obligations
The actuarial valuation of the Group’s defined benefit scheme
liabilities involves making several financial and demographic
assumptions including the discount rate; future inflation rates;
and future mortality rates.
Further information on and disclosures relating to the
Group’s retirement benefit obligations are set out in note 3.3.
The Committee:
> reviewed the discount and inflation rate assumptions proposed by management against a benchmark range provided
by the external adviser and concurred with these key assumptions; and
> agreed that the discount and inflation rates used in the calculation of the retirement benefit obligations as at 30 September
2023 were appropriate.
Going concern
and long-term
viability
The Board is required to confirm whether it has a reasonable
expectation that the Company and Group will be able to continue to
operate and meet their liabilities for a specified period. The viability
statement must also disclose the basis for the Directors’ conclusions
and explain why the chosen period is appropriate.
The Committee:
> reviewed and challenged the going concern assessment undertaken by management including the assessments of the
Group’s capital, liquidity and funding position and consideration of the principal risks and uncertainties set out on pages 70
to 72;
> concluded that the Company and Group have adequate resources to continue in operational existence for a period of at least
12 months from the date of approval of the financial statements;
> confirmed to the Board that it was appropriate for the Group’s financial statements to be prepared on a going concern basis;
> reviewed climate-related reporting, including the assessment of risks and opportunities, potential impacts to the financial
statements and the strategy to net zero;
> reviewed and challenged the viability assessment (including the three-year time horizon selected) undertaken by management
in the 2023 Annual Report and Accounts;
> considered the process to support the viability statement in conjunction with an assessment of principal risks and
strategy/business model disclosures, taking into account the assessment by the Risk Committee of stress testing results
and risk appetite; and
> recommended the draft viability statement (as set out on pages 161 to 163) to the Board for approval.
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Stakeholder engagement
and Board decision making
(Section 172(1) statement)
Governance and Nomination
Committee report
Audit Committee report
Risk Committee report
Directors’ remuneration report
Directors’ report
Risk report
Climate-related disclosures
Financial statements
Additional information
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Audit Committee report continued
Other significant issues considered by the Committee during the year
Assessment of fair, balanced and understandable reporting
One of the Committee’s key roles is to consider whether the 2023 Annual Report and Accounts is fair, balanced and understandable and
provides the necessary information for shareholders to assess the Group’s position, performance, business model and strategy. In order
to reach its conclusion, the Committee performed a comprehensive and robust review and oversight process.
The production of the 2023 Annual Report and Accounts was managed by the Chief Financial Officer, with overall governance and
coordination provided by a cross-functional team of senior management led by the Financial Controller. Contributions were assessed
to ensure disclosures, taken as a whole, were accurate, balanced and verifiable. The Committee then formally appraised the draft
2023 Annual Report and Accounts recommending the viability statement, income statement and draft 2023 Annual Report and Accounts
to the Board for approval.
The following highlights some of the questions that the Committee asked itself as part of the review process along with the
conclusion reached:
Is the
report fair?
Is the report
balanced?
Is the report
understandable?
> Has the whole story been presented?
> Are the statutory and adjusted measures
> Are there any significant matters omitted
that should have been included?
> Are disclosures backed up by facts?
>
>
>
Is there a clear link between the activities
undertaken and the outputs and results achieved?
Is the narrative in the financial statements
consistent with that used in the Strategic report
to describe the performance of the business?
Is there a clear and unified link between
the Strategic report, governance and financial
statements and the Annual Report and
Accounts as a whole and the Group’s other
external reporting?
> Are the Group’s strategy, business model
and KPIs accurately described?
well-defined and given appropriate
prominence?
> Has the report been properly considered
as a document that has been prepared
for shareholders?
>
Is the reporting consistent throughout the
report, from the Strategic report through
to the financial statements, and does
it remain consistent when these sections
are read independently of one another?
> Are the key judgements explained
in the narrative reporting congruous
with the disclosures set out in the
financial statements?
>
>
Is the structure and framework of the
report appropriate and comprehensible?
Is the layout clear and linked
throughout enabling the whole story
to be understood?
> Has the data and management
interpretation of data been explained?
> Are important messages sufficiently
highlighted throughout the document?
>
Is the information presented in a clear and
concise manner, illustrated by appropriate
KPIs to facilitate the reader’s access to
relevant information?
Conclusion
After careful review and consideration of all relevant information, including principal risks and ongoing risk
reporting, the Committee was satisfied that, taken as a whole, the 2023 Annual Report and Accounts is fair,
balanced and understandable and confirmed that view to the Board along with its recommendation
that the 2023 Annual Report and Accounts be approved.
Internal Audit
The Committee is responsible for monitoring
and challenging the role and effectiveness of
the Group’s Internal Audit function (including
the role of the GDIA). It receives and reviews
the Internal Audit function’s findings on the
overall effectiveness of the governance, risk
management and internal control framework
and systems, including identified issues and
remediation activity.
During the year, the Committee:
> considered, challenged, approved and
monitored the Internal Audit plan, including
any material changes and progress towards
its delivery;
>
regularly met with the GDIA including private
sessions with the Committee and Committee
Chair and specific audit planning workshops;
> considered regular reports from Internal
Audit on activities undertaken, including
a six-monthly assessment of the Group’s
governance, risk and control frameworks;
> provided detailed in and out-of-meeting
challenge in relation to major findings, and
the responses to these from management;
>
reviewed the outcome of a culture
assessment recently undertaken to
understand how a business unit’s culture
was aligned to the Group’s value and
behaviours;
> conducted an annual assessment of the
independence and performance of the
GDIA who continued to report directly
to the Committee Chair, with a secondary
reporting line to the Chief Executive Officer
for administrative purposes;
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and Board decision making
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Governance and Nomination
Committee report
Audit Committee report
Risk Committee report
Directors’ remuneration report
Directors’ report
Risk report
Climate-related disclosures
Financial statements
Additional information
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Audit Committee report continued
>
>
reviewed the adequacy, effectiveness,
objectivity, independence and influence
of the Internal Audit function and assessed
whether it obtains the appropriate level
of access to management and information;
reviewed the adequacy of Internal Audit’s
resources and skills, including the financial
budget and capability to draw on external
specialists when appropriate; and
> approved revisions to the Internal
Audit Charter (available at
www.virginmoneyukplc.com), which sets
out the role and responsibilities of the
Internal Audit function.
The Committee concluded that the Internal
Audit function was independent and sufficiently
resourced and skilled to meet its accountabilities.
External Auditor
The Committee is also responsible for
overseeing and assessing the effectiveness of
the audit process and the Group’s relationship
with the External Auditor, including monitoring
the External Auditor’s independence and
objectivity and approving the scope and
results of the audit.
Andrew Bates of EY has fulfilled the role of
Senior Statutory Auditor since 2021 and was
replaced by Carl Sizer of PwC from 1 October
2023, in accordance with mandatory tender
requirements and subject to shareholder
approval at the 2024 AGM. All other audit
partners and audit senior management
are required to rotate at least every seven
years. More detail on the transition to PwC
as External Auditor is included on page 111 of
the Group’s 2022 Annual Report and Accounts.
During the year, the Committee:
> approved the annual external audit plan
and received updates on the progress
of the audit;
> had regular interactions with the External
Auditor without management present to
discuss the External Auditor’s remit and
any issues arising from the audit, including
private sessions with the Committee and
Committee Chair;
>
>
>
reviewed the external auditor engagement
letter and agreed the External Auditor’s
remuneration (the Committee was
authorised by shareholders at the 2023
AGM to agree the remuneration of the
External Auditor);
reviewed the findings of the external audit
including key judgements and the level of
challenge provided by the External Auditor;
reviewed management’s responses to
control findings, any non-compliance and
any other findings identified by the
External Auditor;
> considered the wider external audit market
generally, assessing relevant industry
specific information and events;
>
reviewed a copy of the Written Auditor
Report (WAR) produced by the External
Auditor for the PRA in accordance with the
PRA’s supervisory statement SS1/16, which
focused on the Group’s approach to IFRS 9
and climate change risk; and
> provided oversight of the plan for the
transition from EY to PwC as External
Auditor effective from 1 October 2023,
subject to shareholder approval at the
2024 AGM.
As part of its responsibility for annually
reviewing the effectiveness of the audit process
and the External Auditor performance, the
Committee focused on the areas of judgement;
mindset and culture; skills, character and
knowledge; with an overarching assessment
of quality control. The Committee concluded
that the External Auditor’s performance was
in all respects effective. However, pursuant
to mandatory rotation rules, the Committee
recommended to the Board and the Board
has approved, subject to shareholder approval
at the 2024 AGM, the appointment of PwC
as External Auditor with effect from the audit
for the year ending 30 September 2024.
External Auditor independence
and remuneration
Both the Board and the External Auditor
have safeguards in place to protect the
independence and objectivity of the External
Auditor which are detailed in the External
Auditor Independence Policy Standard (Policy).
This Policy details the nature of the services
that the External Auditor may not undertake
and specifies that non-audit services may
not be pre-approved and are subject to prior
approval from the Committee or a delegate.
It is reviewed annually to determine whether
any updates are required in response to any
changes in the external or internal environment.
In certain cases, the External Auditor may be
selected over another service provider due to
their detailed knowledge and understanding of
the Group’s operations. Any allowable non-audit
service with a value above £100,000 requires
approval from the Chair of the Committee.
The Policy also specifies that the overall fee
for non-audit services be continually monitored
and should not exceed 70% of the average
audit fee over the prior three-year period.
The total amount paid to the External Auditor
in 2023 was £5,776,000 (2022: £6,834,000).
The Committee challenged the External Auditor
on whether this fee level was sufficient to
facilitate an effective audit and received
satisfaction on this point. Non-audit services
of £838,000 (2022: £2,139,000) performed by
the External Auditor during the year included
UN PRB and the second Payment Services
Directive assurance, the review of the Interim
Financial Report, PRA Written Auditor Reporting,
comfort letters for the global medium-term note
and covered bond programmes, client money
reviews and profit attestations. Payments by
the Group for both audit and non-audit services
provided in 2023 and 2022 are further detailed
in note 2.3 to the financial statements. The
Policy also regulates the appointment of former
audit colleagues to senior finance positions
in the Group.
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Committee report
Audit Committee report
Risk Committee report
Directors’ remuneration report
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Statutory Audit Services compliance
The Committee confirms that the Group
has complied during FY23 and to the date of
this report with The Statutory Audit Services
for Large Companies Market Investigation
(Mandatory Use of Competitive Tender
Processes and Audit Committee Responsibilities)
Order 2014, which relates to the frequency
and governance of tenders for the appointment
of the External Auditor and the setting of a
policy on the provision of non-audit services.
As detailed on page 111 of the Group’s 2022
Annual Report and Accounts, EY will step down
as the Group’s External Auditor following the
signing of the Annual Report and Accounts
and all subsidiary financial statements for the
year ended 30 September 2023. Subject to
approval from shareholders at the forthcoming
AGM in 2024, PwC will be appointed as External
Auditor in place of EY with effect from the
audit for the year commencing 1 October 2023.
Transition planning activities have been
progressing throughout the year to ensure a
smooth transition from EY, supported by the
Group’s finance function and overseen by
the Committee.
Risk management and internal
control systems
Detailed information in respect of the internal
controls and risk management systems for
the Group’s financial reporting process are
provided within the Risk report on pages 165
to 230. In considering the effectiveness of
internal controls, the Committee received
and discussed reports from Internal Audit
and the External Auditor.
During the year the Committee reviewed
the output of Internal Audit reports (including
a six-monthly assessment of the Group’s
governance, risk and control frameworks)
to inform an assessment of the effectiveness
of the Group’s internal control and risk
management systems and environment. This
regular monitoring ensured timely identification
of issues and formal tracking of remediation
plans. The Committee challenged management
where appropriate on the timeframe for delivery
of actions. In its assessment of the Group’s risk
management and internal control systems the
Committee took into account the three lines
of defence assurance plans and the findings
of the External Auditor.
The Committee concluded that it was content
that financial reporting internal controls were
sufficiently robust and were operating
effectively.
Regulatory compliance
The Committee provides oversight of the
Group’s compliance with all necessary
regulatory reporting and the requirements and
recommendations of the external regulators.
This has included reviewing the integrity of
the Pillar 3 disclosures and recommending
approval to the Board.
In recent years, the PRA has also taken a
thematic interest in the quality of regulatory
reporting across the industry, specifically
focusing on the completeness, accuracy and
timing of regulatory reports. This has resulted in
a number of s.166 Skilled Person Reviews being
commissioned throughout the industry looking
at the governance, controls and processes
supporting the regulatory reporting framework.
In July 2022 EY was appointed as the Skilled
Person to undertake such a review in relation
to the completeness and accuracy of certain
consolidated regulatory returns prepared by
the Group. EY provided regular updates to the
Committee throughout the six-month review.
Following delivery of its final report to the PRA
in January 2023, EY provided a copy of the
report to the Group and presented its findings
at a meeting of the Committee. While the report
did not identify any material failings, the Group
has developed an action plan to progress
the recommendations contained in the report
which the Committee reviewed and continues
to monitor.
Whistleblowing
The Committee and Board place great
importance on having arrangements in place
whereby every Virgin Money colleague feels
confident in speaking up, safe in the knowledge
that they will be protected from any reprisal
for raising concerns and that their concerns
will be taken seriously. The Group operates
a Whistleblowing Programme, which provides
an anonymous, secure and easy way for
colleagues to raise any concerns, through a
number of confidential channels, including an
independent external whistleblowing hotline
available 24/7. Robust structures are in place
to process whistleblower reports that
include a dedicated team that receives reports
and ensures a thorough independent and
confidential investigation is undertaken. Upon
receipt of a report the team will assess the
concerns and appoint an appropriate manager
to undertake an investigation on a confidential
and anonymous basis, and ensure any
necessary remedial action is taken.
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The Committee Chair is the Group
Whistleblowers’ Champion in accordance with
the Senior Managers and Certification Regime,
with responsibility for overseeing the integrity,
independence and effectiveness of the Group’s
policies and procedures on whistleblowing.
The Committee is responsible for ensuring
appropriate and effective arrangements are
in place for the confidential disclosure of
reportable concerns by whistleblowers and
for overseeing the integrity, independence
and effectiveness of the Whistleblowing
Policy Standard and operational framework.
The Committee received and considered
its biannual whistleblowing reports covering
the Group’s whistleblowing arrangements,
including monitoring the trends in reported
and substantiated whistleblowing cases, the
activity to ensure colleagues are aware of the
Whistleblowing Programme and regulatory
and industry developments. The Committee
provided challenge to management in respect
of the effectiveness of the programme and
was satisfied that management dealt with
reported whistleblowing cases appropriately.
The Whistleblowers’ Champion also reports
biannually to the Board on the Group’s
whistleblowing arrangements.
Proposed audit and corporate
governance reform
The Committee considered various corporate
governance developments and reforms during
the year. The Committee welcomed the FRC’s
consultation on ‘Minimum Standards for Audit
Committees’ which closed in February and the
subsequent ‘Audit Committees and the External
Audit: Minimum Standard’ (Minimum Standard)
published in May 2023 which took effect
immediately. The Committee understands
that the Minimum Standard was designed to
enhance performance and under the proposed
changes to the UK Corporate Governance Code
(Code) the Minimum Standard would apply to
all companies subject to the Code on a ‘comply
or explain’ basis.
Climate-related disclosures
The climate-related and ESG disclosures more
broadly continue to be subject to increased
focus, with evolving external reporting
requirements that the Group is tracking.
During the year the Committee considered
and provided oversight of the Group’s climate-
related disclosures. It reviewed the Group’s
progress in disclosing against the TCFD
recommendations and its compliance with
FCA Listing Rules, with the Committee being
in agreement with management’s assessment
that transition and physical risks could cause
impairment and changes to ECLs and that
there was no material impact on the Group’s
consolidated financial statements for the
year ended 30 September 2023.
The Committee will review the changes to the
Code when it is published by the FRC in 2024.
The Group continues to progress a programme
of work to prepare for the updated Code and
earlier in the year representatives from the
Group attended a UK Finance Corporate
Governance & Audit (CGAR) Working Group
where the FRC’s Code consultation was
considered and through which an industry-wide
response to the consultation was submitted
to the FRC.
The Committee provided oversight of
improvements to climate-related controls,
governance and data which continue to
underpin enhancements to the Group’s
reporting capabilities and its understanding of
climate-related risks, opportunities and impacts.
During the year, the Committee endorsed
management’s decision to source limited
assurance over selected ESG-related
disclosures. This external review will further
help to ensure the Group’s sustainability
reporting continues to be fair, balanced,
accurate and consistent.
Looking ahead
As well as ensuring attention continues to be
given to the Committee’s key responsibilities,
in the next financial year the Committee will
maintain a focus on furthering the relationship
with PwC as the Group’s new External Auditor,
the Group’s preparations for the updated Code
and the progress of the IFRS 9 model
development plans.
Tim Wade
Chair, Audit Committee
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Governance and Nomination
Committee report
Audit Committee report
Risk Committee report
Directors’ remuneration report
Directors’ report
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report
Introduction
On behalf of the Board I am pleased to present
my report as Chair of the Risk Committee
(Committee). This report details how the
Committee discharged its responsibilities
during the year and the key matters it dealt
with during the period.
This year the Committee has continued to be
cognisant of the challenges facing the Group
as a result of both internal and external factors.
Macroeconomic risks have increased due to
higher inflation, the UK is still experiencing high
energy market prices, and interest rates have
risen steadily throughout 2023, all of which has
resulted in the Group requiring to keep close to
the impacts of increased affordability pressures
for our customers. The Committee continues
to keep this front of mind throughout all
discussions, for example, in relation to the
performance of the Group’s Mortgages,
Unsecured or Business portfolios or when
considering the various principal and emerging
risks presented to each meeting.
The Committee has significantly increased
its focus on technology and cyber risk
and considered various internal and external
reviews presented by the management team.
While these risks continue to be managed and
mitigated, the Committee exercised oversight
on the proposed investment and change
programmes presented by the Chief
Operating Officer, to build an upgraded robust
infrastructure. Resilience risks arising from
complexities of change management of aging
infrastructure and upgrade investments, were
considered at the Committee throughout the
year. The risks to the Group associated with
financial and economic crime, which is
becoming increasingly sophisticated and
prevalent for businesses to deal with, was also
a key and regular discussion topic throughout
the year. The Committee has also driven the
delivery of enhanced reporting during the year
with regard to the principal and emerging risks
presented by the Chief Risk Officer facing the
Group which is even more important during the
uncertain economic environment I have touched
on above.
I have been encouraged by the discussions
held at Committee meetings led by a strong
set of Committee members and attendees
who continue to drive the monitoring of the key
risks facing the Group and are able to challenge
views and input to proposals as required.
I report to the Board after each Committee
meeting on the main issues discussed and
matters for recommendation to the Board and
as Chair, I interact regularly with the Chief Risk
Officer and other members of the management
team as appropriate, to discuss key items
in focus.
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Geeta Gopalan
Chair of the Risk Committee
The Risk Committee focused
on oversight of technology
and data risks, keeping
customer outcomes at the
forefront, as Virgin Money
continues the investment
programme to keep the
Group safe and support
its digital ambition.
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Strategic report
Governance
Board Chair’s introduction
Our Board of Directors
Our Executive Leadership Team
Governance report
Stakeholder engagement
and Board decision making
(Section 172(1) statement)
Governance and Nomination
Committee report
Audit Committee report
Risk Committee report
Directors’ remuneration report
Directors’ report
Risk report
Climate-related disclosures
Financial statements
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It appears that the macroeconomic conditions
being experienced in the UK and the
heightened geo-political risks being seen
around the world are likely to continue during
2024, which will lead to future challenges and
opportunities for the business. The Committee
will continue to provide valuable oversight
and input on the related risks and issues that
have been identified in this regard while being
watchful of new emerging risks and will
continue to work with management to ensure
the Group positions itself appropriately with
respect to its risk appetite taking into account
a range of factors.
Set out below is a more detailed view of the
Committee’s work and performance during
the year.
Committee purpose and responsibilities
The Committee is responsible, on behalf
of the Board, for, among other things:
> assisting the Board to set the Group’s risk
appetite and to ensure that the Group
maintains an effective RMF;
> assessing the principal and emerging
risks facing the Group, including their
management and mitigation;
>
>
reviewing and approving the annual risk
assurance plan and receiving regular reports
on progress against the plan; and
leading the development and embedding
of a culture that supports risk awareness
and the fair treatment of customers.
The full details of the Committee’s
responsibilities are set out in its Charter
available on the Group’s website
(www.virginmoneyukplc.com).
Committee membership, skills
and experience
Elena Novokreshchenova, Darren Pope, Chair
of the Remuneration Committee, and Tim Wade,
Chair of the Audit Committee, sit alongside
me as the Non-Executive Directors on the
Committee. The Board Chair, Chief Executive
Officer, Chief Financial Officer, Chief Risk
Officer, Chief Operating Officer, Managing
Director, Business and Commercial and GDIA
regularly attend Committee meetings. The
External Auditor is also invited to be represented
at all meetings.
Committee operations
During the year, seven scheduled meetings
were held along with five additional meetings
to consider and recommend the ACS, ICAAP
and ILAAP documents to the Board for approval.
Private sessions of the Committee took place
before each scheduled meeting with the
Chief Risk Officer attending as required.
In recognising the common interest in control
issues relevant to both the Committee and
the Audit Committee, two joint Audit and
Risk Committee meetings were also held in
the year where matters including the Risk
Management Assurance Plan and Internal
Audit Plan were discussed and approved
and Annual Report and Accounts disclosures
were reviewed.
Further information on Committee members,
their skills and experience and meeting
attendance is in the ‘Our Board in 2023’ section
on page 76 and in the Directors’ biographies
on pages 80 to 84.
Each year the Committee undertakes a review
of its activity relevant to its Charter and its
effectiveness. This year an external review of
the Committee’s effectiveness was carried out
by Korn Ferry as part of its broader review of
Board performance. This was supplemented
by an internal review of whether the Committee
had met its key objectives and discharged
its responsibilities in line with its Charter.
The outputs of both reviews were considered
by the Committee in a meeting. The external
review highlighted that the Committee has a
wide remit and often has very busy agendas
but it is driving the submission of enhanced
management information to enable it to focus
on the key issues facing the business.
The review also highlighted that the Committee
wished to see a greater focus on escalation and
mitigation of key risks and sought more analysis
and commentary on the information it was
provided with to ensure the most important
issues were surfaced timeously. This has been
a key area of enhancement for the Committee
during FY23 with the Chief Risk Officer’s report
and reporting in relating to risk appetite metrics
being improved. The review also highlighted
the welcome presence of first line of defence
representatives at Committee meetings to allow
more rounded and effective discussions to
take place. The output of the Charter review
concluded that the Committee operated in line
with the requirements of the Charter throughout
the year. Following consideration of both
reviews, the Committee concluded that it had
operated effectively overall and agreed that
effectiveness will continue to be kept under
review throughout FY24 with improvement
actions implemented if necessary.
What was on the Committee’s agenda in FY23?
Key areas of focus for the Committee during the year
Reviewing risk appetite, limits
and tolerances.
Operational resilience and stress testing
including reviewing the Group’s ACS, ICAAP,
ILAAP and RAF self-assessment regulatory
submissions and recommending these to
the Board for approval.
Credit risk matters related to ongoing
uncertain macroeconomic factors and
customer resilience.
Technology and cyber risk with a particular
focus on the change programme and the
Group’s financial crime control framework.
More detail on the Committee’s activities during the year is contained in the following pages.
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Governance and Nomination
Committee report
Audit Committee report
Risk Committee report
Directors’ remuneration report
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Activities during the year
The Committee discharges its responsibilities by reviewing exposures in the context of the principal and emerging risks facing the Group.
In line with the requirements of the Group RMF, during the year the Committee maintained oversight of the following identified principal risks which are set out in more detail on pages 70 to 72.
Principal risk
Credit risk
Key discussions, decisions and recommendations
The risk that a borrower or
counterparty fails to pay the interest or
capital due on a loan or other financial
instrument. Credit risk manifests in the
financial instruments and products that
the Group offers and in which it invests
and can arise in respect of both on-
and off-balance sheet exposures.
> CREDIT AND MARKET RISK – regularly reviewed the performance of the loan portfolio, which is important for the Group given the uncertain macroeconomic
environment, higher inflation levels in the UK and BoE interest rate rises seen throughout 2023.
> KEY PORTFOLIO DEEP DIVES – deep dive sessions were held to review analysis on the Group’s Mortgages, Unsecured and Business credit portfolios which
included portfolio resilience, asset quality, emerging risks and credit loss expectations. These sessions allowed the Committee to spend time seeking further
detail or clarification from management on any trends that were being seen, such as higher indebtedness, and what actions were being taken in scenarios
such as when mortgage customers were reaching the end of their fixed term deals and were due to move on to the higher standard variable rate.
> FOCUSED REVIEW OF A KEY CUSTOMER CONNECTION – kept under review the management of a restructure relating to a major credit exposure.
It considered the associated credit risks in detail and asked questions of key management personnel (KMP) as to the actions being taken and longer-term
plans. Management have since reported an outcome of an improvement in the connection’s default rate during the year.
> CREDIT CARD PERFORMANCE – considered a detailed report on credit card risk performance, collections trends and IFRS 9 impacts. The Committee
provided guidance and insight to supplement the key actions that had been put in place to manage an expected increase in portfolio arrears.
Financial risk
The risk includes capital risk, funding
risk, liquidity risk, market risk and
pension risk, all of which have
the ability to impact the financial
performance of the Group, if not
managed correctly.
> ICAAP, ILAAP AND ACS – following a detailed review of the process and outcomes of the related stress tests, the Committee provided input to and
recommended the ICAAP, ILAAP and ACS documents for Board approval prior to their submission to the PRA.
> LIQUIDITY RISK – liquidity risk matters were discussed by the Committee at several meetings during the year. The Treasurer provided details of how events
such as recent bank failures in the US and Europe, increased competition in deposit pricing and additional regulatory requirements as a result of being a
Tier 1 bank had impacted the Group’s liquidity risk.
> FUNDING AND CAPITAL – closely monitored the Group’s funding and capital positions giving due consideration to any additional risks arising from market
Model risk
The risk of adverse consequences
from decisions based on incorrect or
misused model outputs and reports.
uncertainty due to global macro events.
> RAF – maintained oversight of the engagement with the BoE in relation to the Group’s second RAF cycle and sought further detail of the options chosen
by the Group in respect of its self-assessment exercise given the importance of the work in light of the volatile environment and the increased focus on
Funding in Resolution.
> PENSION RISK – the Treasurer provided regular updates on the Group’s exposure to pension risk and discussed strategic options to manage pension risk,
including the triennial valuation.
> MODEL PERFORMANCE – monitored the current and emerging model performance risks. New and revised RAS measures were introduced during the
year to appropriately tighten thresholds and support model monitoring risks. The Committee requested developments be made to model risk reporting.
> MODEL DEVELOPMENTS – received an update from the Model Risk team on the strategic objectives of the Risk Analytics Centre of Excellence (RACE);
the hybrid mortgage model submission to the PRA; and a reminder of the roles and responsibilities for all Model stakeholders across the Group in line with
the VMUK Model RMF, including Board and executive management. The Committee sought clarity on the enablers to success for the RACE strategic
objectives and the resources required to successfully deliver these objectives.
> MODEL RISK POLICY – approved the refreshed Group Model Risk Management Policy.
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Governance and Nomination
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Audit Committee report
Risk Committee report
Directors’ remuneration report
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Risk report
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Principal risk
Regulatory and
compliance risk
The risk of failing to comply with
relevant regulatory requirements and
changes in the regulatory environment,
or failing to manage a constructive
relationship with our regulators.
Key discussions, decisions and recommendations
> GDPR – received updates on matters relating to General Data Protection Regulation (GDPR) compliance and assurance activity.
> RISK ASSURANCE PLAN – in conjunction with the Audit Committee, reviewed and approved the FY24 first and second line Risk Assurance Plans; provided
oversight of progress with the FY23 Risk Assurance Plan including ad hoc changes to the Plan following its initial presentation to the Committee for approval;
> CONSUMER DUTY – provided oversight of the Group’s path to compliance with the new FCA Consumer Duty rules by 31 July 2023. This included seeking
details from the Chief Operating Officer of the risks, impacts and mitigating and remediation actions including seeking input from the second line of defence
and third line of defence on progress being made towards compliance.
> CONTROL EFFECTIVENESS STATEMENT – received and considered the interim and year-end consolidated Control Effectiveness Statement (CES).
The assessment supporting the CES is completed by business units providing progress against material actions and rating the control effectiveness
for each principal risk type. The Committee received confirmation that the internal control environment remains stable, with ineffective controls escalated
appropriately and adequate action plans in place where required.
Conduct risk
The risk of undertaking business
in a way which fails to deliver good
customer outcomes and causes
customer harm, and may result in
regulatory censure, redress costs
and/or reputational damage.
> VULNERABLE CUSTOMERS – received regular updates on the actions being taken to enhance the Group’s products and services for vulnerable customers,
including reviewing the conclusions reached from the Conduct Risk Assurance review carried out by the second line of defence and findings from Internal
Audit reports. An amendment to RAS measures in March 2023 saw the Committee thereafter receive data which includes how vulnerable customers are
being supported and VMUK’s ability to correctly identify potential vulnerabilities in our day-to-day engagements with customers.
> CUSTOMER HARM ASSESSMENTS – reviewed results from potential customer harm assessments and all other broader conduct matters kept under
discussion at the executive-level Enterprise Conduct Committee.
Operational risk The risk of loss or customer harm
resulting from inadequate or failed
internal processes, people and
systems or from external events,
incorporating the inability to maintain
critical services, recover quickly and
learn from unexpected/adverse events.
> REWARD RISK ADJUSTMENT – considered any risk adjustments to be taken into account by the Remuneration Committee when making remuneration
decisions and approved the submission of related regulatory disclosures for submission to the PRA.
> OPERATIONAL RISK MI – considered the regular updates from the Chief Risk Officer and Head of Operational Risk on the processes and controls in place
within the Group to manage its operational risks. The Committee also provided feedback on the proposed initiatives for improving operational risk
management during the year which it viewed as extremely important over the coming years.
> OPERATIONAL RISK SCENARIO ANALYSIS PROGRAMME – challenged and approved the operational risk scenarios and their resulting output for inclusion
in the ICAAP to support the operational risk capital calculation.
> FCA OPERATIONAL RESILIENCE QUESTIONNAIRE SUBMISSION – reviewed, and recommended to the Board for approval, the FCA ORQUEST operational
resilience self-assessment questionnaire in respect of the Group’s operational resilience capabilities. The Committee assured itself that the responses were
in line with what had been evidenced through third line of defence reviews.
> OPERATIONAL RESILIENCE – reviewed regular updates on the status of operational resilience within the Group and approved amendments to the
Operational and Resilience Risk assurance activity plan to allow a Data Strategy Diagnostic to be conducted during the year given that the availability
and quality of data will be a key success factor for multiple activities across the Group.
Economic
crime risk
The risk that products and services
will be used to facilitate financial
crime, resulting in harm to customers,
the Group, or third parties.
This includes money laundering,
counter terrorist financing, sanctions,
fraud, and bribery and corruption.
> ANTI-MONEY LAUNDERING CONTROLS – requested that the findings of a gap analysis exercise that was carried out in respect of the Group’s anti-money
laundering controls be considered following the key control weaknesses identified by the FCA at certain Group peers. The initial gap analysis exercise
outcomes identified that there were areas within VMUK’s control framework where there was a need for improvement and the Committee maintained
oversight of the actions being taken to address these via a follow-up paper later in the year.
> FINANCIAL CRIME PRIORITISATION – the Money Laundering Reporting Officer (MLRO) presented to the Committee to provide details of the progress being
made in relation to financial crime priorities and what his main priorities were for the year ahead. The Committee received details of the risk level within the
Group’s financial crime processes at present and the effectiveness of related controls.
> ANNUAL MLRO REPORT – reviewed and approved the annual MLRO report.
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Governance and Nomination
Committee report
Audit Committee report
Risk Committee report
Directors’ remuneration report
Directors’ report
Risk report
Climate-related disclosures
Financial statements
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Principal risk
Strategic and
enterprise risk
Key discussions, decisions and recommendations
The risk of significant loss of earnings
or damage from decisions or actions
that impact the long-term interests
of the Group’s stakeholders or from
an inability to adapt to external
developments, including potential
execution risk as a result of
transformation activity.
> INVESTMENT PORTFOLIO RISK – an update on the risk implications of the FY23 regulatory maintenance programmes was provided to the Committee,
at which it asked management to consider the cumulative impact of issues arising within several projects at once and obtained assurances that areas
where operational resilience could be significantly impacted had been considered as part of the review.
> STRATEGIC RISK ASSESSMENT – provided with an updated view of the risks highlighted as part of the initial risk assessment of the FY23 Strategic
and Financial Plan which included risk trajectory RAG ratings. The Committee requested insight as to the key area of focus for Risk in this regard and
was pleased to see that execution risk had been closely considered via the review of the overall funding and prioritisation of the Group’s One Plan.
> STRATEGIC AND ENTERPRISE RISK MI – considered the regular updates from the Chief Risk Officer on strategic and enterprise risks.
Climate risk
The risk of exposure to physical
and transition risks arising from
climate change.
> TCFD DISCLOSURES – endorsed the proposed updates to the Risk report within the Annual Report and Accounts and the updated TCFD disclosures
in order to continue to enhance the Group’s climate-related risk disclosures for FY23 reporting.
> CLIMATE RISK ASSESSMENT – received an update on the output of a Group-wide Climate Risk Assessment to identify the impact to the Group from
physical and transitional climate-related risks, including materiality and associated time horizons. Output from this assessment supported a broad range
of activity from the development of policy to including the potential impact of climate risk in the Group’s financial statements.
> NET ZERO STRATEGY – considered and approved the Group’s expanded net zero targets covering the new operational emissions net zero target,
and the updated Mortgage and expanded Business portfolio targets for use in FY23 disclosures.
Emerging and evolving risks
The Committee also maintained oversight of emerging and evolving risks that could potentially
impact the Group as detailed in the Chief Risk Officer’s Report to the Committee. Further detail
on the emerging and evolving risks, along with additional information on the Group’s principal risks,
can be found in the Strategic report on page 68 to 72 and more detailed information on the Group’s
approach to risk appetite, risk culture and the RMF, can be found in the Risk report beginning
on page 165.
Looking ahead
The challenges and risks which have arisen because of heightened macroeconomic uncertainty
and geo-political risk will continue to be at the forefront of the Committee’s mind in the next
financial year. The multi-year investment programme to digitise the Bank and upgrade the
infrastructure will continue to be reviewed by the Committee and, as ever, the Committee will
work with management to ensure that the Group is positioned to be able to respond to these
challenges while remaining watchful and ready to respond to any emerging and evolving risks.
Geeta Gopalan
Chair, Risk Committee
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Audit, risk and internal control
Internal control
Board responsibility
The Board, through delegated authority
assigned to the Risk Committee and the Audit
Committee, assumes responsibility for the
Group’s systems of internal control. The internal
control framework is designed to facilitate
effective and efficient operations, ensure a high
quality of internal and external reporting, and
ensure compliance with applicable laws and
regulations. The Directors and management
are committed to maintaining a robust control
framework as the foundation for the delivery
of effective risk management. Owing to the
limitations inherent in any internal control
framework, the controls have been designed
to manage and mitigate, rather than eliminate,
the risk of failure to achieve the Group’s
business objectives and can provide only
reasonable, not absolute, assurance against
material misstatement or loss. The Directors
acknowledge their responsibilities in relation
to the Group’s internal control framework and
for reviewing its effectiveness.
The Board confirms that throughout the
year ended 30 September 2023 and up to
the date of approval of this Annual Report and
Accounts, there have been rigorous processes
in place to identify, evaluate and manage the
principal and emerging risks faced by the
Group, including those that would threaten its
business model, future performance, solvency
or liquidity, the likelihood of a risk occurring
and the costs of control in accordance with the
Guidance on Risk Management, Internal Control
and Related Financial and Business Reporting
published by the FRC.
The Board has authorised the Risk Committee
to oversee the Group’s compliance with the
Board’s approved RAS, RMF and risk culture.
Further details can be found in the Risk report
on pages 165 to 170.
Board review
A review of the effectiveness of key controls
is regularly undertaken across the Group,
providing an assessment and statement
on the effectiveness of the Group’s control
environment. Each business unit is required
to produce a Control Effectiveness Statement
which is approved by the relevant Executive
Leadership Team member with independent
oversight and challenge by the second line
of defence. The outputs from this work are
reviewed at least six monthly by the Risk
Committee which provides assurance to the
Board as to the effectiveness of the control
environment, including where robust
management actions are in pace to address
specific known gaps. Going forward, the Control
Effectiveness Statement process will be
reviewed and updated in line with Corporate
Governance Code requirements.
Overall assessment
The RMF, RAF, RAS and Policy Management
Framework have continued to be monitored
to ensure they remain in line with the external
environment and aligned to the Group’s strategy
and purpose. The Control Effectiveness
Statement concludes that the control
environment requires strengthening in line with
the Group’s emerging risk profile and specific
priority actions are underway within business
units, with risk management activity planned to
monitor these through to completion. Overall,
the control environment remains stable with
ineffective controls escalated appropriately and
adequate action plans in place where required.
The Risk Committee, in conjunction with
the Audit Committee, concluded that the
Group’s risk management and internal control
framework in relation to the Group’s risk profile
and strategy was effective and adequate.
The Board therefore remained satisfied that
the system of internal control continued to
be effective in identifying and assessing the
various risks to the Group and in monitoring
and reporting progress on their potential impact.
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Statement by the Chair of
the Remuneration Committee
Directors’ remuneration
report contents
Chair’s statement
Remuneration at a glance
Directors’ remuneration policy
Colleague remuneration
Annual report on remuneration
Page
129
135
139
145
149
2023 AGM and engagement
with shareholders
This report provides an update on the first
implementation year of our new remuneration
policy, which was approved by shareholders
at the February 2023 AGM. The Committee
appreciated the high level of shareholder
support for the remuneration policy and
the remuneration report, receiving 97.88%
and 97.03% of votes in favour, respectively.
We are grateful for our ongoing dialogue with
investors. During 2023, this included positive
and supportive engagement with some of our
largest shareholders ahead of the AGM on the
Directors’ Remuneration Policy and on the small
number of amendments to our incentive plan
measures for 2023.
Introduction
On behalf of the Board, and as Chair of the
Remuneration Committee, I am pleased to
present the Directors’ remuneration report
for the year ended 30 September 2023
which includes:
> a summary of the forward-looking Directors’
remuneration policy which was approved
by shareholders at the February 2023 AGM
and is applied for three years commencing
1 October 2022; and
>
the annual report on remuneration which
summarises how the Committee addressed
its responsibilities during the year and
explains the rationale for its decision making.
129
Darren Pope
Chair, Remuneration Committee
The implementation of
the policy for the year
ahead will remain focused
on ensuring that the Group’s
remuneration framework
supports the delivery of our
Digital Strategy, our 2030
net zero ambitions and
ESG goals.
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Our Executive Leadership Team
Governance report
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and Board decision making
(Section 172(1) statement)
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Committee report
Audit Committee report
Risk Committee report
Directors’ remuneration report
Directors’ report
Risk report
Climate-related disclosures
Financial statements
Additional information
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Statement by the Chair of the Remuneration Committee continued
As we complete our review work, a new Policy
may be put forward to shareholder vote in
2025, which would be one year earlier than
the typical three year cycle, in order to address
any potential amendments required as a result
of regulatory change.
Remuneration for the year under review
As reflected elsewhere in this year’s Annual
Report, the Group has continued to focus
on executing its strategy and supporting
customers with the consequences of sustained
levels of inflation and the higher interest rate
environment. The Committee’s decision
making during 2023 has remained focused on
overseeing fair outcomes for all colleagues with
due consideration given to overall stakeholder
experience. The Group’s performance has been
assessed holistically taking account of a range
of stakeholder perspectives.
Our Remuneration Policy and alignment
with stakeholders
When determining both the design and
implementation of our Remuneration Policy,
the Committee ensures that this should
drive sustainable long-term performance
for the benefit of all stakeholder groups.
As our remuneration policy enters its second
year of implementation, there are no proposed
amendments to our incentive plans for 2024.
The implementation of the policy for the year
ahead will remain focused on ensuring that the
Group’s remuneration framework supports the
delivery of our Digital Strategy, our 2030 net
zero ambitions and ESG goals. Further details
on our forward-looking incentive measures are
on pages 132 and 135.
The Committee notes that the PRA and FCA
published their policy statement confirming
the removal of the regulatory cap on variable
pay at the end of October 2023, ahead of the
publication of this report but after the end of
the 2023 reporting year.
For 2023, awards will continue to be made in
line with our Policy, as approved by shareholders
at the 2023 AGM, and in line with the approach
taken in previous years.
We will review the impact of the changes
during 2024 and will consult with shareholders
if we consider changes to our Policy to be
in all stakeholders’ interests. It is our current
intention that there will be no material changes
to the way in which our policy is operated in the
short-term, and that the award opportunities for
FY24 will continue to be in line with those used
to date as illustrated in our current policy and
using a notional 2:1 cap and discount factor
in line with the existing methodology.
Customers
Colleagues
Government
and
Regulators
Investors
The Group has recovered service levels over the course of the second half of
the year, after a more challenging H1. After actions taken, including additional
resources and temporary third party support, customer experience, including
call waiting times, and complaints volumes have improved. Smile scores are
now showing early signs of improvement and the Group remains committed to
automating customers’ journeys to drive further improvement in service levels.
With our Purpose in mind and in response to the continuing cost of living crisis
the Group has also invested in customer support programmes, such as the
Group’s cost of living hub, supporting customers with money saving suggestions,
budgeting tools and links to external resources, continuing to enhance our
customer (and colleague) support.
Throughout the year, the Group has demonstrated how highly it values its
colleagues. This has included finalising the roll-out of the new colleague
proposition and responding to the cost of living crisis with an annual pay review
of 10%, delivered in two tranches in January 2023 and July 2023 (see Spotlight
on ‘Supporting colleagues with the cost of living’ on page 145). The Committee
felt that the positive impact of this action is reflected in sustained high levels
of engagement across the Group, lower attrition, and more applications for
vacant roles.
Against a backdrop of volatility in the banking market, the Group has maintained
a resilient balance sheet with a strong funding, liquidity and capital position
throughout the year. Virgin Money successfully passed its second ACS stress test
and continues to focus on driving further efficiencies. The Group participated in
UK sector discussions on mortgages earlier in the year and was a signatory to the
Mortgages Charter. The Group remains committed to supporting all our customers
and is focused on offering good value products to our depositors. Consumer Duty
regulations came into force in July on front book customers and the Group has fully
implemented these requirements after reviewing relevant communications
and products.
The Group remains focused on driving stronger returns over time and ensuring
that capital is returned to investors in line with the capital framework outlined
previously. Returns to investors over the year have incorporated a dividend
adjusted for certain below-the-line items in the year to leave the statutory
payout ratio at 37%, supplemented by a higher level of buybacks announced than
previously guided in respect of FY23. Whilst short-term financial ambitions have
not been fully achieved and three-year share price performance has been below
expectations, during FY23, alongside the FTSE 350 banks and the FTSE 250 Index
more broadly, the share price has trended positively (see chart on page 156).
Communities/
environment
The Group is on track to deliver the sustainability commitments made in 2022 and
our net zero ambitions for 2030. With our carbon reduction programmes running
ahead of plan, 2023 saw us expand our Operational and key Commercial Sector
targets. 2024 will see us refine these further as we learn more and define our
‘Social’ strategy.
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Statement by the Chair of the Remuneration Committee continued
2023 annual bonus
The STIP, or annual bonus, is determined based
on the Group’s performance against a Strategic
scorecard encompassing a range of financial
and non-financial targets set at the beginning
of the year.
Despite the economic backdrop the Group has
continued to see strong growth in the target
segments of Unsecured and Business lending,
reflected in the above plan achievement of c.9%
growth in these areas for 2023. Good progress
has also been made against non-financial
targets, with colleague engagement increasing
for the second consecutive year and remaining
above anticipated levels, and progress made
towards digital and customer ambitions.
The Group did not, however, achieve its PBT,
cost:income ratio or RoTE targets with
outcomes impacted by the Group’s overall cost
performance, a higher impairment charge as the
Group increased coverage levels and higher
adjusting items reflecting our ongoing
restructuring activity.
Overall performance translated into a below
target outcome against the Group’s scorecard
this year of 26.9% of maximum. In reaching a
final decision on the Group bonus outcome for
the year, the Committee concluded that the
formulaic scorecard outcome represented a
fair reflection of the Group’s performance and
overall stakeholder experience during the year.
Page 136 provides more detail on the formulaic
assessment of the scorecard performance.
As demonstrated in the table on page 136,
this outcome will be applied consistently in
all material respects across all-colleague
populations. No discretion has been applied
to the scorecard outcome.
While the Group’s strategic scorecard outcome
directly determines the majority of colleagues’
overall bonus outcome for the year, for
Executive Directors it accounts for 80% of
bonus opportunity, with the remaining 20%
assessed on personal performance against
objectives established at the start of the year.
Following an assessment of the personal
performance and taking account of the below
target Group scorecard outcome, in conjunction
with Management the Committee concluded
that the personal element of the bonus should
be capped at five out of 20. The final bonus
outcomes for 2023 were therefore 26.5% of
maximum for both the CEO and CFO just below
the Group scorecard outcome of 26.9% of
maximum. An overview of Executive Director
bonus outcomes is provided on page 136 with
a detailed summary of personal performance
provided on page 150.
2020 Long-term Incentive Plan (LTIP)
Following the end of the three-year
performance period applicable to the 2020 LTIP
awards, the Committee assessed outcomes
against the financial and non-financial
performance targets set during the pandemic.
The challenging environment continues to
impact on the Group’s ability to achieve its
ambitions, in particular, the financial targets
underpinning this award. Both RoTE and cost
outcomes failed to reach anticipated levels
and cost:income ratio fell short of the target
level set. While incremental progress has been
made to enhance customer experience over the
three years of the plan, there remains more to
do to improve our relative ranking in our
customer metric. The Group has, however,
exceeded its ambitions on Relationship Deposit
Growth and has seen positive outcomes across
our ESG scorecard, with colleague engagement
sustained at high levels and the diversity of our
senior team continuing to improve. Our net zero
ambitions are also a step closer with positive
action taken and a reported reduction in our
Scope 1 and 2 carbon emissions, putting us
ahead of where we anticipated being at this
stage of our journey to 2030.
Taking these outcomes into account, and
following an assessment of the Risk scorecard
(see page 153), the Committee approved a
final 2020 LTIP outcome of 41%, with no
discretion applied. The vesting of the 2020 LTIP
is included in the Single Figure Table for the
CEO for the year, with awards being released
in five instalments up to 2027. The net number
of shares received are subject to a regulatory
hold period as required. Having joined the
Group in 2021, the CFO did not receive a
2020 LTIP Award.
The Committee also assessed whether
participants in the 2020 LTIP had benefited
from any windfall gain in respect of this
award but concluded that no adjustment was
necessary. In particular, the Committee noted
that the timing of the grant of awards was in
line with the usual annual process, that volatility
in share price between successive grants
was not in itself unusual, and the share price
at award versus a share price as at the time of
assessment was not in itself unreasonable and
correlated with inflation over the same period.
All-colleague remuneration
The Committee’s oversight of remuneration
across the wider colleague population continued
to feature prominently in the agenda for 2023.
Beyond its involvement in the year-end pay
and incentives process and the regular review
of both pay gap and equal pay data, the
Committee continued engagement sessions
with a representative population of colleagues
from across the Group with the outputs from
the discussions featuring in Committee agenda.
Further insight on colleague sentiment more
broadly was gathered by our Committee
members during the year from the sessions
held with colleagues on strategy, as regular
attendees at our Purpose Council Meetings and
as participants in our inclusion network events.
During the year the Committee monitored
the impact of the cost of living on colleagues
and considered how best to support them
through the current inflationary environment.
While the 10% pay budget approved by the
Committee and administered during the year
was universally welcomed by colleagues,
the Committee continued to review the
other elements of the reward proposition.
This included the implementation of the
colleague proposition A Life More Virgin
(discussed in last year’s Annual Report on
page 139) and other aspects of non-financial
support offered to colleagues, such as financial
webinars and coaching sessions and the launch
of the My Discounts app, the latter giving
colleagues access to high street discounts.
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Statement by the Chair of the Remuneration Committee continued
CEO pay ratio
The Committee’s end of year decision making
in respect of Executive Directors is made taking
account of all-colleague outcomes for the year.
The overall impact of variable pay decisions
for 2023 on the ratio of CEO pay to that of the
median colleague is an increase from 59:1 in
2022 to 66:1 in 2023. The CEO’s fixed pay level
reduced in 2023, the result of the reduction in
his pension to align this with all colleagues as
per our new policy. There was also a decrease
year-on-year in the CEO’s bonus award, aligned
with a similar fall in the levels of awards for all
colleagues. The increase in his total variable
remuneration and thus the pay ratio is therefore
due to a higher out-turn for the 2020 LTIP
(41%), compared to that of the 2019 LTIP
in 2022 (32%). A degree of variance in income
under the LTIP awards is to be expected given
the more volatile nature of multi-year awards.
Remuneration for the year ahead
Executive Directors’ salaries and
Non-Executive Directors fees
For Executive Directors, the Committee
proposes to award a c.3% increase to both the
CEO and CFO. This will apply from 1 January
2024 and as per our approved policy will align
with the lower end of the range of proposed
salary increases recommended for colleagues.
It should be noted that at the time of
publication the Group has yet to conclude
the annual pay review programme, and the
final salary budget for 2024 and the Group’s
approach to the distribution of salary increases
to be applied across the colleague population
remain subject to negotiation with our union,
Unite. However, we anticipate that the average
salary increase for colleagues will be above
the rate applied to the CEO and CFO.
Non-Executive Directors’ fees are reviewed
by the Remuneration Committee and approved
by the Board annually. Following this year’s
review, it was decided to keep fees flat for
2024. The same approach was approved by
the Committee in respect of the Board Chair,
for whom the Committee sets the fee. Details
of the Non-Executive Directors and Board
Chair’s fees are detailed on page 142. A more
detailed review of Non-Executive Directors’
fees will be undertaken during FY24 to inform
a recommendation about fees as they may
apply for FY25.
Forwarding Looking Incentive Targets
During the normal course of the year, the
Committee reviewed the performance
measures that apply to both the short and
long-term incentive plans ensuring these
remain aligned with the delivery of the Group’s
Strategy, purpose and ambitions for FY24 to
FY26. Following the comprehensive review of
performance measures carried out during 2022,
the Committee concluded that the current
design of the plans continues to align with the
Group’s Strategy. Accordingly, the LTIP and
STIP measures are to be retained for the
coming year.
For the LTIP, financial measures accounting
for 65% of the overall opportunity continue to
focus on Statutory RoTE and Total Shareholder
Return (TSR), with the latter tracking the
Group’s performance relative to FTSE 350
Financial Services companies. Statutory RoTE
targets take account of an extended period
of high inflation as well as the additional
investments described in the CEO report. The
non-financial element of the LTIP retains the
ESG and risk scorecards, tracking the Group’s
progress towards its ESG goals and monitoring
prudent risk management.
The financial elements of the STIP scorecard for
2024 account for 70% of the overall opportunity
and focus on the achievement of Statutory
RoTE, Statutory Profit, underlying cost:income
ratio targets and Lending Asset Growth,
with the latter reflecting the Group’s growth
ambitions and recognising the strategy to
rebalance its product mix, specifically targeted
at unsecured and business lending. Non-
financial measures will focus on colleague
engagement, improving customer experience
and progress towards the Group’s ambition to
be the UK’s best digital bank, measured by
improved digitisation across the full suite of
customer journeys and the level of digital
customer engagement.
A summary of the 2024 STIP and 2023 LTIP
performance measures is provided on page 135,
with a detailed disclosure of the 2023 LTIP
measures, weightings and targets provided
on pages 154 and 155.
2023 LTIP awards
2023 LTIP Awards will be made to Executive
Directors and senior leaders in December 2023.
Performance measures will be assessed over
the three-year period to 30 September 2026,
with awards released from December 2026
to December 2030 and subject to post-release
holding requirements. Following the pre-grant
assessment of performance, and in order to
retain and appropriately incentivise the current
Leadership Team to deliver on the Group’s
strategic goals, the Committee’s intention is
to grant 2023 LTIP awards at the normal level,
consistent with previous years’ awards and
in line with the remuneration policy.
The Committee will take the necessary steps
to mitigate excessive windfalls on vesting
if required.
Corporate Governance Code
The provisions of the 2018 Code are already
embedded into Group Remuneration practice.
During the year the Committee considered
the FRC’s consultation into proposed changes
to the Code, particularly those relating to
remuneration. Whilst the final changes have yet
to be confirmed, the Committee considered this
year’s report in light of the proposals and noted
that it is already materially aligned. We will
continue to review the updated Code once
published and address any gaps in line with
the implementation timeframe.
Finally, I would express my gratitude to
investors for their engagement over the course
of this year, which gives me assurance that
the existing policy is in the interests of the
Group and its shareholders. The 2023 Directors’
remuneration report will be subject to an
advisory vote at the 2024 AGM. I am pleased
to recommend the report and this statement,
to you ahead of the 2024 AGM.
Darren Pope
Chair, Remuneration Committee
22 November 2023
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Governance and Nomination
Committee report
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Statement by the Chair of the Remuneration Committee continued
Committee purpose and responsibilities
The Committee assists the Board in
overseeing remuneration arrangements,
particularly those of the senior management
and employees covered by the Remuneration
Code. The Committee is responsible for:
> providing oversight and advice to the Board
in relation to the Group’s remuneration policy;
> considering and implementing remuneration
arrangements of the Board Chair and
members of the Executive Leadership Team;
and
> considering and approving remuneration
arrangements for other senior executives
and employees covered by the Remuneration
Code while having oversight for remuneration
scales and structure across the Group.
A full list of the responsibilities of the
Committee is set out in its charter. The charter
can be accessed on the Company’s website:
www.virginmoneyukplc.com
The Committee undertakes an annual review
of its performance as part of its focus on
continually improving its effectiveness. This year
an externally facilitated Board Performance
Review was carried out by Korn Ferry, following
the process described in the Governance and
Nomination Committee report, which also
included a review of the Committee. The review
concluded that the Committee is operating
effectively and is discharging its duties and
responsibilities making good use of its advisers
and benefiting from the good working
relationship developed with the Group Chief
People & Communications Officer and her team.
Committee members felt that there was good
communication from the Chair who was
effective in running meetings of the Committee.
No material recommendations were made
requiring specific action however the Committee
will continue to keep its effectiveness under
review and take improvement action as
necessary. Additionally, a review of the
Committee’s activity over the last 12 months
relative to its charter was carried out which
concluded that the Committee operated and
carried out its duties as specified in its charter
with no gaps identified.
Committee membership, skills,
experience and operations
The Committee comprises four independent
Non-Executive Directors being Darren Pope,
Geeta Gopalan, Elena Novokreshchenova
and Tim Wade and the Board Chair, David
Bennett, who was considered independent
on appointment as Board Chair.
Darren Pope joined the VMUK Remuneration
Committee as a member on 3 February 2020
and became Chair of it on 2 May 2020. Prior
to that he had served on the Remuneration
Committee of Virgin Money Holdings (UK) PLC.
Further information on Committee members,
their skills and experience and meeting
attendance is in the ‘Our Board in 2023’ section
on page 76 and in the Directors’ biographies
on pages 80 to 85.
During the year, seven scheduled meetings
were held. Details of significant matters
addressed by the Committee are discussed
below. Other attendees at Committee meetings
during the year included: the Chief Executive
Officer, the Chief Financial Officer, the Group
Chief People and Communications Officer,
Chief Risk Officer, Head of Reward and
Employee Relations, and the Group Company
Secretary, except when issues relating to
their own remuneration were being decided.
The Virgin Representative Director Sara
Weller and the Committee’s independent
remuneration adviser also attend Committee
meetings as appropriate depending on the
Committee’s business.
Key areas of focus for the Committee during the year
The significant matters addressed by the Committee during the financial year ended 30 September
2023 are described below:
Key area of focus
Key discussions, decisions and recommendations
All-colleague
remuneration
Executive
Director
and senior
management
remuneration
Governance,
risk and
other matters
> Approved all-colleague awards under the Group Team Bonus for the 2022
financial year.
> Approved annual pay budget of 10% for all colleagues for 2023.
> Considered 2023 gender and ethnicity pay gaps and Equal Pay across
all colleagues.
> Reviewed progress on Group’s diversity targets and considered how the Group’s
remuneration policies and practices deliver fair outcomes for colleagues across
all protected characteristics.
> Reviewed and approved the Group scorecard performance measures and targets
for the 2023 Annual Bonus.
> Considered feedback from colleague engagement sessions.
> Approved 2022 variable remuneration awards for Executive Directors,
other senior management and Material Risk Takers (MRTs).
> Reviewed and approved salary proposals for individual Executive Directors
(5% increase) and senior management for 2023.
> Approved the performance outcome of the 2019 LTIP award granted
in December 2019.
> Reviewed and approved the Group scorecard performance measures and targets
for the 2023 Annual Bonus.
> Considered and approved the 2022 LTIP awards performance measures
and targets.
> Approved the LTIP awards granted in December 2022.
> Considered and noted Executive Director personal objectives for 2023.
> Considered external market insight when undertaking annual review of the Board
Chair’s fee.
> Approved MRT termination and commencement awards.
> Approved the 2022 Directors’ remuneration report.
> Reviewed and approved changes and confirmed MRT population throughout
the year.
> Considered all regulatory requirements, emerging requirements under the FRC’s
Corporate Governance Code and proposed changes to the 2:1 bonus cap.
> Considered appropriate risk reporting, including corporate risks and conduct risks
and approved any corporate or individual risk adjustments to variable pay.
> Considered and reviewed the 2023 planned activities.
> Reviewed the Committee’s charter.
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Our Executive Leadership Team
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Stakeholder engagement
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Governance and Nomination
Committee report
Audit Committee report
Risk Committee report
Directors’ remuneration report
Directors’ report
Risk report
Climate-related disclosures
Financial statements
Additional information
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Statement by the Chair of the Remuneration Committee continued
Following the end of the 2023 financial year,
Committee meetings have taken place at which
final 2023 variable remuneration outcomes for
all colleagues, including the Chief Executive
Officer and Chief Financial Officer, other
senior management and MRTs, have been
determined. The Committee also determined
the performance outcome for the 2020 LTIP
award following completion of the three-year
performance period on 30 September 2023.
Advisers to the Committee
During 2023 the Committee appointed new
independent advisors Deloitte LLP (Deloitte).
For the first half of the year, our remuneration
advisers were PricewaterhouseCoopers LLP
(PwC), first appointed by the Committee as
independent advisers in 2015. As PwC will
become the Group’s external auditor from
1 October 2023, a tender process identified
Deloitte as the preferred successor. Deloitte
therefore acted as independent advisors
for the second half of the year.
During the 2023 financial year, PwC and then
Deloitte advised the Committee on all aspects
of the Directors’ remuneration policy. PwC also
provided professional services in the ordinary
course of business including assurance,
advisory, tax and legal advice and Deloitte
provided support to the Bank in relation to
Cyber, Internal Audit, Finance and Operations
related projects. There are processes in place
to ensure no conflict of interest exists in the
provisions of these services. Both PwC and
Deloitte are members of the Remuneration
Consultants Group, whose voluntary code of
conduct is designed to ensure objective and
independent advice is given to remuneration
committees. Fees paid to PwC for advice to
the Committee during the first half of the year
amounted to £93,275 excluding VAT on a part
fixed fee and part time and materials basis.
For the second half of the year fees paid to
Deloitte on a time and materials basis amounted
to £65,950 excluding VAT. Therefore, total fees
for the year were £159,225 excluding VAT
(2022: £179,700).
Voting from AGM
Directors’ remuneration policy
(2023 AGM)
Directors’ remuneration report
(2023 AGM)
Votes for
Votes against
Withheld
Number of shares
% of votes Number of shares
% of votes Number of shares
990,116,228
97.88
21,466,079
2.12
242,944
975,602,009
97.03
29,868,643
2.97
6,354,401
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Our Executive Leadership Team
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Stakeholder engagement
and Board decision making
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Governance and Nomination
Committee report
Audit Committee report
Risk Committee report
Directors’ remuneration report
Directors’ report
Risk report
Climate-related disclosures
Financial statements
Additional information
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Remuneration at a glance
How does our remuneration framework align to our strategy?
Our strategic priorities
Delighted
customers
and colleagues
2024 Annual Bonus –
performance measures
and weightings(1)
Smile Score
10%
Colleague Engagement
10%
Digital scorecard
10%
2023 LTIP – performance
measures and weightings
All colleague remuneration alignment
with ESG Goals
ESG scorecard
15%
Open doors
> Gender Pay Gap reporting
> Colleague recognition
> All-colleague share plans
> Flexible benefits
> Financial wellness support
Pioneering growth
Super
straight forward
efficiency
Discipline and
sustainability
Customer Lending
Asset Growth
Total Shareholder
Return
10%
25%
Statutory PBT
15%
Underlying Cost:income
ratio (2)
20%
Build a brighter future
> Volunteering days
> Career development
> Flexible working
> Well-being days
Put our (carbon) foot down
> LTIP targets to reduce Scope 1 emissions, improve
the energy efficiency of our mortgage portfolio
and increase lending to businesses that help
others to operate in a more environmentally
or socially friendly way
> ESG pension investments for colleagues
Statutory RoTE
Risk scorecard
25%
20%
Statutory RoTE
40%
Straight-up ESG
> Variable pay linked to ESG
> Deferral of variable pay
> Malus and clawback
> Shareholding requirements
(1) The percentages represent the weighting attributable to each performance measure included in the Group scorecard. Performance against the Group scorecard accounts
for 80% of Executive Director bonus opportunity with a further 20% weighting attributable to personal performance.
(2) Excludes the impact of the financial crime prevention programme.
Performance measures for the Annual Bonus
and LTIP are carefully chosen to align to the
Group’s strategic priorities. The measures
reflect the Group’s ambitions to grow the
business, to deliver robust and disciplined
financial performance, to provide heartfelt
service to customers and delight colleagues.
The inclusion of an ESG scorecard within
our LTIP measures ensures that Executive
Director remuneration is aligned with the
Group’s aspiration to drive positive social and
environmental impact through everything we
do. As illustrated in the table, the all-colleague
remuneration framework is aligned with the
Group’s ESG goals.
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Our Board of Directors
Our Executive Leadership Team
Governance report
Stakeholder engagement
and Board decision making
(Section 172(1) statement)
Governance and Nomination
Committee report
Audit Committee report
Risk Committee report
Directors’ remuneration report
Directors’ report
Risk report
Climate-related disclosures
Financial statements
Additional information
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Directors’ remuneration report
Remuneration at a glance continued
2023 Annual bonus
David Duffy
£331k
£331k
Target
£625k
Maximum
£1,249k
Category
Delighted
customer and
colleagues
Clifford Abrahams
£195k
£195k
Target
£368k
Delivered in cash Delivered in shares
Maximum
£735k
Executive Directors’ annual bonus outcomes are
illustrated in the table above. Bonus awards are delivered
half in cash and half in shares with the share element
subject to a 12-month holding period. The possible target
and maximum outcomes are also provided as a comparison.
While no discretion was applied to the Group scorecard
outcome, in conjunction with Management the Remuneration
Committee concluded that the personal element of the
bonus should be capped at five out of 20.
2023 Annual bonus performance
Performance achievement versus targets
Measure
Smile score
Colleague engagement
Journey digitisation
Digital primacy
Weighting
Threshold
8%
8%
4%
4%
47%
Actual: 49%
76
48%
Actual: 50%
60%
Actual: 60.7%
Pioneering
growth
Customer lending
asset growth
8%
4.0%
Super
straightforward
efficiency
Disciplined and
sustainable
Statutory PBT
12%
£465m
Underlying
cost:income ratio
16%
52%
Statutory RoTE
20%
7%
Target
53%
78
Actual: 80
50%
62%
5.0%
Actual: 8.8%
£550m
Actual: £330m
50%
Actual: 51.9%(1)
8%
Actual: 3.6%
Maximum
59%
81
52%
64%
7.0%
£660m
48%
10%
CEO outcome
as % of
maximum
opportunity
CFO outcome
as % of
maximum
opportunity
3.2%
6.7%
2.0%
1.6%
8.0%
0.0%
0.0%
3.2%
6.7%
2.0%
1.6%
8.0%
0.0%
0.0%
0.0%
0.0%
21.5%
5.0%
26.5%
21.5%
5.0%
26.5%
Group scorecard outcome
Personal performance
Final outcome
80%
20%
100%
Summary of personal performance on page 150.
(1) Although the final cost:income ratio outcome for 2023 was marginally ahead of the threshold target level, funding the overall bonus scorecard at that level would result in the
cost:income ratio outcome falling below threshold levels, thus while reported at actual levels contributes 0.0% to the bonus pool.
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Governance and Nomination
Committee report
Audit Committee report
Risk Committee report
Directors’ remuneration report
Directors’ report
Risk report
Climate-related disclosures
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Remuneration at a glance continued
2020 LTIP
David Duffy
£1,108k^
Threshold
Target
Maximum
£1,108k
£676k
£1,621k
£2,702k
^ Delivered in shares and deferred up to 2027 with net shares subject to a further
regulatory hold period as required.
2020 LTIP performance
(1 October 2020 – 30 September 2023)
Category
Measure
Weighting
Threshold
Delighted
customers and
colleagues
Colleague engagement
Senior leadership diversity
5.0%
5.0%
Carbon emissions (Scope 1 & 2)
5.0%
CMA ranking BCA (Top #)
CMA ranking PCA (Top #)
5.0%
5.0%
76
41
8%
5
5
Relationship deposit growth
10%
4.0%
Pioneering
growth
Super
straightforward
efficiency
Underlying cost:income ratio
Underlying cost outcome
Discipline
and sustainability
Statutory RoTE
Risk scorecard
Final outcome
The average share price between 1 July 2023 and 30 September
2023 of 165.5p has been used to calculate the value of the
2020 LTIP award following assessment of performance at the
end of the three-year period. The possible threshold, target and
maximum outcomes are also provided as a comparison. Share
price movement has increased the valuation of the award by
£202k compared to the corresponding value at the time of grant.
Clifford Abrahams joined the Group in March 2021 and therefore
did not receive a 2020 LTIP Award.
How does executive
remuneration align
to performance?
Single figure total remuneration
David Duffy
Chief Executive Officer
Clifford Abrahams(1)
Chief Financial Officer
Performance achievement versus targets
Target
79
Actual: 80
43
Actual: 48
8%
Actual: 16%
3
Actual: 13 (Threshold not met)
3
Actual: 15 (Threshold not met)
5.5%
Actual: 11.3%
Maximum
Outcome
as % maximum
opportunity
80
45
12%
2
2
5.0%
5.0%
5.0%
0.0%
0.0%
£2,651k
£2,277k
£1,108k
£573k
£465k
£331k
7.0%
10%
£1,212k
£1,239k
53%
Actual: 51.9%
50%
£810m
£780
Actual: £971m (Threshold not met)
47%
£750m
6%
8%
Actual: 3.6% (Threshold not met)
10%
Actual: Target outcome
(see below)
10%
10%
25%
20%
100%
3.5%
0.0%
0.0%
12.0%
41%
£901k
£974k
£285k
£195k
£706k
£689k
2023
2022
2023
2022
Fixed Bonus LTIP
Further information on the 2020 LTIP performance outcome, including a summary of performance against the Risk scorecard, is provided
on page 153.
(1) Clifford Abrahams joined the Group in March 2021 and did
not receive LTIP awards in 2019 and 2020. Therefore, he
did not have income from LTIP vestings in 2022 or 2023.
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Governance and Nomination
Committee report
Audit Committee report
Risk Committee report
Directors’ remuneration report
Directors’ report
Risk report
Climate-related disclosures
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Remuneration at a glance continued
How does executive remuneration align to long-term
shareholder value?
As a Committee, we want to incentivise Executive Directors to take a long-term, sustainable view of the performance
of the Group:
Total remuneration
Variable remuneration
41%
Fixed
59%
82%
18%
64%
36%
Variable
Shares
Cash
Long term
Short term
59% of total remuneration is variable
and based on performance
82% of variable remuneration is awarded
in shares which are deferred and held
over a period of up to eight years
64% of variable remuneration is based
on long-term performance
Percentages in the above illustration are based on the achievement of on target performance outcomes under the Bonus and LTIP.
Executive Director share interests
David Duffy
The chart below shows that as at 30 September 2023, David Duffy
had met his minimum shareholding requirement of 200% of salary,
demonstrating strong alignment with shareholders.
331%
131%
200%
Clifford Abrahams
Clifford Abrahams joined the Group in March 2021 and has acquired
shares through Group share plans and from market purchases since
then. Clifford has not met his shareholding requirement this year.
Under the Directors’ remuneration policy, Executive Directors must
retain 60% of net shares from Group share awards until the
shareholding requirement is met.
How does executive remuneration align with the wider workforce?
59%
130%
200%
Salary
Bonus
LTIP
Executive Directors
All colleagues
2024 Salary increase
Executive Directors to receive a c.3% increase,
aligned to the lower end in the proposed range
of awards applied across all colleagues.
2024 Salary increase
At the time of publication, the Group had not concluded
its annual pay review process for all colleagues including
negotiations with the Unite Union. However, the expectation
at this time, is that the average pay increase for colleagues
will be above the rate applied to Executive Directors.
2023 Bonus outcome
Annual bonus award of 26.5% of maximum for both
the CEO and for the CFO. 50% of bonus awards
are delivered in shares.
2023 Bonus outcome
Annual bonus award made to all eligible colleagues
with the majority of colleagues to receive bonus award
of 26.9% of maximum (equivalent to 53.7% of target).
Cap on personal element of bonus at five out of
20 applied
2020 LTIP outcome
The CEO’s 2020 LTIP award, granted in December 2020,
vested at 41% and will be released in line with regulatory
deferral requirements.
2020 LTIP outcome
Some senior managers are eligible to participate in the LTIP.
Vesting outcome at 41% for senior managers who received
2020 LTIP awards in December 2020.
The CFO joined the Group in 2021 and therefore
did not receive a 2020 LTIP award.
2023 LTIP award
2023 LTIP to be granted in December 2023.
2023 LTIP award
2023 LTIP to be granted in December 2023 to senior managers
who are eligible to participate in the LTIP. The LTIP performance
measures, weightings and targets are the same as that applied
for Executive Directors, however level of award varies by role.
When making remuneration decisions for the Executive Directors, the Committee considers pay, policies and practices
elsewhere in the Group, see the Colleague Remuneration section (page 145) for further details.
Shares counting towards shareholding requirement(1)
Unvested subject to performance(2)
Shareholding requirement
(1) Represents beneficially owned shares as well as the net value of unvested share awards
no longer subject to performance conditions.
(2) Represents the net value of share awards subject to ongoing performance conditions
based on a target outcome.
Further details regarding Executive Directors’ share interests
can be found on page 157.
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Directors’ remuneration policy
– abridged
In this section, we provide a summary
of the key elements of the remuneration
policy, which was formally approved
by shareholders at the AGM on
21 February 2023. It is intended that
approval of the remuneration policy
will be sought at three-yearly intervals,
unless amendments are required in
the interim, in which case appropriate
shareholder approval will be sought.
The full policy can be found on pages
129 to 138 of the 2022 Directors’
remuneration report, included in the
2022 Annual Report and Accounts,
available at www.virginmoneyukplc.com
The tables below summarise the key elements of the remuneration framework for Executive Directors, including how this was
implemented in 2023 and how we intend to implement it in 2024.
Element and purpose
Operation
Salary
Pension
Benefits
Bonus
Recruit, reward,
retain and
recognise role
responsibilities
Recruit, reward,
retain and contribute
towards funding
for retirement
Base salaries are paid monthly and reviewed annually with any increases normally
aligned in percentage terms with increases awarded to other colleagues.
Executive Directors are entitled to participate in the Group defined contribution
pension scheme or may receive a cash allowance in lieu of an employer pension
contribution. The maximum contribution or cash allowance is 13% of salary.
To provide
competitive
benefits
A range of benefits are provided to Executive Directors including private medical
insurance, health assessments, life assurance, car allowance, 30 days’ holiday
and five paid well-being days per year.
To reward Group
and personal
performance in line
with strategic
objectives
Annual bonuses are discretionary and are based on Group and individual
performance measures within the year. The measures, their weighting and targets
are set annually with awards determined by the Committee at the end of the
financial year.
The annual bonus may be delivered in shares and/or cash. The equity-based
element of the award will be made under the Deferred Equity Plan (DEP).
Regulatory holding periods may be applied as necessary upon the vesting
of upfront awards and at the end of the required deferral period for
deferred awards.
Taken together with the LTIP and any relevant awards under the all-employee
Share Incentive Plan, the total variable remuneration opportunity in respect of a
financial year is limited by the 2:1 ratio of variable pay to fixed pay (including the
impact of any discount factor and excluding recruitment awards), subject to the
LTIP opportunity being at least half of the total variable pay opportunity.
The Committee can, at its discretion, apply malus and/or clawback to all or part
of any bonus award.
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Directors’ remuneration policy – abridged continued
Element and purpose
Operation
LTIP
Delivery of the
Group’s strategy
and growth in
shareholder value
Awards are subject to performance conditions aligned with the Group’s long-term
strategic goals. Performance conditions are normally tested over a period of three
financial years. Upon the vesting of shares at the end of the required deferral
period, a regulatory holding period may be applied as necessary.
The weighting of metrics will be determined before grant with no more than
25% of the maximum vesting for threshold performance. The Committee
has discretion, in exceptional circumstances, to amend targets, measures or
weightings if a corporate event takes place (for example a major transaction,
including a change of control, or capital raising) that in the opinion of the
Committee causes the targets, measures or weightings to be no longer
appropriate or such adjustment to be reasonable.
The Committee can, at its discretion, apply malus and/or clawback to all or part
of any LTIP award.
Taken together with the annual bonus opportunity and any relevant awards under
the all-employee Share Incentive Plan, the total variable remuneration in respect
of a financial year is limited by the 2:1 ratio of variable pay to fixed pay (including
the impact of any discount factor and excluding recruitment awards), subject to
the LTIP opportunity being at least half of the total variable pay opportunity.
Executive Directors are expected to build up a specified holding of Group shares
equivalent to a percentage of salary.
60% of net shares received from share awards must be retained until this
requirement is met.
Post-employment: Executive Directors are required to retain a fixed number
of shares for at least two years after leaving Group service. The fixed number
of shares to be held will be determined at exit and will be based on the lower of:
1.
the in-employment shareholding requirement immediately prior to departure;
and
2. the actual shareholding on departure.
Shareholding
guidelines
To align Executive
Directors’ interests
with those of
shareholders
Directors’
remuneration policy
and principles
The remuneration principles support the
Group’s culture and its long-term business
strategy. Executive Director remuneration
is linked to individual performance,
business results, shareholder experience,
fair customer outcomes and prudent
risk management. Remuneration
arrangements are fully compliant with,
and will be operated in line with, all
remuneration regulatory requirements.
The benchmarking peer group is defined
as other UK-based banks and wider
financial services firms of a comparable
size and other FTSE companies reflecting
the Group’s market capitalisation.
The remuneration policy is intended to:
> provide competitive, transparent
and fair rewards and benefits;
>
reward achievement of short and
long-term individual performance
and business strategy;
> align the interests of Executive
Directors and shareholders;
> deliver outcomes over short and
long-term horizons with appropriate
performance and risk adjustments;
> support the RMF which is set
by reference to the risk appetite
of the Group; and
> ensure the Group is able to attract,
recognise, motivate and retain
Executive Directors as the Group grows.
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Audit Committee report
Risk Committee report
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Directors’ report
Risk report
Climate-related disclosures
Financial statements
Additional information
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Directors’ remuneration policy – abridged continued
Implementation in 2023
Salary
David Duffy
£1,071,000 p.a.
(5% increase effective 1 January 2023)
Pension
David Duffy
13% of salary
Clifford Abrahams
£630,000 p.a.
Clifford Abrahams
13% of salary
Implementation in 2024
David Duffy
£1,104,000 p.a.
(c.3% increase effective 1 January 2024)
David Duffy
13% of salary
Clifford Abrahams
£650,000 p.a.
Clifford Abrahams
13% of salary
Including car allowance, private medical insurance and other taxable benefits
No change
Benefits
Maximum opportunity (% of salary):
Maximum opportunity (% of salary):
Bonus
David Duffy
118%
Executive Directors awarded bonuses of:
David Duffy
£331k
Clifford Abrahams
118%
Clifford Abrahams
£195k
Performance against 2023 scorecard can be found on page 136
David Duffy
118%
Clifford Abrahams
118%
No change to type of performance conditions or the respective weighting
(see page 135) or maximum bonus potential.
Performance targets are considered commercially sensitive and will be disclosed on a
retrospective basis following the end of the performance period in the 2024 Annual Report
and Accounts.
Maximum opportunity in 2024:
2020 LTIP vesting in 2023
LTIP
David Duffy
£1,108k
Clifford Abrahams
n/a
No change to maximum LTIP opportunities or the performance conditions
are currently proposed.
2023 LTIP award to be granted in December 2023:
David Duffy
Award of 177%
of salary
Clifford Abrahams
Award of 177%
of salary
Details of 2023 LTIP award are provided on page 154
Share-
holdings
David Duffy
200% of salary
Requirement met
Clifford Abrahams
200% of salary
Requirement not yet met
Details of Director shareholdings can be found on page 157
The Committee will determine performance measures aligned with the delivery of the Group’s
strategic objectives and the continued creation of shareholder value. These measures will be
published in the 2024 Directors’ remuneration report ahead of any awards being made.
No change in shareholding requirement.
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Directors’ remuneration policy – abridged continued
Risk adjustments, malus and clawback
Bonus and LTIP awards may be reduced before
they are released (malus) or may be subject
to clawback where the Committee determines
that an adjustment should apply. Clawback may
be applied up to seven years from the award
date, or ten years where an investigation
has commenced.
Circumstances in which malus and/or clawback
may be applied include, but are not limited to,
where:
>
>
>
>
there is material misstatement of the Group’s
financial results;
there is reasonable evidence of individual
misbehaviour or material error;
the Group suffers a material downturn
in financial performance;
the Group suffers a material failure
of risk management;
> a determination by the Committee that
the circumstances on which it has based
any discretion in respect to good leaver
treatment were misrepresented at the time
or have subsequently changed so that
it would have exercised its discretion
differently;
>
individual conduct has, in the reasonable
opinion of the Committee, caused serious
harm to the reputation of and/or significant
financial loss to the Group or the relevant
business unit;
> an error is made in the calculation of the
Board Chair(1)
Non-Executive Director
Senior Independent Director
extent of vesting of an award that resulted
in an overpayment to the individual; and
Chair Audit Committee
Chair Risk Committee
> any other matter which, in the reasonable
Chair Remuneration Committee
opinion of the Committee, is required to be
taken into account to comply with prevailing
legal and/or regulatory requirements, which,
for the avoidance of doubt, includes any
regulations or guidance published by a
relevant regulator from time to time.
Member Audit Committee
Member Risk Committee
Member Remuneration Committee
Chair Governance and Nomination Committee
Member Governance and Nomination Committee
Implementation
from January 2023
Implementation
from July 2023
Implementation
in 2024
£393,750
£412,500
£412,500
£78,750
£31,500
£36,750
£36,750
£36,750
£15,750
£15,750
£15,750
£36,750
£15,750
£82,500
£33,000
£38,500
£38,500
£38,500
£16,500
£16,500
£16,500
£38,500
£16,500
£82,500
£33,000
£38,500
£38,500
£38,500
£16,500
£16,500
£16,500
£38,500
£16,500
Non-Executive Directors
Non-Executive Directors receive fees set at
a rate that reflects the value to the Group and
expected time commitment given the added
regulatory complexity within the financial
services sector. The following table sets out the
fees payable for the year ending 30 September
2024, in line with the rates that were approved
by the Board in September 2023 and that are
reviewed annually. The Non-Executive Directors
are reimbursed for expenses they incur in
performing their duties. Any tax arising on such
reimbursed expenses is borne by the Group.
(1) Paid as a combined fee for the role as Chair and Chair of the Governance and Nomination Committee.
Illustration of delivery time frame for 2024 remuneration
2024 Performance year
2024
2025
2026
2027
2028
2029
2030
2031
2032
Salary
Pension
Annual
bonus^
LTIP
Cash
Cash in lieu
Performance
period
Preliminary
performance
period
Cash 50%
Shares 50%
Holding period
Performance period
Shares 20%
Holding period
Shares 20%
Holding period
Shares 20%
Holding period
Shares 20%
Holding period
Shares 20%
Holding period
^ Annual bonus awards are normally delivered in a combination of cash and shares and are subject to deferral, in line with regulatory requirements, taking into account that variable pay awarded for the year including LTIP.
Any share releases are subject to a post-vest holding period in line with regulatory requirements and market practice.
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Directors’ remuneration policy – abridged continued
Strategic report
Governance
Board Chair’s introduction
Our Board of Directors
Our Executive Leadership Team
Governance report
Stakeholder engagement
and Board decision making
(Section 172(1) statement)
Governance and Nomination
Committee report
Audit Committee report
Risk Committee report
Directors’ remuneration report
Directors’ report
Risk report
Climate-related disclosures
Financial statements
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Service contracts and provisions
The notice periods and dates of service contracts for Executive Directors are shown below:
Provision
Details
Election
Notice periods
within Executive
Directors’
service contracts
All Executive Directors
are subject to annual
re-election.
12-months’ notice
from Company.
12-months’ notice from
Executive Directors.
Confidentiality
Six-month post-termination
restrictive covenants.
Outside
appointments
Executive Directors
may accept outside
appointments in other listed
companies and retain any
fees received.
Executive Directors may be required to
work during the notice period, unless
determined otherwise.
Executive Directors are subject to a
confidentiality undertaking without limitation
in time, as well as to six-month post-termination
restrictive covenants covering non-competition;
non-solicitation of and non-dealing with clients;
non-interference with suppliers or contractors;
and non-solicitation of colleagues.
The Board Chairman is required to approve
appointments in advance. Agreement from
the Board must be sought before Executive
Directors accept any additional non-executive
roles outside of the Group. Procedures are
in place to ensure that regulatory limits on
the number of directorships held are complied
with. Details of the directorships held can
be found in the biographies section of the
Governance report.
Executive directors
Notice period
Date of service contract
David Duffy
Clifford Abrahams
12 months
12 months
25 November 2015
8 March 2021
The dates of current Non-Executive Directors’ letters of appointment are shown below:
Non-Executive Directors
David Bennett
Geeta Gopalan
Elena Novokreshchenova
Darren Pope
Tim Wade
Sara Weller
Amy Stirling (Resigned 5 May 2022)
Paul Coby (Resigned 30 June 2022)
23 November 2015
24 July 2018
22 March 2021
26 July 2018
8 September 2016
3 October 2022
30 July 2018
19 May 2016
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Governance and Nomination
Committee report
Audit Committee report
Risk Committee report
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Directors’ remuneration policy – abridged continued
How the Committee has applied the
remuneration principles of the 2018
Corporate Governance Code
Corporate Governance Code principles
Principle P:
Remuneration policies and practices
should be designed to support strategy
and promote long-term sustainable success.
Executive remuneration should be aligned
to company Purpose and Values, and be
clearly linked to the successful delivery
of the company’s long-term strategy.
Variable pay is designed to reward
the delivery of the Group’s strategy.
Performance metrics are aligned to
the Group’s KPIs, strategic priorities and
the Group’s ESG goals. These include
non-financial metrics linked to the Group’s
Purpose and Values such as Smile score
and colleague engagement. See page 135.
A substantial proportion of pay for Executive
Directors is subject to performance and is
awarded in shares which are deferred and
held over an extended period of up to eight
years. This ensures that Executive Directors
are fully committed to sustainable long-term
performance. There are shareholding
requirements for the CEO and CFO as well as
a post-employment shareholding requirement.
Principle Q:
A formal and transparent procedure for
developing policy on executive remuneration
and determining director and senior
management remuneration should be
established. No director should be involved
in deciding their own remuneration outcome.
The process followed by the Remuneration
Committee in developing the policy is
described in detail in last year’s Remuneration
Report on page 129. No director is involved
in deciding their own remuneration outcome.
Principle R:
Directors should exercise independent
judgement and discretion when authorising
remuneration outcomes, taking account
of company and individual performance,
and wider circumstances.
The Committee may exercise discretion
to ensure outcomes reflect business
performance, individual performance
and stakeholder experience. Details of
the Committee’s consideration of individual
performance is shown on page 150 and
of stakeholder experiences is shown
on page 130.
A summary of how the proposed remuneration policy fulfils the factors set out in provision 40
of the 2018 Corporate Governance Code is below.
Simplicity,
clarity and
proportionality
Risk and
alignment
to culture
The remuneration policy is designed to retain simplicity while complying with
all relevant regulatory requirements and meeting shareholder expectations.
Remuneration elements include fixed pay (base salary, pension and benefits)
and variable pay (annual bonus and LTIP).
Targets for annual bonus and LTIP awards are aligned to the Group’s strategic
priorities. This provides clarity to shareholders and other stakeholders on the
relationship between the successful delivery of the Group’s strategy and
remuneration paid.
The Committee’s overriding discretion ensures that remuneration outcomes
are aligned with Group performance. As reflected on page 138 the Committee
considers overall pay and conditions for colleagues across the Group as a whole
when determining Executive Director outcomes. The pension arrangements for
Executive Directors are aligned with those available to all colleagues.
The remuneration policy supports the Group’s RMF and delivers outcomes over
short and long-term horizons with appropriate performance and risk adjustments.
Risk and conduct considerations are taken into account as part of the decision-
making process for variable pay awards. Ahead of the release of deferred share
awards a risk adjustment process is applied with a review undertaken by the
Remuneration Risk Adjustment Committee prior to final approval by the
Remuneration Committee.
Annual and long-term incentives are designed to drive behaviours consistent
with the Group’s Purpose, Values and strategy. Performance measures are subject
to oversight from the Board Risk Committee and include non-financial metrics
linked to the Group’s Purpose and Values, such as measures to improve customer
experience and colleague engagement. The Group’s performance philosophy that
success will be achieved through alignment with strategic goals and working
together is underpinned by a team-based annual bonus. To support this approach
to performance management, the annual bonus for colleagues is aligned with the
performance of the business. When the Group performs well, colleagues will share
in this success and therefore everyone is rewarded for the contribution they make
to the Group’s success. This aligns Executive Directors and the wider workforce,
encouraging colleagues to work collaboratively as one team and therefore reduces
behavioural risks. While this approach is adopted for the majority of colleagues
across the Group, incentive outcomes for colleagues employed in Control Functions
are based on an assessment of functional objectives rather than the performance
of the Group.
Predictability
The remuneration policy on pages 132 to 134 of last year’s Remuneration report
describes the purpose, operation and maximum potential of each remuneration
element and illustrates a range of potential outcomes for Executive Directors.
Details of the use of discretion and malus and clawback provisions are explained
on page 142.
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Governance report
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Governance and Nomination
Committee report
Audit Committee report
Risk Committee report
Directors’ remuneration report
Directors’ report
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Colleague
remuneration
In this section, we focus on colleague remuneration and
show how remuneration compares across the different
employee groups. We look at pay comparisons, colleague
engagement and how we supported colleagues with
cost of living pressures.
Alignment of remuneration
The Committee is always mindful of the
alignment between the framework for Executive
Directors and all-colleague remuneration. Its
end of year decision making relating to annual
pay increases and variable pay awards is made
based on a holistic approach with particular
focus paid to the consistency of outcomes
across the Group. The table on page 146, shows
how the cascade of the reward framework
applies across different employee groups.
The Committee has oversight for all-colleague
remuneration and is updated on notable matters
affecting pay and benefits across the wider
workforce. During 2023, key focus areas have
included the Group’s continued support for
colleagues during the current cost of living crisis
and its approach to pay, including from both an
equal pay and gender pay gap perspective.
Engagement with colleagues
The Committee has mechanisms through
which it hears from and engages with
colleagues. During the year, the Chair has
held a series of focus groups with colleagues
from a broad cross-section of the organisation,
including Unite. Matters discussed included
how the Board considered all aspects of
colleague pay and benefits, colleague
experience during 2023 and its influence
on decision making, how the Group responded
to the main themes from previous sessions
and how Directors’ remuneration aligns with
the all-colleague framework. This format of
engagement with colleagues will continue
during the year ahead to ensure the Committee
remains aware of the key remuneration issues
for colleagues.
Supporting colleagues with the cost of living crisis
The cost of living crisis is affecting everyone
across the UK, some more than others.
We recognise that this is a challenging time,
guided by our Purpose, we have considered
how we can best support our colleagues.
In August 2022, we made a special one-off
payment of £1,000 to help eligible colleagues
in the immediate term but with inflation
remaining volatile, we knew we needed
to do more to support our colleagues and
their families.
Last year the Group agreed with Unite to
apply the 2023 pay increase in two parts,
with the first instalment delivered in January,
and a second instalment to follow in July.
This exceptional approach took account of
the ongoing cost of living pressures facing
colleagues and meant that we could support
colleagues throughout the year by delivering
a market-leading pay award. Following the
5% increase received in January 2023, all
eligible colleagues received a further salary
increase or one off payment at the start of
July 2023 of between 4%-6%. This equalled
a total uplift for colleagues of between
9% and 11% of their salary. We also paid
a bonus to all eligible colleagues last year.
Taken together, our pay and bonus
offerings represent our strong desire
to ensure colleagues across Virgin Money
are recognised and rewarded for the role
they play in our success, set against
increasing cost of living pressures and
economic uncertainty.
In addition to the above financial support,
we also offer non-financial support to
help our colleagues, including advice
and guidance on financial wellbeing and
managing money. Money worries can
significantly impact our mental health and
wellbeing. It’s important we help not only
our customers to feel financially fit but to
support colleagues to be financially stable
and confident.
We are really proud of our financial care hub
where we’ve gathered the following support,
services and resources for colleagues:
Financial care team
Virgin Money Minded
Our Financial Care Team offer flexible solutions to support colleagues, who
are customers, and who may be struggling to pay their overdraft, credit card,
loan or mortgage with us. While they can’t always help colleagues who bank
elsewhere, they can refer them for debt advice.
Money Minded, is designed to help answer the most common questions
you might have about all aspects of dealing with money.
There is helpful content on common money worries, like debt, spending
and saving, mortgages, renting and tax as well as planning for the future
and looking after loved ones.
Employee Assistance
Programme
The Carefirst service can give practical, impartial support on home and
family issues, financial and legal matters such as dealing with debt, buying
a house or consumer rights. It also has a managers area on the website.
Other
Details and helpful links for colleagues, for example to the Bank workers
charity and the Virgin Family discounts for colleagues.
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Our Board of Directors
Our Executive Leadership Team
Governance report
Stakeholder engagement
and Board decision making
(Section 172(1) statement)
Governance and Nomination
Committee report
Audit Committee report
Risk Committee report
Directors’ remuneration report
Directors’ report
Risk report
Climate-related disclosures
Financial statements
Additional information
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Colleague remuneration continued
Cascade of remuneration
The Committee’s remit includes considering the remuneration structure for the workforce as a whole. Each year the Committee is presented with updates that set out developments in colleagues’
pay policies and practices. The provision of these reports meets the requirements of the 2018 Code.
The Committee continues to be engaged on how the remuneration framework is aligned across the different employee groups and how the pay policies and practices support the Group’s Purpose
and Values. A summary of the areas of focus for the Committee relating to all-colleague remuneration is shown in the table below.
All colleagues are eligible to participate in the Group’s pension scheme, flexible benefit scheme, annual bonus and Share Incentive Plan. All members of the Executive Leadership Team and some senior
management are eligible to participate in the Group’s LTIP. The Executive Leadership Team are also required to adhere to the Group’s shareholding guidelines.
Who
Element
Details
All colleagues
8,222 colleagues
at 30 Sep 2023
Salary
Pension
Benefits
Bonus
Base salaries are in line with role and responsibilities. They are paid monthly and reviewed
each year. Annual increases are approved by the Remuneration Committee. All colleagues
are paid at, or above, the Living Wage.
All colleagues are entitled to participate in the Group’s defined contribution pension scheme
and have the option to receive up to 13% of salary pension contributions.
98.4% of our colleagues are members of the pension scheme.
All colleagues are eligible to participate in our flexible benefits scheme which offers colleagues
a range of benefits designed to support their financial goals, lifestyle and well-being. Benefits
include private medical insurance, health assessments, life assurance, and 30 days’ holiday
as well as an additional five well-being days.
All colleagues are eligible for a bonus. The annual bonus is aligned with the performance of
the business. Performance measures support the delivery of the Group’s strategic priorities as
shown on page 135. Some senior colleagues and Executive Directors also receive a percentage
of bonus based on individual performance. Bonus opportunity varies by grade.
Each year, the Committee reviews and approves the colleague bonus pool and in doing so
takes account of the potential outcomes for Executive Directors, as well as year-on-year
relative movement and other emerging metrics such as the CEO pay ratio. Malus and clawback
provisions are in place.
Board and Committee areas of focus
> Salary increases for all colleagues
> Fair pay across employee groups
> Gender and ethnicity pay gaps
> Strategic alignment of performance
measures and targets
> Group scorecard outcomes for the year
> Bonus pool for all colleagues versus
Executive Directors
Leadership Team/some
Senior Management
c.53 colleagues
at 30 Sep 2023
Leadership Team
7 colleagues
at 30 Sep 2023
Share Incentive
Plan
LTIP
All colleagues are able to participate in the Share Incentive Plan. The Share Incentive Plan
provides for the purchase of shares, in line with HMRC participation level rules, on a monthly
basis from gross pay and is also the vehicle used to allow for awards of free or matching shares.
> None
Awards are subject to performance conditions aligned with the Group’s long-term strategic
goals. Performance conditions are normally tested over a period of three financial years.
Upon the vesting of shares at the end of the required deferral period, a regulatory holding
period may be applied as necessary.
> Strategic alignment of performance
measures and targets
> Performance outcome of LTIP following
completion of three-year performance period
The weighting of metrics will be determined before grant with no more than 25%
of the maximum vesting for threshold performance.
Shareholding
guidelines
The Executive Leadership Team are expected to build up a specified holding of Group shares
equivalent to a percentage of salary.
60% of net shares received from share awards must be retained until this requirement is met.
Executive Directors are required to retain a fixed number of shares for at least two years after
leaving Group service.
> Actual shareholding versus requirements
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Stakeholder engagement
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(Section 172(1) statement)
Governance and Nomination
Committee report
Audit Committee report
Risk Committee report
Directors’ remuneration report
Directors’ report
Risk report
Climate-related disclosures
Financial statements
Additional information
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Colleague remuneration continued
Change in Directors’ remuneration compared with colleagues
The table below shows the percentage change in remuneration for Directors compared with the average percentage change in the remuneration of colleagues.
All colleagues(1)
David Duffy (CEO)
Clifford Abrahams (CFO)
David Bennett
Geeta Gopalan
Elena Novokreshchenova
Darren Pope
Tim Wade
Sara Weller (Joined 3 October 2022)
Amy Stirling (Resigned 5 May 2022)
Paul Coby (Resigned 30 June 2022)
% change in remuneration
between 2022 and 2023
% change in remuneration
between 2021 and 2022
% change in remuneration
between 2020 and 2021
% change in remuneration
between 2019 and 2020
Salary/Fee
Benefits
Bonus
Salary/Fee
Benefits
Bonus
Salary/Fee
Benefits
Bonus
Salary/Fee
Benefits
11%
4%
4%
5%
5%
5%
5%
5%
n/a
n/a
n/a
22%
(6%)
(39%)
(35%)
(29%)
(32%)
0%
0%
0%
0%
0%
0%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
8%
0%
75%
0%
0%
121%
0%
0%
–
n/a
(25%)
2%
2%
401%
72%
232%
520%
0%
0%
0%
0%
0%
–
0%
0%
n/a
n/a
n/a
n/a
n/a
–
n/a
n/a
3%
0%
n/a
33%
19%
n/a
29%
16%
–
n/a
31%
9%
(38%)
n/a
0%
0%
n/a
0%
0%
–
0%
0%
458%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
–
n/a
n/a
3%
0%
n/a
15%
(4%)
–
(11%)
3%
–
n/a
(6%)
12%
10%
n/a
0%
0%
–
0%
0%
–
0%
0%
Bonus
(67%)
(100%)
n/a
n/a
n/a
–
n/a
n/a
–
n/a
n/a
(1) The percentages for ‘All colleagues’ reflect the average percentage change in FTE salary, taxable benefits and allowances (including acting-up/deputising allowances), and bonus for colleagues (excluding Directors) employed by Clydesdale Bank PLC at 30 September
of each relevant financial year. There are no employees of Virgin Money UK PLC.
The year-on-year percentage changes are influenced by a number of factors including where
Directors have completed part-year service in one or more of the years reflected in the table.
For Non-Executive Directors, changes in fees may also be attributable to the different Committee
roles undertaken by each Non-Executive Director over the period.
With reference to the year on year changes to benefits for the CEO and CFO, taxable security costs
for the CEO were settled in 2022 and the one off relocation cost associated with the CFO’s move
to the UK applied only in his first year of employment with the Group. On bonus, the percentage
change year-on-year, reflects the lower bonus scorecard outcome in 2023 compared to 2022.
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Governance and Nomination
Committee report
Audit Committee report
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Directors’ report
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Additional information
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Colleague remuneration continued
CEO pay ratio
The Group’s approach to remuneration is consistent for all colleagues as outlined on pages 145 and
146. The following table shows the ratio between the total pay of the Chief Executive and the lower
quartile, median and upper quartile pay of employees.
Summary of remuneration levels for colleagues in FY23
2019
2020
2021
2022
2023(2)
Method(1)
25th percentile
pay ratio
Median
pay ratio
75th percentile
pay ratio
A
A
A
A
A
132:1
56:1
106:1
80:1
91:1
97:1
42:1
77:1
59:1
66:1
60:1
26:1
47:1
38:1
42:1
(1) Methodology option A has been used and was selected on the basis that it provided the most accurate means of identifying
the median, lower and upper quartile colleagues. Total remuneration for the colleagues identified at the 25th percentile, median
and 75th percentile was calculated for each financial year for all employees of the Group as at 30 September. Payroll data from
1 October to 30 September and variable remuneration outcomes approved in November following the financial year were used.
(2) The average share price between 1 July 2023 and 30 September 2023 of 165.5p has been used to indicate the value of shares
vesting under the 2020 LTIP.
The pay at each quartile used to calculate the ratio is set out in the table below:
25th percentile
Median
75th percentile
2021
2022
2023
Total pay Of which is salary
Total pay Of which is salary
Total pay Of which is salary
£25,851
£28,626
£21,217
£22,923
£35,627
£38,546
£30,270
£30,632
£59,006
£61,013
£49,720
£44,453
£29,118
£24,503
£40,254
£31,590
£63,629
£52,907
The median pay ratio has increased from 59:1 in 2022 to 66:1 in 2023. The year-on-year change
is primarily driven by an increase in the total pay reportable in the CEO’s single figure total for
2023. While the CEO’s fixed pay reduced, as his pension allowance was adjusted to match that
of all colleagues, and his annual bonus award decreased to 26.5% of maximum (38.6% in 2022),
his total variable pay increased due to the higher out-turn for the 2020 LTIP of 41%. Over time,
a degree of volatility in the CEO pay ratio is expected since the CEO’s single figure consists of a
higher proportion of variable pay than colleagues, in line with shareholder expectations and the
Group’s remuneration framework. The ratio of CEO salary to that of the median colleague is 34:1
(33:1 in 2022).
The CEO pay ratio is one of a number of data points that the Committee considers in ensuring
a fair reward framework for all colleagues. The Committee also regularly reviews gender and
ethnicity pay gap data. On gender pay, our mean pay gap reduced to 26.4% from 28.5% in the
prior year. For more detail, see our 2023 gender pay gap report www.virginmoneyukplc.com
6,159 employees earned total remuneration
up to £50,000
2,149 employees earned total remuneration
between £50,000 and £100,000
510 employees earned total remuneration
between £100,000 and £250,000
48 employees earned total remuneration
over £250,000
The disclosure of remuneration levels for employees includes anyone employed by the Group during
the year.
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Governance and Nomination
Committee report
Audit Committee report
Risk Committee report
Directors’ remuneration report
Directors’ report
Risk report
Climate-related disclosures
Financial statements
Additional information
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Annual report on remuneration
Implementation of the policy in 2023
In this section we provide greater detail on how the remuneration policy was implemented in 2023.
Outcomes for 2023
Executive Directors – single total figure of remuneration (audited)
The table below sets out the single total figure of remuneration and breakdown for each Executive Director in respect of the financial year to 30 September 2023 and prior year comparison.
The subsequent sections detail additional information for each element of remuneration.
£000s
Salary
Benefits and allowances
Pension and pension allowance
Total fixed remuneration
Annual bonus
LTIP(1)(2)
Total variable remuneration
Total remuneration
David Duffy
Clifford Abrahams
2023
1,058
33
121
1,212
331
1,108
1,439
2,651
2022
1,020
35
184
1,239
465
573
1,038
2,277
2023
622
13
71
706
195
–
195
901
2022
600
21
68
689
285
–
285
974
(1) The average share price between 1 July 2023 and 30 September 2023 of 165.5p has been used to indicate the value of the 2020 LTIP. The award was granted in 2020 based on a share price of 135.4p. Following application of the 41% performance outcome,
669,270 shares are due to be released in tranches up to December 2027. Share price movement has increased the gross valuation of the award by £202k compared with the corresponding value at the time of grant.
(2) The values for the 2019 LTIP included as 2022 remuneration have been restated to reflect the share price on the date of vesting (176.8p) on 9 December 2022.
Salary
As disclosed in last year’s report, the Executive Directors received a 5% salary increase effective 1 January 2023.
Benefits Executive Directors receive private medical cover, health assessment and life assurance. In addition, during 2023, David Duffy received a car allowance of £30,000 (2022: £30,000) and other taxable benefits
totalling £2,035 (2022: £4,195). Clifford Abrahams received an allowance of £9,340 (2022: £8,175) and other taxable benefits totalling £1,795 (2022: £11,594).
Pension David Duffy and Clifford Abrahams opted out of the Group’s defined contribution pension plans and, in line with policy, received cash allowances in lieu of pension contributions.
Bonus
Executive Director bonus opportunity in 2023 was 118% of salary for the CEO and CFO. David Duffy was awarded an annual bonus of £330,665 (26.5% of maximum) and Clifford Abrahams was awarded
an annual bonus of £194,509 (26.5% of maximum). Half of the awards are delivered in shares and subject to a 12-month regulatory hold period. Further details on performance against the Group scorecard
(which accounts for 80% of Executive Directors’ bonus opportunity) is provided in the ‘Remuneration at a glance’ section (page 136).
Performance against personal objectives accounts for the remaining 20% of Executive Directors’ bonus opportunity. Outcomes have been assessed based on the Executive Directors’ shared and individual
objectives for the year, in addition to the delivery of the strategic priorities included in the Group scorecard. Taking account of the below target Group Scorecard outcome of 26.9% of maximum, in conjunction
with Management, the Committee concluded that the personal element of the bonus should be capped at five out of 20.
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Executive Directors’ shared objectives
Strategic priority
Achievements in the year
Become an employer of choice in financial services
Delighted
customers
and colleagues
> Continued to evolve our A Life More Virgin colleague proposition, supporting continued high engagement scores and increases in the number of external
applications (86%).
> Progressed our Diversity and Inclusion Strategy with introduction of BRAVER and launch of VM’s BRAVER hub in National Inclusion Week.
> Our gender representation targets have been achieved, but more work is required to ensure we see similar progress on ethnicity representation.
> Continued to support colleagues with the increased cost of living, including a 10% annual salary review budget and providing other non-financial support
(financial coaching).
Assessment
Objective met
Deliver outstanding customer experiences that are underpinned by effective digital sales and servicing journeys
> The digitisation of customer journeys continues to progress with 50% now fully automated and with work to identify further improvements
Objective
partially met
in E2E journeys for FY24 planned.
>
Improved Digital Primacy rates across both PCAs and Credit Cards (61% 2023 vs 56% 2022) and deployed the Redi chatbot across credit card
customers followed by a further roll out to PCA customers.
> Operational SLAs and customer complaints remain elevated albeit on an improving trend.
> Work to embed Consumer Duty continues at pace, with the initial requirements implemented successfully during the year.
> Deferral of the mortgage platform programme (and subsequent write off) meant new digital propositions underperformed despite good progress
on the all-encompassing integrated app for Virgin Money.
> Customer inclusion strategy accelerated throughout FY23, extending partnerships with ‘Good Things Foundation’ and enhancing partnerships
with ‘Turn2us’.
> Development of the cost of living hub and fully implemented the requirements of the Mortgage Charter ahead of the deadline.
> An improved service position, reversing the trend of decline in our key customer service metrics including Smile score. However, improvements
have yet to be reflected in our positioning in the CMA market surveys.
Execute Commercial Strategy to deliver agreed financial outcomes within agreed risk appetite
> Targeted customer lending asset growth remained strong.
Objective
partially met
Pioneering
growth
> Business lending and deposits continue to perform strongly, with net new BCA accounts outperforming FY22 and our assets ending the year with
an increased market share.
> Broader group relationships remain strong and ongoing engagement mean they will be increasingly unlocked by the all-encompassing integrated app
for Virgin Money/Rewards programmes over time.
> Customer liability balances on personal deposits increased by 59% during the year, with relationship deposits making up 53% of total customer deposits.
Brand awareness finished 89% (4pts) higher than target.
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Super
straight forward
efficiency
Discipline and
sustainability
Become more efficient and effective by leveraging technology data and simplified architecture and by improving processes and ways of working
> Mixed progress on delivery of required strategic capabilities against plan as regulatory, risk and maintenance agendas were prioritised.
> Defined the over arching enterprise architecture and identified optimal roadmap for delivering the multiple individual initiatives needed,
with phase 1 completed.
> Agile methodologies in place enabling future delivery at pace.
Maintain strong capitalised and resilient balance sheet to deliver strong profitability
> Strong capital and funding position enabling ongoing share buy-back programme.
> Delivery of regulatory programme has impacted on cost performance. PBT adverse to scorecard targets, reflecting higher expenses and higher
CTA although partially offset by increased NII.
> RoTE lower than scorecard targets, reflecting higher than planned costs, impairment charges, tax and tangible equity while OOI is below plan,
partly offset by higher NII.
Deliver operations and processes that drive resilience, positive customer outcomes and address regulatory priorities
> Organisational risk management capabilities have been strengthened considerably, albeit new capabilities still have work to do to fully align
with regulatory priorities and requirements to deliver on the enhanced Tier 1 requirements.
>
Increased oversight as a Tier 1 bank being well managed with core resilience reporting (ACS, Resolution and recovery Plan) at Tier 1 standard
and clear alignment on where risk and regulatory maturity needs to proportionally increase.
Deliver sustainable, positive outcomes for society
> ESG strategy and carbon reduction programmes running ahead of plan (Scope 1 and 2, 16% reduction v 10% target).
> Macmillan fundraising target of £500,000 exceeded, with over £1.5m raised and donated over the three year partnership.
Objective
partially met
Objective
partially met
Objective
partially met
Objective met
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Executive Directors’ personal objectives
Strategic priority Achievements in the year
Assessment
CEO
personal
objectives
CFO
personal
objectives
> Strengthened Leadership Team with key appointments for the next phase of the strategy, onboarding of the Chief Operating Officer and Managing Director
Objective met
Business & Commercial improving succession planning at the top of the bank.
> Enhanced Group’s external reputation with strong media profile, increasingly positive regulator feedback on Tier 1 transition and good political relationships.
> Continuing to work with the industry and Government, played a leading role in convening like-minded businesses to consider ways in which to eradicate
the poverty premium.
> Sustained high colleague engagement scores in the Finance function and improved ethnicity representation, currently tracking ahead of FY25 targets.
Objective met
> Maintaining profitable, safe growth in target segments despite the macroeconomic environment.
> Executed regular, proactive investor engagement throughout the year and delivery of the Capital Buyback and Dividend Strategy.
Summary of Executive Director 2023 bonus outcomes
Group scorecard Outcome (out of 80%):
Personal scorecard Outcome (out of 20%)(1):
Total scorecard Outcome (out of 100%):
David Duffy: CEO
Clifford Abrahams: CFO
21.5%
5%
26.5%
21.5%
5%
26.5%
Climate-related disclosures
(1) Subject to the cap of five out of 20 as reflected in the Chair’s Statement page 131.
Financial statements
Additional information
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LTIP
(i) LTIP awards included in 2023 Single Figure Table
2020 LTIP award (granted December 2020)
David Duffy was granted awards over 1,632,368 shares to the value of 177% of salary
on 9 December 2020 with performance conditions tested over the three financial years to
30 September 2023. Performance against the targets set at grant has achieved an outcome of
41% of maximum. A breakdown of the performance outcome against each target is included in
the ‘Remuneration at a glance’ section on page 137 with further information on the Risk scorecard
outcome provided below. Share awards granted under this award will be released in tranches
from December 2023 to December 2027 with no dividend equivalents payable. A 12-month
regulatory hold period applies to half of the net shares received (post-taxation) on each release
date. As Clifford Abrahams was not a participant in this award, no income is included in his single
figure table in respect of LTIP. The Committee also assessed whether participants in the 2020 LTIP
had benefited from any windfall gain in respect of this award but concluded that no adjustment
was necessary, further information on the assessment is provided on page 131.
Performance against 2020 LTIP Risk scorecard
Following the end of the three-year performance period, an assessment of performance against
the Risk scorecard was carried out. This included top of Group analysis of risk profile and risk
appetite, as well as specific focus on the areas of customer complaints, operational risk losses
and Cost of Risk. Regulatory relations, fraud losses and capital outcomes were also considered,
as was qualitative feedback received from the Chair of the Board Risk Committee. Consideration
was also given to the overall risk culture including the increased and improved risk awareness
and risk identification.
Customer complaint handling has been an ongoing issue for the Group during the performance
period with complaints per thousand broadly static over the period. Performance has been
influenced by a combination of customer servicing challenges and systems related incidents,
however the Group has recovered service levels over the course of the FY23 and customer
experience, including call waiting times and complaints volumes have improved following actions
taken. On operational risk losses, the Group’s net loss position has been on an improving trend
across the period. Cost of risk has been impacted by external factors over the last three years
however, customers and portfolios have been well managed throughout the period and closely
monitored with strategy and decision making being adapted as required to protect both customers
and the Group alike.
Taking into account the above performance alongside feedback from the Board Risk Committee,
the Remuneration Committee determined a final outcome on the Risk scorecard of 12%
(out of 20%).
(ii) Prior year LTIP awards subject to ongoing performance conditions
2021 LTIP award (granted December 2021)
Performance measures are shown in the table below:
Underlying performance measures
Weighting
Threshold
Target
Maximum
Delighted
customers
and colleagues
ESG scorecard(1)
Retail NPS(2)
Growth in number
of BCA and PCA
customer accounts
Customer Lending
Asset Growth
Pioneering
growth
Super
straightforward
efficiency
15%
10%
15%
1 rank
higher
3+ ranks
higher
4+ ranks
higher
500k
600k
700k
8%
10%
12%
Cost:income ratio(3)
15%
48%
46%
44%
Discipline
and sustainability
RoTE(4)
Risk scorecard(5)
25%
20%
9%
10%
11%
(1) Performance against the ESG scorecard will be determined by the Committee based on performance against quantitative targets
including: operational carbon emissions, senior colleague gender and ethnic minority representation, Group-wide ethnic minority
representation, colleague engagement. In addition, the Committee will undertake a qualitative assessment on progress against
the Group’s 2030 ESG aspirations.
(2) Based on relative performance against a competitor comparison group of Barclays, HSBC, Lloyds, Metro, Monzo, Nationwide,
NatWest, Revolut, Santander, Starling, Tide and TSB.
(3) Cost:income ratio is on an underlying basis.
(4) RoTE is on a statutory basis.
(5) Performance will be assessed by the Committee based on several qualitative and quantitative inputs such as feedback from
the Chair of the Board Risk Committee and achievement of the long-term objectives of the organisation. Specific focus will be
on the Group’s risk profile and risk appetite positioning over the period, alongside a detailed assessment of performance against
customer complaints, operational risk losses, cost of risk targets.
The award was granted on 9 December 2021 and will vest based on the performance over the
period from 1 October 2021 to 30 September 2024. Subject to performance outcomes, the award
will be released over three to seven years from the date of grant, with the net shares received
(post-taxation) subject to further regulatory holding periods as required.
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2022 LTIP award (granted December 2022)
Performance measures are shown in the table below:
Underlying performance measures
Weighting
Threshold
Target
Maximum
ESG scorecard(1)
15%
2023 LTIP award
David Duffy
Delighted
customers
and colleagues
Pioneering
growth
Discipline
and sustainability
Total
Shareholder
Return(2)
25%
Median
performance
Upper
Quartile
performance
Statutory RoTE
40%
9%
11%
13%
Risk scorecard(3)
20%
(1) Performance against the ESG scorecard will be determined by the Committee based on performance against quantitative targets
including: operational carbon emissions; EPC ratings; Lending to Sustainability Change Makers; senior colleague gender and
ethnic minority representation; Group-wide ethnic minority representation; and colleague engagement. In addition, the Committee
will undertake a qualitative assessment on progress against the Group’s 2030 ESG aspirations.
(2) Total Shareholder Return will be assessed based on performance relative to FTSE 350 Financial Services companies
(excluding Investment Trusts). Median performance will deliver a threshold out-turn; upper quartile will deliver maximum out-turn.
Performance between median and upper quartile will vest on a straight-line basis.
(3) Performance against the Risk scorecard will be assessed by the Committee based on several qualitative and quantitative inputs
such as feedback from the Chair of the Board Risk Committee and achievement of the long-term objectives of the organisation.
Specific focus will be on customer complaints, operational risk losses, cost of risk and the Group’s risk profile and risk appetite.
The award was granted on 9 December 2022 and will vest based on the performance over the
period from 1 October 2022 to 30 September 2025. Subject to performance outcomes, the award
will be released over three to seven years from the date of grant, with the net shares received
(post-taxation) subject to further regulatory holding periods as required.
(iii) LTIP Awards to be granted in FY24
2023 LTIP award (to be granted December 2023)
The following award will be made to Executive Directors in December 2023.
Percentage
of salary(1)
Face value
of award
Type of interest
awarded
177% £1,895,670
Conditional rights to
VMUK PLC shares
Conditional rights to
VMUK PLC shares
Clifford Abrahams
177% £1,115,100
End of
performance
period
30 Sep 2026
30 Sep 2026
Percentage
receivable for
threshold
performance
Percentage
receivable for
target
performance
25%
25%
60%
60%
(1) The award will be based on a percentage of salary as at 30 September 2023. For the purposes of determining the 2:1 cap,
a discount is applied in line with regulatory requirements.
The performance period will be from 1 October 2023 to 30 September 2026 (2024 to 2026
financial years). Subject to performance outcomes, the awards will vest from December 2026
to December 2030 with 60% vesting for target performance and 25% vesting for threshold
performance. At each vest date, the net number of shares received (post-taxation) will be
subject to a regulatory hold period as required.
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Performance measures for the 2023 LTIP are shown in the table below:
Underlying performance measures
Weighting
Threshold
Target
Maximum
ESG scorecard(1)
15%
Total
Shareholder
Return(2)
25%
Median
performance
Upper
Quartile
performance
Statutory RoTE
40%
6%
8%
10%
Risk scorecard(3)
20%
Delighted
customers
and colleagues
Pioneering
growth
Discipline
and sustainability
LTIP deferral timeline
2017 LTIP
2018 LTIP
2019 LTIP
2020 LTIP
2021 LTIP
2022 LTIP
2023 LTIP
The 2023 LTIP measures have been formulated to align with the delivery of the Group’s strategy
and to deliver sustainable financial performance within an acceptable risk appetite, coupled with
stretching ESG targets that ensure continued operational carbon reductions (Scope 1), lending
targeted at business customers whose core goods or services enable others to operate in a more
environmentally or socially friendly way, improving the energy efficiency of our mortgage portfolio,
increasing diversity and sustained levels of colleague engagement. The continued inclusion of
a relative Total Shareholder Return measure ensures that the Group retains focus on performance
in comparison to FTSE 350 Financial Services companies.
(1) Performance against the ESG scorecard will be determined by the Committee based on performance against quantitative targets
including: operational carbon emissions; EPC ratings; Lending to Sustainability Change Makers; senior colleague gender and
ethnic minority representation; Group-wide ethnic minority representation; and colleague engagement. In addition, the Committee
will undertake a qualitative assessment on progress against the Group’s 2030 ESG aspirations.
(2) Total Shareholder Return will be assessed based on performance relative to FTSE 350 Financial Services companies
(excluding Investment Trusts). Median performance will deliver a threshold out-turn; upper quartile will deliver maximum out-turn.
Performance between median and upper quartile will vest on a straight-line basis.
(3) Performance against the Risk scorecard will be assessed by the Committee based on several qualitative and quantitative inputs
such as feedback from the Chair of the Board Risk Committee and achievement of the long-term objectives of the organisation.
Specific focus will be on customer complaints, operational risk losses, cost of risk and the Group’s risk profile and risk appetite.
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
Pre-grant assessment Performance period Vesting timeline Hold period timeline LTIP income reportable in single figure table for the year
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Payments to past Directors (audited)
No payments were made to any former Executive Directors during the year.
Executive Directors’ payments for loss of office (audited)
No payments were made during the current or the previous year.
Non-Executive Directors’ payments for loss of office (audited)
No payments were made during the current or previous year.
Total shareholder return performance
The graph shows the value of £100 invested in the Group’s shares since listing, compared with the
total returns of the FTSE 250 Index. The graph shows the total shareholder return generated by
both the movement in share value and the reinvestment over the same period of dividend income.
The Committee considers the FTSE 250 as representative of the current market capitalisation
of the Group. For further context and a sector comparison, the graph also reflects the FTSE 350
Banks Index over the same period.
Non-Executive Directors’ fees (audited)
The table below sets out the single total figure of remuneration and breakdown
for each Non-Executive Director for the year ended 30 September 2023.
Virgin Money UK PLC TSR v FTSE 250
£
David Bennett(1)
Geeta Gopalan(1)
Elena Novokreshchenova(1)(2)
Darren Pope(1)
Tim Wade(1)
Sara Weller(2)(3)
Paul Coby(1)(2)
Amy Stirling(2)(3)
Total
2023 Fees
£000
2023 Benefits
£000
2022 Fees
£000
2022 Benefits
£000
409
163
142
163
194
–
–
–
1,071
–
–
–
–
–
–
–
–
–
390
155
135
155
185
–
101
–
1,121
–
–
–
–
–
–
–
–
–
180
160
140
120
100
80
60
40
20
0
(1) Fees are paid to Board and Committee members in line with the Chair and Non-Executive Directors’ remuneration policy
and in line with the fees approved by the Board in September 2023 as set out on page 142. Non-Executive Directors’ and the
Chair may be reimbursed for expenses incurred in performing their duties but do not participate in any variable remuneration
or benefits arrangements.
(2) Amy Stirling and Paul Coby left the Board on 5 May 2022 and 30 June 2022 respectively. Sara Weller joined the Board
on 3 October 2022.
(3) As Virgin’s Representative Director neither Amy Stirling nor Sara Weller were paid any fees by the Group.
8 Feb
2016
30 Sep
2016
30 Sep
2017
30 Sep
2018
30 Sep
2019
30 Sep
2020
30 Sep
2021
30 Sep
2022
30 Sep
2023
Virgin Money UK PLC FTSE 350 banks FTSE 250
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Chief Executive Officer historic remuneration
The table below sets out the total remuneration delivered to the Chief Executive Officer since
the Company’s IPO:
Chief Executive Officer
2016
2017
2018
2019
2020
2021
2022
2023
Statement of Directors’ shareholding and share interests (audited)
Share interests at 30 September 2023 by Executive and Non-Executive Directors who held
office during the year are shown below. For Executive Directors, the position against the current
shareholding requirement is also reflected in the table. There have been no other changes
to the above interests between 30 September 2023 and the date of this report.
2,048
2,056
1,833
3,374
1,351
2,747
2,288
2,651
Shares owned
outright at
30 September
2023(1)
Unvested
Subject to
Performance(2)
Not subject to
performance(3)
80%
n/a
82%
n/a
62%
n/a
37%
100%
0%
n/a
12%
n/a
39%
n/a
27%
n/a
David Duffy
1,333,375
2,617,555
1,456,045
Clifford Abrahams
219,667
1,531,036
–
Shareholding
requirement
as a %
of salary
Current
shareholding
as a %
of salary(4)
200%
200%
331%
59%
Total single figure
(£000)(1)
Annual short-term
incentive payment
level achieved(2)
Demerger award(2)
Long-term incentive
vesting level
achieved(2)(3)
–
–
–
62%
32%
60%
32%
41%
(1) Values represent the figures reported in the single figure table for the relevant year.
(2) Percentage of maximum opportunity.
(3) No LTIP awards vested during 2016, 2017 or 2018.
Relative importance of spend on pay
The table below sets out the relative importance of spend on pay in the 2023 financial year:
Overall spend
Distributions to shareholders(1)
Overall spend on pay including Executive Directors(2)
Disbursements
from profit
in 2023
financial year
£m
Disbursements
from profit
in 2022
financial year
£m
Disbursements
from profit
in 2021
financial year
£m
258
432
100
435
–
426
(1) Dividends of 10.8p (2022: 3.5p) per share were paid during the year ended 30 September 2023 (7.5p relating to the FY22
full year dividend paid in March 2023 and 3.3p relating to the interim dividend paid in June 2023). This amounted to £148m
(2022: £50m). In addition, £110m (2022: £50m) was returned to shareholders through share buybacks giving a total of £258m
(2022: £100m) per above.
(2) 2022 and 2023 numbers as per note 2.3 of the consolidated financial statements.
CEO pay ratio
For details of the CEO pay ratio see pages 148.
Change in Directors’ remuneration compared with colleagues
For details on the change in Directors’ remuneration compared with colleagues see page 147.
David Bennett
Geeta Gopalan
Elena Novokreshchenova
Darren Pope
Tim Wade
Sara Weller
40,388
7,932
–
11,785
50,505
20,000
(1) Ordinary shares beneficially-owned and holdings of connected persons on 30 September 2023 (or date of cessation if earlier).
This includes shares held via the Group Share Incentive Plan – David Duffy (661 shares) and CHESS Depositary Interests (CDIs)
which represent interests in ordinary shares beneficially-owned by David Duffy (4,080 shares).
(2) Conditional share awards granted under the 2021 LTIP and 2022 LTIP. Subject to ongoing performance and service conditions.
(3) Conditional share awards granted under 2017 LTIP, 2018 LTIP, 2019 LTIP and 2020 LTIP . No ongoing performance conditions
apply, but awards remain subject to deferral.
(4) The percentage of shareholding requirement achieved is calculated based on owned shares plus the net value of unvested
awards not subject to ongoing performance (47% deducted to reflect the tax and National Insurance due on release).
Values are based on 30 September 2023 closing price of 168.35p.
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Breakdown of Executive Director share interests under each of the Group’s share plans
Further details in respect of the unvested shares included in the Directors’ interest table above
are provided in the following table. The details are in relation to the Executive Directors and
no other Directors hold any awards under the Group share plans (2022: none).
DEP and
LTIP
awards
David Duffy
Start
of year
Awarded
during
the year
Vested
during
the year
Lapsed
during
the year
Unvested
at year
end
Date of
grant
Grant
price
(p)
Face
value
at grant
date(1)
£000
Release
dates
2022 DEP
–
131,483 131,483
2017 LTIP
76,748
–
25,582
2018 LTIP
548,360
– 137,090
–
–
–
–
9 Dec 22
176.8
232 December
2022
51,166 24 Nov 17
313.2
1,000 December
2020 to
June 2025
411,270 20 Dec 18
189.7
2,167 December
2021 to
December
2025
2019 LTIP
405,423
–
81,084
–
324,339
9 Dec 19
174.5
2,211 December
– 963,098
669,270
9 Dec 20
135.4
2,210 December
2022 to
December
2026
2020 LTIP 1,632,368
2021 LTIP 1,280,425
–
–
2022 LTIP
–
1,337,130
–
–
Clifford Abrahams
2022 DEP
–
80,684
80,684
2021 LTIP
748,936
–
2022 LTIP
–
782,100
–
–
2023 to
December
2027
– 1,280,425
9 Dec 21
172.6
2,211 December
2024 to
December
2028
– 1,337,130
9 Dec 22
176.8
2,363 December
2025 to
December
2029
–
–
–
9 Dec 22
176.8
143 December
2022
748,936
9 Dec 21
172.6
1,293 December
2024 to
December
2028
–
782,100
9 Dec 22
176.8
1,382 December
DEP
Conditional share awards were granted under the DEP in December 2022 in respect of 2022.
The face value of the portion of David Duffy and Clifford Abrahams’ annual bonus awards that were
delivered via the DEP was £232,397 and £142,610 respectively. These values were converted into
the number of shares shown in the table opposite using the middle market share price on the day
immediately preceding grant, being 176.8p. The awards vest immediately, with resultant shares
(post taxation) subject to a 12-month holding period. Awards remain subject to clawback provisions.
LTIP
Conditional share awards were made to Executive Directors under the LTIP in December 2022.
Awards were granted based on 177% of salary for David Duffy (£1,805,400) and 176% of salary
for Clifford Abrahams (£1,056,000). These values were converted into the number of shares shown
in the table opposite using the middle market share price on the day immediately preceding grant
which was discounted to reflect the absence of dividend equivalents during the period from grant
to vest in accordance with the Directors’ remuneration policy. The face value at the date of grant
included in the table reflects the middle market share price multiplied by the number of shares
awarded. Performance conditions apply (as set out on page 154) with no more than 25% of the
maximum vesting for threshold performance. Performance conditions are measured over a
three-year performance period to 30 September 2025. Awards are subject to malus and clawback
provisions. Subject to performance outcomes, awards will be released over three to seven years
with resultant shares (post-taxation) subject to a regulatory hold period. Details of these awards
are included in the table above alongside the LTIP awards made in respect of 2017, 2018, 2019
2020 and 2021.
Share Incentive Plan
Neither Executive Director participates in the monthly purchase of shares through the Share
Incentive Plan.
Save As You Earn (SAYE)
No offers under the SAYE plan have been made (2022: none).
This report has been prepared in accordance with Schedule 8 of the Large and Medium-sized
Companies and Groups (Accounts and Reports) Regulations 2008 as amended in 2013,
the provisions of the UK Corporate Governance Code and the Listing Rules. The report was
approved by the Board of Directors on 22 November 2023.
On behalf of the Board
(1) Represents the value of the total number of shares awarded at the date of grant.
2025 to
December
2029
Darren Pope
Chair, Remuneration Committee
22 November 2023
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Stakeholder engagement
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Governance and Nomination
Committee report
Audit Committee report
Risk Committee report
Directors’ remuneration report
Directors’ report
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Climate-related disclosures
Financial statements
Additional information
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Directors’ report
Governance report
The Governance report, on pages 73 to 164 together with this Director’s report, satisfies the
requirements of the Corporate Governance Statement for the purpose of the FCA’s Disclosure
and Transparency Rules (DTR).
Directors
The names and biographies of the current Directors of the Company are shown on pages 80 to 84
and include their relevant experience within the sector.
Particulars of Directors’ emoluments and interests in shares in the Company are given on pages 149
to 158 of the Directors’ remuneration report. No Director had a material interest in any significant
contract to which any Group Company was a party during the year.
Annual General Meeting (AGM)
The Company’s 2024 AGM will be held on 1 March 2024. Full details of the arrangements for the
AGM and details of the resolutions to be proposed, together with explanatory notes, will be set
out in the Notice of AGM to be published on the Company’s website (www.virginmoneyukplc.com).
Appointment and retirement of Directors
The appointment, retirement and/or replacement of Directors is governed by the Articles of
Association of the Company (Articles), the Code and the Companies Act 2006. The Articles may
be amended only by a special resolution of the shareholders in a general meeting. In line with the
requirements of the Code, all Directors will submit themselves for re-election at the next AGM.
Board composition changes
Changes to the composition of the Board since 1 October 2022 up to the date of this report
are shown in the table below.
Name
Role
Date of appointment
Date of resignation
Sara Weller
Non-Executive Director
3 October 2022
Directors’ indemnities and insurance
The Directors have each entered into individual deeds of access, insurance and indemnity with the
Group which indemnify the Directors to the maximum extent permitted by law. Each such provision
constitutes a ‘third-party indemnity provision’ and a ‘qualifying indemnity provision’ for the purposes
of the Companies Act 2006. These provisions are in force for the benefit of the Directors at the
date of this report, and during the financial year to which this report relates. Such deeds are
available for inspection at the Company’s registered office.
The Group has an insurance policy in place for the benefit of all trustees, colleagues, Directors,
officers, members and partners of the Company while acting in the capacity of a trustee or
administrator of employee benefit or pension plans. This policy indemnifies the Directors, trustees
and administrators of the occupational pension schemes operated by the Group, against liability
incurred by them in connection with the management and administration of the pension schemes.
This insurance policy constitutes a ‘pension scheme indemnity provision’ and a ‘qualifying
indemnity provision’ for the purposes of the Companies Act 2006. These provisions are in force
for the benefit of the Directors of Trustee Companies at the date of this report, and during the
financial year to which this report relates. Such policy is available for inspection at the Company’s
registered office.
In addition, the Group had appropriate Directors’ and Officers’ Liability Insurance cover in place
throughout the financial year.
Profits and dividends
The Group profit before tax for the financial year ended 30 September 2023 amounted to
£345m (2022: £595m). The profit attributable to the ordinary shareholders for the year ended
30 September 2023 amounted to £192m (2022: £467m). As at 30 September 2023,
the distributable reserves of the Company were £1,044m (2022: £1,056m). The Directors
recommended a final dividend in respect of the year ended 30 September 2023 of 2.0p per
ordinary share in the Company to be paid on 20 March 2024. The payment of the final dividend
is subject to approval of the shareholders at the 2024 AGM.
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Committee report
Audit Committee report
Risk Committee report
Directors’ remuneration report
Directors’ report
Risk report
Climate-related disclosures
Financial statements
Additional information
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Directors’ report
Share capital, control and Directors’ powers
Shares in the Company are listed on both the London Stock Exchange (LSE) and the Australian
Securities Exchange (ASX) (in the form of CDIs). The Company is required to comply with the
disclosure requirements of the LSE and also of the ASX insofar as they relate to the Company’s
foreign exempt listing in Australia.
Details of the movements in allotted share capital during the year, and the rights and obligations
attaching to the Company’s shares, are shown in note 4.1.1 to the consolidated financial statements.
Share buyback programme
As part of the capital return policy announced by the Company in May 2022, the Group commenced
a share buyback programme on 30 June 2022 with an initial repurchase of up to £75m in aggregate
between ordinary shares of £0.10 each and CDIs (Initial Buyback), intending to repurchase shares
and CDIs in approximately equal proportions. The Initial Buyback was completed in December 2022.
On 21 November 2022 the Company announced an extension to the Initial Buyback with an intent
to repurchase a further £50m in aggregate of shares and CDIs (Extended Buyback) and the
Extended Buyback was completed in March 2023.
There are no restrictions on voting rights of securities in the Company. The Notice of AGM
will specify the deadlines for determining attendance and voting entitlements at the AGM.
The Group operates Employee Benefit Trusts (EBTs), which hold ordinary shares on trust for
the benefit of employees and former employees of the Group, and their dependants, and which
is used in conjunction with the Group’s employee share schemes. While ordinary shares are held
in the EBTs, the voting rights in respect of these ordinary shares are exercised by the trustees
of the EBTs.
Where participants in an employee Share Incentive Plan operated by the Company are the
beneficial owners of shares but not the registered owners, the voting rights are normally exercised
at the discretion of participants.
With the exception of restrictions on transferring ordinary shares under the Company’s Share
Incentive Plan there are no restrictions that exist on transferring or holding securities in the
Company under its Articles and there are no shares carrying special rights in respect of the control
of the Company.
Subject to the Articles and provisions of relevant statutes, the Board may exercise all powers
of the Company.
The Company can only amend its Articles of Association if its shareholders pass a special
resolution to this effect.
Acquisition of own shares
At the AGM of the Company held on 21 February 2023 a resolution was passed that the Directors
were authorised to purchase up to a maximum of 206,135,208 ordinary shares representing
approximately 14.99% of the issued ordinary share capital. A renewal of authority will be sought
at the next AGM. Further information will be set out in the Notice of AGM.
On 2 August 2023 the Company announced a further share buyback programme with the
intention to purchase up to £50m in aggregate between ordinary shares of £0.10 each and
CDIs (Further Buyback) in approximately equal proportions. The Further Buyback completed
on 22 November 2023.
Each buyback described in the preceding paragraphs has been effected in accordance with
the scope of the authority to repurchase ordinary shares conferred on the Company either at its
February 2022 AGM or at its February 2023 AGM, Regulation (EU) No 596/2014 (the Market Abuse
Regulation), the Commission Delegated Regulation (EU) 2016/1052 (both form part of Retained EU
Law as defined in the European Union (Withdrawal) Act 2018) and Chapter 12 of the Listing Rules
and was still valid as at 30 September 2023. The share buyback programme is subject to the
continuing approval of the PRA.
Further information on the buyback programme is included in note 4.1 to the financial statements
on page 321.
Political donations
The Group did not give any money for political purposes, nor did it make any political donations to
political parties or other political organisations, or to any independent election candidates, or incur
any political expenditure during the year. At the AGM of the Company held on 21 February 2023,
shareholders gave authority under Part 14 of the Companies Act 2006 to make political donations
and incur political expenditure up to a maximum of £100,000. This authorisation was sought for
prudence as it is the Group’s policy not to make any political donations to political parties or incur
political expenditure within the ordinary meaning of those words. Given the wide definition of
donations and expenditure within the Companies Act 2006, activities which form part of the regular
operations of the Group such as communicating with government at local and national level and
funding events to which politicians are invited, may be covered.
160
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Directors’ report
Risk report
Climate-related disclosures
Financial statements
Additional information
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Directors’ report
Financial risk management objectives and policies
Information about internal controls and financial risk management systems relating to financial
reporting and Board review can be found on page 128 of the Governance report.
Information regarding financial risk management objectives and policies in relation to the use
of financial instruments can be found in the Risk report on pages 165 to 238.
Post-balance sheet events
On 23 November 2023 the company announced a further share buyback with an intent
to repurchase £150m in aggregate of shares and CDIs, ending no later than 16 May 2024.
Information included in the Strategic report
The following information that would otherwise be required to be disclosed in this report
and which is incorporated into this report by reference can be found on the following pages
of the Strategic report.
Subject
Future developments
Engagement with colleagues, customers, suppliers and others
Equality of employment opportunities
Summary of Group results
Directors’ biographies and Directors during the year
Principal risks and uncertainties
Streamlined Energy and Carbon Reporting (SECR)
Page
reference
2-72
98-106
22-24
59-67
76, 80-84
68-72
34-37
Substantial shareholdings
Information provided to the Company pursuant to the FCA’s DTR is published on Regulatory
Information Services and on the Company’s website.
As at 21 November 2023, being the latest practicable date prior to the publication of this Annual
Report and Accounts, the following information has been received, in accordance with DTR 5,
from holders of notifiable interests in the Company’s issued share capital. The information provided
below was correct at the date of notification; however, the date received may not have been within
the current financial year. It should be noted that these holdings are likely to have changed since
the Company was notified. However, notification of any change is not required until the next
notifiable threshold is crossed.
Virgin Group Holdings Limited
Firetrail Investments Pty Limited
Blackrock, Inc
Perpetual Limited and Subsidiaries
Investors Mutual Limited
Schroders PLC
Total number
of shares
% of
voting rights
Direct/indirect
Interest
188,083,550
14.07
68,301,461
67,929,241
60,787,499
53,659,761
44,572,459
5.11
5.08
4.55
4.02
3.34
Direct
Direct
Indirect
Direct
Direct
Indirect
Going concern
The Group’s Directors have made an assessment of the Group’s ability to continue as a going
concern and are satisfied that the Group has the resources to continue in business for the
foreseeable future.
The Group’s use of the going concern basis for preparation of the accounts is discussed in note 1.3
of the Group’s consolidated financial statements.
Viability Statement
Time horizon
The directors have an obligation in accordance with Provision 31 of the Code to confirm that they
believe that both the Company and the Group will be able to continue in operation, and to meet
their liabilities as they fall due. The Code requires the Directors to explain in the Annual Report
and Accounts how they have assessed the prospects of the Company, over what period they
have done so and why they consider that period to be appropriate.
The Directors have determined that a three-year period to 30 September 2026 is an appropriate
period over which to perform the assessment. This is the period over which forecasts have a
greater level of certainty. The Board monitors a longer-term strategic and financial plan which
extends beyond the three-year period and the Group also undertakes internal and regulatory
stress tests with a five-year horizon. This longer-term strategic and financial horizon provides
less certainty of outcome but provides a robust and effective planning tool against which strategic
decisions can be made.
In making this assessment the Directors have considered a wide range of information, the current
state of the balance sheet, and principal and emerging risks which could impact the performance
of the Group and the Group’s strategic and financial plan, including detailed forecasts of capital,
funding and liquidity.
Consideration of key risks
As described in the Corporate Governance report on page 128 and the Risk report on page 168,
the Board actively monitors the Group’s risk management and internal control systems. A review
of the effectiveness of those systems has been performed incorporating all material controls,
including financial, operational and compliance controls.
The Directors have performed a robust assessment of the principal risks facing the Group,
including those that would threaten its business model and future performance, solvency or
liquidity. The Group’s principal risks and policies and processes for managing those risks are
described in the Risk report and summarised on pages 165 to 238.
Of the Group’s principal risks, those which could directly lead to the business not being able to
continue in its current form if they were to occur (although a failure of the Group’s other principal
risks could lead to one of these events) are:
> operational failure (operational and resilience risk);
> credit risk; and
> a lack of liquidity and/or insufficient capital (financial risk).
161
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Audit Committee report
Risk Committee report
Directors’ remuneration report
Directors’ report
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Climate-related disclosures
Financial statements
Additional information
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Directors’ report
The viability assessment also considers the key emerging risks, including:
> Continued significant uncertainty linked to the UK economic outlook, with the tightening of
monetary policy potentially leading to a further slowdown in growth and a technical recession.
Economic weakness in the higher rate environment is impacting consumer confidence with
resultant subdued housing market activity and the threat that risks in aggregate could further
impact customer resilience and debt affordability.
> UK political risks, including the forthcoming general election which could drive changes
to the UK political environment with wide-ranging implications for the Group.
> Geopolitical tensions, including the ongoing conflict in Ukraine and the outbreak of hostilities
in the Middle East, are creating volatility within domestic and global markets, leading to
wide-ranging impacts affecting global trade and risking broader macro shocks.
Climate-related risks arising from physical risks and the transition to a low carbon economy
continue to pose significant and complex risks. The Group has invested in its modelling approach
and capabilities and has developed core climate change scenario analysis capability to enhance
our ability to identify climate-related risks and opportunities, and to assess the resilience of our
business model. Further information can be found in the Climate-related disclosures on pages
239 to 272.
Planning and stress testing activity
As detailed in the Strategic Report, the overall Group strategy which underpins the Group’s
financial, capital and funding plans remains unchanged.
The Group’s process for creating financial forecasts considers these strategic objectives, the risks
required to meet those objectives and the risk appetite limits in place. The Group’s planning
process involves consideration of an expanded economic scenario reflecting the volatility of the
ever-changing macroeconomic environment. Detailed modelling is then completed for selected
economic outcomes to form the projections for the financial plan and their associated impacts on
the Group’s capital ratios. Sensitivities are modelled around key risks and the Group’s capital risk
appetite gives measure to the impact of stress and downside scenarios in assessing the capacity
to absorb capital shocks without threatening viability.
Macroeconomic uncertainties along with consideration of the principal and emerging risks to the
Group are central to the development of all stress scenarios. Regulatory change remains under
review and indicative capital impacts of emerging rules are assessed as sensitivities and tracked
where material. Specific focus has also been given to exploring climate-related risks and impacts
for future expansion in stress tests.
Strategic corporate plans, including detailed financial, capital and funding plans, are presented
at the Group ALCO and ultimately reviewed and adopted at Board. All relevant plans are subject
to functional Risk review and Internal Audit assessment where appropriate.
The Board uses stress testing as a key risk management tool for gauging the strength of the
Group’s balance sheet, assessing the adequacy of its capital reserves and helping to better
understand the resilience of strategic goals against adverse and unexpected outcomes.
Stress testing is applied in multiple forms, some examples of which are discussed below.
The Group previously participated in the Bank of England’s Annual Concurrent Stress Test for the
first time in 2021, through the Solvency Stress Test (SST21), and the Group has since participated
in the BoE’s 2022 Annual Cyclical Scenario (ACS22) stress test with results published in July 2023.
The ICAAP process included a series of internal stress tests in the year. The ICAAP scenarios
considered the impacts of:
> A severe stress aligned to the parameters of ACS22, reflecting an intense global and
domestic recessional stress with high and persistent inflation, significant GDP contraction,
an unemployment spike and dramatic residential property price falls.
> A more moderate housing shock scenario, centred on a crash in house prices with a
sustained drop in HPI and economic impacts compounded by GDP contraction and a spike
in unemployment.
Reverse Stress Testing (RST) is also a key component to the Group’s wider stress testing
framework. The key benefits include:
> Helping the Group to understand key risks and scenarios that may put business strategies
and continuance as a ‘going concern’ at risk; and
> Providing management and regulators with qualitative information on the potential vulnerabilities
faced by the business so that they can identify appropriate actions that should be taken to
manage such risks.
The objective is to identify the scenarios that could threaten the viability of the business, and allow
the business to build contingency plans to, where possible, prevent such events. RST scenarios
can be drawn from a broad pool of lead factors and the Group’s focus has included extreme
pan-portfolio impairment increases and RWA inflation shocks in the Group’s mortgage portfolio.
Single-event operational risk scenarios have also been explored both in isolation and overlay.
The Group has a dedicated Recovery Planning team and a key element to the stress testing
framework is the focus and link to recovery planning activity and the identification of potential
management actions and scenarios which may be available to mitigate stress impacts across both
capital and liquidity footings. The Group’s Recovery Plan has an established matrix of internal and
external Early Warning Indicators which are calibrated to flag potential stress triggers to allow a
detailed evaluation of emerging capital or liquidity concerns. Ultimate assessment of recovery
planning actions gives credit to both scale and timing factors in measuring potential effectiveness
as a counter to discrete stress impacts.
Based on the current forecasts, whilst utilising the Group’s stress testing framework, the results
continue to support the Board’s assessment of the Group’s viability.
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Directors’ remuneration report
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Risk report
Climate-related disclosures
Financial statements
Additional information
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Directors’ report
Assessment
The Group has a strong business model and robust financial position at 30 September 2023.
Capital and liquidity metrics are forecast to remain above Board Risk Appetite and regulatory
requirements. Internal stress testing indicates the Group can withstand severe economic and
competitive stresses.
Based upon this assessment, the Directors have concluded that there is a reasonable expectation
that the Group will be able to continue in operation and meet its liabilities as they fall due over
the three years to 30 September 2026. There is no information contained within the outer years
of the Group’s financial forecasts which would cause the Directors to conclude that the Group
would not remain viable in the longer term.
This assessment is further supported by the Directors’ robust review and challenge of the
outcomes of the 2022 ICAAP and ILAAP, which assess the Group’s future projections of capital
adequacy, liquidity and funding.
Additional information relevant to this assessment can be found in the following sections of the
Annual Report and Accounts:
> A financial summary, including a review of the latest income statement and balance sheet
is provided in the financial results section pages 59 to 67.
> The Group’s capital position is included in the balance sheet and prudential regulation risks
section of the Risk report pages 211 to 231.
> The Group’s liquidity position is described in the balance sheet and prudential regulation risks
section of the Risk report pages 211 to 231.
> The Group’s principal risks and policies and processes for managing those risks are described
in the Risk report and summarised on pages 68 to 72.
> The Group’s business model and strategy are described in the Strategic report pages 2 to 50.
> The Group’s approach to stress testing and reverse stress testing are described in the Risk
report on page 170.
Research and development activities
The Group does not undertake formal research and development activities although it does invest
in products and services in each of its business lines in the ordinary course of business.
Disclosure of information under Listing Rule 9.8.4R
Additional information required to be disclosed by Listing Rule 9.8.4R, where applicable to the
Group, can be found in the following sections of this report:
Subject
Page reference
Publication of unaudited financial information
The disclosures within the Directors’ remuneration
report (pages 129 to 158), Risk report (pages 165
to 238), and the Additional information section (pages
337 to 391) are unaudited unless otherwise stated.
Allotment of equity securities
Significant contracts
321
335 to 336
Change of control
The Group is not party to any significant agreements that are subject to change of control
provisions in the event of a takeover bid, other than the following:
> Clydesdale Bank PLC, a company within the Virgin Money UK PLC Group, is a shareholder,
along with abrdn (formerly Aberdeen Asset Management PLC), in the JV Virgin Money Unit Trust
Managers Limited (UTM). Where either shareholder (Clydesdale Bank PLC or abrdn) in the JV
has a change of control event, the JV will terminate unless such change of control has prior
approval of the other shareholder.
> A Trade Mark Licence Agreement with Virgin Enterprises Limited (Virgin Enterprises) under
which Virgin Enterprises has granted a licence to Virgin Money UK PLC to use the ‘Virgin’ and
‘Virgin Money’ trademarks. Virgin Enterprises has the right to terminate the agreement within
30 days of a change of control of Virgin Money UK PLC unless it is a Permitted Change of
Control. A Permitted Change of Control is one arising from (a) an IPO on a recognised stock
exchange or (b) any other sale of shares of Virgin Money UK PLC which has been pre-approved
by Virgin Enterprises in writing. Virgin Enterprises can withhold consent only in the event that
the third-party purchaser is a direct competitor of Virgin Enterprises or another Virgin licensee
in the UK, or it is involved in any activity or possesses a reputation or financial standing which
would be likely to materially damage the value or reputation of the Virgin brand.
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Statement of Directors’ responsibilities in respect of the Financial statements
The Directors are responsible for preparing the Annual Report and the financial statements
in accordance with applicable UK law and regulations. Company law requires the Directors to
prepare financial statements for each financial year. Under that law the Directors have elected to
prepare the Group and Company financial statements in accordance with UK adopted International
Accounting Standards (IAS). Under company law the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair view of the state of affairs of
the Group and the Company and of the profit or loss of the Group and the Company for that period.
The Group financial statements have also been prepared with regard to the FCA’s DTR.
In preparing these financial statements the Directors are required to:
> select suitable accounting policies in accordance with IAS 8: Accounting Policies,
Changes in Accounting Estimates and Errors and then apply them consistently;
> make judgements and accounting estimates that are reasonable and prudent;
> present information, including accounting policies, in a manner that provides relevant,
reliable, comparable and understandable information;
> provide additional disclosures when compliance with the specific requirements in IFRSs is
insufficient to enable users to understand the impact of particular transactions, other events
and conditions on the Group and Company financial position and financial performance;
>
in respect of the Group and Company financial statements, state whether UK adopted IASs
have been followed, subject to any material departures disclosed and explained in the financial
statements; and
> prepare the financial statements on the going concern basis unless it is inappropriate
to presume that the Company and the Group will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show
and explain the Group and Company’s transactions and disclose with reasonable accuracy at any
time the financial position of the Group and Company and enable them to ensure that the financial
statements comply with the Companies Act 2006. They are also responsible for safeguarding the
assets of the Group and Company and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible for preparing a Strategic
report, Directors’ report, Directors’ remuneration report and Corporate governance statement that
comply with that law and those regulations. The Directors are responsible for the maintenance
and integrity of the corporate and financial information included on the Company’s website.
The Directors confirm that to the best of their knowledge:
>
>
>
the consolidated financial statements, prepared in accordance with UK adopted IASs,
give a true and fair view of the assets, liabilities, financial position and profit of the Company
and undertakings included in the consolidation taken as a whole;
the Annual Report, including the Strategic report, includes a fair review of the development
and performance of the business and the position of the Company and undertakings included
in the consolidation taken as a whole, together with a description of the principal risks and
uncertainties that they face; and
they consider the Annual Report, taken as a whole, is fair, balanced and understandable
and provides the information necessary for shareholders to assess the Company’s position,
performance, business model and strategy.
Independent auditor and audit information
The Directors who were members of the Board at the time of approving the Report of the Directors
are listed on pages 80 to 84. Having made enquiries of fellow Directors and of the Group’s auditor,
each of these Directors confirms that:
>
to the best of each Director’s knowledge and belief, there is no information relevant to the
preparation of their report of which the Group’s auditor is unaware; and
> each Director has taken all the steps a Director might reasonably be expected to have taken
to be aware of relevant audit information and to establish that the Group’s auditor is aware
of that information.
In accordance with section 485 of the Companies Act 2006, a resolution to appoint
PricewaterhouseCoopers LLP as External Auditor, and to authorise the Audit Committee to agree
the remuneration of the External Auditor, will be proposed at the 2024 AGM.
On behalf of the Board
Lorna McMillan
Group Company Secretary
22 November 2023
Virgin Money UK PLC. Registered No. 09595911
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Victoria
Culture & Capability
It’s up to Victoria to ensure our
digital teams have the right skills
and mindset to deliver great
customer outcomes.
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Governance
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Introduction
Credit risk
Financial risk
Model risk
Regulatory and compliance risk
Conduct risk
Operational risk
Economic crime risk
Strategic and enterprise risk
Climate risk
Climate-related disclosures
Financial statements
Additional information
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Risk report
Supporting customers and
colleagues through change
Effective data driven risk
management is critical
to realising the Group’s
Digital-First strategy.
The safety and resilience
of the Group is aligned
to Our Purpose and is a
fundamental requirement
to enable our customers
and stakeholders to be
‘happier about money’.
Risk culture
The Group strives to instil a culture that enables
colleagues to meet the requirements of relevant
rules, regulations, laws and policies and to build
constructive regulatory relationships.
Risk culture is focused on the Group’s
understanding of the risks it takes, which
is key to enabling its strategy to be the UK’s
best digital bank.
Colleagues are recruited with the core skills,
abilities, and attitude required for their role.
They are provided with training and
development to maintain and develop the
required levels of competence.
Culture is shaped by many aspects including:
> Purpose, Values and Behaviours that set
a ‘Tone from Above’;
>
the Group’s and regulatory Codes
of Conduct;
> operating principles;
> policy management framework;
>
the three lines of defence operating model;
and
> an articulation of risk appetite that aligns to,
and supports, strategic objectives.
The Group promotes an environment of
effective challenge in which decision making
processes stimulate a range of views.
Transparency and open dialogue are
encouraged to enable colleagues to raise
concerns when they feel uncomfortable
about actions, practices, or behaviours.
The Group is customer-centric and values
open and honest feedback from its customers.
This feedback allows colleagues to rectify
problems, learn from them and consistently
create products and services that meet
customer needs in alignment with our Purpose.
The Board and senior management are
responsible for setting and overseeing the
Group’s risk culture through their actions, words
and oversight activities, and for ensuring any
identified areas of weakness are addressed.
The Board Risk Committee retains focus on the
assessment of risk culture, with Internal Audit
providing an independent view to the Board
Audit Committee through a risk and control-
related management awareness assessment,
assigned to the majority of audits. The
outcomes of these assessments are being used
in the development of a risk culture framework,
to support our existing RMF and processes.
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Risk management framework
5
Risk management
framework
1
Risk
strategy
Frameworks, risk systems,
policies and standards to
manage principal risks:
Credit risk
Financial risk
Model risk
Regulatory and compliance risk
Conduct risk
Operational risk
Economic crime risk
Strategic and enterprise risk
Climate risk
2
Risk
appetite
4
Risk management
and internal
controls
3
Risk
policies
1 Risk strategy
The Group has a clearly defined risk strategy to manage and
mitigate risk in the course of its daily business. The strategy:
> ensures all principal and emerging risks are identified
and assessed;
> determines risk tolerance, considering how much risk
the Group is willing to take;
> ensures risk appetite is clearly articulated and influences
the Group’s strategic plan;
> promotes a clearly defined risk culture which emphasises
risk management across all areas of the Group while
maintaining independent oversight;
> undertakes ongoing analysis of the environment in which
the Group operates to proactively address potential risk
issues as they arise; and
> supports commercial decisions and people with
appropriate risk processes, systems and controls.
2 Risk appetite
Risk appetite is defined as the level and type of risk the
Group is willing to assume within the boundaries of its
risk capacity, to achieve its strategic objectives. The RAS
articulates the Group’s risk appetite to stakeholders and
provides a view on the risk-taking activities the Board is
comfortable with, guiding decision makers in their strategic
and business decisions.
The risk appetite framework sets out the mandatory
governance requirements for the creation, management
and oversight of the RAS.
The RAS conveys the balance required between risk-taking
and the commercial and reputational implications of doing
so, promoting good customer outcomes and protecting
the Group from excessive exposure. The RAS includes
qualitative and quantitative limits which inform strategies,
targets, policies, procedures and other controls that
collectively ensure the Group remains within the Board’s
approved appetite.
The Group’s RAS is prepared by the Chief Risk Officer,
in close cooperation with the Chair of the Board Risk
Committee. Consideration is made to the strategic
objectives and business model, as well as the environment
in which the Group operates. Information on performance
against relevant RAS settings, breaches and trends is
reported regularly to the Executive Risk Committee and
the Board.
3 Risk policies
The policy management framework is a key component
of the Group’s RMF, providing structure and governance
for the consistent and effective management of policies.
In developing the policy management framework, the
Group sets the tone that demonstrates the risk culture
expected across the organisation. This aligns with the
behavioural expectations for all colleagues which form
a core part of our performance management approach.
The RMF includes key risk principles for the effective
management of all material risks. Policies define the
minimum control requirements that must be observed
across the Group, to manage material sources of risk
within risk appetite.
4 Risk management and internal controls
The Board actively monitors the Group’s risk management
and internal control systems. A review of the effectiveness
of those systems has been performed incorporating all
material financial, operational and compliance controls,
to highlight and address any material movement in the
effectiveness of those controls since the last assessment.
During the year, the assessment process was updated
to use risk and control self-assessment data extracted
directly from the Group’s risk system, to drive a more
efficient, simple and data driven process.
5 Risk management framework
The Group identifies and manages risk in line with the
RMF, which is the totality of systems, structures, policies,
processes and people that identifies, measures, mitigates,
evaluates, controls, monitors, and reports all internal
and external sources of material risk. The RMF aligns
to our Purpose by providing an overarching framework
to support the management of risk in a consistent, clear
and transparent way.
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Risk governance and oversight
The Group has a structured risk governance
framework to support the Board of Directors’
aim of achieving long-term and sustainable
growth through the Group’s Purpose of
Making you happier about money. This includes
a number of committees with a specific risk
management focus, although all committees
consider risk matters in accordance with
the Group’s RMF. The Group’s risk governance
structure strengthens risk evaluation and
management, while also positioning the Group
to manage the changing regulatory environment
in an efficient and effective manner. Oversight
of the risk governance structure is facilitated
by the Board.
Strategic report
Governance
Risk report
Introduction
Credit risk
Financial risk
Model risk
Regulatory and compliance risk
Conduct risk
Operational risk
Economic crime risk
Strategic and enterprise risk
Climate risk
Climate-related disclosures
Financial statements
Additional information
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Governance committee framework
On occasion, the Board may establish
special purpose committees as required.
Virgin Money UK
PLC Board
Clydesdale Bank
PLC Board
Risk Committee
Audit Committee
Digital and
Technology
Committee
Governance and
Nomination
Committee
Remuneration
Committee
Chief Executive
Officer
Executive Risk
Committee
VMUK
Leadership Team
Model
Governance
Committee
Credit Risk
Committee
Non-Financial Risk
Committee
Environment
Committee
Operating
Committee
Asset and
Liability
Committee
Reward Risk
Adjustment
Committee
Purpose
Council
Disclosure
Committee
Board Governance Committees
Executive Governance Committees
Reporting and escalation
Special Purpose Board Committees
Delegated authority, reporting and escalation
168
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During the year, the Group considers the effectiveness of the Executive Committee governance framework in order to ensure it remains fit for purpose and well positioned to respond to an evolving
landscape. The following Executive Committees have been established under the authority of the CEO:
Committees
Risk focus
Executive Leadership Team
Executive Risk Committee
Disclosure Committee
Purpose Council
Reward Risk Adjustment Committee
The Executive Leadership Team supports the CEO in leading the Group to be a strong, customer-focused bank for its stakeholders, by focusing on four strategic
priorities: pioneering growth; delighting customers and colleagues; being straightforward and efficient; and being disciplined and acting in a sustainable manner.
The Executive Risk Committee supports the CEO in respect of risk and control accountabilities and serves to provide leadership focus on key risk issues, including:
endorsing the RAS for approval by the Board; overseeing and challenging the enterprise-wide risk performance and control environment of the Group and business
units, including the effective use of policy, frameworks and tools; monitoring the status of regulatory relationships, the reputation of the Group in relation to its regulators
and the changing state of the regulatory landscape, including the impacts for and readiness of the Group for future changes; monitoring the strength of risk capability
and capacity, including risk training and education plans to ensure an effective risk and control framework; and reviewing and endorsing risk policies, frameworks and
tools for use across the Group.
The Disclosure Committee is responsible for ensuring the Group complies with its continuous disclosure obligations for exchanges on which it has equity and debt
securities listed.
The Purpose Council oversees and manages the factors that are critical to being a Purpose-led organisation. The Council maintains focus on agreed objectives,
outcomes and benefits, and focuses on removing obstacles in the way of being a Purpose-led organisation.
The Reward Risk Adjustment Committee is responsible for considering and providing feedback to the Board Risk Committee and the Remuneration Committee in relation
to risk events which may affect awards of variable pay and therefore ensuring that the Group complies with its regulatory requirements in respect of establishing and
maintaining a robust risk adjustment process.
Climate-related disclosures
The Executive Risk Committee is supported by the following committees:
Financial statements
Additional information
Non-Financial Risk Committee
Credit Risk Committee
The Non-Financial Risk Committee is responsible for: monitoring and measuring the Group’s non-financial risks, including performance of the People, Conduct, Economic
Crime, Operational, Cyber, Technology and Data risk appetite statements; assessing compliance with policy statements and standards pertaining to non-financial risk,
as well as any relevant regulatory obligations such as Consumer Duty; and monitoring compliance against the Group’s RMF in relation to non-financial risk.
The Credit Risk Committee is responsible for ensuring that the credit RMF and associated policies remain effective. The Committee has oversight of the quality,
composition and concentrations of the credit risk portfolio and recommends strategies to adjust the portfolio to address changes in market conditions, changes in
portfolio quality and to support opportunities for growth.
Model Governance Committee
The MGC supports the Executive Risk Committee and consequently the Board in fulfilling its governance responsibilities for material models and rating systems.
The Committee oversees the integration and ongoing use of models across the Group.
The Executive Leadership Team is supported by the following committees:
Asset and Liability Committee
Environment Committee
Operating Committee
ALCO is responsible for monitoring the performance of the Group against the Board approved capital and funding plans. The Committee focuses on the Group’s financial
risks including capital, funding, liquidity and interest rate risk to ensure that the Group’s activity complies with regulatory and corporate governance requirements and
also delivers Group policy objectives. The impact of pension risk on capital is also assessed by ALCO.
The Environment Committee oversees the management of environmental and climate change matters, directing resources, investment and activity across the Group.
Environmental and climate change matters are a subset of the Group’s ESG strategy.
The Operating Committee is responsible for supporting the CEO in relation to delivery of the operating plan underpinning the Group’s Strategic and Financial plan
approved by the Board.
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Supporting customers and colleagues through change continued
Three lines of defence
Effective operation of a three lines of defence
model is integral to the Group’s approach to
risk management and is based on the overriding
principle that risk capability must be embedded
within the first line of defence teams to
be effective. This principle embodies the
following concepts:
>
risk management responsibilities are clearly
understood and adhered to by all colleagues
when carrying out their day-to-day activities;
>
risk management decisions are made with
proactive consideration of the potential risk
and impact on customers and the Group;
> business areas must self-identify and report
management issues, which are captured
centrally, showing good levels of risk
awareness, management remediation,
and promoting a strong risk culture; and
>
regular control assessments are undertaken
to confirm the effectiveness of the control
environment, based on control monitoring
and testing, in relation to both the current
and emerging and evolving risk profile.
Control is exercised through a clearly
defined delegation of authority framework,
with communication and escalation channels
throughout the Group.
Stress testing
Stress testing is an important and widely
recognised risk management tool, used to
assess the vulnerability of financial institutions
and identify risks under adverse economic
scenarios. The Group uses stress testing in
strategic, capital and liquidity planning, and
to inform risk appetite, risk mitigation and
contingency planning.
Three lines of defence
3rd Line of Defence
Internal Audit provides independent assurance over the risk management,
governance and internal control processes.
2nd Line of Defence
Risk Management designs and owns the risk methodologies, Risk
Management Strategy, RAS, policy and RMF, as well as providing
oversight, challenge, assurance and advice, with appropriate escalation
and reporting.
Internal
Audit
Risk Management
1st Line of Defence
Business unit and associated support functions take responsibility for
owning, identifying, mitigating and reporting internal and external risks
and issues. There is a focus on a strong, well-designed, tested and
evidenced control environment.
Business units and support
functions
The Group undertakes stress testing using
specific idiosyncratic scenarios and following
the Basel Committee principles which utilise,
where appropriate, scenarios provided by
the BoE.
The Board and senior management are
actively involved in the stress testing process,
reviewing, challenging and approving all aspects
of stress testing, from the consideration of
scenarios to be tested, to the outcomes and
mitigating actions. The involvement of the
Board and senior management is considered
essential for the effective operation of stress
testing and the manner in which the results
inform strategic planning and risk appetite.
Reverse stress testing is also undertaken
to assess the types of risk that would pose
fundamental threats to the viability of the
Group’s business model.
Principal and emerging and evolving
risk categories
In line with the UK Corporate Governance
Code requirements, the Board has performed
a robust assessment of the Group’s principal
and emerging and evolving risks, including
those that could result in events or
circumstances that might threaten the Group’s
business model, future performance, solvency
or liquidity and reputation. In deciding on the
classification of principal risks, the Board
considered the potential impact and probability
of the related events and circumstances and
the timescale over which they may occur.
In assessing emerging and evolving risks, the
Board considered what procedures are in place
to identify emerging risks and how they are
being managed or mitigated.
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Credit risk
Financial risk
Model risk
Regulatory and compliance risk
Conduct risk
Operational risk
Economic crime risk
Strategic and enterprise risk
Climate risk
Risk classes
Credit risk
Section
Credit risk overview
Managing credit risk within our portfolios
Risk appetite
Measurement
Mitigation
Credit assessment and mitigation
Collateral
Monitoring
Forbearance
Measuring credit risk within our portfolios
ECL methodology
Accounting and regulatory credit loss frameworks
Group credit risk exposures
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Climate-related disclosures
Key credit metrics
Financial statements
Additional information
Mortgage credit performance
Collateral
Forbearance
IFRS 9 staging
Unsecured credit performance
Forbearance
IFRS 9 staging
Business credit performance
Forbearance
IFRS 9 staging
Page
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175
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176
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187
188
189
191
192
193
194
195
197
Maximum exposure to credit risk on financial assets, contingent liabilities
and credit-related commitments
Key credit metrics
Key asset quality ratios
Gross loans and advances ECL and coverage
Stage 2 balances
Credit risk exposure, by internal probability of default (PD) rating,
by IFRS 9 stage allocation
IFRS 9 staging
Breakdown of mortgage portfolio
Mortgage portfolio interest rate profile
Average LTV of mortgage portfolio by staging
Forbearance breakdown
IFRS 9 staging
Breakdown of unsecured credit portfolio
Forbearance breakdown
IFRS 9 staging
Breakdown of business credit portfolio
Forbearance breakdown
IFRS 9 staging
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Risk classes
Credit risk continued
Sections
Other credit risks
Offsetting of financial assets and liabilities
Macroeconomic assumptions, scenarios, and weightings
Macroeconomic assumptions
The use of estimates, judgements and sensitivity analysis
The use of estimates
The use of judgements
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Financial risk
Model risk
Regulatory and compliance risk
Conduct risk
Operational risk
Economic crime risk
Strategic and enterprise risk
Climate risk
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Business collateral
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Offsetting financial asset and liabilities analysis
Scenarios
Key macroeconomic assumptions
Base case 2023 v 2022
Five-year simple averages for the most sensitive inputs of unemployment, GDP and HPI
Economic scenarios
ECL impact of HPI changes
ECL impact of unemployment rate changes
SICR threshold triggers
Impact of changes to SICR thresholds on staging
Impact of management adjustments (MAs) on the Group’s ECL allowance
and coverage ratio
Macroeconomic assumptions
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Risk classes
Credit risk continued
Credit risk
At a time of ongoing challenge for the UK economy,
our lending portfolios remain well positioned.
A disciplined approach to credit risk management supports the Group’s operations
and has underpinned its resilience in recently challenging times.
Credit risk is the risk that a retail or business borrower or counterparty fails to pay the interest
or capital due on a loan, or other financial instrument. Credit risk needs to be managed through
the life cycle of each loan from origination to repayment, redemption, write off or sale. Credit risk
manifests itself in the financial instruments and products that the Group offers, and in which it
invests, and can arise in respect of both on- and off-balance sheet exposures.
Close monitoring, clear policies and a disciplined approach to credit risk management support
the Group’s operations, and have underpinned its resilience in recently challenging times.
The emergence of the significant inflationary headwinds and cost of living pressures have the
potential to affect customer resilience and debt affordability. The Group has taken a number of
steps to support customers through this period of heightened affordability pressure, and ensure
that its credit risk framework and associated policies and credit strategies remain effective
and appropriate.
Managing credit risk within our asset portfolios
Risk appetite
The Group controls its levels of credit risk by placing limits on the amount of risk it is willing to
take in order to achieve its strategic objectives. This approach involves a defined set of quantitative
limits in relation to its credit risk concentrations to one borrower, or group of borrowers, and to
geographical, product and industry segments. The management of credit risk within the Group is
achieved through timely changes to application scorecards and credit strategies, ongoing approval
and monitoring of individual transactions, regular asset quality reviews and the independent
oversight of credit decisions and portfolios.
The Group maintained a controlled approach to portfolio management and appetite for new
lending origination in an increasing inflationary environment, with updates to underwriting lending
assessment to reflect the uncertain economic environment and interest rate pressures. The FY24
RAS continues to consider the impact of higher interest rates combined with inflationary headwinds
and cost of living pressures, and is focused on supporting customers through this challenging
period. Climate risk is an increasingly important component of the broader RMF and we have
recognised this through the inclusion of climate risk as a principal risk. The framework has been
updated to embed climate risk considerations across various aspects of customer lending and credit
risk management practices. Further detail on the identification, measurement and management
of climate risk is provided in the Climate-related disclosures report on pages 239 to 272.
Measurement
The Group uses a range of statistical models, supported by both internal and external data, to
assess credit risk exposures. These models underpin the internal ratings-based (IRB) capital
calculation for the Mortgage and Business portfolios, and account management activity for all
portfolios. Further information on the measurement and calculation of ECL and the Group’s
approach to the impairment of financial assets can be found on page 176.
As highlighted on page 69 of the Strategic report, Political and economic risk is an emerging
risk for the Group and includes the future impact on macroeconomic variables, which are used
in the calculation of the Group’s modelled ECL output. Further detail on the Group’s use of
macroeconomic variables in the year can be found on pages 200 to 208.
Mitigation
The Group maintains a dynamic approach to credit management and takes appropriate steps
if individual issues are identified, or if credit performance has, or is expected to, deteriorate due
to borrower, economic or sector-specific weaknesses.
The mitigation of credit risk within the Group is achieved through approval and monitoring of
automated credit strategies, individual transactions, asset quality, analysis of the performance
of the various credit portfolios, and oversight of credit portfolios across the Group. Portfolio
monitoring techniques include customer, product, industry, geographic concentrations, and
delinquency trends, as well as considering layered risks where customers may have more than
one higher risk characteristic.
The Group has taken additional steps to update affordability assessments in response to the
inflationary and cost of living pressures facing customers. Credit risk mitigation is also supported,
in part, by obtaining collateral, and corporate and personal guarantees where appropriate.
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The key mitigating measures are described below.
Risk classes
Credit risk continued
Governance
Risk report
Introduction
Credit risk
Financial risk
Model risk
Regulatory and compliance risk
Conduct risk
Operational risk
Economic crime risk
Strategic and enterprise risk
Climate risk
Climate-related disclosures
Financial statements
Additional information
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Credit assessment and mitigation
Credit risk is managed in accordance with lending policies, the Group’s risk appetite and the RMF.
Lending policies and performance against risk appetite are reviewed regularly.
The Group uses a variety of lending criteria when assessing applications for Mortgage and
Unsecured customers. The approval process uses credit scorecards, credit strategies and
affordability assessments, and involves a review of an applicant’s previous credit history using
information held by credit reference agencies as well as internal information. Manual underwriting
assessments are also used as and when required. The Group also utilises quantitative thresholds,
for example debt to income ratios, as well as the ratio of borrowing to collateral. Some of these
limits relate to internal approval levels and others are hard limits above which the Group will reject
the application.
For residential mortgages, the Group’s policy is to accept only within the maximum percentage LTV
limit that may be offered subject to loan size and customer income. Product availability may be
altered depending on market conditions and outlook. Product types such as BTL and residential
interest-only mortgages are controlled by transactional limits covering both LTV and value.
For business customers, credit risk is further mitigated by focusing on business sectors where the
Group has specific expertise, and through limiting exposures on higher value loans and to certain
sectors. When making credit decisions for business customers the Group will routinely assess
the primary source of repayment, most typically the cash generated by the customer through
its normal trading cycle. Secondary sources of repayment are also considered and while not the
focus of the lending decision, collateral will be taken when appropriate. The Group seeks to obtain
security cover and, where relevant, guarantees from borrowers.
Specialist expertise
Credit quality is managed and monitored by skilled teams including, where required, specialists
that provide dedicated support for vulnerable customers experiencing financial or other types
of difficulties. These specialists act within agreed delegated authority levels set in accordance
with experience and capabilities.
Credit strategy and policy
Credit risks associated with lending are managed through the application of detailed lending
policies and standards that outline the approach to lending, underwriting criteria, credit mandates,
concentration limits and product terms.
For complex credit products and services, the Chief Credit Officer and Credit Risk Committee
provide a policy framework that identifies, quantifies and mitigates credit risk. These policies
and frameworks are delegated to, and disseminated under, the guidance and control of the
Board and senior management, with appropriate oversight through governance committees.
Specialist credit teams provide oversight of credit portfolio performance as well as adherence
to credit risk policies and standards. Activities include targeted risk-based reviews, providing
an assessment of the effectiveness of internal controls and risk management practices.
Bespoke assignments are also undertaken in response to emerging risks and regulatory
requirements. Independent assurance reviews are regularly undertaken by Internal Audit.
Portfolio oversight
The Group’s credit portfolios, and the key benchmarks, behaviours and characteristics that
are used to manage portfolios, are regularly monitored, with portfolio monitoring packs provided
for review by senior management.
Controls over rating systems
The Group has a Model Risk Management team that sets common minimum standards for risk
models and associated rating systems to ensure these are developed and monitored consistently,
and are of sufficient quality to support business decisions and meet regulatory requirements.
The Group performs an annual self-assessment of its rating systems to ensure ongoing Capital
Requirements Regulation (CRR) compliance.
The Group also utilises other instruments and techniques across its wider balance sheet.
These are summarised below:
Derivatives
The Group maintains control limits on net open derivative positions. At any one time, the amount
subject to credit risk is limited to the current fair value of instruments that are favourable to the
Group (i.e. assets where the fair value is positive) and in relation to derivatives, may only be a small
fraction of the contract, or notional values associated with instruments outstanding. This credit
risk is managed as part of the customer’s overall exposure together with potential exposures from
market movements.
Master netting agreements
The Group further restricts its exposure to credit losses by entering master netting arrangements
with counterparties with whom it undertakes a significant volume of transactions. Master netting
arrangements do not generally result in an offset of balance sheet assets and liabilities,
as transactions are usually settled on a gross basis. However, credit risk associated with the
favourable contracts is reduced by a master netting arrangement to the extent that, if any
counterparty failed to meet its obligations in accordance with the agreed terms, all amounts
with the counterparty are terminated and settled on a net basis. Derivative financial instrument
contracts are typically subject to the International Swaps and Derivatives Association (ISDA)
master netting agreements, as well as Credit Support Annexes, where relevant, around collateral
arrangements attached to those ISDA agreements. Derivative exchange or clearing counterparty
agreements exist where contracts are settled via an exchange or clearing house.
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Risk classes
Credit risk continued
Collateral
The Group evaluates each customer’s creditworthiness on a case by case basis. The amount
of collateral obtained, if deemed necessary by the Group upon extension of credit, is based on
management’s credit evaluation of the counterparty. Collateral held as security, and other credit
enhancements include the following:
Residential mortgages
Residential property is the Group’s main source of collateral on mortgage lending and means
of mitigating loss in the event of the default risk inherent in its residential mortgage portfolios.
All lending activities are supported by an appropriate form of valuation. This valuation is applied
using either a physical valuation, or another method that is not reliant on a physical inspection,
but utilises data and modelled information, such as desktop, automated valuation model or
indexed valuations (subject to policy rules and requirements).
It is the Group’s policy to dispose of repossessed properties, with the proceeds used to reduce
or repay the outstanding balance. The Group does not occupy repossessed properties for its own
business use.
Commercial property
Commercial property is a source of collateral on business lending and means of mitigating loss
in the event of default. For commercial loans, collateral comprises first legal charges over freehold,
or long leasehold property (including formal Companies House registration where appropriate).
All commercial property collateral is subject to an independent, professional valuation when taken
and thereafter subject to periodic review in accordance with policy requirements.
Non-property related collateral
In addition to residential and commercial property-based security, the Group also takes other
forms of collateral when lending. This collateral can involve obtaining security against the
underlying loan through the use of cash collateral and/or netting agreements, both of which
reduce the original exposure by the amount of collateral held, subject to volatility and maturity
adjustments where applicable. It can also include specific or interlocking guarantees, and loan
agreements, which include affirmative and negative covenants and, in some instances,
guarantees of counterparty obligations.
The Group also provides asset-backed lending in the form of asset and invoice finance.
Security for these exposures is held in the form of direct recourse to the underlying asset financed.
Generally, the Group does not take possession of collateral it holds as security, or call on
other credit enhancements, that would result in recognition of an asset on its balance sheet.
Monitoring
Credit policies and procedures, which are subject to ongoing review, are documented
and disseminated in a form that supports the credit operations of the Group.
> Credit Risk Committee: has oversight of the quality, composition and concentrations of
the credit risk portfolio. It also determines and approves strategies to adjust the portfolio
for changes in market conditions.
> RAS measures: Measures are reported monthly to ensure adherence to appetite. A formal
annual review is carried out to ensure that the measures accurately reflect the Group’s risk
appetite, strategy and concerns relative to the wider macro environment. All measures are
subject to extensive engagement with the Executive Leadership Team and the Board, and
are subject to endorsement from executive governance committees prior to Board approval.
Regulatory engagement is also scheduled as appropriate.
> Risk concentration: Concentration of risk is managed by counterparty, product, geographical
region and industry sector. In addition, single name exposure limits exist to control exposures
to a single counterparty. Concentrations are also considered through the RAS process, focusing
particularly on the external environment, outlook and comparison against market benchmarks,
as well as considering layered risks where customers may have more than one higher risk
characteristic.
> Single large exposure excesses: Excesses on exposures under the delegated commitment
authority of the Transactional Credit Committee are reported to the committee when above
defined limits. All excess reports include a proposed route to remediation. Exposures are also
managed in accordance with the large exposure reporting requirements of the CRR.
> Portfolio monitoring: Continuous monitoring of the portfolio composition and performance
is undertaken through monthly reviews.
Forbearance
Forbearance is considered to exist where customers are experiencing, or about to experience,
financial difficulty and the Group grants a concession on a non-commercial basis. The Group’s
forbearance policies and definitions comply with the guidance established by the European
Banking Authority (EBA) for financial reporting. Forbearance concessions include the granting
of more favourable terms and conditions than those provided at drawdown of the facility, or
conditions that would not ordinarily be available to other customers with a similar risk profile.
Forbearance parameters are regularly reviewed and refined as necessary to ensure they are
consistent with the latest industry guidance and prevailing practice, as well as ensuring that
any assessment adequately captures and reflects the most recent customer behaviours and
market conditions.
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Risk classes
Credit risk continued
Measuring credit risk within asset portfolios
At each reporting date, the Group assesses financial assets measured at amortised cost, as well
as loan commitments and financial guarantees, for impairment. The impairment loss allowance
is calculated using an ECL methodology and reflects: (i) an unbiased and probability weighted
amount; (ii) the time value of money, which discounts the impairment loss; and (iii) reasonable
and supportable information that is available without undue cost or effort about past events,
current conditions and forecasts of future economic conditions.
The Group adopts two approaches in the measurement of credit risk: (i) collectively assessed –
where the Group uses a combination of strategies and statistical models that utilise internal
and external data to measure the exposure to credit risk within the portfolios (supplemented by
management adjustments (MAs) where necessary); and (ii) individually assessed – where a charge
is taken to the income statement when an individually assessed provision (IA) has been recognised,
or a direct write-off has been applied to an asset balance.
Purchased or originated credit-impaired (POCI) financial assets are those that are assessed
as being credit-impaired upon initial recognition, and once classified as POCI, remain in Stage 3
until derecognition irrespective of any change in credit quality. The Group regards the date of
acquisition as the origination date for purchased portfolios.
SICR criteria and triggers are parameters subject to the same governance pathway as the Group’s
IFRS 9 models; with changes to triggers initially submitted to and endorsed by the Credit Model
Technical Forum and formal approval provided by the MGC.
The Credit Risk Committee provides oversight on the adequacy of ECL provisioning with reviews
and robust challenge of the calculation and management judgement recommendations. This
includes the rationale behind the inclusion of MAs. The Boards’ Audit Committee provides oversight
to the ECL calculation and measurement, with reviews and robust challenge of all calculated
outcomes and management judgements.
ECL methodology
ECL methodology is based upon the combination of PD, LGD and exposure at default (EAD)
estimates that consider a range of factors that impact on credit risk and the level of impairment
loss provisioning. The Group uses reasonable and supportable forecasts of future economic
conditions in estimating the ECL allowance. The methodology and assumptions used in the
ECL calculation are reviewed regularly and updated as necessary.
The calculated model ECL is determined using the following classifications:
Stage
ECL calculation period
Description
1
2
3
12-month
Lifetime
An exposure that is not credit-impaired on initial recognition and
has not experienced a significant increase in credit risk (SICR) since
initial recognition.
An exposure that has experienced a SICR since initial recognition
but is not yet deemed to be credit impaired.
Lifetime
An exposure that is credit impaired.
A Stage 2 ECL is required where a SICR has been identified, such as a deterioration in the PD
since origination. Absent any specific SICR factors, the Group operates a 30 DPD backstop for
classification as Stage 2, and 90 DPD for Stage 3. Forborne exposures can be classed as either
Stage 2 or Stage 3 depending on the type of forbearance programme that has been applied
to the customer. IA provisions are classed as Stage 3. When a loan is deemed uncollectable,
and all necessary internal procedures have been completed, it is written off against the related
impairment loss. Subsequent recoveries of amounts previously written off reduce the expense
in the income statement.
Further detail on the accounting policy applied to ECLs can be found in note 3.1.1 to the
financial statements.
Accounting and regulatory credit loss frameworks
The approach to calculating credit losses differs between the accounting and regulatory
frameworks applicable to the Group, with the most significant difference being that the concept
of SICR, which moves exposures from a 12-month to a lifetime ECL calculation in the accounting
framework, does not exist under the regulatory framework. The approach to staging under IFRS 9
is also not applicable under regulatory credit loss reporting.
Both frameworks calculate credit losses under a PD x LGD x EAD approach, with the regulatory
IRB approach assessing these in the next 12 months, whereas the accounting framework under
IFRS 9 requires these losses to be assessed on a forward-looking view, with a lifetime loss
calculated where appropriate. Credit losses are supplemented by MAs, where required, under
the accounting framework.
Both the accounting and regulatory definitions of default are materially aligned, with default being
triggered at 90 DPD, with the exception of the heritage Virgin Money mortgage models, that apply
a 180 DPD regulatory default trigger under existing approved permissions. The definition of default
will be fully aligned to 90 DPD when the regulatory models are updated in line with the hybrid
model adoption, which is anticipated in FY24.
Cure periods
The Group aligns the regulatory cure periods for forborne exposures in its IFRS 9 staging criteria
(as Stage 2 or 3) at a minimum period of either 24, or 36 months, depending on the forbearance
programme utilised. Where exposures are classified as Stage 2 or 3 as a result of not being in a
forbearance programme, these can cure and transfer to the appropriate stage when the relevant
staging trigger is no longer applicable (i.e., there is no identifiable SICR or the exposure is no longer
considered credit-impaired).
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Risk classes
Credit risk continued
Group credit risk exposures
The Group is exposed to credit risk across all of its financial asset classes, however, its principal exposure to credit risk arises on customer lending balances. Given the relative significance of customer
lending exposures to the Group’s overall credit risk position, the disclosures that follow are focused principally on customer lending.
The Group is also exposed to credit risk on its other banking and treasury-related activities, and holds £11.3bn (2022: £12.2bn) of cash and balances with central banks and £0.7bn (2022: £0.7bn)
due from other banks at amortised cost, with a further £6.2bn (2022: £5.1bn) of financial assets at fair value through other comprehensive income (FVOCI). Cash and balances with central banks
includes £10.2bn of cash held with the BoE (2022: £11.0bn). Balances with other banks and financial assets at FVOCI are primarily held with senior investment grade counterparties. All other banking
and treasury-related financial assets are classed as Stage 1 with no material ECL provision held.
Maximum exposure to credit risk on financial assets, contingent liabilities and credit-related commitments (audited)
The following tables show the levels of concentration of the Group’s financial assets and credit-related commitments:
Mortgages
Unsecured
Business
Total
Impairment provisions on credit exposures(1)
Fair value hedge adjustment
Maximum credit risk exposure on lending assets
Cash and balances with central banks
Financial instruments at FVOCI
Due from other banks
Other financial assets at fair value
Derivative financial assets
Maximum credit risk exposure on all financial assets(2)
Gross loans
and advances
to customers
£m
2023
Credit-related
commitments
£m
57,797
6,814
8,684
73,295
(612)
(492)
2,685
11,242
4,073
18,000
(5)
–
72,191
17,995
Gross loans
and advances
to customers
£m
2022
Credit-related
commitments
£m
58,464
6,513
8,169
73,146
(454)
(941)
4,200
11,057
4,102
19,359
(3)
–
71,751
19,356
Total
£m
60,482
18,056
12,757
91,295
(617)
(492)
90,186
11,282
6,184
667
61
135
108,515
Total
£m
62,664
17,570
12,271
92,505
(457)
(941)
91,107
12,221
5,064
656
78
342
109,468
(1) The total ECL provision covers both on and off-balance sheet exposures, which are reflected in notes 3.1.1.1 and 3.7 respectively. All tables and ratios that follow are calculated using the combined on- and off-balance sheet ECL, which is consistent for all periods reported.
(2) Unless otherwise noted, the amount that best represents the maximum credit exposure at the reporting date is the carrying value of the financial asset.
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Risk classes
Credit risk continued
In addition to the balance sheet position on the previous page, key metrics of relevance
are as follows:
Key credit metrics (audited)
Impairment charge/(credit) on credit exposures
Mortgage lending
Unsecured lending
Business lending
Total Group impairment charge
Underlying impairment charge(1) to average customer loans
(cost of risk)
Key asset quality ratios
Loans in Stage 2
Loans in Stage 3
Total book coverage(2)
Stage 2 coverage(2)
Stage 3 coverage(2)
(1) Inclusive of gains/losses on assets held at fair value and elements of fraud loss.
(2) Excludes the guaranteed element of government-backed loan schemes.
2023
£m
2
269
38
309
2022
£m
(30)
178
(96)
52
0.42%
0.07%
8.63%
1.47%
0.84%
6.33%
7.76%
1.41%
0.62%
4.72%
The total gross lending to customers has remained broadly stable overall with £73.3bn at
30 September 2023 (2022: £73.1bn). The total lending in the Mortgage portfolio reduced to
£57.8bn at September 2023 (2022: £58.5bn) with the demand for new lending slightly reduced
due to the higher rate environment, stressed affordability pressure and wider cost of living
considerations. The underlying Business lending portfolio (excluding the repayments of the
government backed loan schemes) has grown to £7.9bn at 30 September 2023 (2022: £7.1bn) with
broad based growth across the sector specialisms in our target market segments. The Unsecured
lending book has grown to £6.8bn at 30 September 2023 (2022: £6.5bn), mainly driven by credit
card growth.
The performance of the portfolio and overall asset quality remains robust, and whilst there
are signs of deterioration in some metrics, the proportion of the Stage 2 portfolio not past due,
remains high at 94% at September 2023 (2022: 93%). The Group remains focused on reaching
good customer outcomes and deploys a range of customer support measures combined with
the Group’s risk appetite and continued focus on responsible lending.
The impact of significant external economic and geopolitical factors continues to have the potential
to impact the short to medium-term performance of the portfolio, with the most significant of these
being the cost of living pressures.
13.93%
11.24%
The selection of appropriate MAs is a major component in determining the Group’s ECL; a detailed
analysis is shown on page 206.
The Group has recorded a total impairment provision of £617m at 30 September 2023, reflecting a
35% increase from £457m at 30 September 2022, and a corresponding increase in coverage from
62bps to 84bps. Within this, the modelled and IA provision has increased to £541m (2022: £372m)
driven by the updated macroeconomic inputs, model calibrations and growth in the Business and
Unsecured lending portfolios. MAs have reduced in the period to £76m (2022: £85m). The increase
in provision coupled with the individually assessed impairment charge of £142m in the year (2022:
£107m) results in a net charge to the income statement of £309m (2022: £52m) and an associated
cost of risk of 42bps (2022: 7bps).
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Gross loans and advances(1) ECL and coverage (audited)
Risk classes
Credit risk continued
Mortgages
Cards
Loans and Overdrafts
Combined
Business(2)
Unsecured
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2023
Stage 1
Stage 2 – total
Stage 2: 0 DPD
Stage 2: <30 DPD
Stage 2: >30 DPD
Stage 3(3)
ECLs(4)
Stage 1
Stage 2 – total
Stage 2: 0 DPD
Stage 2: <30 DPD
Stage 2: >30 DPD
Stage 3(3)
Coverage
Stage 1
Stage 2 – total
Stage 2: 0 DPD
Stage 2: <30 DPD
Stage 2: >30 DPD
Stage 3(3)
Undrawn exposures
Stage 1
Stage 2
Stage 3(3)
£m
54,540
2,704
2,405
98
201
553
57,797
13
27
23
1
3
17
57
2,560
114
11
%
94.3%
4.7%
4.2%
0.2%
0.3%
1.0%
100%
22.6%
47.9%
42.0%
1.3%
4.6%
29.5%
100%
0.02%
0.99%
0.98%
0.74%
1.28%
3.03%
0.10%
95.4%
4.2%
0.4%
£m
4,658
1,321
1,250
37
34
109
6,088
42
294
256
17
21
56
392
10,493
387
21
%
76.5%
21.7%
20.5%
0.6%
0.6%
1.8%
100%
10.8%
74.9%
65.3%
4.3%
5.3%
14.3%
100%
0.98%
23.16%
21.31%
48.66%
64.90%
54.15%
6.88%
96.2%
3.6%
0.2%
2,685
100.0%
10,901
100.0%
£m
398
321
316
2
3
7
726
4
28
25
1
2
5
37
280
60
1
341
%
54.8%
44.3%
43.6%
0.3%
0.4%
0.9%
100%
12.1%
73.5%
67.1%
1.9%
4.5%
14.4%
100%
1.07%
8.16%
7.56%
35.30%
56.02%
77.16%
4.88%
82.1%
17.6%
0.3%
£m
5,056
1,642
1,566
39
37
116
6,814
46
322
281
18
23
61
429
10,773
447
22
%
74.2%
24.1%
23.0%
0.6%
0.5%
1.7%
100%
10.9%
74.8%
65.5%
4.1%
5.2%
14.3%
100%
0.99%
20.07%
18.38%
47.94%
64.16%
55.57%
6.65%
95.8%
4.0%
0.2%
£m
6,293
1,980
1,951
14
15
411
8,684
30
51
51
–
–
50
131
3,453
597
23
%
72.5%
22.8%
22.4%
0.2%
0.2%
4.7%
100%
22.6%
39.4%
39.2%
0.2%
–
38.0%
100%
0.49%
2.66%
2.67%
1.56%
0.95%
19.76%
1.60%
84.7%
14.7%
0.6%
Total
£m
65,889
6,326
5,922
151
253
1,080
73,295
89
400
355
19
26
128
617
16,786
1,158
56
%
89.9%
8.6%
8.1%
0.2%
0.3%
1.5%
100%
14.5%
64.7%
57.6%
3.0%
4.1%
20.8%
100%
0.13%
6.33%
6.02%
12.19%
10.38%
13.93%
0.84%
93.3%
6.4%
0.3%
100.0%
11,242
100.0%
4,073
100.0%
18,000
100.0%
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Risk classes
Credit risk continued
2022
Stage 1
Stage 2 – total
Stage 2: 0 DPD
Stage 2: <30 DPD
Stage 2: >30 DPD
Stage 3(3)
ECLs(4)
Stage 1
Stage 2 – total
Stage 2: 0 DPD
Stage 2: <30 DPD
Stage 2: >30 DPD
Stage 3(3)
Coverage
Stage 1
Stage 2 – total
Stage 2: 0 DPD
Stage 2: <30 DPD
Stage 2: >30 DPD
Stage 3(3)
Undrawn exposures
Stage 1
Stage 2
Stage 3(3)
Mortgages
Cards
Loans and Overdrafts
Combined
Business(2)
Total
Unsecured
£m
54,791
3,090
2,763
158
169
583
%
93.7%
5.3%
4.7%
0.3%
0.3%
1.0%
£m
4,712
774
723
27
24
72
%
84.8%
13.9%
13.0%
0.5%
0.4%
1.3%
£m
612
335
327
3
5
8
%
64.1%
35.1%
34.3%
0.3%
0.5%
0.8%
£m
5,324
1,109
1,050
30
29
80
%
81.8%
17.0%
16.1%
0.5%
0.4%
1.2%
58,464
100.0%
5,558
100.0%
955
100.0%
6,513
100.0%
10
32
28
2
2
14
56
4,060
132
8
4,200
17.9%
57.1%
49.9%
3.6%
3.6%
25.0%
100.0%
0.02%
1.02%
1.02%
0.81%
1.25%
2.28%
0.09%
96.7%
3.1%
0.2%
57
156
129
14
13
33
246
10,494
236
5
23.2%
63.4%
52.4%
5.7%
5.3%
13.4%
100.0%
1.29%
21.94%
19.41%
57.37%
59.03%
50.96%
4.81%
97.8%
2.2%
0.0%
100.0%
10,735
100.0%
6
25
22
1
2
7
38
288
33
1
322
15.8%
65.8%
57.9%
2.6%
5.3%
18.4%
100.0%
1.06%
7.29%
6.41%
33.67%
52.92%
73.14%
3.88%
89.5%
10.2%
0.3%
63
181
151
15
15
40
284
10,782
269
6
22.2%
63.7%
53.1%
5.3%
5.3%
14.1%
100.0%
1.26%
17.22%
15.09%
54.48%
58.01%
53.51%
4.66%
97.5%
2.4%
0.1%
100.0%
11,057
100.0%
£m
6,270
1,526
1,499
9
18
373
8,169
12
55
55
–
–
50
117
3,612
464
26
4,102
%
76.7%
18.7%
18.4%
0.1%
0.2%
4.6%
100.0%
10.3%
47.0%
47.0%
–
–
42.7%
100.0%
0.22%
3.75%
3.76%
3.57%
1.47%
19.96%
1.59%
88.1%
11.3%
0.6%
£m
66,385
5,725
5,312
197
216
1,036
73,146
85
268
234
17
17
104
457
18,454
865
40
%
90.8%
7.8%
7.2%
0.3%
0.3%
1.4%
100.0%
18.6%
58.6%
51.2%
3.7%
3.7%
22.8%
100.0%
0.13%
4.72%
4.43%
8.53%
8.57%
11.24%
0.62%
95.3%
4.5%
0.2%
100.0%
19,359
100.0%
(1) Excludes loans designated at fair value through profit or loss (FVTPL), balances due from customers on acceptances, accrued interest and deferred and unamortised fee income.
(2) Business and total coverage ratio excludes the guaranteed element of government-backed loans.
(3) Stage 3 includes POCI for gross loans and advances of £48m for Mortgages and £1m for Unsecured (2022: £56m and £1m respectively); and ECL of (£1m) for Mortgages and (£1m) for Unsecured (2022: (£1m) and (£2m) respectively).
(4) Includes £5m ECL held for the undrawn exposures shown (2022: £3m), of which £1m (2022:1m) is held under Stage 1 and £4m (2022: £2m) under Stage 2.
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Credit risk continued
Stage 2 balances (audited)
There can be a number of reasons that require a financial asset to be subject to a Stage 2 lifetime ECL calculation other than reaching the 30 DPD backstop. The following table highlights the relevant
trigger point leading to a financial asset being classed as Stage 2:
Mortgages
Cards
Loans and Overdrafts
Combined
Business
Total
Personal
2023
PD deterioration
Forbearance
AFD or Watch List(1)
>30 DPD
Other(2)
ECLs
PD deterioration
Forbearance
AFD or Watch List(1)
>30 DPD
Other(2)
2022
PD deterioration
Forbearance
AFD or Watch List(1)
>30 DPD
Other(2)
ECLs
PD deterioration
Forbearance
AFD or Watch List(1)
>30 DPD
Other(2)
£m
1,739
81
1
201
682
2,704
18
3
–
3
3
27
%
65%
3%
–
7%
25%
100%
67%
11%
–
11%
11%
100%
£m
777
16
–
34
494
1,321
143
5
–
21
125
294
%
59%
1%
–
3%
37%
100%
49%
2%
–
7%
42%
100%
£m
317
1
–
3
–
%
99%
–
–
1%
–
321
100%
93%
–
–
7%
–
100%
26
–
–
2
–
28
Personal
£m
1,094
17
–
37
494
1,642
169
5
–
23
125
322
%
67%
1%
–
2%
30%
100%
52%
2%
–
7%
39%
100%
£m
1,229
281
455
15
–
%
62%
14%
23%
1%
–
1,980
100%
23
14
14
–
–
51
45%
28%
27%
–
–
100%
£m
4,062
379
456
253
1,176
6,326
210
22
14
26
128
400
Mortgages
Cards
Loans and Overdrafts
Combined
Business
Total
£m
2,084
106
6
169
725
3,090
18
5
–
2
7
32
%
69%
3%
–
5%
23%
100%
55%
16%
–
6%
23%
100%
£m
401
9
–
24
340
774
73
3
–
13
67
156
%
52%
1%
–
3%
44%
100%
47%
2%
–
8%
43%
100%
£m
329
1
–
5
–
%
99%
–
–
1%
–
335
100%
23
–
–
2
–
25
92%
–
–
8%
–
£m
730
10
–
29
340
1,109
96
3
–
15
67
100%
181
%
66%
1%
–
3%
30%
100%
53%
2%
–
8%
37%
100%
£m
826
235
447
18
–
1,526
26
12
17
–
–
55
%
55%
15%
29%
1%
–
100%
47%
22%
31%
–
–
100%
£m
3,640
351
453
216
1,065
5,725
140
20
17
17
74
268
%
64%
6%
7%
4%
19%
100%
52%
6%
4%
7%
31%
100%
%
64%
6%
8%
4%
18%
100%
53%
7%
6%
6%
28%
100%
(1) Approaching Financial Difficulty (AFD) and Watch markers are early warning indicators of Business customers who may be approaching financial difficulties. If these indicators are not reversed, they may lead to a requirement for more proactive management by the Group.
(2) Other refers primarily to rules using additional credit reference agency data as well a number of smaller value drivers.
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Credit risk continued
Credit risk exposure and ECL, by internal PD rating, by IFRS 9 stage allocation (audited)
The distribution of the Group’s credit exposures and ECL by internal PD rating is analysed below:
Stage 1
Stage 2
2023
Mortgages
PD range
Strong
Good
0–0.74
0.75–2.49
Satisfactory
2.50–99.99
Default
Total
Unsecured
Strong
Good
100
0–2.49
2.50–9.99
Satisfactory
10.00–99.99
Default
Total
Business
Strong
Good
100
0–0.74
0.75–9.99
Satisfactory
10.00–99.99
Default
Total
100
Lending
£m
52,612
1,540
388
–
54,540
4,443
607
6
–
5,056
1,860
4,360
73
–
6,293
ECL
£m
Lending
£m
8
2
3
–
13
29
16
1
–
46
2
27
1
–
30
1,355
553
796
–
2,704
123
1,063
456
–
1,642
158
1,441
381
–
1,980
ECL
£m
2
3
22
–
27
12
148
162
–
322
–
30
21
–
51
Stage 3(1)
Lending
£m
Total
ECL
£m
Lending
£m
–
–
–
553
553
–
–
–
116
116
–
–
–
411
411
–
–
–
17
17
–
–
–
61
61
–
–
–
50
50
53,967
2,093
1,184
553
57,797
4,566
1,670
462
116
6,814
2,018
5,801
454
411
8,684
ECL
£m
10
5
25
17
57
41
164
163
61
429
2
57
22
50
131
(1) Stage 3 includes POCI for gross loans and advances of £48m for Mortgages and £1m for Unsecured (2022: £56m and £1m respectively); and ECL of (£1m) for Mortgages and (£1m) for Unsecured (2022: (£1m) and (£2m) respectively).
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Risk classes
Credit risk continued
2022
Mortgages
PD range
Strong
Good
0–0.74
0.75–2.49
Satisfactory
2.50–99.99
Default
Total
Unsecured
Strong
Good
100
0–2.49
2.50–9.99
Satisfactory
10.00–99.99
Default
Total
Business
Strong
Good
100
0–0.74
0.75–9.99
Satisfactory
10.00–99.99
Default
100
Stage 1
Lending
£m
52,184
2,302
305
–
54,791
4,795
524
5
–
5,324
4,808
1,455
7
–
ECL
£m
6
2
2
–
10
42
20
1
–
63
5
7
–
–
Stage 2
Lending
£m
1,864
641
585
–
3,090
413
459
237
–
ECL
£m
10
5
17
–
32
26
72
83
–
1,109
181
719
751
56
–
17
31
7
–
55
Stage 3(1)
Lending
£m
–
–
–
583
583
–
–
–
80
80
–
–
–
373
373
ECL
£m
–
–
–
14
14
–
–
–
40
40
–
–
–
50
50
Total
Lending
£m
54,048
2,943
890
583
58,464
5,208
983
242
80
ECL
£m
16
7
19
14
56
68
92
84
40
6,513
284
5,527
2,206
63
373
8,169
22
38
7
50
117
6,270
12
1,526
(1) Stage 3 includes POCI for gross loans and advances of £48m for Mortgages and £1m for Unsecured (2022: £56m and £1m respectively); and ECL of (£1m) for Mortgages and (£1m) for Unsecured (2022: (£1m) and (£2m) respectively).
In terms of the credit quality of the loan commitments and financial guarantee contracts, at least 90% classified as either ‘Good’ or ‘Strong’ under the Group’s internal PD rating scale with the overall
portfolio at 96% (2022: 97%) and the level of default remaining low.
The migration of business lending from the Strong to the Good PD grouping has been predominately driven by the updates to model economic scenarios (MES) received during the year, rather than
an observed deterioration in the customer portfolio.
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Risk classes
Credit risk continued
IFRS 9 staging (audited)
The following table shows the changes in the loss allowance and gross carrying value of the portfolios. Values are calculated using the individual customer account balances, and the stage allocation
is taken as at the end of each month. The monthly position of each account is aggregated to report a net closing position for the period, thereby incorporating all movements an account has made
during the year.
2023
Opening balance at 1 October 2022
Transfers from Stage 1 to Stage 2
Transfers from Stage 2 to Stage 1
Transfers to Stage 3
Transfers from Stage 3
Net movement
Changes to model methodology
New assets originated or purchased(2)
Repayments and other movements(3)
Repaid or derecognised(3)
Write-offs
Cash recoveries
Individually assessed impairment charge
Closing balance at 30 September 2023
2022
Opening balance at 1 October 2021
Transfers from Stage 1 to Stage 2
Transfers from Stage 2 to Stage 1
Transfers to Stage 3
Transfers from Stage 3
Net movement
Changes to model methodology
New assets originated or purchased(2)
Repayments and other movements(3)
Repaid or derecognised(3)
Write-offs
Cash recoveries
Individually assessed impairment charge
Closing balance at 30 September 2022
Stage 1
Gross loans
£m
66,385
(8,561)
6,077
(96)
121
(2,459)
–
20,489
(2,990)
(15,536)
–
–
–
ECL
£m
85
(46)
16
–
–
(30)
–
57
12
(35)
–
–
–
Stage 2
Gross loans
£m
5,725
8,535
(6,125)
(586)
134
1,958
–
629
(558)
(1,428)
–
–
–
ECL
£m
268
414
(129)
(109)
8
184
–
44
(22)
(74)
–
–
–
Stage 3(1)
Gross loans
£m
1,036
–
–
686
(266)
420
–
161
140
(490)
(187)
–
–
65,889
89
6,326
400
1,080
Stage 1
Gross loans
£m
61,416
(8,287)
10,218
(91)
42
1,882
443
22,162
(3,434)
(16,084)
–
–
–
66,385
ECL
£m
111
(45)
27
–
–
(18)
1
187
(42)
(154)
–
–
–
85
Stage 2
Gross loans
£m
10,178
8,227
(10,282)
(562)
137
(2,480)
(442)
2,055
(155)
(3,431)
–
–
–
ECL
£m
302
294
(145)
(84)
8
73
(8)
159
(65)
(193)
–
–
–
Stage 3(1)
Gross loans
£m
957
–
–
650
(187)
463
–
187
56
(498)
(129)
–
–
5,725
268
1,036
ECL
£m
104
–
–
138
(10)
128
–
34
(4)
(127)
(187)
38
142
128
ECL
£m
91
–
–
101
(12)
89
–
32
(15)
(101)
(129)
30
107
104
Total gross
loans
£m
73,146
(26)
(48)
4
(11)
(81)
–
21,279
(3,408)
(17,454)
(187)
–
–
73,295
Total gross
loans
£m
72,551
(60)
(64)
(3)
(8)
(135)
1
24,404
(3,533)
(20,013)
(129)
–
–
73,146
Total
provisions
£m
Income
statement
£m
457
368
(113)
29
(2)
282
–
135
(14)
(236)
(187)
38
142
617
368
(113)
29
(2)
282
–
135
(14)
(236)
–
–
142
309
Total
provisions
£m
Income
statement
£m
504
249
(118)
17
(4)
144
(7)
378
(122)
(448)
(129)
30
107
457
249
(118)
17
(4)
144
(7)
378
(122)
(448)
107
52
(1) Stage 3 includes POCI for gross loans and advances of £48m for Mortgages and £1m for Unsecured (2022: £56m and £1m respectively), and ECL of (£1m) for Mortgages and (£1m) for Unsecured (2022: (£1m) and (£2m) respectively). Nil for Business in both periods.
(2) Includes assets where the term has ended, and a new facility has been provided.
(3) ‘Repayments’ comprises payments made on customer lending which are not yet fully paid at the reporting date and the customer arrangement remains live at that date. ‘Repaid’ refers to payments made on customer lending which is either fully repaid or derecognised
by the reporting date and the customer arrangement is therefore closed at that date.
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Risk classes
Credit risk continued
The IFRS 9 staging movements are driven by a variety of factors at individual product portfolio levels, with further detail provided in the following portfolio performance pages. Overall portfolio activity
remains in line with expectations, with the net movements across staging slightly higher than prior year with gross flows in and out of Stage 2 the predominant movement. The increase in write offs
has been primarily driven from the credit card portfolio in addition to a small number of individually significant business write offs. The levels of default across the portfolio remain low.
The contractual amount outstanding on loans and advances that were written off during the reporting period or are still subject to enforcement activity was £5.1m (2022: £4.3m). The Group has not
purchased any lending assets in the year (2022: none). Further information on staging profile is provided at a portfolio level in the respective portfolio performance section on the following pages.
Mortgage credit performance
The table below presents key information on the asset quality of the Group’s Mortgage portfolio and should be read in conjunction with the supplementary data presented in the following pages
of this section.
Breakdown of Mortgage portfolio (audited)
2023
Residential – capital repayment
Residential – interest only
BTL
Total Mortgage portfolio
2022
Residential – capital repayment
Residential – interest only
BTL
Total Mortgage portfolio
Gross lending
£m
Modelled & IA ECL
£m
35,085
7,503
15,209
57,797
36,417
7,041
15,006
58,464
10
8
7
25
13
3
6
22
MA
£m
5
1
26
32
5
1
28
34
Total ECL
£m
Net lending
£m
Coverage
%
Average LTV
%
15
9
33
57
18
4
34
56
35,070
7,494
15,176
57,740
36,399
7,037
14,972
58,408
0.04%
0.12%
0.21%
0.10%
0.05%
0.05%
0.22%
0.09%
54.2%
47.0%
52.8%
52.9%
54.2%
45.4%
52.4%
52.7%
Mortgage lending has reduced on a net basis to £57.8bn (2022: £58.5bn) with a reduced demand for new lending owing to the higher rate environment, stressed affordability pressure and wider cost
of living considerations, being outpaced by repayments and redemptions.
The portfolio continues to evidence solid underlying credit performance, with the majority (98%) of lending not yet past due at the balance sheet date (2022: 98%), and 94% of loans held in Stage 1
(2022: 94%). A significant proportion of the portfolio is rated Strong or Good at the balance sheet date under the Group’s internal PD rating scale (97%, consistent with 30 September 2022), and the
volume and value of loans in forbearance has reduced to 3,801/£498m from 4,636/£640m, primarily due to customers successfully completing the forbearance reporting probation period and returning
to fully performing status.
Stage 3 balances have remained low at 1.0% (2022: 1.0%) and 91% of the portfolio has an LTV of less than 75% (2022: 93%), with the weighted average LTV relatively stable through the year at 52.9%
(2022: 52.7%). Further detail on LTV bandings and forbearance measures is provided on the following pages.
The selection of appropriate MAs is a major component in determining the Group’s ECL, a detailed analysis of which is shown on page 206. Asset quality metrics for the BTL mortgage book remain
robust, but the Group continues to hold a prudent level of provisioning for this customer cohort, with the related MA held stable at £25m (2022: £25m). A £5m MA for economic uncertainty was
introduced during the year to reflect the economic circumstances and cost of living pressures such as rising interest rates and inflation which may impact customers. Other small MAs totalling £2m
(2022: £4m) have been retained, taking total MAs held to £32m, down from £34m at 30 September 2022.
This has resulted in an impairment charge of £2m in the income statement (2022: credit of £30m) and associated cost of risk of nil bps (2022: (4)bps). The total book coverage has increased in the year
to 10bps and is appropriate in the current environment where increased arrears and deterioration are expected to emerge in this portfolio.
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Mortgage Portfolio – interest rate profile (audited)
Risk classes
Credit risk continued
Fixed rate
Variable rate
Standard variable rate
Total
2023
£m
52,841
3,081
1,875
%
91.5%
5.3%
3.2%
57,797
100.0%
2022
£m
53,387
2,106
2,971
58,464
%
91.3%
3.6%
5.1%
100.0%
The Group is a signatory to the government Mortgage Charter announced by the Chancellor of the Exchequer on 23 June 2023, to support regulated residential mortgage borrowers impacted by higher
mortgage interest rates, in particular borrowers whose existing fixed rate deal is due to end in the immediate future.
During FY23 there has been a shift and increase in the volume of customers opening tracker mortgages as customers monitor the interest rate movements. The increase in interest rates has also driven
a reduction in the volume of customers on the standard variable rate.
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Risk classes
Credit risk continued
Collateral
The quality of the Group’s Mortgage portfolio can be considered in terms of the average LTV of the portfolio and the staging of the portfolio, as set out in the following tables:
Average LTV of Mortgage portfolio by staging (audited)
2023
LTV(1)
Less than 50%
50% to 75%
76% to 80%
81% to 85%
86% to 90%
91% to 95%
96% to 100%
Greater than 100%
2022
LTV(1)
Less than 50%
50% to 75%
76% to 80%
81% to 85%
86% to 90%
91% to 95%
96% to 100%
Greater than 100%
Stage 1
Stage 2
Stage 3(2)
Total
Loans
£m
22,680
26,913
2,270
1,408
992
236
8
33
%
42%
49%
4%
3%
2%
–
–
–
ECL
£m
4
6
1
1
–
–
–
1
Loans
£m
1,551
1,009
81
33
23
3
2
2
%
58%
37%
3%
1%
1%
–
–
–
ECL
£m
5
14
2
1
–
–
1
4
Loans
£m
282
203
22
13
9
11
3
10
%
50%
37%
4%
2%
2%
2%
1%
2%
ECL
£m
2
4
1
1
1
1
–
7
Loans
£m
24,513
28,125
2,373
1,454
1,024
250
13
45
%
42%
49%
4%
3%
2%
–
–
–
54,540
100%
13
2,704
100%
27
553
100%
17
57,797
100%
Stage 1
Stage 2
Stage 3(2)
Total
Loans
£m
23,069
27,452
2,412
1,108
547
154
16
33
%
43%
50%
4%
2%
1%
–
–
–
ECL
£m
2
5
1
1
1
–
–
–
Loans
£m
1,659
1,270
103
26
25
4
–
3
%
54%
41%
3%
1%
1%
–
–
–
54,791
100%
10
3,090
100%
ECL
£m
3
19
3
1
1
1
–
4
32
Loans
£m
288
242
17
11
6
8
3
8
%
49%
42%
3%
2%
1%
1%
1%
1%
ECL
£m
2
2
1
1
–
1
–
7
Loans
£m
25,016
28,964
2,532
1,145
578
166
19
44
%
43%
50%
4%
2%
1%
–
–
–
583
100%
14
58,464
100%
(1) LTV of the Mortgage portfolio is defined as Mortgage portfolio weighted by balance. The portfolio is indexed using the MIAC Acadametrics indices at a given date.
(2) Stage 3 includes £48m (2022: £56m) of POCI gross loans and advances and (£1m) ECL (2022: (£1m)).
ECL
£m
11
24
4
3
1
1
1
12
57
ECL
£m
7
26
5
3
2
2
–
11
56
The Mortgage portfolio remains highly secured with 91.1% of mortgages, by loan value, having an indexed LTV of less than 75% (2022: 92.3%), and an average portfolio LTV of 52.9% (2022: 52.7%).
The total portfolio has reduced by 1.1% with the highest reduction in proportion and value in Stage 2.
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Forbearance (audited)
A key indicator of underlying Mortgage portfolio health is the level of loans subject to forbearance measures. Forbearance can occur when a customer experiences financial difficulty.
In such circumstances, the Group considers the customer’s individual circumstances, uses judgement in assessing whether there has been a SICR, or if an impairment or default event has occurred,
and then applies tailored forbearance measures in order to support the customer in a route to stability. Customers may potentially be subject to more than one forbearance strategy at any one time
where this is considered to be the most appropriate course of action.
The table below summarises the level of forbearance in respect of the Group’s Mortgage portfolio at each balance sheet date. All balances subject to forbearance are classed as either Stage 2
or Stage 3 for ECL purposes.
2023
Formal arrangements
Temporary arrangements
Payment arrangement
Payment holiday
Interest only conversion
Term extension
Other
Legal
Total mortgage forbearance
2022
Formal arrangements
Temporary arrangements
Payment arrangement
Payment holiday
Interest only conversion
Term extension
Other
Legal
Total mortgage forbearance
Total loans and advances
subject to forbearance measures
Impairment allowance
on loans and advances
subject to forbearance measures
Number of
loans
Gross carrying
amount
£m
% of total
portfolio
Impairment
allowance
£m
1,027
566
1,194
362
460
40
55
97
3,801
1,145
518
1,211
381
1,193
66
14
108
4,636
134
93
130
45
76
3
7
10
498
137
82
133
47
225
5
1
10
640
0.24%
0.16%
0.23%
0.08%
0.13%
–
0.01%
0.02%
0.87%
0.23%
0.14%
0.23%
0.08%
0.39%
0.01%
–
0.02%
1.10%
5.0
4.5
1.4
0.2
0.5
–
0.3
0.3
12.2
8.6
4.4
0.6
0.1
0.8
–
–
0.3
14.8
Coverage
%
3.77%
4.82%
1.09%
0.35%
0.66%
0.47%
3.69%
2.83%
2.44%
6.23%
5.38%
0.49%
0.27%
0.35%
0.45%
0.92%
2.42%
2.31%
As at 30 September 2023, forbearance totalled £498m (3,801 loans), a decrease from the 30 September 2022 position of £640m (4,636 loans). This level represents 0.87% of total mortgage balances
(2022: 1.10%), with the decrease primarily driven by customers successfully completing the forbearance reporting probation period and returning to fully performing status.
When all other avenues of resolution, including forbearance, have been explored, the Group will take steps to repossess and sell underlying collateral. In 2023, there were 55 repossessions of which
4 were voluntary (2022: 73 including 7 voluntary). The Group remains committed to supporting the customer and places good outcomes for them at the centre of this strategy.
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IFRS 9 staging (audited)
The Group closely monitors the staging profile of the Mortgage portfolio over time, which can be indicative of general trends in book health. Movements in the staging profile of the portfolio
are presented in the tables below.
2023
Opening balance at 1 October 2022
Transfers from Stage 1 to Stage 2
Transfers from Stage 2 to Stage 1
Transfers to Stage 3
Transfers from Stage 3
Net movement
Changes to model methodology
New assets originated or purchased(2)
Repayments and other movements(3)
Repaid or derecognised(3)
Write-offs
Cash recoveries
Individually assessed impairment charge
Closing balance at 30 September 2023
of which:
Residential – capital repayment
Residential – interest only
BTL
Stage 1
Stage 2
Stage 3(1)
Gross
loans
£m
54,791
(5,237)
4,827
(58)
112
(356)
–
8,372
(2,366)
(5,901)
–
–
–
54,540
33,328
6,651
14,561
ECL
£m
10
(3)
1
–
–
(2)
–
2
4
(1)
–
–
–
13
3
1
9
Gross
loans
£m
3,090
5,203
(4,852)
(273)
104
182
–
–
(99)
(469)
–
–
–
2,704
1,489
657
558
ECL
£m
32
63
(49)
(5)
7
16
–
–
(15)
(6)
–
–
–
27
6
2
19
Gross
loans
£m
583
–
–
328
(222)
106
–
–
(9)
(126)
(1)
–
–
553
268
195
90
ECL
£m
14
–
–
7
(3)
4
–
–
3
(3)
(1)
–
–
17
6
6
5
Total
gross
loans
£m
58,464
(34)
(25)
(3)
(6)
(68)
–
8,372
(2,474)
(6,496)
(1)
–
–
57,797
35,085
7,503
15,209
Total
provisions
£m
Income
statement
£m
60
(48)
2
4
18
–
2
(8)
(10)
–
–
–
2
56
60
(48)
2
4
18
–
2
(8)
(10)
(1)
–
–
57
15
9
33
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2022
Opening balance at 1 October 2021
Transfers from Stage 1 to Stage 2
Transfers from Stage 2 to Stage 1
Transfers to Stage 3
Transfers from Stage 3
Net movement
Changes to model methodology
New assets originated or purchased(2)
Repayments and other movements(3)
Repaid or derecognised(3)
Write-offs
Cash recoveries
Individually assessed impairment charge
Closing balance at 30 September 2022
of which:
Residential – capital repayment
Residential – interest only
BTL
Stage 1
Stage 2
Stage 3(1)
Gross
loans
£m
50,596
(5,854)
8,820
(49)
29
2,946
–
9,971
(2,484)
(6,238)
–
–
–
54,791
34,396
6,063
14,332
ECL
£m
4
(1)
3
–
–
2
–
1
4
(1)
–
–
–
10
7
2
1
Gross
loans
£m
7,192
5,821
(8,851)
(191)
108
(3,113)
–
7
(154)
(842)
–
–
–
3,090
1,650
838
602
ECL
£m
64
55
(55)
(5)
5
–
–
–
(23)
(9)
–
–
–
32
4
1
27
Gross
loans
£m
653
–
–
238
(140)
98
–
1
(26)
(142)
(1)
–
–
583
371
140
72
ECL
£m
19
–
–
4
(3)
1
–
–
(3)
(2)
(1)
–
–
14
7
1
6
Total
gross
loans
£m
58,441
(33)
(31)
(2)
(3)
(69)
–
9,979
(2,664)
(7,222)
(1)
–
–
58,464
36,417
7,041
15,006
Total
provisions
£m
Income
statement
£m
54
(52)
(1)
2
3
–
1
(22)
(12)
–
–
(30)
87
54
(52)
(1)
2
3
–
1
(22)
(12)
(1)
–
–
56
18
4
34
(1) Stage 3 includes POCI for gross loans and advances of £48m (2022: £56m) and ECL of (£1m) (2022: (£1m)).
(2) Includes assets where the term has ended, and a new facility has been provided.
(3) ‘Repayments’ comprises payments made on customer lending that are not yet fully paid at the reporting date and the customer arrangement remains live at that date.
‘Repaid’ refers to payments made on customer lending, which is either fully repaid or derecognised by the reporting date and the customer arrangement is therefore closed at that date.
The Mortgage portfolio continues to evidence strong performance with levels of delinquency and impairment remaining relatively low.
The level of mortgage lending classed as Stage 1 increased from 93.7% in 2022 to 94.3%, with a decrease of assets in Stage 2 from 5.3% to 4.7%. Within the Stage 2 category, 89% of balances are not
yet past due at the balance sheet date (2022: 89%). The proportion of mortgages classified as Stage 3 remains modest at 1.0% (2022: 1.0%). The net movements across the stages show reductions,
primarily in the Stage 2 and 3 portfolios, driven by a wide variety of factors, but broadly they are all successful outcomes in either restoring customers to fully performing or resuming satisfactory
repayment schedules, as the Group is committed to the delivery of good customer outcomes.
Mortgage lending classed as ‘Strong’ has increased modestly to 93.4% from 92.4% at 30 September 2022, with over 97% (2022: 97%) of the Mortgage portfolio classed as ‘Good’ or ‘Strong.’
The sustained quality in the internal PD ratings and high quality of collateral underpinning the book are key factors supporting the provision coverage of 10bps (2022: 7bps).
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Credit risk continued
Unsecured credit performance
The table below presents key information important for understanding the asset quality of the Group’s Unsecured lending portfolio and should be read in conjunction with the supplementary data
presented in the following pages of this section.
Breakdown of Unsecured credit portfolio (audited)
2023
Credit cards
Personal loans
Overdrafts
Total Unsecured lending portfolio
2022
Credit cards
Personal loans
Overdrafts
Total Unsecured lending portfolio
Gross lending
£m
Modelled ECL
£m
6,088
699
27
6,814
5,558
925
30
6,513
364
32
4
400
216
32
4
252
MA
£m
28
1
–
29
30
2
–
32
Total ECL
£m
Net lending
£m
392
33
4
429
246
34
4
284
5,696
666
23
6,385
5,312
891
26
6,229
Coverage
%
6.88%
4.59%
11.62%
6.65%
4.81%
3.57%
12.57%
4.66%
Unsecured gross lending balances have increased to £6.8bn (2022: £6.5bn) with underlying growth in the credit card portfolio the primary driver, slightly offset by the personal loan portfolio
which continues to contract in line with expectations.
Credit card lending increased circa 10% in the year reflecting resilient demand from existing customers and ongoing new credit card sales as the Group market share steadily grew to circa 8.5%
of balances. During the period, in line with the downturn in the broader UK economy, we have seen a migration of customers from Stage 1 to Stage 2 with the value of lending in Stage 2 increasing
to £1,321m (2022: £774m). However the proportion of lending in Stage 1 and Stage 2 not past due remains high at 97.2% (2022: 97.5%).
The level of forbearance concessions agreed in the unsecured portfolio, particularly in credit cards, has increased in line with portfolio arrears, driven by continued portfolio maturation,
VMs diversification strategy and the wider economic environment.
The impact of the current macroeconomic scenarios together with a weakening of credit bureau data and early-stage arrears compared to prior year has led to an increase in modelled ECL.
This increase in ECL resulted in book coverage increasing to 688bps (2022: 481bps). The value of credit cards written off, net of recoveries, increased to £116m (2022: £79m).
The personal loan portfolio continues to reduce on a managed basis.
The selection of appropriate MAs is a major component in determining the Group’s ECL, a detailed analysis of key factors on them is shown on page 206.
Taking the modelled ECL and MA together, the total ECL provision held as at 30 September 2023 is £429m (30 September 2022: £284m), which, in addition to a net write off impairment charge
of £124m, results in a total impairment charge of £269m (30 September 2022: £178m).
Total book coverage of 665bps has increased from 466bps as at 30 September 2022. The increased coverage is appropriate in the current environment where increased arrears and deterioration
are expected to emerge in this portfolio.
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Credit risk continued
Forbearance (audited)
The table below summarises the level of forbearance in respect of the Group’s Unsecured lending portfolios at each balance sheet date. All balances subject to forbearance are classed as either Stage 2
or Stage 3 for ECL purposes.
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2023
Credit cards arrangements
Loans arrangements
Overdraft arrangement
Total Unsecured lending forbearance
2022
Credit cards arrangements
Loans arrangements
Overdraft arrangement
Total Unsecured lending forbearance
Total loans and advances
subject to forbearance measures
Impairment allowance
on loans and advances
subject to forbearance measures
Number of
loans
22,206
467
24
22,697
15,872
638
56
16,566
Gross carrying
amount
£m
90
2
–
92
62
3
–
65
% of total
portfolio
1.56%
0.51%
0.02%
1.42%
1.19%
0.56%
0.04%
1.12%
Impairment
allowance
£m
41.7
0.8
–
42.5
24.3
1.4
–
25.7
Coverage
%
46.13%
40.30%
11.98%
46.00%
39.47%
40.33%
30.76%
39.51%
The volume and value of forbearance has increased, notably on the credit card portfolio, where the Group looks to agree concessions and payment arrangements which are in the best interest
of the customers in order to maximise their ability to repay the lending and return to fully performing status.
Forbearance on the Loan and Overdraft portfolios remain modest and in line with the reducing size of the portfolios. The level of impairment coverage on the Unsecured portfolio has increased
to 46.0% (2022: 39.5%) primarily as a result of the updated PD and other MES model inputs.
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Credit risk continued
IFRS 9 staging (audited)
The Group closely monitors the staging profile of its Unsecured lending portfolio over time, which can be indicative of general trends in book health. Movements in the staging profile of the portfolio
are presented in the tables below.
2023
Opening balance at 1 October 2022
Transfers from Stage 1 to Stage 2
Transfers from Stage 2 to Stage 1
Transfers to Stage 3
Transfers from Stage 3
Net movement
Changes to model methodology
New assets originated or purchased(2)
Repayments and other movements(3)
Repaid or derecognised(3)
Write-offs
Cash recoveries
Individually assessed impairment charge
Closing balance at 30 September 2023
2022
Opening balance at 1 October 2021
Transfers from Stage 1 to Stage 2
Transfers from Stage 2 to Stage 1
Transfers to Stage 3
Transfers from Stage 3
Net movement
Changes to model methodology
New assets originated or purchased(2)
Repayments and other movements(3)
Repaid or derecognised(3)
Write-offs
Cash recoveries
Individually assessed impairment charge
Closing balance at 30 September 2022
Stage 1
Stage 2
Stage 3(1)
Gross
loans
£m
5,324
(1,621)
590
(15)
–
(1,046)
–
1,101
(97)
(226)
–
–
–
5,056
ECL
£m
63
(39)
13
–
–
(26)
–
12
–
(3)
–
–
–
46
Gross
loans
£m
1,109
1,642
(608)
(179)
1
856
–
1
(282)
(42)
–
–
–
ECL
£m
181
320
(69)
(100)
–
151
–
–
2
(12)
–
–
–
1,642
322
Gross
loans
£m
80
–
–
200
(5)
195
–
2
152
(152)
(161)
–
–
116
Stage 1
Stage 2
Stage 3(1)
Gross
loans
£m
5,148
(1,051)
504
(19)
1
(565)
–
1,708
(508)
(459)
–
–
–
5,324
ECL
£m
41
(31)
16
–
–
(15)
–
20
26
(9)
–
–
–
63
Gross
loans
£m
553
1,059
(523)
(116)
2
422
–
11
166
(43)
–
–
–
ECL
£m
118
210
(62)
(69)
1
80
–
4
(8)
(13)
–
–
–
1,109
181
Gross
loans
£m
69
–
–
139
(8)
131
–
7
104
(117)
(114)
–
–
80
ECL
£m
40
–
–
121
(5)
116
–
2
(6)
(91)
(161)
37
124
61
ECL
£m
35
–
–
83
(7)
76
–
5
(4)
(72)
(114)
26
88
40
Total
gross
loans
£m
6,513
21
(18)
6
(4)
5
–
1,104
(227)
(420)
(161)
–
–
6,814
Total
gross
loans
£m
5,770
8
(19)
4
(5)
(12)
–
1,726
(238)
(619)
(114)
–
–
6,513
(1) Stage 3 includes POCI for gross loans and advances of £1m (2022: £1m) and ECL of (£2m) (2022: (£2m)).
(2) Includes assets where the term has ended, and a new facility has been provided.
(3) ‘Repayments’ comprises payments made on customer lending, which are not yet fully paid at the reporting date and the customer arrangement remains live at that date. ‘Repaid’ refers to payments made on customer lending,
which is either fully repaid or derecognised by the reporting date and the customer arrangement is therefore closed at that date.
Total
provisions
£m
Income
statement
£m
284
281
(56)
21
(5)
241
–
14
(4)
(106)
(161)
37
124
429
281
(56)
21
(5)
241
–
14
(4)
(106)
–
–
124
269
Total
provisions
£m
Income
statement
£m
194
179
(46)
14
(6)
141
–
29
14
(94)
(114)
26
88
284
179
(46)
14
(6)
141
–
29
14
(94)
88
178
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Credit risk continued
The individually assessed impairment charge increase from last year is within expectations as the underlying portfolio has deteriorated, in line with the backdrop of a downturn in the broader UK economy.
The level of post write off recoveries has increased proportionately and remains robust.
The total ECL held on balance sheet has increased from £284m to £429m with an increase in the modelled ECL being the primary driver. Modelled provision coverage alone is now 589bps (2022: 413bps).
The credit card portfolio is the primary driver of the decrease in the balance of Unsecured lending classed as Stage 1 to 74.2% (2022: 81.8%), with a corresponding increase in assets in Stage 2 from
17.0% to 24.1%. Within the Stage 2 category, 95.4% is not yet past due (2022: 94.7%) but falls into this classification due predominantly to PD deterioration rather than actual delinquency. The proportion
classified as Stage 3 increased to 1.7% (2022: 1.2%). The total provision coverage has therefore increased to 665bps (2022: 466bps).
Business credit performance
The table below presents key information on the asset quality of the Group’s Business lending portfolio and should be read in conjunction with the supplementary data presented in the following
pages of this section.
Breakdown of Business credit portfolio (audited)
Total gross
£m
Modelled & IA ECL
£m
MA
£m
Total ECL
£m
Net lending
£m
Coverage(2)
%
2023
Agriculture
Business services
Commercial Real Estate
Government, health and education
Hospitality
Manufacturing
Resources
Retail and wholesale trade
Transport and storage
Other
Total Business portfolio
2022
Agriculture
Business services
Commercial Real Estate
Government, health and education
Hospitality
Manufacturing
Resources
Retail and wholesale trade
Transport and storage
Other
Total Business portfolio
Gross lending
£m
1,315
1,153
715
1,200
779
669
160
758
290
877
7,916
1,392
980
597
1,008
652
640
133
696
291
723
Government(1)
£m
46
212
4
38
60
77
5
145
32
149
768
66
286
10
54
78
109
8
198
56
192
1,361
1,365
719
1,238
839
746
165
903
322
1,026
8,684
1,458
1,266
607
1,062
730
749
141
894
347
915
4
38
5
9
3
17
2
19
4
15
1
3
1
2
1
3
–
2
–
2
5
41
6
11
4
20
2
21
4
17
116
15
131
5
22
3
8
4
23
3
15
4
12
99
1
3
–
2
1
3
1
3
1
3
6
25
3
10
5
26
4
18
5
15
1,356
1,324
713
1,227
835
726
163
882
318
1,009
8,553
1,452
1,241
604
1,052
725
723
137
876
342
900
0.35%
3.45%
0.72%
0.85%
0.50%
2.87%
1.65%
2.72%
1.47%
1.87%
1.60%
0.45%
2.53%
0.54%
0.95%
0.80%
3.96%
2.37%
2.38%
1.44%
2.03%
1.59%
(1) Government includes all lending provided to business customers under UK Government schemes including Bounce back loan scheme (BBLS), Coronavirus business interruption loan scheme (CBILS), Coronavirus large business interruption loan scheme (CLBILS)
and Recovery loan scheme (RLS). This excludes £143m (2022: £66m) of guarantee claim funds received from British Business Bank (BBB).
(2) Coverage ratio excludes the guaranteed element of government-backed loan schemes.
194
7,112
1,057
8,169
18
117
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Gross Business lending increased to £8.7bn (2022: £8.2bn). The government-guaranteed lending portfolio continues to reduce as borrowers repay balances. Growth remains targeted to sectors
and sub sectors where we have well established expertise. The sector mix remained stable with lending to the agriculture, business services and government, health and education sectors continuing
to account for almost half of the total book, at 46% (2022: 46%)
Whilst there is some weakening in the pre and early delinquency metrics being monitored, there has been no significant deterioration in asset quality metrics across the portfolio and, as yet, no significant
increase in specific provision recognition. Coverage for certain sectors has reduced in the period as previously held provisions have been utilised. A range of external risks have remained prevalent
throughout the period including general inflationary pressures, interest rate rises, ongoing supply chain distribution and labour market disruption, as well as wider geopolitical risks.
The proportion of loans in Stage 1 has reduced to 72.5% (2022: 76.7%) with a corresponding increase in the proportion of loans in Stage 2 at 22.8% (2022: 18.7%). Within the Stage 2 category,
98.5% is not past due (2022: 98.2%) and 90% remain rated as ‘Strong’ or ‘Good’ (2022: 95%) under the Group’s internal PD rating scale. Stage 3 loans remain modest at 4.7% (2022: 4.6%).
The updated MES is the primary driver of a net £17m increase in modelled provisions to £116m. Whilst there have been no material signs of stress across the portfolio, there has been an uptick in
corporate insolvencies across the UK market, therefore an economic resilience MA of £15m has been retained. A new Business LGD model was brought into use in the Business ECL calculation during
the year. The impact of this had been estimated during development, resulting in a negative MA of £15m being held last year, this has now been fully released. The MA composition is covered in more
detail on the page 206. The specific provisions held on balance sheet have reduced to £25m (2022: £31m) primarily due to provision utilisation. This results in an overall provision of £131m (2022: £117m)
and an impairment charge of £38m (2022: credit of £96m).
Overall, portfolio coverage remains prudent at 160bps (2022: 159bps), reflecting the quality of the portfolio and little evidence of deterioration in asset quality to date.
Forbearance (audited)
Forbearance is considered to exist where customers are experiencing, or are about to experience financial difficulty, and the Group grants a concession on a non-commercial basis. The Group reports
business forbearance at a customer level and at a value which incorporates all facilities and the related impairment allowance, irrespective of whether each individual facility is subject to forbearance.
Authority to grant forbearance measures for business customers is held by the Group’s Strategic Business Services unit and is exercised, where appropriate, based on detailed consideration of the
customer’s financial position and prospects.
Where a customer is part of a larger group, forbearance is exercised and reported across the Group at the individual entity level. Where modification of the terms and conditions of an exposure meeting
the criteria for classification as forbearance results in derecognition of loans and advances from the balance sheet and the recognition of a new exposure, the new exposure will be treated as forborne.
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Risk classes
Credit risk continued
The tables below summarise the total number of arrangements in place and the loan balances and impairment provisions associated with those arrangements. All balances subject to forbearance
are classed as either Stage 2 or Stage 3 for ECL purposes.
2023
Term extension
Payment holiday
Reduction in contracted interest rate
Alternative forms of payment
Debt forgiveness
Refinancing
Covenant breach/reset/waiver
Total Business forbearance
2022
Term extension
Payment holiday
Reduction in contracted interest rate
Alternative forms of payment
Debt forgiveness
Refinancing
Covenant breach/reset/waiver
Total Business forbearance
Total loans and advances
subject to forbearance measures
Number of
loans
Gross carrying
amount
£m
150
88
1
–
4
8
40
291
112
204
–
–
1
2
174
493
Impairment allowance
on loans and advances
subject to forbearance measures
% of total
portfolio
1.22%
2.21%
–
–
0.01%
0.02%
1.89%
5.35%
Impairment
allowance
£m
7.9
30.3
–
–
0.4
0.0
6.4
45.0
Coverage
%
7.08%
14.91%
–
–
47.66%
1.85%
3.65%
9.14%
Total loans and advances
subject to forbearance measures
Impairment allowance
on loans and advances
subject to forbearance measures
Number of
loans
Gross carrying
amount
£m
% of total
portfolio
Impairment
allowance
£m
154
81
2
–
2
9
41
289
118
193
1
–
1
2
133
448
1.36%
2.23%
0.01%
–
0.01%
0.02%
1.53%
5.16%
4.9
32.6
–
–
0.5
0.1
5.4
43.5
Coverage
%
4.18%
16.86%
1.33%
–
97.05%
5.14%
4.03%
9.71%
The number of Business customers reported in receipt of forbearance concessions has remained relatively stable at 291 (2022: 289) with the total customer lending increasing to £493m (2022: £448m).
Whilst the forbearance concession may only be applied to one account in the customer’s portfolio, in the disclosure above the customer’s full lending portfolio is included. Forbearance remains a key
support measure for customers in, or about to, experience financial difficulty, and the ability to agree a temporary concession on a non-commercial basis can often be the critical breathing room required
to support a return to fully performing status. 13% of forborne customers met exit criteria and returned to performing status in the financial year. Therefore, most forbearance arrangements relate to term
extensions allowing customers a longer term to repay obligations in full than initially contracted. As a percentage of the Business portfolio, forborne balances have increased to 5.35% (2022: 5.16%) with
impairment coverage slightly reducing 9.14% (2022: 9.71%).
Customers within the forbearance portfolio have £29m of COVID-19 related support loans: £14m CBIL, £4m BBL and £11m RLS.
The table includes a portfolio of financial assets at fair value. The gross value of fair value loans subject to forbearance is £0.5m (2022: £4.7m), representing 0.01% of the total business portfolio
(2022: 0.05%). The credit risk adjustment on these amounts is now immaterial. (2022: £0.1m).
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Risk classes
Credit risk continued
IFRS 9 staging (audited)
The Group closely monitors the staging profile of its Business lending portfolio over time, which can be indicative of general trends in book health. Movements in the staging profile of the portfolio
in the current and prior year are presented in the tables below.
2023
Opening balance at 1 October 2022
Transfers from Stage 1 to Stage 2
Transfers from Stage 2 to Stage 1
Transfers to Stage 3
Transfers from Stage 3
Net movement
Changes to model methodology
New assets originated or purchased(1)
Repayments and other movements(2)
Repaid or derecognised(2)
Write-offs
Cash recoveries
Individually assessed impairment charge
Closing balance at 30 September 2023
2022
Opening balance at 1 October 2021
Transfers from Stage 1 to Stage 2
Transfers from Stage 2 to Stage 1
Transfers to Stage 3
Transfers from Stage 3
Net movement
Changes to model methodology
New assets originated or purchased(1)
Repayments and other movements(2)
Repaid or derecognised(2)
Write-offs
Cash recoveries
Individually assessed impairment charge
Closing balance at 30 September 2022
Stage 1
Stage 2
Stage 3(3)
Gross
loans
£m
6,270
(1,703)
659
(23)
8
(1,059)
–
11,017
(526)
(9,409)
–
–
–
6,293
ECL
£m
12
(4)
1
–
–
(3)
–
43
8
(30)
–
–
–
30
Gross
loans
£m
1,526
1,689
(666)
(134)
30
919
–
627
(174)
(918)
–
–
–
1,980
ECL
£m
55
31
(11)
(4)
–
16
–
44
(8)
(56)
–
–
–
51
Gross
loans
£m
373
–
–
158
(40)
118
–
159
(1)
(213)
(25)
–
–
411
Stage 1
Stage 2
Stage 3(3)
Gross
loans
£m
5,672
(1,382)
894
(23)
12
(499)
443
10,483
(442)
(9,387)
–
–
–
6,270
ECL
£m
66
(13)
8
–
–
(5)
1
166
(72)
(144)
–
–
–
12
Gross
loans
£m
2,433
1,347
(908)
(255)
28
212
(443)
2,037
(167)
(2,546)
–
–
–
1,526
ECL
£m
120
29
(28)
(10)
2
(7)
(8)
155
(34)
(171)
–
–
–
55
Gross
loans
£m
235
–
–
273
(39)
234
–
179
(22)
(239)
(14)
–
–
373
Total
gross
loans
£m
8,169
(14)
(7)
1
(2)
(22)
–
11,803
(701)
(10,540)
(25)
–
–
8,684
Total
gross
loans
£m
8,340
(35)
(14)
(5)
1
(53)
–
12,699
(631)
(12,172)
(14)
–
–
8,169
ECL
£m
50
–
–
10
(2)
8
–
32
(1)
(33)
(25)
1
18
50
ECL
£m
37
–
–
14
(2)
12
–
27
(8)
(27)
(14)
4
19
50
Total
provisions
£m
Income
statement
£m
117
27
(10)
6
(2)
21
–
119
(1)
(119)
(25)
1
18
131
27
(10)
6
(2)
21
–
119
(1)
(119)
–
–
18
38
Total
provisions
£m
Income
statement
£m
223
16
(20)
4
–
–
(7)
348
(114)
(342)
(14)
4
19
117
16
(20)
4
–
–
–
348
(114)
(342)
19
(89)
(1) Includes assets where the term has ended, and a new facility has been provided.
(2) ‘Repayments’ comprises payments made on customer lending which are not yet fully paid at the reporting date and the customer arrangement remains live at that date. ‘Repaid’ refers to payments made on customer lending which is either fully repaid or derecognised
by the reporting date and the customer arrangement is therefore closed at that date.
(3) This excludes £143m (2022: £66m) of guarantee claim funds received from British Business Bank.
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The level of Business lending classed as Stage 1 has decreased to 72.5% (2022: 76.8%), with a corresponding increase in Stage 2 to 22.8% (2022: 18.7%), primarily driven by the revised MES inputs.
The majority (98.5%) of the portfolio in Stage 2 is not past due and is primarily in this category due to the updated MES inputs and PD deterioration in addition to proactive management measures
such as early intervention, heightened monitoring, and forbearance concessions. Stage 3 loans have remained relatively stable at 4.7% (2022: 4.6%) and are predominantly Bounce Back Loans.
The proportion of assets classed as ‘Strong’ has decreased to 23% (2022: 68%) primarily due to the MES and PD changes although the proportion classed as ‘Strong’ or ‘Good’ remains robust at 90%
(2022: 95%).
Business collateral (audited)
The following table shows collateral held at 30 September 2023. The exposure amount shown is net of credit provisions that have some form of associated collateral and is not the total exposure
for each asset class as this is disclosed elsewhere in the credit risk report.
A change was made this year where all collateral values captured have now been capped at the exposure value, which impacts the previously uncapped Other Physical Collateral & Receivables columns.
We have also included Immovable Property collateral this year, as an enhancement to last year’s table content.
2023
Financial assets at amortised cost
Loans and advances to customers
Of which: Defaulted
2022
Financial assets at amortised cost
Loans and advances to customers
Of which: Defaulted
Property
£m
5,072
61
Property
£m
4,843
65
Cash
£m
11
–
Guarantee
£m
760
182
Netting
£m
169
–
Cash
£m
Guarantee
£m
Netting
£m
Debt
securities
£m
–
–
Debt
securities
£m
7
–
970
127
237
–
–
–
Other
physical
collateral
£m
567
–
Other
physical
collateral
£m
432
1
Receivables
£m
Total
£m
Exposure
£m
334
17
6,913
260
7,514
267
Receivables
£m
379
7
Total
£m
6,868
200
Exposure
£m
7,399
211
Lending backed by government guarantees in response to COVID-19 are included within the Guarantee column.
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Risk classes
Credit risk continued
Other credit risks
Offsetting of financial assets and liabilities (audited)
The table below presents information on recognised financial assets and financial liabilities that are offset on the balance sheet under IAS 32, as well as those that are subject to master netting or similar
arrangements, irrespective of whether they are offset.
The Group reduces exposure to credit risk through central clearing for eligible derivatives, and daily posting of cash collateral on such transactions as detailed in note 3.1.3.2 to the financial statements.
The amounts offset on the balance sheet, as shown below, mainly represent derivatives and variation margin collateral with central clearing houses, which meet the criteria for offsetting under IAS 32.
The Group enters into derivatives and repurchase agreements with various counterparties, which are governed by industry-standard master netting agreements. The Group holds and provides collateral
in respect of transactions covered by these agreements. The right to offset balances under these master netting agreements only arises in the event of non-payment or default and, as a result, these
arrangements do not qualify for offsetting under IAS 32.
Collateral amounts included in the table below are limited to the net balance sheet exposure in order to exclude any over collateralisation. The table excludes financial instruments not subject to offset
and that are formally subject to collateral arrangements (e.g. loans and advances). The net amounts presented in the table are not intended to represent the Group’s exposure to credit risk, as the Group
will use a wide range of strategies to mitigate credit risk in addition to netting and collateral.
2023
Derivative assets
Derivative liabilities
Net position(1)
Repurchase agreements
2022
Derivative assets
Derivative liabilities
Net position(1)
Repurchase agreements
Net amounts not offset
on balance sheet
Gross amounts
before offset
£m
2,606
(1,643)
963
Gross amounts
offset on
balance sheet
£m
Net amounts
presented on
balance sheet
£m
Subject to
master netting
agreements
£m
(2,471)
1,353
(1,118)
135
(290)
(155)
(26)
26
–
(552)
–
(552)
552
3,340
(1,797)
1,543
(2,998)
1,469
(1,529)
(703)
–
342
(328)
14
(703)
(46)
46
–
703
Cash
collateral
pledged/
received (2)
£m
(81)
62
(19)
–
(182)
32
(150)
Net amount
£
28
(202)
(174)
–
114
(250)
(136)
–
–
(1) The net position is offset against variation margin cash collateral with central clearing houses included within other assets or other liabilities.
(2) Cash collateral amounts not offset under IAS 32 in respect of derivatives with other banks are included within due from and due to other banks. Variation margin cash collateral amounts not offset under IAS 32 in respect of derivatives with central clearing houses
are included within other assets and other liabilities.
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Risk classes
Credit risk continued
Macroeconomic assumptions, scenarios, and weightings
The Group’s ECL allowance at 30 September 2023 was £617m (2022: £457m).
Macroeconomic assumptions
The Group engages Oxford Economics to provide a wide range of future macroeconomic assumptions, which are used in the scenarios over the five-year forecast period, reflecting the best estimate
of future conditions under each scenario outcome. The macroeconomic assumptions were provided by Oxford Economics on 1 September 2023 and changes in macroeconomic assumptions between
1 September 2023 and 30 September 2023 have been considered as part of the MAs. The Group has identified the following key macroeconomic drivers as the most significant inputs for IFRS 9
modelling purposes: UK GDP growth, inflation, house prices, base rates, and unemployment rates. The external data provided is assessed and reviewed on a quarterly basis to ensure appropriateness
and relevance to the ECL calculation, with more frequent updates provided as and when the circumstances require them. Further adjustments supplement the modelled output when it is considered
that not all the risks identified in a product segment have been accurately reflected within the models, or for other situations where it is not possible to provide a modelled outcome.
With UK core inflation remaining stubbornly high and wage inflation causing concern in the Monetary Policy Committee, the BoE base rate has been raised to its highest level since before the GFC.
Although it is expected that the base rate has now peaked, the impact of the rapid rise in interest rates will not be fully felt until mortgage customers on fixed rate products, that predate the rate rises,
remortgage. This will extend the ongoing cost of living crisis for some time to come.
Against this backdrop the Group has continued to assess the possible IFRS 9 economic scenarios to select appropriate forecasts and weightings. The selection of scenarios and the appropriate
weighting to use in the IFRS 9 models are considered, debated and decided by ALCO and the Audit Committee. The three scenarios selected, together with the weightings applied, have been updated
to reflect the current economic environment and are:
Scenario (audited)
Upside
Base
Downside
2023
(%)
10
55
35
2022
(%)
10
55
35
The Group continue to select three scenarios, with the largest weighting applied to the base scenario. The weightings mirror those applied in 2022, while there is a shift in the downside scenario to
a less severe option. This is a reflection of the view that, while there is continuing economic upheaval from the cumulative effects of Brexit, the COVID-19 pandemic and Russia’s invasion of Ukraine,
the peak of inflation is in the past and the BoE base rate is unlikely to climb much higher as inflation begins the long journey back to the BoE’s target rate of 2%, leaving the path forward somewhat clearer.
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The key macroeconomic assumptions used in the scenarios:
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Base (55%)
Upside (10%)
Downside (35%)
GDP
> Growth limited to sub 1% in all quarters until Q2 2025,
> Growth of 2.9% in Q1 2024 contributes to year-on-year growth
but recession is avoided
of 3.0% in 2024
> Overall year-on-year growth in 2024 forecast at 0.4%
> Overall year-on-year growth in 2025 is forecast to fall slightly
with a modest recovery in 2025 of 1.5%
to 2.6% before climbing back to 3.0% in 2026
> GDP increases to 2.3% in 2026 before falling back to 1.5%
> GDP falls back to 1.6% in 2027, moving towards the long run
in 2027
average forecast
> Negative GDP for six consecutive quarters, from Q4 2023,
(1.6%), until Q1 2025, (0.5%) resulting in total contraction
of 4.1%
> Growth remains sluggish over the remaining forecast period,
only recovering to pre-contraction levels in Q3 2027, with
annual growth of 1.6%
Inflation
> Having peaked at 10.8% in Q4 2022, inflation falls back to 4.6%
> Having peaked at 10.8% in Q4 2022, inflation falls to 4.9%
> Having peaked at 10.8% in Q4 2022 before declining to 4.1%
by Q4 2023
in Q4 2023
in Q4 2023
> Remains persistently above the BoE’s 2% target throughout
2024 at 3.2%
>
In Q2 2025 inflation falls below the 2% target and remains so
for the remainder of the forecast
> Reverts back to sub 2.0% levels from Q3 2025 for the
remainder of the forecast period, going as low as 0.9%
in Q2 2026 rising to 1.8% by Q4 2027
>
Inflation continues to fall rapidly, dropping below 2%
in Q2 2024 to a low of 0% in Q3 2025
> From Q4 2025 inflation rises steadily each quarter reaching
1.7% in Q3 2027
Base rate
> BoE base rate hits 5.5% in Q4 2023 and remains at that level
> BoE base rate continues to rise, peaking at 6.5% in Q2 2024
> BoE base rate peaks at 5.2% in Q3 2023 before falling back
until Q3 2024
> The rate begins to fall in Q1 2025 and falls steadily by 0.25%
in Q4 2023
> From then on the rate falls steadily at around 0.25% per quarter
per quarter thereafter to 3.6% by Q4 2027
> The rate falls steadily at 0.25% per quarter from Q2 2024
over the forecast period to 2.1% by Q4 2027
to Q3 2027, tapering to 1.25% in Q4 2027
Financial statements
HPI
Additional information
> Shows steady decline, reaching a low point in Q3 2025 before
rebounding slowly in each quarter after this until the end of the
forecast period
> With the exception of Q4 2023, HPI falls in each quarter
until Q2 2025 before reversing and rising in each
subsequent quarter
> Falls steadily and deeply from Q1 2023 to Q2 2026 followed
by modest increases in each quarter until the end of the
forecast period
> Overall Q4 v Q4 year-on-year negative growth of 2.7% in 2023,
> Overall, HPI sees Q4 v Q4 negative growth of 1.3% in 2023,
> Overall, HPI sees a Q4 v Q4 negative growth of 4.7% in 2023,
7.2% in 2024 and 2.9% in 2025
4.8% in 2024 and 0.9% in 2025
12.7% in 2024 and 7.6% in 2025
> Growth in the outer years recovers the value lost since Q3 2023
> Returns to positive growth of 6.6% in 2026 and 7.0% in 2027
> Modest growth in 2026 of 1.0% followed by 7.5% in 2027
by the end of 2027
leaves house prices well below the levels seen at the start
of the forecast
Unemployment
> Peaks at 4.6% in Q3 2024 and remains there through Q4 2024
> Peaks in Q3 2023, at 4.3%, before falling back in the
> Peaks at 7.0% in Q1 2026 and remains there throughout 2026
> From then, the rate falls back to 3.9% in Q2 2026 where it
following quarter
> From Q1 2027 the unemployment rate begins to fall slowly,
remains through the remainder of the forecast period
> From then, the rate slowly falls back to 3.7% by Q2 2026,
closing the year at 6.7%
where it remains
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Risk classes
Credit risk continued
Base case – 2023 v 2022 (audited)(1)
The following table shows how the Group’s base case assumptions in the current year have
changed from those used at 30 September 2022:
Year
30 September
2023
30 September
2022
Assumption
Base rate
Unemployment
GDP
Inflation
HPI
Base rate
Unemployment
GDP
Inflation
HPI
2022
%
1.4
3.9
3.6
9.4
6.8
2023
%
4.7
4.2
0.5
7.6
(2.7)
2.2
4.6
0.3
7.5
2024
%
5.4
4.5
0.4
3.2
(7.2)
1.8
4.4
2.1
0.6
(4.6)
(3.0)
2025
%
4.5
4.3
1.5
1.5
(2.9)
1.8
3.8
2.7
0.7
4.4
2026
%
3.5
3.9
2.3
1.0
4.6
1.7
3.8
2.1
1.5
6.7
Five-year simple averages for the most sensitive inputs of unemployment, GDP and HPI
(audited)
2027
%
2.5
3.9
1.5
1.7
7.1
2023
Upside
Base
Downside
2022
Upside
Base
Downside
Unemployment
%
3.9
4.2
6.1
3.9
4.1
6.3
GDP
%
2.2
1.2
0.2
3.1
2.1
0.4
HPI
%
1.3
(0.2)
(3.3)
3.3
2.0
(3.4)
(1) Macroeconomic assumptions provided by Oxford Economics on 1 September 2023 and reported on a calendar year basis unless
otherwise stated. The changes in macroeconomic assumptions between 1 September 2023 and 30 September 2023 have been
considered as part of the MAs.
The base case macroeconomic estimates and assumptions used at 30 September 2022 reflected
the forward-looking view at that time, which recognised the impact of the ongoing war in Ukraine
on global fuel costs, which had triggered a spike in UK inflation of over 10% for the first time in
decades. The effect was exacerbated by the autumn budget, and the wider impact of the war on
global food prices in 2023. Core inflation has remained stubbornly high, compared to the previous
forecast, forcing interest rates higher for longer as the BoE look to bring inflation back to their
long-term target, prolonging the cost of living crisis.
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Graphical illustrations of the above key inputs over the five-year forecast period are:
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233
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236
237
238
Unemployment – simple average %
HPI – Q4 v Q4 movement %
8.0
6.0
4.0
2.0
0
10.0
5.0
0
5.0
10.0
15.0
2023
2024
2025
2026
2027
2023
2024
2025
2026
2027
Upside Base Downside Weighted average
Upside Base Downside Weighted average
GDP – year-on-year movement %
Inflation – simple average %
4.0
2.0
0
2.0
4.0
8.0
6.0
4.0
2.0
0
2023
2024
2025
2026
2027
2023
2024
2025
2026
2027
Upside Base Downside Weighted average
Upside Base Downside Weighted average
The full range of the key macroeconomic assumptions is included in the table on page 208.
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Credit risk continued
The use of estimates, judgements and sensitivity analysis
The following are the main areas where estimates and judgements are applied to the ECL calculation:
The use of estimates
Asset lifetimes
The calculation of the ECL allowance is dependent on the expected life of the Group’s portfolios.
The Group assumes the remaining contract term as the maximum period to consider credit losses
wherever possible. For the Group’s credit card and overdraft portfolios, behavioural factors such
as observed retention rates and other portfolio level assumptions are taken into consideration
in determining the estimated asset life.
Economic scenarios
The calculation of the Group’s impairment provision is sensitive to changes in the chosen
weightings as highlighted above. The effect on the closing modelled provision of each portfolio
as a result of applying a 100% weighting to each of the selected scenarios is shown below:
2023 (audited)
Mortgages
Unsecured of which:
Cards
Personal loans and overdrafts(2)
Business(2)
Total
2022 (audited)
Mortgages
Unsecured of which:
Cards
Personal loans and overdrafts(2)
Business(2)
Total
Probability
Weighted(1)
£m
20
399
364
35
91
510
Probability
Weighted
£m
15
251
216
35
53
319
Upside
£m
17
382
352(3)
30
81
480
Upside
£m
12
236
209(3)
27
39
287
Base
£m
18
382
350
32
86
486
Base
£m
13
237
208
29
43
293
Downside
£m
24
433
391
42
107
564
Downside
£m
23
279
233
46
97
399
(1) In addition to the probability weighted modelled provision shown in the table, the Group holds £76m relative to MAs (2022: £85m)
and £30m of individually assessed provision (2022: £38m).
(2) Salary Finance contributes more that 50% of the combined Personal Loans and overdrafts ECL.
(3) Due to a minor model interaction effect, the 100% ECL for Upside is marginally higher than the Base case.
One of the criteria for moving exposures between stages is the lifetime PD which incorporates
macroeconomic factors. As a result, the stage allocation will be different in each scenario and
so the probability weighted ECL cannot be recalculated using the scenario ECL provided and
the scenario weightings.
Certain asset classes are less sensitive to specific macroeconomic factors, showing lower
relative levels of sensitivity. To ensure appropriate levels of ECL, the relative lack of sensitivity
is compensated for through the application of MAs, further detail of which can be found
on page 206.
Within each portfolio, the following are the macroeconomic inputs that are more sensitive,
and therefore more likely to drive the move from Stage 1 to Stage 2 under a stress scenario:
> Mortgages: Unemployment and HPI
> Unsecured: Unemployment
> Business: Unemployment and HPI
In addition to assessing the ECL impact of applying a 100% weighting to each of the three chosen
scenarios, the Group has also considered the effect changes to key economic inputs would make
to the modelled ECL output.
The Group considers the unemployment rate and HPI as the inputs that would have the most
significant impact on ECL and has assessed how these metrics would change ECL across the
relevant portfolios, with the reported output assessed against the base case. All changes have
been implemented as immediate effects within the first year of the base case scenario, persisting
throughout the scenario.
The following table discloses the ECL impact of a 10% increase and decrease in HPI on the Group’s
Mortgage and Business lending:
(audited)
Mortgages +10%
Business +10%
Mortgages -10%
Business -10%
2023
£m
(2)
(1)
2
2
2022
£m
(1)
(1)
2
2
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Risk classes
Credit risk continued
Unemployment is a key input that affects all of the Group’s lending categories and the following
table highlights the ECL impact of a one percent change in the unemployment rate:
(audited)
Mortgages +1%
Unsecured +1%
Business +1%
Mortgages -1%
Unsecured -1%
Business -1%
2023
£m
1
21
4
(1)
(21)
(3)
2022
£m
1
15
4
(1)
(15)
(3)
The table below illustrates this approach with reference to the Group’s Mortgage, Unsecured
(credit cards) and Business portfolios. In each case the illustration is of the PD threshold based
on a five year full lifetime PD (not the annualised equivalent). The business example reflects the
thresholds appropriate for term lending
(audited)
Mortgages
Low origination lifetime PD
High origination lifetime PD
Credit cards
Low origination lifetime PD
Business
High origination lifetime PD
Low origination lifetime PD
High origination lifetime PD
Origination PD
SICR Trigger
2.00%
10.00%
2.00%
10.00%
2.00%
10.00%
5.69%
17.69%
22.34%
25.52%
6.03%
16.70%
While the above sensitivities provide a view of how the ECL would be impacted based on these
single changes, such changes would not ordinarily occur in isolation and the economic inputs used
are linked within each chosen scenario.
Changes to the overall SICR thresholds can also impact staging, driving accounts into higher
stages with the resultant impact on the ECL allowance:
The use of judgement
SICR
Judgement is required in determining the point at which a SICR has occurred, as it is the point
at which a 12-month ECL is replaced by a lifetime ECL. The Group has developed a series of
triggers that indicate where a SICR has occurred when assessing exposures for the risk of default
occurring at each reporting date compared to the risk at origination. There is no single factor that
influences this decision, rather a combination of different criteria that enables the Group to make
an assessment based on the quantitative and qualitative information available. This assessment
includes the impact of forward-looking macroeconomic factors but excludes the existence of
any collateral implications.
Indicators of a SICR include deterioration of the residual lifetime PD by set thresholds that are
unique to each product portfolio, non-default forbearance programmes, and watch list status.
The Group adopts the backstop position that a SICR will have taken place when the financial asset
reaches 30 DPD.
The Group does not have a set absolute threshold by which the PD would have to increase
by, in establishing that a SICR has occurred, and has implemented an approach with the required
SICR threshold trigger varying on a portfolio and product basis according to the origination PD.
(audited)
A 10% movement in the mortgage portfolio from Stage 1 to Stage 2
A 10% movement in the credit card portfolio from Stage 1 to Stage 2
A 10% movement in the business portfolio from Stage 1 to Stage 2
A PD stress which increases PDs upwards by 20% for all portfolios
2023
£m
+13
+89
+10
+131
2022
£m
+9
+87
+18
+106
Definition of default
The PD of a credit exposure is a key input to the measurement of the ECL allowance. Default
under Stage 3 occurs when there is evidence that a customer is experiencing significant financial
difficulty, which is likely to affect the ability to repay amounts due.
MAs
At 30 September 2023, £76m of MAs (30 September 2022: £85m) are included within the total
ECL provision of £617m (30 September 2022: £457m).
These are management judgements which impact the ECL provision by increasing (or decreasing)
the collectively assessed modelled output where not all of the known risks identified in a particular
product segment have been reflected within the models. This also takes into account any time lag
between the date the macroeconomic assumptions were received and the reporting date.
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Risk classes
Credit risk continued
The impact of these judgemental adjustments and how they impact the Group’s total reported
ECL allowance and coverage ratio for each portfolio is:
2023(1) (audited)
Mortgages
£m
Unsecured
£m
ECL before judgemental adjustments (A)
25.2
400.2
166
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233
234
236
237
238
Judgemental adjustments:
To address the cost-of-living crisis
To address economic resilience
Impact of new LGD model
Additional BTL impact
Other credit card adjustments
Other judgemental adjustments
Total judgemental adjustments (B)
Total reported ECL (A + B)
% of total ECL (B / total reported ECL)
Coverage – total
Coverage – total ex MAs
–
5.0
–
25.1
–
1.7
31.8
57.0
56%
0.10%
0.04%
–
–
–
–
27.5
1.3
28.8
429.0
7%
6.65%
5.87%
Business
£m
115.5
–
15.0
–
–
–
0.5
15.5
131.0
12%
1.60%
1.33%
Total
£m
2022(1) (audited)
Mortgages
£m
540.9
ECL before judgemental adjustments (A)
Judgemental adjustments:
–
To address the cost-of-living crisis
20.0
To address economic resilience
–
Impact of new LGD model
25.1
27.5
Additional BTL impact
Other credit card adjustments
3.5
Other judgemental adjustments
76.1
Total judgemental adjustments (B)
617.0
Total reported ECL (A + B)
12%
% of total ECL (B / total reported ECL)
0.84%
Coverage – total
0.74%
Coverage – total ex MAs
21.6
6.3
–
–
25.1
–
2.8
34.2
55.8
61%
0.09%
0.02%
Unsecured
£m
251.5
Business
£m
99.0
20.2
–
–
–
10.5
1.8
32.5
284.0
11%
4.66%
4.13%
–
30.0
(15.4)
–
–
3.3
17.9
116.9
15%
1.59%
0.93%
Total
£m
372.1
26.5
30.0
(15.4)
25.1
10.5
7.9
84.6
456.7
19%
0.62%
0.45%
(1) The impact of rounding means that the combination of the probability weighted total and individually assessed provision may not
fully align to the portfolio sections.
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Risk classes
Credit risk continued
The Group assesses and reviews the need for and quantification of MAs on a quarterly basis, with the CFO recommending the level of MAs to the Boards Audit Committee twice a year at each external
reporting period.
In the absence of significant events that might impact ECLs going forward, the Group expects the current level of MAs to materially reduce over the next 18-24 months.
Macroeconomic assumptions (audited)
Annual macroeconomic assumptions used over the five-year forecast period in the scenarios and their weighted averages are as follows:(1)
2023
Scenario
VMUK weighting
Economic measure(2)
Upside
10%
Base
55%
Downside
35%
Weighted average
Base rate
Unemployment
GDP
Inflation
HPI
Base rate
Unemployment
GDP
Inflation
HPI
Base rate
Unemployment
GDP
Inflation
HPI
Base rate
Unemployment
GDP
Inflation
HPI
2023
%
4.8
4.2
0.8
7.6
(1.3)
4.7
4.2
0.5
7.6
(2.7)
4.6
4.3
(0.1)
7.4
(4.7)
4.7
4.2
0.3
7.5
(3.3)
2024
%
6.5
4.1
3.0
4.2
(4.8)
5.4
4.5
0.4
3.2
(7.2)
4.5
5.7
(3.3)
1.7
(12.7)
5.2
4.9
(0.6)
2.8
(8.9)
2025
%
6.0
3.9
2.6
2.5
(0.9)
4.5
4.3
1.5
1.5
(2.9)
3.5
6.7
0.7
0.4
(7.6)
4.3
5.1
1.3
1.2
(4.4)
2026
%
2027
%
5.0
3.8
3.0
1.1
6.6
3.5
3.9
2.3
1.0
4.6
2.5
7.0
1.9
0.7
1.0
3.3
5.0
2.2
0.9
3.6
4.0
3.7
1.6
1.7
7.0
2.5
3.9
1.5
1.7
7.1
1.5
6.8
1.6
1.7
7.5
2.3
4.9
1.6
1.7
7.3
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Risk classes
Credit risk continued
2022
Scenario
VMUK weighting
Economic measure(2)
Upside
10%
Base
55%
Downside
35%
Weighted average
Base rate
Unemployment
GDP
Inflation
HPI
Base rate
Unemployment
GDP
Inflation
HPI
Base rate
Unemployment
GDP
Inflation
HPI
Base rate
Unemployment
GDP
Inflation
HPI
(1) Macroeconomic assumptions provided by Oxford Economics on 1 September 2023 and reported on a calendar year basis unless otherwise stated.
The changes in macroeconomic assumptions between 1 September 2023 and 30 September 2023 have been considered as part of the MAs.
(2) The percentages shown for base rate, unemployment and inflation are averages. GDP is the year-on-year movement, with HPI the Q4 v Q4 movement.
2022
%
1.4
3.8
3.9
9.5
8.3
1.4
3.9
3.6
9.4
6.8
1.3
4.0
2.6
9.3
3.5
1.4
3.9
3.3
9.4
5.8
2023
%
3.0
4.2
2.8
8.5
(2.3)
2.2
4.6
0.3
7.5
(4.6)
1.7
6.0
(5.6)
5.0
(13.3)
2.1
5.0
(1.5)
6.7
(7.4)
2024
%
2.5
4.0
3.2
1.8
(1.8)
1.8
4.4
2.1
0.6
(3.0)
0.6
7.1
0.8
(1.0)
(11.6)
1.4
5.3
1.7
0.2
(5.9)
2025
%
2026
%
2.3
3.7
3.4
0.7
5.7
1.8
3.8
2.7
0.7
4.4
0.5
7.3
2.1
0.7
(2.7)
1.4
5.0
2.5
0.7
2.0
2.3
3.6
2.1
1.3
6.5
1.7
3.8
2.1
1.5
6.7
0.5
7.1
2.1
1.5
7.4
1.4
4.9
2.1
1.5
6.9
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Risk classes
Financial risk
Sections
Financial risk overview
Risk appetite
Capital risk
Mitigation
Measurement
Monitoring
Regulatory capital developments
Capital resources
Page
211
211
211
211
211
212
212
213
Tables
Regulatory capital
Regulatory capital flow of funds
RWA
214
Minimum capital requirements
IFRS 9 transitional arrangements
Capital requirements
MREL
Dividend
Share buyback
Leverage
Funding and liquidity risk
Exposures
Measurement
Monitoring
Mitigation
Sources of funding
Encumbered assets
Assets and liabilities by maturity
Cash flows payable under financial liabilities by contractual maturity
Analysis of debt securities in issue by residual maturity
External credit ratings
215
215
216
216
216
216
217
217
217
217
218
218
219
221
223
224
224
RWA movements
IFRS 9 transitional arrangements
Minimum requirements
MREL position
Leverage ratio
Sources of funding
LCR
Liquid asset portfolio
Encumbered assets by asset category
Assets and liabilities by maturity
Cash flows payable under financial liabilities by contractual maturity
Analysis of debt securities in issue by residual maturity
External credit ratings
Page
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214
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215
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Risk classes
Financial risk continued
Sections
Market risk
Exposures
Measurement
Mitigation
Monitoring
Market risk linkage to the balance sheet
Repricing of assets and liabilities by asset/liability category
LIBOR Replacement
Pension risk
Risk appetite
Liabilities
Assets
Exposure
Mitigation
Monitoring
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233
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234
236
237
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Tables
Value at risk
Net interest income
Market risk linkage to the balance sheet
Repricing of assets and liabilities by asset/liability category
Amounts yet to be transitioned
Page
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229
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231
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Risk classes
Financial risk continued
Financial risk
Strong foundations supporting resilience and growth.
The financial risk framework underpins the Group’s robust balance sheet, ensuring strategy
is resilient and responsive to external pressures and changing regulatory obligations.
Financial risk covers several categories of risk which impact the way in which the Group can
support its customers in a safe and sound manner. They include capital risk, funding risk, liquidity
risk, market risk and pension risk.
Risk appetite
The primary objective for the management of financial risks is to control the risk profile within
approved risk limits to maintain the confidence of the Group’s customers and other stakeholders.
Financial risks are also managed to protect current and future earnings from the impact of market
volatility. The Group applies a prudent approach to financial risks in order to safeguard the
ongoing strength and resilience of the balance sheet. These activities are undertaken in a manner
consistent with the Group’s obligations under ring-fencing legislation and prudential rules.
Financial risk appetite is approved by the Board, with authority delegated to ALCO for subsequent
implementation and monitoring. The Board has established a range of capital risk appetite
measures including CET1, leverage and MREL. Measures for funding and liquidity risks consider
the structure of the balance sheet, the Group’s overall funding profile and compliance with the
regulatory LCR and net stable funding ratio (NSFR) requirements. Board-approved risk appetite
covers both regulatory and internal liquidity requirements and the need to maintain access to
liquidity resources sufficient to accommodate outflows of funds in a range of stress scenarios
and time periods.
The Group participates in wholesale markets and uses financial instruments to fund its banking
activities and manage the liquidity and market risks arising from these activities. The Group
establishes an appetite for these risks based on an overriding principle that the Group will not
engage in proprietary risk taking.
The Group’s pension risk appetite is a component of the Group-wide RAS framework for the
management of balance sheet risks and is considered in the context of potential capital impacts
as a result of volatility in the Scheme’s valuations and future contributions.
Capital risk
Capital is held by the Group to cover inherent risks in a normal and stressed operating environment,
to protect unsecured creditors and investors and to support the Group’s strategy of sustainable
growth. Capital risk is the risk that the Group has or forecasts insufficient capital and other
loss-absorbing debt instruments to operate effectively. This includes meeting minimum regulatory
requirements, operating within Board approved risk appetite and supporting its strategic goals.
Mitigation
The Group’s capital risk policy provides the framework for the management of capital within the
Group. The objectives of the policy are to efficiently and sustainably manage the capital base
to optimise shareholder returns while maintaining capital adequacy and ensuring that excessive
leverage is not taken, so meeting regulatory requirements and managing the rating agencies’
assessments of the Group.
The Group is able to accumulate additional capital through retention of profit over time, which may
be increased by: income growth and cost cutting; raising new equity, for example via a rights issue;
reducing or cancelling distributions on capital instruments; and raising AT1 and Tier 2 capital.
The availability and cost of additional capital is dependent upon market conditions and perceptions
at the time. The Group is also able to manage the demands for capital through management
actions including adjusting its lending strategy.
Capital optimisation remains a key strategic priority, ensuring the Group manages the quantity
and quality of resources efficiently while meeting internal targets, stress testing requirements
and maintaining regulatory compliance.
Measurement
The Group manages capital in accordance with prudential rules issued by the PRA and the FCA.
Pillar 1 capital requirements are calculated in respect of credit risk, operational risk, market risk,
counterparty credit risk and credit valuation adjustments. The capital requirements for credit risk
are calculated using the following approaches:
> Retail mortgages: IRB.
> Business lending: FIRB.
> Specialised lending: IRB slotting.
> All other portfolios: Standardised approach, via either sequential IRB implementation
or Permanent Partial Use.
A rigorous approach is taken to assessing risks that are not adequately covered by Pillar 1.
The Group also undertakes analysis of a range of stress scenarios to test the impact on capital
arising from severe yet plausible scenarios. These approaches to capital are documented in the
Group’s ICAAP which is subject to review, challenge and approval by the Board. The outputs from
the ICAAP and regulatory stress testing are used to inform minimum capital targets and risk
appetite, ensuring survivability above peak-to-trough stress movements.
The Group IRB framework looks at the customer PD along with loss severity (EAD and LGD).
The outputs are used in the calculation of RWA, expected loss and IFRS 9 ECL. The IRB parameters
and rating assessments are actively embedded in the following day-to-day processes:
> Credit approval – IRB models and parameters are used to assess the customer risk and outputs
are used to inform cut-off models that drive the lending decisions.
> Pricing – Outputs and estimates are used in the assessment of new products and portfolio
pricing reviews.
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> Risk appetite – Parameters are included in the assessment of models and are analysed to inform
the Group’s risk capacity and appetite.
> Asset quality – Parameters are monitored to understand the product and segment performance
of the Group’s portfolios.
Monitoring
The Board approves the capital risk appetite annually, defining minimum levels of capital across a
range of capital ratios and measurements. The internal appetite ensures the Group operates above
minimum regulatory requirements with reporting conducted through ALCO, Board and Executive
Risk Committee. The capital plan, which assesses capital adequacy on a forward-looking basis,
is also approved by the Board annually. The annual planning process is supported by rolling
forecasting which is reported to ALCO monthly. This ensures that performance trends are reviewed
and that there is transparency of the impact on capital ratios, risk appetite and the outlook. As part
of the monthly forecasting process, ALCO reviews scenario analysis, considering adverse impacts
to economic conditions and modelling sensitivities, including changes to regulation. These
processes all support the Group’s management of capital and informs the CET1 target operating
range of 13.0%-13.5%.
Basel 3.1
Following the publication of final reforms to the Basel III framework in December 2017,
the PRA published CP16/22 at the end of November 2022, covering its consultation on the UK
implementation of these reforms. There are a number of key amendments to the standardised
approaches to credit and operational risks together with the introduction of a new standardised
RWA output floor, the latter of which will be introduced gradually over a transition period. There are
also amendments to IRB approaches, Credit Valuation Adjustments (CVAs), Credit Risk Mitigation
rules and associated reporting and disclosure requirements. Estimates of the impact of these
reforms on the Group indicate they will have no material day one impact on the capital position,
with no constraint from the output floor expected until late in the transition period. Since the
publication of CP16/22, the PRA has stated the intention to issue ‘near final’ rules and policy on
Operational Risk, Counterparty Credit Risk (CCR), CVA Risk and Market Risk in Quarter 4 of 2023
with the remaining elements of Credit Risk, Output Floor and Reporting and Disclosure
requirements to be published in Q2 2024. Further, the PRA has advised the implementation date
of the final Basel 3.1 policies will be pushed back by six months to 1 July 2025, however the
transitional period will be reduced to four and a half years to ensure full implementation is achieved
by 1 January 2030.
In recent years, the PRA has also taken a thematic interest in the quality of regulatory reporting
across the industry, specifically focusing on the completeness, accuracy and timing of regulatory
reports. This has resulted in a number of s166 Skilled Person Reviews being commissioned over the
governance, controls and processes supporting the regulatory reporting framework. The Group has
been subject to such a review and, although no material issues were highlighted, is working on
improvements to aspects of its governance and control framework.
Regulatory capital developments
The regulatory landscape for capital is subject to a number of changes, some of which can lead
to uncertainty on eventual outcomes. In order to mitigate this risk, the Group actively monitors
emerging regulatory change, assesses the impact and puts plans in place to respond.
Designation as an O-SII
On 29 November 2022 the PRA formally designated the Group as an Other Systemically Important
Institution (O-SII). This is not expected to have a material impact on the Group’s capital framework
and is not currently required to hold a related capital buffer. As part of the O-SII designation the
Group will need to comply with BCBS 239 over a three-year period.
IRB model changes
Following the BoE’s announcements in 2020 regarding supervisory and prudential policy measures
to address the challenges of COVID-19, the requirements relating to compliance with updates to
definition of default and mortgage IRB models were extended. The Group will apply the relevant
models after PRA approval and we currently expect models to be implemented in 2024.
Ahead of the Group’s implementation of mortgage IRB models (including hybrid PD), a model
adjustment has been applied to increase RWAs and expected losses in advance of formal approval
of models (see RWA movement commentary on page 214). There has been little movement in this
adjustment since the Interim Financial Report was published.
Pillar 2A
As part of its Basel 3.1 proposals, the PRA announced its intention to review its Pillar 2A
methodologies more fully by 2024. This review could have an impact on the Group which will
be assessed when the proposals are published.
Contingent leverage
The PRA published PS 5/23 – Risks from Contingent Leverage in May 2023. The Group is not
considered to carry material contingent leverage risk however we have reviewed and updated
our policies and processes where relevant. Activity is also ongoing to support new reporting
requirements in 2024.
Solvency Stress Test and Annual Cyclical Scenarios
The Group completed the 2022 ACS exercise in Q2 FY23. The scenario tested the resilience of the
UK Banking system to deep simultaneous recessions in the UK and global economies, real income
shocks, large falls in asset prices and higher global interest rates, as well as a separate stress of
conduct costs. The BoE published results in July 2023, with the Group remaining significantly in
excess of its reference rates on both a transitional and non-transitional basis. In October 2023 the
BoE confirmed their intention to run a desk-based stress test exercise, rather than an ACS, in 2024;
the Group will participate in this exercise as required.
Resolvability Assessment Framework
The BoE has introduced a Resolvability Assessment Framework to ensure major UK banks can
be safely resolved. The Group is required to submit an assessment of its resolvability to the BoE
biennially; the first assessment was submitted in October 2021 with disclosures published in
June 2022. The BoE concluded that, upon their first assessment as resolution authority of the
eight major banks, a major UK bank could enter resolution safely, remaining open and continuing
to provide vital banking services to the economy. The Group submitted its recent self assessment
to the BoE on 6 October 2023 which included enhancements relating to feedback received from
the BoE as part of the first cycle. A further disclosure from the BoE will occur in June 2024.
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Capital resources
The Group’s capital resources position as at 30 September 2023 is summarised below:
Regulatory capital(1)
Statutory total equity
CET1 capital: regulatory adjustments(2)
Other equity instruments
Defined benefit pension fund assets
Prudent valuation adjustment
Intangible assets
Goodwill
Deferred tax asset relying on future profitability
Cash flow hedge reserve
AT1 coupon accrual
Foreseeable dividend on ordinary shares
Excess expected losses
Share buyback
IFRS 9 transitional adjustments
Unconsolidated losses arising from joint venture
Total regulatory adjustments to CET1
Total CET1 capital
AT1 capital
AT1 capital instruments
Total AT1 capital
Total Tier 1 capital
Tier 2 capital
Subordinated debt
Total Tier 2 capital
Total regulatory capital
2023
£m
5,607
2022
£m
6,340
(594)
(333)
(5)
(162)
(11)
(261)
(496)
(12)
(27)
(103)
–
112
(4)
(666)
(650)
(5)
(256)
(11)
(302)
(699)
(13)
(106)
(100)
(13)
114
–
(1,896)
3,711
(2,707)
3,633
594
594
666
666
4,305
4,299
1,022
1,022
1,020
1,020
5,327
5,319
(1) Data in the table is reported under CRD IV on a fully loaded basis with IFRS 9 transitional arrangements applied.
(2) A number of regulatory adjustments to CET1 capital are required under CRD IV regulatory capital rules.
Regulatory capital flow of funds(1)
CET1 capital(2)
CET1 capital at 1 October
Share issuance
Share buyback
Retained earnings and other reserves (including special purpose entities)
Amendment to software asset deduction rules(3)
Intangible assets
Deferred tax asset relying on future profitability
Defined benefit pension fund assets
Movement in AT1 foreseeable distribution
Foreseeable dividend on ordinary shares
Excess expected losses
IFRS 9 transitional adjustments
Unconsolidated losses arising from joint venture
Total CET1 capital at 30 September
AT1 capital
AT1 capital at 1 October
AT1 instrument issued net of costs
AT1 instrument redeemed
Total AT1 capital at 30 September
Total Tier 1 capital at 30 September
Tier 2 capital
Tier 2 capital at 1 October
Amortisation of issue costs
Tier 2 capital at 30 September
Total capital at 30 September
2023
£m
2022
£m
3,633
3,616
2
(99)
(242)
–
94
41
317
1
(27)
(3)
(2)
(4)
2
(76)
502
(151)
103
(44)
(99)
6
(106)
(100)
(20)
–
3,711
3,633
666
–
(72)
594
697
346
(377)
666
4,305
4,299
1,020
2
1,022
5,327
1,019
1
1,020
5,319
(1) Data in the table is reported under CRD IV on a fully loaded basis with IFRS 9 transitional arrangements applied.
(2) CET1 capital is comprised of shares issued and related share premium, retained earnings and other reserves less specified
regulatory adjustments.
(3) The full deduction treatment for software assets was reinstated by the PRA in January 2022.
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The Group’s CET1 capital showed an increase of £78m during the year. The Group reported a profit
after tax of £246m in the year, which together with reductions in intangible assets and deferred
tax asset deductions of £135m, and after absorbing other movements, mostly in other reserves,
of £80m, led to a net increase in CET1 of £301m. This net capital surplus was used to fund two
share buyback programmes during the year totalling £100m, interim dividend payments of £45m,
AT1 distributions of £54m, and a foreseeable ordinary dividend of £27m.
In December 2022, the Group redeemed £72m of AT1 securities (note 4.1.2).
Subsequent to the year end, the Group announced its intention to redeem £250m 7.875%
Fixed Rate Reset Callable Notes due 2028 on 14 December 2023.
RWA
Minimum capital requirements
Retail mortgages
Business lending
Other retail lending
Other lending
Other(1)
Total credit risk
Credit valuation adjustment
Operational risk
Counterparty credit risk
2023
2022
Exposure
£m
60,354
12,635
17,586
18,328
592
RWA
£m
9,072
6,990
4,819
364
674
Minimum
capital
requirements
£m
726
559
385
29
54
Exposure
£m
62,545
11,959
17,408
18,165
584
Minimum
capital
requirements
£m
732
497
385
22
51
RWA
£m
9,155
6,196
4,817
277
637
109,495
21,919
1,753
110,661
21,082
1,687
278
2,833
146
22
227
12
258
2,623
185
21
210
15
Total
109,495
25,176
2,014
110,661
24,148
1,933
(1) The items included in the Other exposure class that attract a capital charge include items in the course of collection, fixed assets,
prepayments, other debtors and deferred tax assets that are not deducted.
RWA movements
Opening RWA
Asset size
Asset quality
Model updates(1)
Methodology and policy
Other
Closing RWA
(1) Model updates include MAs.
12 months to 30 September 2023
12 months to 30 September 2022
IRB
RWA
£m
STD
RWA
£m
Non-credit risk
RWA(2)
£m
Minimum
capital
requirements
£m
Total
£m
IRB
RWA
£m
14,943
6,139
3,066
24,148
1,933
15,699
58
(1,011)
1,486
–
–
127
121
–
5
51
15,476
6,443
–
–
–
–
191
3,257
185
(890)
1,486
5
242
15
(71)
118
–
19
267
(959)
(64)
–
–
25,176
2,014
14,943
STD
RWA
£m
5,844
575
4
–
(160)
(124)
6,139
Non-credit risk
RWA(2)
£m
Minimum
capital
requirements
£m
Total
£m
2,689
24,232
1,938
–
–
–
–
377
3,066
842
(955)
(64)
(160)
253
68
(75)
(5)
(13)
20
24,148
1,933
(2) Other RWA includes operational risk, credit valuation adjustment and counterparty credit risk.
RWA increased c.£1bn to £25.2bn primarily due to the impact of higher lending, the new hybrid
model related MAs and increased other non-credit RWAs.
quality includes a £0.2bn reduction in RWA from HPI movements although there is a similar increase
relating to risk weights associated with new Business lending.
There are a number of offsetting movements between asset quality and model updates. Asset
quality movements predominantly reflect the impact from the introduction of new customer data
on the incumbent rating system (£0.9bn reduction in RWA), however this is fully offset within model
updates where this impact is temporary pending the implementation of the new hybrid models.
Model updates also include the hybrid model MA of £0.4bn. In addition to model changes, asset
Other RWA movements of £242m are mainly due to an operational risk RWA uplift of £210m due
to a higher three-year average income position in commercial and retail banking compared to the
FY22 three-year average. The remainder is predominantly a combination of movements within
credit valuation adjustment and counterparty credit risk.
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IFRS 9 transitional arrangements
The table below shows a comparison of capital resources, requirements and ratios with and without
the application of transitional arrangements for IFRS 9.
Available capital (amounts)
CET1 capital
Tier 1 capital
Total capital
RWA (amounts)
Total RWA
Capital ratios
CET1 (as a percentage of RWA)
Tier 1 (as a percentage of RWA)
Total capital (as a percentage of RWA)
Leverage ratio
Leverage ratio total exposure measure
UK leverage ratio
2023
IFRS 9
Transitional basis
£m
IFRS 9
Fully loaded basis
£m
3,711
4,305
5,327
3,599
4,193
5,215
25,176
25,087
14.7%
17.1%
21.2%
86,554
5.0%
14.3%
16.7%
20.8%
86,442
4.9%
Transitional arrangements in CRR mean the regulatory capital impact of ECL is being phased in
over time. Following the CRR Quick Fix amendments package, which applied from 27 June 2020,
relevant provisions raised from 1 January 2020 through to 2024 have a CET1 add-back percentage
of 50% in 2023, reducing to 25% in 2024.
At 30 September 2023, £112m of IFRS 9 transitional adjustments (2022: £114m) have been applied
to the Group’s capital position in accordance with CRR: £3m of static and £109m of dynamic
adjustments (2022: £7m static and £107m dynamic).
Capital requirements
The Group measures the amount of capital it is required to hold by applying CRD IV as implemented
in the UK by the PRA. The table below summarises the amount of capital in relation to RWA the
Group is currently required to hold, excluding any PRA buffer.
Minimum requirements
Pillar 1(1)
Pillar 2A
Total capital requirement
Capital conservation buffer
UK countercyclical capital buffer
Total (excluding PRA buffer)(2)
2023
CET1
4.5%
1.7%
6.2%
2.5%
2.0%
10.7%
Total capital
8.0%
3.0%
11.0%
2.5%
2.0%
15.5%
(1) The minimum amount of total capital under Pillar 1 of the regulatory framework is determined as 8% of RWA, of which at least
4.5% of RWA is required to be covered by CET1 capital.
(2) The Group may be subject to a PRA buffer as set by the PRA but is not permitted to disclose the level of any buffer.
The Group continues to maintain a significant surplus above its capital requirements. At September
the Group maintained CET1 capital in excess of its requirements equal to 4.1% of RWAs (equivalent
to £1,025m).
The PRA sets a Group specific Pillar 2A requirement for risks which are not captured within the
Pillar 1 requirement. Together Pillar 1 and Pillar 2A represent the Group’s Total Capital Requirement
or TCR, which is the minimum requirement which must be met at all times.
In October 2022 the PRA communicated an update to the Group’s Pillar 2A requirement setting it
as 2.97% of RWAs, of which 1.67% must be met with CET1 capital (30 September 2022: £744m, of
which £419m had to be met with CET1 capital). In line with previous guidance this requirement has
been set as a percentage of RWAs, rather than the fixed nominal Pillar 2A requirements set during
2020 and 2021 in response to COVID-19. Applying this updated requirement in September 2023
resulted in a modest increase in total capital requirements of £4m and CET1 requirements of £2m.
At 30 September 2023 this resulted in a TCR of 10.97% of RWAs (equivalent to £2,762m) of which
6.2% must be met with CET1 capital (equivalent to £1,554m).
The regulatory capital buffer framework is intended to ensure firms maintain a sufficient amount
of capital above their regulatory minimum in order to withstand periods of stress and mitigate
against firm specific and systemic risks. The UK has implemented the provisions on capital buffers
outlined in CRD IV which introduced a combined capital buffer. This includes a Capital Conservation
Buffer, a Countercyclical Capital Buffer (CCyB) and where applicable a Global Systemically
Important Institution (G-SII) Buffer or an Other Systemically Important Institutions (O-SII) Buffer.
The Group’s CCyB reflects an exposure weighted average of the CCyB rates applicable in
the geographies the Group operates in. Currently this reflects only the UK. As had been previously
announced, the CCyB rate increased in the year to 1% in December 2022, rising to 2% in July 2023
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Risk classes
Financial risk continued
to align with its guidance for the CCyB rate under standard risk conditions. The Financial Policy
Committee (FPC) has noted the considerable uncertainties in relation to the economic outlook
and will continue to monitor the situation and stands ready to vary the UK CCyB rate – in either
direction – in line with the evolution of economic conditions, underlying vulnerabilities and the
overall risk environment.
The Group has been designated as an O-SII, but is not required to hold a related capital buffer.
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MREL
MREL position
Total capital resources(1)(2)
Eligible senior unsecured securities issued by Virgin Money UK PLC(2)
Total MREL resources
RWA
Total MREL resources available as a percentage of RWA
UK leverage exposure measure(3)
Total MREL resources available as a percentage of UK leverage exposure
measure(3)
2023
£m
5,327
2,707
8,034
25,176
31.9%
86,554
2022
£m
5,319
2,423
7,742
24,148
32.1%
85,934
9.3%
9.0%
Leverage
Share buyback
On 30 June 2022 the Company announced an inaugural share buyback programme, with an initial
repurchase of up to £75m in aggregate between its ordinary shares of £0.10 each listed on the
LSE and CDIs, each representing one share, listed on the ASX. The Company repurchased shares
and CDIs in approximately equal proportions; the buyback commenced on 30 June 2022 and
ended on 9 December 2022.
On 21 November 2022 the Company announced an extension to the share buyback programme
with an intent to repurchase a further £50m in aggregate of ordinary shares and CDIs. The
Company again repurchased shares and CDIs in approximately equal proportions; the buyback
extension commenced on 21 November 2022 and ended on 7 March 2023.
On 2 August 2023 the Company announced a new share buyback to repurchase £50m in
aggregate of ordinary shares and CDIs and subsequently repurchased shares and CDIs in
approximately equal proportions; the buyback commenced on 2 August 2023 and ended on
22 November 2023.
On 23 November 2023 the Company announced a further share buyback with an intent to
repurchase another £150m in aggregate of shares and CDIs, ending no later than 16 May 2024.
Further details are disclosed on page 160 of the Directors’ report.
(1) The capital position reflects the application of the transitional arrangements for IFRS 9.
(2) Includes MREL instrument maturity adjustments, the add-back of regulatory amortisation and the deduction of instruments
with less than one year to maturity.
(3) The comparative figures include a restatement to qualifying central bank claims which have been adjusted to exclude
encumbered note cover and payments system collateral balances.
The BoE as the UK Resolution Authority has published its framework for setting a minimum
requirement for own funds and eligible liabilities (MREL). This requires the Group to hold capital
resources and eligible debt instruments equal to the greater of two times the Total Capital
Requirement (TCR) or two times the UK leverage ratio requirement. In addition to MREL the Group
must also hold any applicable capital buffers, which together with MREL represent the Group’s
loss-absorbing capacity (LAC) requirement.
As at 30 September 2023, the Group’s leverage based LAC requirement of 7.8% of leverage
exposures (or 26.6% when expressed as a percentage of RWAs) was greater than the RWA based
LAC requirement of 26.4% of RWAs, meaning the leverage measure is the binding requirement.
MREL resources were £8.0bn (2022: £7.7bn), equivalent to 9.3% of leverage exposures (2022:
9.0%) or 31.9% when expressed as a percentage of RWAs (2022: 32.1%). This provides prudent
headroom of £1.3bn or 1.5% above the binding LAC requirement of 7.8% of leverage exposures,
or 5.3% above the binding LAC requirement of 26.6% when expressed as a percentage of RWAs.
Dividend
Distributable reserves are determined as required by the Companies Act 2006 by reference to a
company’s individual financial statements. At 30 September 2023, the Company had accumulated
distributable reserves of £1,044m (2022: £1,056m).
The Board has recommended a final dividend for the financial year ended 30 September 2023
of 2.0p per share.
Leverage ratio
Total Tier 1 capital for the leverage ratio
Total CET1 capital
AT1 capital
Total Tier 1 capital
Exposures for the leverage ratio
Total assets
Adjustment for off-balance sheet items
Adjustment for derivative financial instruments(1)
Adjustment for securities financing transactions
Adjustment for qualifying central bank claims(2)
Regulatory deductions and other adjustments(1)
UK leverage ratio exposure(3)
UK leverage ratio(3)
Average UK leverage ratio exposure(4)
Average UK leverage ratio(4)
2023
£m
3,711
594
4,305
2022
£m
3,633
666
4,299
91,786
91,907
2,999
706
2,261
(9,052)
(2,146)
86,554
5.0%
85,910
4.9%
3,204
522
2,974
(9,792)
(2,881)
85,934
5.0%
86,144
4.9%
(1) The comparative figures include a reclassification between adjustment for derivative financial instruments and regulatory
deductions and other adjustments in relation to the cash variation margin.
(2) The comparative figures include a restatement to qualifying central bank claims which have been adjusted to exclude
encumbered note cover and payments system collateral balances.
(3) The UK leverage ratio and exposure measure are calculated after applying the IFRS 9 transitional arrangements of the CRR.
(4) The average leverage exposure measure is based on the daily average of on-balance sheet items and month-end average
of off-balance sheet and capital items over the quarter (1 July 2023 to 30 September 2023).
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Model risk
Regulatory and compliance risk
Conduct risk
Operational risk
Economic crime risk
Strategic and enterprise risk
Climate risk
Climate-related disclosures
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Additional information
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Financial risk continued
The UK leverage ratio framework is relevant to PRA regulated banks and building societies with
consolidated retail deposits equal to or greater than £50bn. The Group exceeds this threshold and
accordingly the average UK leverage ratio exposure and average UK leverage ratio are disclosed.
The PRA simplified the leverage framework from 1 January 2022 with UK banks now subject
to a single UK leverage ratio exposure measure. The CRD IV leverage ratio is no longer applicable
to UK banks.
The leverage ratio is monitored monthly against a Board-approved RAS, with the responsibility
for managing the ratio delegated to ALCO.
The leverage ratio is the ratio of Tier 1 capital to total exposures, defined as:
> Capital: Tier 1 capital defined on an IFRS 9 transitional basis.
> Exposures: total on- and off-balance sheet exposures (subject to credit conversion factors)
as defined in the delegated act amending CRR article 429 (Calculation of the Leverage Ratio),
which includes deductions applied to Tier 1 capital.
Other regulatory adjustments consist of adjustments that are required under PRA regulations to be
deducted from Tier 1 capital. The removal of these from the exposure measure ensures consistency
is maintained between the capital and exposure components of the ratio.
The Group’s UK leverage ratio of 5.0% (2022: 5.0%) exceeds the UK minimum ratio of 3.25%.
Funding and liquidity risk
Funding risk occurs when the Group is unable to raise or maintain funds of sufficient quantity
and quality to support the delivery of the business plan or sustain lending commitments. Prudent
funding risk management reduces the likelihood of liquidity risks occurring, increases the stability
of funding sources, minimises concentration risks and ensures future balance sheet growth
is sustainable.
Liquidity risk occurs when the Group is unable to meet its current and future financial obligations
as they fall due or at acceptable cost, or when the Group reduces liquidity resources below internal
or regulatory stress requirements.
Exposures
The Group is predominantly funded by Personal and Business customers. Customer funding is
supported by the Group’s ongoing wholesale funding programmes, medium-term secured funding
issuance (e.g. the Group’s securitisation programmes), Regulated Covered Bonds and unsecured
medium-term notes. The Group has also drawn against the BoE TFSME, which was introduced to
support the UK through COVID-19.
Funding risk exposures arises from an unsustainable or undiversified funding base, for example,
a reliance on short-term wholesale deposits. The risk may result in deviation from funding strategy,
negatively impact market or customer perception, increase the acquisition cost of new funds
or reduce lending capacity, thereby adversely impacting financial performance and stability.
The Group’s primary liquidity risk exposure arises through the redemption of retail deposits where
customers have the ability to withdraw funds with limited or no notice. Exposure also arises from
the refinancing of customer and wholesale funding at maturity and the requirement to fund new
and existing committed lending obligations including mortgage pipeline and credit card facilities.
Measurement
Funding and liquidity risks are subject to a range of measures contained within the Group’s RAS
which reflect both regulatory requirements, as a minimum, and the Group’s own view on risk
sensitivities. The Group RAS is supported by a series of limits agreed by ALCO. These measures
provide a short- and long-term view of risks under both normal and stressed conditions. The
measures focus on: cash outflows and inflows under stress; concentration risks; refinancing risks;
asset encumbrance; and the quantum, diversity and operational capability of mitigating actions.
The Group’s funding plan establishes an acceptable level of funding risk which is approved by the
Board and is consistent with risk appetite and the Group’s strategic objectives. The development
of the Group’s funding plan is informed by the requirements of the Group’s financial risk policies.
A series of metrics are used across the Group to measure risk exposures, including funding ratios,
limits to concentration risk and maximum levels of encumbrance.
Liquidity is managed in accordance with the ILAAP, which is approved by the Board. Liquidity risk
exposures are subject to assessment under both regulatory and internal requirements. The volume
and quality of the Group’s liquid asset portfolio is defined through a series of stress tests across a
range of time horizons and stress conditions. The High-Quality Liquid Asset (HQLA) requirement is
quantified as the outflow of funds under a series of stress scenarios less the impact of inflows from
assets. Stress cash outflow assumptions have been established for individual liquidity risk drivers
across idiosyncratic and market-wide stresses.
The Treasury function is responsible for the development and execution of strategy subject to
oversight from the Risk function and review at ALCO. The Group continues to maintain its strong
funding and liquidity position and seeks to achieve an appropriate balance between profitability,
liquidity risk and balance sheet optimisation.
Monitoring
Liquidity is monitored and measured daily by the Group, with reporting conducted through
ALCO and the Executive Risk Committee. In a stress situation or in adverse conditions, the level
of monitoring and reporting is increased commensurate with the nature of the stress event.
Monitoring and control processes are in place against internal and regulatory liquidity requirements.
The Group monitors a range of market and internal early warning indicators on a routine basis
for early signs of liquidity risk in the market or specific to the Group. These indicators cover a
mixture of quantitative and qualitative measures including daily variation of customer balances,
measurement against stress requirements and monitoring of the macroeconomic environment.
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Financial risk continued
Mitigation
The Group holds a portfolio of HQLA that can be utilised to raise funding in times of stress.
The size of the HQLA portfolio is calibrated based on a view of potential outflows under both
systemic and idiosyncratic stress events. The Group has several sources of funding which are
well-diversified in terms of the type of instrument and product, counterparty, term structure and
market. Wholesale funding is used to support balance sheet growth, lengthen the contractual tenor
of funding and diversify funding sources. These funding programmes are a source of strength for
the Group and leverage the Group’s high-quality mortgage book as collateral for secured funding.
In addition, the Group can use the repo market for managing cash flows and bilateral relationships
to generate funds and can also participate in BoE operations through the Sterling Monetary
Framework (SMF).
As a participant in the BoE SMF, the Group had access to funding via TFSME. TFSME was launched
in April 2020 to provide cost-effective funds to banks to support additional lending to the real
economy and incentivise lending to SMEs during a period of economic disruption caused by
COVID-19.
The funding plan includes an assessment of the Group’s capacity for raising funds across a wide
range of primary funding sources, thereby mitigating funding risk. Refinancing risks are carefully
managed and are subject to controls overseen by ALCO. The Group’s funding plan includes TFSME
repayment profiles designed to manage refinancing risk within a suitably prudent time frame.
The Group recovery plan has been established for management of an escalated liquidity
requirement, if the Group experiences either restricted access to wholesale funding or a significant
increase in the withdrawal of funds. The plan identifies triggers for escalation, assesses capacity,
details the actions required, allocates the key tasks to individuals, provides a time frame and
defines the governance framework to manage the action plan and return the balance sheet
structure within appetite.
The Group operates a Funds Transfer Pricing system, a key purpose of which is to ensure
that liquidity risk and funding costs are factors in the pricing of loans and deposits.
Sources of funding (audited)
The table below provides an overview of the Group’s sources of funding as at 30 September 2023:
Total assets
Less: other liabilities(1)
Funding requirement
Funded by:
Customer deposits
Debt securities in issue
Due to other banks
of which:
Secured loans
Securities sold under agreements to repurchase
Transaction balances with other banks
Deposits with other banks
Equity
Total funding
2023
£m
91,786
(2,694)
89,092
66,827
9,719
6,939
6,291
552
19
77
5,607
89,092
2022
£m
91,907
(3,122)
88,785
65,434
8,509
8,502
7,230
1,205
17
50
6,340
88,785
(1) Other liabilities include derivatives, deferred tax liabilities, provisions for liabilities and charges, and other liabilities
as per the balance sheet line item.
The Group’s funding objective is to prudently manage the sources and tenor of funds in order to
provide a sound base from which to support sustainable lending. At 30 September 2023, the Group
had a funding requirement of £89,092m (2022: £88,785m) with the majority being used to support
loans and advances to customers.
Customer deposits
The majority of the Group’s funding requirement was met by customer deposits of £66,827m
(2022: £65,434m). Customer deposits comprise interest-bearing deposits, term deposits
and non-interest-bearing demand deposits from a range of sources including Personal and
Business customers.
Debt securities in issue
Growth in customer deposits has been supported by an increase in debt securities to £9,719m
(2022: £8,509m). The wholesale funding has been primarily driven by issuance from our covered
bond and medium-term note programmes.
Equity
Equity of £5,607m (2022: £6,340m) was also used to meet the Group’s funding requirement.
Equity comprises ordinary share capital, retained earnings, other equity investments and a
number of other reserves. For full details on equity refer to note 4.1 within the consolidated
financial statements.
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Liquid assets
The quantity and quality of the Group’s liquid assets are calibrated to the Board’s view of liquidity
risk appetite and remain at a prudent level above regulatory requirements.
The Group monitors the movements in its credit ratings and the related requirement to post
collateral for payment systems and clearing houses. These figures are not considered material
compared to the volume of unencumbered liquid assets.
The LCR (based on a monthly rolling average over the previous 12 months) increased from 140%
to 146% during the year and remains comfortably above regulatory and internal risk appetite.
As at 30 September 2023, the Group held eligible liquid assets well in excess of 100% of net
stress outflows and Pillar 2 liquidity requirements, as defined through internal risk appetite.
LCR
Eligible liquidity buffer
Net stress outflows
Surplus
LCR
2023
£m
2022
£m
13,798
11,503
9,424
4,374
146%
8,222
3,281
140%
The liquid asset portfolio provides a buffer against sudden and potentially sharp outflows of funds.
Liquid assets must therefore be high-quality so they can be realised for cash and cannot be
encumbered for any other purpose (e.g. to provide collateral for payments systems). The liquid
asset portfolio is primarily comprised of cash at the BoE, UK Government securities (Gilts) and
listed securities (e.g. bonds issued by supra-nationals and AAA-rated covered bonds).
The volume and quality of the Group’s liquid asset portfolio is defined through a series of internal
stress tests across a range of time horizons and stress conditions. The key risk driver assumptions
applied to the scenarios are:
Liquidity Risk Driver
Internal Stress Assumption
Retail funding
Severe unexpected withdrawal of retail deposits by customers arising from redemption
or refinancing risk.
No additional deposit inflows are assumed.
Wholesale funding
Limited opportunity to refinance wholesale contractual maturities. Full outflow of
secured and unsecured funding during the refinancing period, with no reinvestment
of funding.
Off-balance sheet
Cash outflows during the period of stress as a result of off-balance sheet commitments
such as mortgage pipeline, undrawn credit card facilities and collateral commitments.
Lending outflows, over and above contractual obligations, are honoured as the Group
preserves ongoing viability.
Intra-day
Other participants in the payment system withhold or delay payments or customers
increase transactions resulting in reduced liquidity.
Liquid assets
The liquidity portfolio value is reduced, reflecting stressed market conditions.
Liquid asset portfolio(1) (audited)
Level 1
Cash and balances with central banks
UK Government treasury bills and gilts
Other debt securities
Total level 1
Level 2(2)
2023
£m
2022
£m
Change
%
Average
2023
£m
Average
2022
£m
8,940
1,655
3,153
9,795
512
2,827
13,748
13,134
(8.7)
223.2
11.5
4.7
9,604
1,182
2,782
7,632
905
2,993
13,568
11,530
471
117
302.8
327
32
Total LCR eligible assets
14,219
13,251
7.3
13,895
11,562
(1) Excludes encumbered assets.
(2) Includes Level 2A and Level 2B.
The liquid asset portfolio is marked to market and fully hedged from an interest, inflation and
foreign exchange risk perspective. All fair value movements are therefore recognised in CET1
via the income statement (market risk) or FVOCI reserve (credit risk). The Interest rate risk in
the banking book (IRRBB) stress testing framework includes limits to manage the stressed credit
spread risk arising from hedging the fixed rate securities in the Group’s liquid asset portfolio.
This ensures the composition of the total portfolio is controlled and the exposure will not exceed
internal appetite or the amount of capital allocated.
The NSFR was implemented by the PRA on 1 January 2022 based on Basel standards.
During the year, the Group has been comfortably in excess of regulatory and internal requirements.
The 12-month average NSFR as at 30 September 2023 is 136% (2022: 134%).
Encumbered assets
The Group manages the level of asset encumbrance to ensure appropriate volumes of assets
are maintained to support future planned and potential stressed funding requirements. The Group
RAS includes an internal limit for levels of encumbrance. Reasons for asset encumbrance include,
among others, supporting the Group’s secured funding programmes to provide stable term funding
to the Group, the posting of assets in respect of drawings under the TFSME scheme, use of assets
as collateral for payments systems in order to support customer transactional activity and providing
security for the Group’s issuance of Scottish bank notes.
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2023
Loans and advances to customers
Cash and balances with central banks
Due from other banks
Derivatives
Financial instruments at FVOCI
Other assets
Total assets
Climate-related disclosures
2022
Financial statements
Additional information
Loans and advances to customers
Cash and balances with central banks
Due from other banks
Derivatives
Financial instruments at FVOCI
Other assets
Total assets
Assets encumbered with
non-central bank counterparties
Covered
Bonds
£m
5,944
–
97
–
–
–
Securitisations
£m
3,807
–
262
–
–
–
6,041
4,069
Other
£m
–
–
296
–
1,404
14
1,714
Assets encumbered with
non-central bank counterparties
Covered
Bonds
£m
4,268
–
67
–
–
–
Securitisations
£m
4,620
–
305
–
–
–
4,335
4,925
Other
£m
–
–
269
–
1,535
40
1,844
The Group’s total non-central bank asset encumbrance increased by £720m to £11,284m
as at 30 September 2023. This was primarily due to an increase in encumbered mortgages,
supporting Covered Bond funding.
Cash and balances with central banks of £11,282m, as per note 3.1.1.2, include: £1,971m of assets
that are encumbered to support the issuance of Scottish bank notes (excluding notes not in
circulation) and to support payments systems; £275m of mandatory central bank deposits;
and £84m excluded from LCR to cover operating expenses.
Financial assets at FVOCI of £6,184m, as per note 3.1.2, include: £1,404m of encumbered UK
Government treasury bills and gilts, £197m of which is encumbered to support Operational
Continuity in Resolution.
Positioned
at the
central bank
(including
encumbered)
£m
17,770
2,797
–
–
–
–
Total
£m
9,751
–
655
–
1,404
14
Other assets
Assets not positioned at the central bank
Readily
available for
encumbrance
£m
Other assets
capable of being
encumbered
£m
Cannot be
encumbered
£m
17,458
2,276
24,995
8,485
–
–
4,780
–
–
12
–
–
186
–
–
135
–
1,068
3,479
11,824
20,567
38,260
17,656
Positioned
at the
central bank
(including
encumbered)
£m
14,879
2,879
–
–
–
–
17,758
Other assets
Assets not positioned at the central bank
Readily
available for
encumbrance
£m
Other assets
capable of being
encumbered
£m
Cannot be
encumbered
£m
28,647
9,342
–
–
3,529
–
41,518
17,054
2,353
–
15
–
–
218
17,287
–
–
342
–
1,545
4,240
Total
£m
8,888
–
641
–
1,535
40
11,104
Total
£m
62,499
11,282
12
135
4,780
1,254
Total
£m
72,250
11,282
667
135
6,184
1,268
79,962
91,786
Total
£m
62,933
12,221
15
342
3,529
1,763
80,803
Total
£m
71,821
12,221
656
342
5,064
1,803
91,907
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Financial risk continued
Assets and liabilities by maturity (audited)
The following tables represent a breakdown of the Group’s balance sheet, according to the
contractual maturity of the assets and liabilities. Many of the longer-term monetary assets are
variable rate products, with behavioural maturities shorter than the contractual terms. The majority
of customer deposits are repayable on demand or at short notice on a contractual basis,
with behavioural maturities typically longer than their contractual maturity. Accordingly, this
information is not relied upon by the Group in its management of interest rate risk. The Group has
disclosed certain term facilities within loans and advances to customers with a revolving element
at the maturity of the facility as this best reflects their contractual maturity.
2023
Assets
Financial instruments
At amortised cost
Loans and advances to customers
Cash and balances with central banks
Due from other banks
At FVOCI
At FVTPL
Loans and advances to customers
Derivatives
Other
Other assets
Total assets
Liabilities
Financial instruments
At amortised cost
Customer deposits
Debt securities in issue
Due to other banks
At FVTPL
Derivatives
Other liabilities
Total liabilities
Off-balance sheet items
Financial guarantees
Other credit commitments
Total off-balance sheet items
(1) The no specified maturity balance within loans and advances to customers relates to credit cards.
Call
£m
3 months
or less
£m
3 to 12
months
£m
1 to 5
years
£m
Over 5
years
£m
No specified
maturity(1)
£m
Total
£m
748
10,193
510
–
–
3
–
–
–
96
2
1,675
42,340
–
17,921
17,921
2,766
945
6,448
55,608
–
157
506
1
92
–
4
–
–
–
–
–
–
712
2,196
2,770
–
10
–
149
1,816
16
25
–
1
42
5
–
1
8,686
58,426
11,454
3,526
40,567
4,368
15,195
441
393
22
66
1,441
550
45
119
6,697
7,837
5,900
196
49
5,290
17,350
20,679
12
–
12
18
–
18
9
–
9
–
–
–
25
114
139
40
–
40
5,676
1,089
–
–
–
–
2
1,111
7,878
–
–
–
–
381
381
–
–
–
72,191
11,282
667
6,184
59
135
2
1,266
91,786
66,827
9,719
6,939
290
2,404
86,179
79
17,921
18,000
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Risk classes
Financial risk continued
2022
Assets
Financial instruments
At amortised cost
Loans and advances to customers
Cash and balances with central banks
Due from other banks
At FVOCI
At FVTPL
Loans and advances to customers
Derivatives
Other
Other assets
Total assets
Liabilities
Financial instruments
At amortised cost
Customer deposits
Debt securities in issue
Due to other banks
At FVTPL
Derivatives
Other liabilities
Total liabilities
Off-balance sheet items
Financial guarantees
Other credit commitments
Total off-balance sheet items
(1) The no specified maturity balance within loans and advances to customers relates to credit cards.
Call
£m
3 months
or less
£m
3 to 12
months
£m
1 to 5
years
£m
Over 5
years
£m
No specified
maturity(1)
£m
Total
£m
2,378
1,019
7,241
55,053
–
–
–
–
1,917
1,925
21
190
–
1
46
33
–
1
9,370
57,058
–
–
602
1
71
–
152
1,845
10,209
1,047
250
29
134
764
11,015
575
–
–
2
–
–
–
81
620
2
46
–
7
12,356
3,134
48,750
–
67
3
1,822
50,642
–
19,247
19,247
3,786
485
285
9
135
4,700
33
–
33
2,689
6,669
7,900
253
54
11,669
17,565
23
–
23
12
–
12
–
308
–
33
59
400
44
–
44
5,296
1,206
–
–
–
–
8
1,634
8,144
–
–
–
–
591
591
–
–
–
71,751
12,221
656
5,064
70
342
8
1,795
91,907
65,434
8,509
8,502
327
2,795
85,567
112
19,247
19,359
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2023
Liabilities
Financial instruments
At amortised cost
Customer deposits
Debt securities in issue
Due to other banks
At FVTPL
Trading derivatives
Hedging derivatives
Contractual amounts payable
Contractual amounts receivable
Other liabilities
Total liabilities
2022
Liabilities
Financial instruments
At amortised cost
Customer deposits
Debt securities in issue
Due to other banks
At FVTPL
Trading derivatives
Hedging derivatives
Contractual amounts payable
Contractual amounts receivable
Other liabilities
Total liabilities
Call
£m
3 months
or less
£m
3 to 12
months
£m
1 to 5
years
£m
Over 5
years
£m
No specified
maturity
£m
Total
£m
40,567
–
96
–
–
–
1,675
42,338
4,384
510
399
16
65
(21)
66
15,647
1,744
837
6,874
9,036
6,304
29
37
556
(463)
119
1,668
(1,500)
49
5,419
18,469
22,468
–
–
–
8
–
–
–
–
–
–
–
–
114
122
381
381
Call
£m
3 months
or less
£m
3 to 12
months
£m
1 to 5
years
£m
Over 5
years
£m
No specified
maturity
£m
48,750
–
67
–
–
–
1,822
50,639
3,801
521
289
12
21
(6)
135
4,773
10,291
1,294
492
2,732
7,863
8,793
40
63
557
(459)
134
12,349
1,720
(1,477)
54
19,748
–
315
–
14
–
–
59
388
–
–
–
–
–
–
591
591
67,472
11,290
7,636
90
2,289
(1,984)
2,404
89,197
Total
£m
65,574
9,993
9,641
129
2,298
(1,942)
2,795
88,488
223
The balances in the cash flow table above do not agree directly to the balances in the balance sheet or the assets and liabilities by maturity table presented above, as the table incorporates
all cash flows, on an undiscounted basis, related to both principal and future coupon payments.
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Financial risk continued
Analysis of debt securities in issue by residual maturity
The table below shows the residual maturity of the Group’s debt securities in issue:
Covered bonds
Securitisation
Medium-term notes
Subordinated debt
Total debt securities in issue
Of which issued by Virgin Money
UK PLC
3 months
or less
£m
8
165
6
262
441
268
3 to 12
months
£m
614
89
737
1
1,441
1 to 5
years
£m
3,793
1,486
1,869
689
7,837
738
2,558
Over 5
years
£m
–
–
–
–
–
–
Total
2023
£m
4,415
1,740
2,612
952
9,719
Total
2022
£m
3,467
1,880
2,249
913
8,509
3,564
3,162
External credit ratings
The Group’s long-term credit ratings are summarised below:
Virgin Money UK PLC
Moody’s
Fitch
Standard & Poor’s
Clydesdale Bank PLC
Moody’s(2)
Fitch
Standard & Poor’s
Outlook as at
As at
30 Sept 2023(1)
30 Sept 2023
30 Sept 2022
Stable
Positive
Stable
Stable
Positive
Stable
Baa1
BBB+
BBB-
A3
A-
A-
Baa1
BBB+
BBB-
A3
A-
A-
(1) For detailed background on the latest credit opinion by Standard & Poor’s, Fitch and Moody’s, please refer to the respective
rating agency website.
(2) Long-term deposit rating.
In June 2023, Fitch revised the outlook on the Group’s Long-Term Issuer Default Rating to Positive
from Stable reflecting Fitch’s expectation of a structural improvement in profitability due to higher
interest rates, contained credit impairment charges and further cost efficiency improvements. It
also reflects the Group’s improving risk profile, notwithstanding the tougher operating environment.
As at 22 November 2023, there have been no other changes to the Group’s long-term credit ratings
or outlooks since the report date.
Market risk
Market risk is the risk of loss associated with adverse changes in the value of assets and liabilities
held by the Group as a result of movements in market factors such as foreign exchange risk,
interest rates (duration risk), customer behaviour (optionality risk), and the movement in rate
spreads across types of assets or liabilities (basis risk and credit spread risk). The Group’s balance
sheet is predominantly UK-based and is denominated in GBP, therefore foreign exchange is not a
material risk for the Group. Any non-GBP denominated funding issuances and any foreign currency
securities purchased are cross-currency swapped to sterling for the term of the instrument.
Exposures
The Group does not have a trading book and therefore is only exposed to non-traded market risk.
Market risk principally arises through IRRBB, small foreign exchange exposure and the management
of assets to support our liquidity requirements, including Credit Spread Risk in the Banking Book
(CSRBB). It comprises the sensitivity of the Group’s current and future NII and economic value to
movements in market interest rates. The major contributors to interest rate risk are:
>
the mismatch, or duration, between repricing dates of interest-bearing assets and liabilities;
> basis risk or assets and liabilities repricing to different reference rates, for example, customer
asset and liability products repricing against BoE base rate and Sterling Overnight Index Average
(SONIA); and
> customer optionality, for example, the right to repay borrowing in advance of contractual
maturity dates.
The focus of the Group’s activity is to provide high-quality banking services to its customers.
These services include the provision of foreign exchange, interest rate and commodity derivative
products to enable customers to manage risks within their businesses. As a result of these
activities, the Group may be exposed to forms of market risk that would arise from movements
in the price on these products. These risks are monitored daily and are not a material component
of the Group’s risk profile. Controls and mitigation include the hedging of these products and
the use of natural offsets, in line with Group policies.
Measurement
IRRBB is measured, monitored, and managed from both an internal risk appetite and an external
regulatory perspective. The RMF incorporates both market valuation and earnings-based
approaches. In accordance with the Group IRRBB policy, risk measurement techniques include:
basis point sensitivity, NII sensitivity, value at risk (VaR), changes in the economic value of equity
(EVE), interest rate risk stress testing, and scenario analysis.
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The key features of the market risk management measurement approach are:
Risk classes
Financial risk continued
Governance
Risk report
Introduction
Credit risk
Financial risk
Model risk
Regulatory and compliance risk
Conduct risk
Operational risk
Economic crime risk
Strategic and enterprise risk
Climate risk
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> Basis point sensitivity analysis is performed daily and compares the potential impact of a one
basis point (0.01%) change on the present value of all future cash flows.
> NII sensitivity assesses changes to earnings over a 12-month time horizon as a result of interest
rate movements and changes to customer behaviour.
> VaR is measured on a statistical basis using a 99% confidence level based on daily rate
movements over a ten-year history set with a one-year holding period.
> EVE is measured in line with PRA Rulebook with all six interest rate shock scenarios assessed
on a quarterly basis, including customer optionality stresses. Reporting is performed including
and excluding equity.
> Static balance sheet (i.e. any new business is assumed to be matched, hedged or subject
to immediate repricing).
> Dynamic balance sheet (i.e. a balance sheet incorporating future business expectations,
adjusted for the relevant scenario in a consistent manner).
> Run-off balance sheet (i.e. existing assets and liabilities not replaced as they mature, except
to the extent necessary to fund the remaining balance sheet).
>
>
Investment term for capital is modelled with a benchmark term agreed by ALCO.
Investment term for core non-interest-bearing assets and liabilities is modelled on a behavioural
basis with a benchmark term agreed by ALCO.
> Assumptions covering the behavioural life of products and customer behaviour for optionality
are reviewed and approved by ALCO.
Fair value hedges – the Group hedges part of its existing interest rate risk, resulting from potential
movements in the fair value of fixed rate assets and liabilities. The fair value of these swaps is
disclosed within note 3.1.3.2 to the Group’s consolidated financial statements. There were no
transactions for which fair value hedge accounting had to be discontinued in the year.
Cash flow hedges – the Group hedges a portion of the variability in future cash flows attributable
to interest rate risk. The interest risk arises from variable interest rate assets and liabilities which
are hedged using interest rate swaps. There were no transactions for which cash flow hedge
accounting had to be discontinued in the year as a result of the highly probable cash flows
no longer being expected to occur. The fair value of derivatives is disclosed within note 3.1.3.2
to the Group’s consolidated financial statements.
Monitoring
Parameters and assumptions of models that are used in market risk monitoring are reviewed and
updated on at least an annual basis. Material changes require the approval of ALCO. Oversight of
market risk is conducted by the Group’s Financial Risk team which is independent of the Treasury
function. The Board and Executive Risk Committee, through ALCO’s oversight, monitor risk to
ensure it remains within approved policy limits and Board requirements.
Value at Risk (audited)
As at 30 September
Average value during the year
Minimum value during the year
Duration risk
Credit spread
2023 £m
2022 £m
2023 £m
2022 £m
27
16
4
28
17
19
14
27
62
55
44
62
41
48
41
52
> Structural hedging, used to reduce earnings volatility, is based on analysis approved by ALCO
Maximum value during the year
and Board.
> CSRBB is assessed through VaR applied to the Group’s liquid asset buffer portfolio. CSRBB is
measured at a 99% confidence level based on daily spread movements over a ten-year history
set with a three-month holding period.
> Foreign exchange risk is assessed based on the absolute exposure to each currency.
>
IRRBB is fully integrated in the Group’s ICAAP.
Net interest income (audited)
Earnings sensitivity measures calculate the change in NII over a 12-month period resulting from
an instantaneous and parallel change in interest rates. +/-25 basis point shocks and +/-100 basis
point shocks represent the primary NII sensitivities assessed internally, though a range of scenarios
are assessed on a monthly basis.
Mitigation
Market risks are overseen by ALCO with delegation for day-to-day management given to Treasury.
Treasury uses a number of techniques and products to manage market risks including interest rate
swaps, cash flow netting and foreign exchange derivatives.
The Group uses derivative financial instruments to manage its exposures within approved limits
and not for speculative purposes. The Group elects to apply hedge accounting for the majority
of its risk management activity that uses derivatives. Certain derivatives are designated as either
fair value hedge or cash flow hedge:
12 months NII sensitivity
+25 basis point parallel shift
+100 basis point parallel shift
-25 basis point parallel shift
-100 basis point parallel shift
2023 £m
2022 £m
11
42
(11)
(45)
18
66
5
(35)
Sensitivities disclosed reflect the expected mechanical response to a movement in rates and
represent a prudent outcome. The sensitivities are indicative only and should not be viewed
as a forecast.
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The key assumptions and limitations are outlined below:
Risk classes
Financial risk continued
Governance
Risk report
Introduction
Credit risk
Financial risk
Model risk
Regulatory and compliance risk
Conduct risk
Operational risk
Economic crime risk
Strategic and enterprise risk
Climate risk
Climate-related disclosures
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Additional information
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> The sensitivities are calculated based on a static balance sheet and it is assumed there is no change to margins on reinvestment of maturing fixed rate products.
> There are no changes to basis spreads with the rate change passed on in full to all interest rate bases.
> Administered rate products receive a rate pass on in line with internal scenario specific pass on assumptions. Any rate reduction in a rate fall scenario is subject to product floors
with the assumption customer rates would not go negative.
> Additional commercial pricing responses and management actions are not included.
> While in practice hedging strategy would be reviewed in light of changing market conditions, the sensitivities assume no changes over the 12-month period.
Market risk linkage to the balance sheet (audited)
The following table shows the Group’s principal market risks, linked to the balance sheet assets and liabilities.
2023
£m
2022
£m
Interest rate
duration
Optionality
Basis
Credit
spread
Foreign
exchange
Assets
Financial instruments
At amortised cost
Loans and advances to customers
Cash and balances with central banks
Due from other banks
At FVOCI
At FVTPL
Loans and advances to customers
Derivatives
Other
Other assets
Total assets
Liabilities
Financial instruments
At amortised cost
Customer deposits
Debt securities in issue
Due to other banks
At FVTPL
Derivatives
Other liabilities
Total liabilities
72,191
11,282
667
6,184
59
135
2
1,266
91,786
66,827
9,719
6,939
290
2,404
86,179
71,751
12,221
656
5,064
70
342
8
1,795
91,907
65,434
8,509
8,502
327
2,795
85,567
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
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Financial risk continued
Repricing periods of assets and liabilities by asset/liability category
The following table shows the repricing periods of the Group’s assets and liabilities as assessed by the Group. This repricing takes account of behavioural assumptions where material and the Group’s
policy to hedge capital in accordance with a benchmark term agreed by ALCO.
2023
Assets
Financial instruments
At amortised cost
Loans and advances to customers
Cash and balances with central banks
Due from other banks
At FVOCI
At FVTPL
Loans and advances to customers
Derivatives
Other assets
Total assets
Liabilities
Financial instruments
At amortised cost
Customer deposits
Debt securities in issue
Due to other banks
At FVTPL
Derivatives
Other liabilities
Equity
Total liabilities and equity
Notional value of derivatives managing interest rate sensitivity
Total interest rate gap
Cumulative interest rate gap
Overnight
£m
3 months
or less
£m
3 to 12
months
£m
1 to 5
years
£m
Over 5
years
£m
Non-interest
bearing
£m
Total
£m
8,132
12,381
43,151
1,321
7,745
9,903
626
1,635
–
–
14
35
–
475
2
–
20
105
–
568
5
–
59
140
–
881
23
–
314
19,923
8,664
13,118
44,509
7,935
4,184
6,783
–
1,249
–
20,151
5,417
5,189
5,189
16,096
18,254
250
10
–
85
166
16,607
1,655
(6,288)
(1,099)
748
33
–
255
748
20,038
8,595
1,675
575
23,085
4,861
–
–
340
3,007
31,293
(14,136)
(920)
(344)
–
–
2,440
29
–
157
3,947
1,229
–
–
–
–
1,329
2,558
(1,531)
(142)
(486)
(539)
1,099
41
185
–
135
704
1,625
228
(324)
113
290
475
357
72,191
11,282
667
6,184
59
135
1,268
91,786
66,827
9,719
6,939
290
2,404
5,607
1,139
91,786
–
486
–
–
–
–
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Financial risk continued
2022
Assets
Financial instruments
At amortised cost
Loans and advances to customers
Cash and balances with central banks
Due from other banks
At FVOCI
At FVTPL
Loans and advances to customers
Derivatives
Other assets
Total assets
Liabilities
Financial instruments
At amortised cost
Customer deposits
Debt securities in issue
Due to other banks
At FVTPL
Derivatives
Other liabilities
Equity
Total liabilities and equity
Notional value of derivatives managing interest rate sensitivity
Total interest rate gap
Cumulative interest rate gap
Overnight
£m
3 months
or less
£m
3 to 12
months
£m
1 to 5
years
£m
Over 5
years
£m
Non-interest
bearing
£m
Total
£m
7,293
10,765
656
1,265
–
–
40
8,796
13,234
41,514
1,699
12
–
525
30
–
38
37
–
320
4
–
113
13,708
196
–
1,159
16
–
604
–
–
1,733
20
–
–
43,489
3,452
20,019
9,401
7,026
3,606
8,438
–
1,717
–
20,787
16,448
15,680
15,680
18,725
191
12
–
–
264
19,192
(359)
(10,150)
5,530
13,449
432
26,077
4,686
–
–
–
573
14,454
(239)
(985)
4,545
–
–
–
3,306
34,069
(12,146)
(2,726)
1,819
–
–
–
–
–
350
350
(3,704)
(602)
1,217
(785)
1,211
–
62
–
342
1,008
1,838
157
(406)
52
327
1,078
1,847
3,055
–
(1,217)
–
71,751
12,221
656
5,064
70
342
1,803
91,907
65,434
8,509
8,502
327
2,795
6,340
91,907
–
–
–
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Conduct risk
Operational risk
Economic crime risk
Strategic and enterprise risk
Climate risk
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Financial risk continued
LIBOR replacement
All regulatory milestones in relation to LIBOR cessation have been met and there are no conduct
issues to note.
Loans with an aggregate value of c.£0.9m with a small number of customers remain on three-month
GBP synthetic LIBOR. This temporary reference rate is due to cease at the end of March 2024.
There are no remaining USD LIBOR exposures. Post 31 March 2024, there will be no LIBOR exposure
(in any currency) on the Group’s balance sheet.
Financial instruments linked to IBOR benchmark rates are summarised below:
Amounts referencing IBOR rates (audited)
2023
GBP LIBOR
Other(3)
Total
2022
GBP LIBOR
Other(3)
Total
Non derivative
financial assets
– carrying value(1)
£m
1
179
180
Non derivative
financial assets
– carrying value(1)
£m
94
164
258
Non derivative
financial liabilities
– carrying value
£m
Derivatives
– nominal
amount(2)
£m
–
–
–
–
–
–
Non derivative
financial liabilities
– carrying value
£m
–
–
–
Derivatives
– nominal
amount(2)
£m
67
–
67
(1) Gross carrying amount excluding allowances for ECLs.
(2) The IBOR exposures for derivative nominal amounts include undrawn loan commitments shown as GBP LIBOR. This is materially
the case although some facilities allow drawdowns in a number of different currencies.
(3) Comprises financial instruments referencing EURIBOR, which is not subject to benchmark reform (2022: £127m).
Pension risk
The Group operates a defined benefit pension scheme, the Yorkshire and Clydesdale Bank
Pension Scheme (the Scheme). The Bank is the Scheme’s principal employer and there are no
other participating employers. The Scheme was closed to future accrual on 1 August 2017 for
most members. A small number of members remain on a defined benefit accruals basis subject
to certain conditions.
Under a defined benefit pension scheme, the economic benefit an employee receives in retirement
is determined by factors such as salary and length of service but is not tied to the employee’s or
the employer’s contributions, or the performance of the scheme’s assets. A defined benefit pension
scheme is exposed to market risk drivers such as interest rate risk, inflation risk, equity risk, as well
as risks pertaining to the life expectancy of scheme members (longevity risk) and to changes in the
legislation and regulatory requirements.
Pension risk is the risk that, at any point in time, the value of the Scheme’s assets is not enough to
meet the Scheme’s estimated liabilities. This risk will continue to exist until the Scheme is formally
wound up, either if all the liabilities are transferred to a third party (for example an insurer) or once
all individual member benefits have been honoured. Pension risk can negatively impact the Group’s
capital position.
The Group also supports a defined contribution scheme. Defined contribution schemes do not
give rise to pension risk, as the employer has no legal or constructive obligation to make further
contributions if the defined contribution scheme’s assets are insufficient to pay all member benefits.
Risks, including market, investment performance and longevity risks are borne by the employee
rather than the Group.
Risk appetite
The Group’s pension risk appetite is a component of the Group-wide framework for the
management of balance sheet risks.
Pension risk may adversely impact the Group’s capital position. The Group is required to hold
capital against it and may be required to make further contributions. Consequently, pension risk
is considered in the context of potential capital impacts to the Group, due to changes in the
valuations of the Scheme’s liabilities and assets.
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Financial risk continued
Liabilities
The defined benefit obligation is a series of future cash flows, with relatively long duration. It is
estimated by independent actuaries using the projected unit credit method. The actual cost of the
Scheme can only be known after the Scheme is formally wound up.
On an IAS 19 basis, the defined benefit obligation present value is calculated by discounting the
series of future cash flow estimates using a discount rate linked to yields of high-quality corporate
bonds, of a duration aligned to that of the Scheme’s liabilities. The cash flows and valuation are
primarily sensitive to changes in corporate bond credit spreads, long-term inflation rates and the
life expectancy of members. There is a risk that the value of the Scheme’s liabilities is higher than
that of its assets. In particular:
> an increase in the discount rate corresponds to a decrease in liabilities;
> an increase in long-term expected inflation corresponds to an increase in liabilities; and
> an increase in life expectancy corresponds to an increase in liabilities.
The impact of these actuarial assumptions on valuations will also depend on investment and
de-risking decisions (including interest rate, inflation rate and longevity hedging) made by
the Trustee, as well as by the inflationary caps within the terms of the Scheme. Nevertheless,
material changes to the key actuarial assumptions or changes to the methodology by which they
are derived may lead to volatility in the Group’s IAS 19 position. In line with pensions legislation,
a formal actuarial valuation (Triennial Valuation) of the Scheme’s assets and liabilities takes place
at least every three years by independent actuaries.
More information on the Scheme’s defined benefit obligations is shown within note 3.3 of the
Group’s consolidated financial statements. The present value of the liabilities was £2,284m
as at 30 September 2023 (2022: £2,216m).
Assets
The Scheme’s assets are held separately from the Group’s assets and are administered by a board
of trustees (the Trustee). The Trustee has fiduciary responsibilities to the Scheme’s members and
governs investments according to a Statement of Investment Principles (SIP). The SIP is reviewed
and agreed by the Trustee on a regular basis, with the Group consulted on any proposed changes.
The SIP sets out the Scheme objectives and the path to meet these objectives and is drafted
in accordance with the requirements of Section 35 of the Pensions Act 1995 (as amended by
the Pensions Act 2004 and regulations made under it). This results in the Scheme holding an
appropriate mix of assets to better match future pension obligations.
There is a risk that the value of the Scheme’s assets is lower than the present value of its liabilities.
In particular, asset total returns lower than the discount rate used in the calculation of the present
value of the defined benefit obligations may have an adverse impact on the Group’s IAS 19 position.
The split of Scheme assets is shown within note 3.3 of the Group’s consolidated financial
statements. The fair value of the assets was £2,796m as at 30 September 2023 (2022: £3,216m).
Within the Scheme’s matching assets there is a Liability Driven Investment (LDI) portfolio, which
consists of both physical assets and derivatives. The Scheme uses a bespoke, segregated strategy
which reflects, as far as possible, the specifics of the Scheme’s liabilities in terms of exposure to
movements in interest rates and inflation. As at 30 September 2023, the LDI portfolio was valued
at £1,038m (2022: £968m).
LDI portfolios are commonly used by defined benefit pension schemes to better match their
assets to their liabilities, while retaining their allocations to return-seeking assets. For example,
falling interest rates or rising inflation would typically increase the value of a scheme’s liabilities
but the value of the LDI portfolio would also increase commensurably, hence reducing the
scheme’s funding level volatility. LDI utilises financial instruments, including derivatives, which
require the scheme to provide collateral to counterparties. This generates additional liquidity
risks and requirements as these collateral demands can change over periods when rates change.
The general trend since LDI strategies were first introduced has been long-term interest rates
falling. However, when interest rates rise instead of fall, more collateral is required to be posted
for the same level of interest rate and inflation protection to be maintained. Therefore, the scheme
needs to ensure that it has sufficient liquidity to meet any such obligation.
As at 30 September 2023, the Scheme is still estimated to have substantial collateral headroom
to meet further rises in interest rates of more than 10% (2022: 3%).
During the period, the Group and Trustee to the Scheme agreed to cease their previous contingent
security arrangement. Subsequently, the Group has granted a £75m uncommitted facility to the
Scheme as an additional contingency against future short-term liquidity challenges resulting from
unexpected market turbulence. As at 30 September 2023 the amount drawn under the facility
was £Nil.
Exposure
The Group’s defined benefit pension scheme affects its regulatory capital in two ways:
> CET1 capital – an IAS 19 surplus increases the Group’s balance sheet assets and reserves.
However, any such amount is not recognised for the purposes of determining CET1 capital.
An IAS 19 deficit on the other hand, which increases balance sheet liabilities and reduces
reserves, is recognised for regulatory capital purposes, and so will decrease CET1 capital.
> Pillar 2A capital – the Group is also required to determine the level of capital required to be held
under Pillar 2A for pension obligation risk as part of the annual ICAAP process. This requirement
forms part of the Group’s regulatory Total Capital Requirement.
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Risk classes
Financial risk continued
Mitigation
The Trustee and Group have a common view of the Scheme’s long-term strategic aims,
encapsulated by an agreed de-risking journey plan. Within the journey plan, several core
principles have been established, including a long-term self-sufficiency funding target (i.e. the
point in time when the Scheme would no longer need to call on the Bank for additional funding)
with assumptions as to how this target is expected to be managed, monitored and met. Potential
actions to address deviations in the actual funding level relative to the journey plan have also
been considered.
In addition to the Scheme being closed to new members and essentially closed to future accrual,
additional measures have been implemented by the Group and Trustee with the specific aim of
reducing risks. This includes hedging against interest rate and inflation risk. Moreover, on 6 April
2023, the Scheme executed a longevity swap transaction to manage longevity risk in relation to
c.£1,600m of pensioner liabilities. Cost-effective options to further reduce risk within the Scheme
will continue to be assessed.
Monitoring
Information on the Scheme’s current valuations, asset holdings and discount and inflation rate
assumptions are presented to ALCO. This also includes monitoring of the performance of the
LDI portfolio as well as of the collateral headroom. The impact of the Scheme on the Group is
also subject to risk oversight from the Risk function. In addition, semi-annual pension risk updates
are provided to the Board Risk Committee.
Performance of the Scheme’s asset portfolio against the various risk metrics is monitored by the
Scheme investment adviser, and reported to the Investment Sub Committee, which includes Group
representation, and Trustee Board on a quarterly basis.
The Scheme’s de-risking plan has delivered resilience to stress-testing and continued improvements
in Group and Trustee valuations. The IAS 19 position continues to be assessed in the Group’s ICAAP
and regulatory stress testing processes.
The Triennial Valuation with effective date 30 September 2022 has concluded and showed a
funding surplus. Consequently, no further contributions from the Group will be required and there is
no capital impact. The effective date of the Scheme’s next Triennial Valuation is 30 September 2025.
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Model risk
Well managed and optimised model risk life cycle
to generate positive outcomes for stakeholders.
The Group’s definition of a model is a quantitative method, system, or approach that applies
statistical, economic, financial, or mathematical theories, techniques, and assumptions to
process input data into output that generates or supports decisions that impact customers
directly or indirectly. This model definition also includes input data that is quantitative and/or
qualitative in nature or expert judgement-based, and output that is quantitative or qualitative.
The use of models invariably presents model risk, which is defined as the potential for adverse
consequences from decisions based on incorrect or misused model outputs and reports.
Model risk increases with greater model complexity, higher uncertainty around inputs and
assumptions, broader use, and larger potential impact. If left unmitigated, model risk can lead to
poor decision making, misreporting or a failure to identify risks. In turn, these factors could result
in financial and reputational losses, as well as having a detrimental impact on customers or lead
to the deterioration of the prudential position, non-compliance with required regulations, or to
qualitative limitations such as the imposition of restrictions to business activities.
The Group’s model inventory contains information on all models and associated exposures.
The inventory supports the prioritisation of business activities and informs senior management
of the status of models, with a particular focus on those models that can generate higher risk
or have a greater impact.
Measurement
The Board delegates authority to MGC to ensure that model risk is being managed through the
model risk management policy standard. Model risk is measured through regular model monitoring
to MGC and Board Risk Committee, with the level of model risk assessed through RAS reporting.
The Chief Risk Officer has been identified as the appropriate Senior Management Function role,
in line with the requirements set out in the Model Risk Management Policy Standard.
Mitigation
The Group has a model risk policy framework in place to manage and mitigate model risk, which
encompasses the end-to-end model life cycle. The model risk management policy standard defines
model risk management roles and responsibilities. Specifically, it sets out that the model owner
has the responsibility of attesting to the compliance of the model risk management policy standard
requirements on an annual basis, including that the model has been built in line with the policy,
is implemented correctly and is used as intended or advising of exemptions. An annual attestation
on IRB models is provided to the regulator.
Risk appetite
In delivering its strategic objectives, the Group accepts that a level of loss may arise from model
error. The Board establishes the extent of its willingness, or otherwise, to accept results from
using models. Key controls are in place to support the performance of models.
The Model Risk Management function conducts independent model validations prior to
model implementation, when a new model is developed or changed, and on a periodic basis.
The function assists with identifying model weaknesses or deficiencies and raises mitigating
actions.
The Group’s appetite for model risk is defined and articulated in the Group RAS. Model risk is a
principal risk and RAS metrics focus on model effectiveness and the outcomes of validations on the
Group’s most material models. Model risk appetite is reported regularly to Executive Risk Committee,
Board Risk Committee and the MGC. The escalation of material model issues from MGC can be
made to Executive and Board Risk Committees.
Exposures
To enable senior management to gauge and manage model risk, each model is classified according
to materiality.
Monitoring
Model monitoring functions perform periodic monitoring of model performance to ensure parameter
estimates and model constructs remain fit for purpose and to ensure model assumptions remain
valid. The frequency of model monitoring is commensurate with the nature and materiality of
the models and risks, with due consideration given to model complexity, in line with the relevant
monitoring frameworks.
MGC is the primary model approval authority and body responsible for overseeing the framework
used to manage model risk.
The Group assesses model materiality using criteria of coverage, risk impact and complexity
to define the level of risks associated with the model’s use, purpose and strategic importance,
adopting the relevant regulating rules and guidance (e.g. Supervisory Statement SS11/13 IRB
approaches and the CRR). A model’s assessed materiality level determines its approval path
through governance and the degree, frequency and depth of review and validation expected.
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Regulatory and compliance risk
Implementing regulatory change and ensuring compliance.
Regulatory and compliance risk is the risk of failing to comply with relevant regulatory requirements
and changes in the regulatory environment or failing to manage a constructive relationship with
our regulators, by not keeping them informed of relevant issues, not responding effectively to
information requests or not meeting regulatory deadlines.
Risk appetite
The Group has no appetite for actions which result in breaches of regulation or for inaction to address
systemic process and control failures leading to material non-compliance. The Group seeks to
ensure that all mandatory requirements are prioritised for implementation within the required
timescales with due consideration for mitigation of potential customer harm. The Group has an
open dialogue with regulators, escalating all issues of which they would reasonably expect to be
made aware.
Exposures
The Group remains exposed to regulatory and compliance risk from ongoing and new regulatory
developments. This is expected to persist as consumer and regulatory expectations continue
to rise, and as the regulatory environment responds to external factors, including macroeconomic
conditions and associated cost of living pressures.
Measurement
Regulatory and compliance risks are measured against a defined set of Board-approved risk
appetite metrics relating to the status of regulatory compliance and regulatory implementations.
Thresholds are set and form part of the Board-approved RAS.
Mitigation
The following controls and procedures help to mitigate regulatory and compliance risk:
> clearly defined regulatory and compliance policy framework requirements, associated policies
and Board-approved RAS;
> ongoing development, maintenance and reporting of risk appetite measures to the Executive
Risk Committee, the Board Risk Committee and the Board;
> maintenance of proactive and coordinated engagement with the Group’s key regulators;
Monitoring
Regulatory and compliance risk is considered by all three lines of defence as part of their oversight
and monitoring activities. A risk assurance plan, approved by the Board Risk Committee on an
annual basis, independently assesses areas of the control framework underpinning compliance
with relevant laws and regulations.
Conduct risk
Delivering good customer outcomes across all our
customer channels.
Conduct risk is the risk of undertaking business in a way which fails to deliver good customer
outcomes and causes customer harm, and may result in regulatory censure, redress costs and/or
reputational damage.
Risk appetite
The Group is committed to delivering good outcomes for its customers, including its vulnerable
customers and has a low appetite for conduct risk.
Exposures
The Group remains exposed to conduct risk in the course of its provision of services and products
to customers, including those risks arising as the Group and its customers adapt to an increasingly
digital world, and as customer vulnerabilities, expectations and behaviours evolve alongside
the external environment and economic conditions. The FCA’s new Consumer Duty has been
introduced into the bank’s risk and operating frameworks, it sets a higher standard for conduct
and a higher level of expectation in delivering good outcomes to our customers.
Measurement
Conduct risks are measured against a defined set of Board-approved risk appetite metrics,
with an emphasis on delivering good customer outcomes.
Mitigation
The following controls and procedures help to mitigate conduct risk:
> clearly defined conduct risk policy framework requirements, associated policies and Board-
> continual assessment of evolving regulatory requirements, including regulatory business plans
approved RAS;
and thematic reviews;
> ongoing development, maintenance and reporting of conduct risk appetite measures to the
> oversight of regulatory and compliance risks and issues in relevant governance bodies;
Executive Risk Committee, the Board Risk Committee and the Board;
> consideration of regulatory requirements in product and proposition development;
> operation of the new Consumer Duty framework, and oversight of remaining implementation
> operation of the new Consumer Duty framework, and oversight of remaining implementation
requirements for 31 July 2024;
requirements for 31 July 2024;
> consideration of conduct risk in product and proposition development;
> ongoing review and tracking of known regulatory and compliance issues and remediation
>
actions being taken; and
regular management review of conduct reporting, centred on core product areas and aligned
to relevant businesses;
> a risk-based monitoring framework, designed to monitor compliance with regulation and assess
customer outcomes.
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> oversight of conduct risks and issues through relevant governance bodies;
> analysis of customer experience data and complaint handling;
> continuing development of a customer-centric culture aligned to the Group’s Purpose;
> ongoing review and tracking of known conduct issues and remediation actions being taken; and
> a risk-based monitoring framework, designed to monitor compliance with regulation and assess
customer outcomes.
Monitoring
All three lines of defence consider conduct risk as part of their oversight and monitoring activities.
A risk assurance plan, approved annually by the Board Risk Committee, independently assesses
the control framework underpinning the Group’s conduct risk management and the delivery of
good customer outcomes.
Operational risk
Proactive operational risk management with enhanced
risk frameworks.
Operational risk is the risk of loss or customer harm resulting from inadequate or failed internal
processes, people and systems or from external events, incorporating the inability to maintain
critical services, recover quickly and learn from unexpected/adverse events.
It is a core component of the RMF and is embedded in day-to-day business activities focused on
enabling operational efficiencies. Requirements and responsibilities are set out in the operational
risk policy statement and supporting operational risk framework policy standard that seeks to
identify, assess, mitigate, monitor, and report the operational risks, events and issues that could
impact the achievement of business objectives or impact core business processes.
Business units are responsible for the day-to-day management of operational risk, with
oversight from the Risk function, and independent assurance activities undertaken by Internal
Audit. A new Non-Financial Risk Committee has been established to provide oversight of the
Group’s non-financial risks, risk appetite, policy compliance and RMF and to better support the
Executive Risk Committee.
Operational resilience is an outcome that benefits from the effective management of operational
risk. The Group manages operational resilience through the identification and mapping of important
business services and setting of impact tolerances.
Risk appetite
The Group is prepared to tolerate a level of operational risk exposure within agreed thresholds and
limits. A level of resilience risk from internal and external events is tolerated, however, immediate
steps are taken to minimise customer disruption through recovery within defined timelines.
Exposures
Operational risks arise from day-to-day business activities, which may result in direct or indirect
losses and could adversely impact the Group’s financial performance, levels of customer care
or reputation. The Group strives to deliver operational efficiency in the implementation of its
objectives and accepts that a level of loss may arise from operational failure. Implementing key
controls and monitoring ensures that risks are managed, and losses remain within acceptable limits.
The Group’s exposure to operational risk is impacted through the need to engage with innovative,
dynamic third parties; deliver new products and services; and make effective use of reliable data
in a changing external environment, to deliver on the Group’s strategic objectives. Alongside
ongoing risk and control monitoring, operational and resilience risk oversight is focused on the
following key areas:
Change risk
The risks associated with a failure to execute and deliver change that could result in an inability
to meet our strategic objectives, including failing to meet our customer, regulator, colleague,
or shareholder expectations, at a Group and local management level.
How this risk is managed – The Group uses a single integrated change governance framework
which covers all levels of change management to ensure appropriate oversight and decision
making across the change portfolio. As part of this, a centralised view of significant and material
change is maintained. This approach ensures that the risks of individual changes are managed
effectively and that change is prioritised to minimise the overall risks to the organisation in line
with risk appetite.
Third-party risk
The risks associated with ensuring the Group’s outsourced and offshoring arrangements are
controlled more effectively, including the risk of failure to service existing and new customers;
the potential cessation of specific activities; the risk of personally identifiable information or
Group sensitive data being exposed or exploited; and the risk of financial, reputational and
regulatory censure if the third party enters into any illegal or unethical activities.
How this risk is managed – The Group continues to enhance its third-party RMF and oversight
approach, with ongoing performance management and assurance undertaken, to ensure that
supplier relationships are controlled effectively.
Cyber and information security risk
The risks arising from inadequate internal and external information and cyber security,
where failures impact the confidentiality, integrity and availability of electronic data.
How this risk is managed – We maintain and regularly update cyber and information security
policies, and controls are in place and operating, with assurance carried out as a matter of course.
This includes threat intelligence, education and awareness, and assurance of controls within the
Group and our third parties. Our Security Operations Centre provides 24/7 monitoring and alerting
in order that any security threats are quickly detected and addressed.
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Physical and personal security risk
The risk to the safety and protection of colleagues, customers and physical assets arising from
unauthorised access to buildings, theft, robbery, intimidation, blackmail, sabotage, terrorism and
other physical security risks.
How this risk is managed – Physical and personal security standards are managed by the Group’s
Property & Procurement team. Controls are in place to protect physical assets, as well as the
security of colleagues and customers.
IT resilience risk
The Group’s ability to adapt to disruptions while maintaining continuous operations on critical
processes and safeguarding technology in the face of adverse events, chronic disruptions or
incremental changes. The Group recognises the significant regulatory focus on resilience with
increased reliance on digital banking, remote working, and use of third-party and cloud solutions.
How this risk is managed – The Group is well placed to respond to new regulations and standards
and develops technology with resilience inbuilt as a principle. A programme of continuous
monitoring and maintenance of the currency of the technology estates, alongside disaster recovery
testing, helps to minimise the likelihood of system failure. The Group maintains and tests critical
end-to-end business recovery and contingency plans in the event that there is a system outage.
Payment creation, execution and settlement risk
The risk that transactions are not conducted in line with the instructions and parameters of a
customer’s payment, trading, clearing, settlement scheme or business requirements. This could
lead to delays, inaccuracies, duplicates, failures or rejections as well as system-based restrictions
and errors. The payments industry is planning for significant changes to infrastructure and
processing protocols over the next 12-24 months, due to the implementation of ISO20022,
Real-Time Gross Settlement Renewal and New Payments Architecture.
How this risk is managed – The payment risk framework outlines key scheme rules, regulations
and compliance requirements alongside the risk-based approach to assurance oversight, control
testing and change management, to ensure payment risk is managed within appetite and impact
to customers is minimised. All three lines of defence are actively involved in changes being made.
Data management
Data underpins decision making at all levels of the organisation. Poor-quality data can lead to loss,
customer disruption, potential misrepresentation in regulatory reporting, non-compliance with Data
GDPR and unnecessary rework.
How this risk is managed – The Group has a data management framework governing the creation,
storage, distribution, usage and retirement of data, aligned with data management industry
standards and GDPR requirements.
People risk
People risk is defined as the risk of not having sufficiently skilled and motivated colleagues who
are clear on their responsibilities and accountabilities and who behave in an ethical way. This could
lead to inappropriate decision making that is detrimental to customers, colleagues or shareholders
and could ultimately lead to regulatory sanction.
How this risk is managed – The Group has a range of RAS metrics in place which help to measure
and report people risk. Operational controls are designed to mitigate the risks associated
throughout each element of the colleague life cycle. Group-wide systems provide tools and online
guidance to all colleagues to support them in discharging their accountabilities.
Measurement
Material operational risk events are identified, reviewed and escalated in line with criteria set out
in the RMF. Root cause analysis is undertaken and action plans are implemented.
Losses may result from both internal and external events and are categorised using risk categories
aligned to Basel II. The Basel II categories are used to ensure that data can be reported externally
and compared with other industry data. Due to the nature of risk events, losses and recoveries
can take time to crystallise and therefore may be restated for prior or subsequent financial years.
Operational risk losses
The majority of losses relate to two Basel categories: ‘External fraud’ and ‘Execution, delivery and
process management’. The volume of External fraud losses accounted for over 95% of the total.
This category’s higher volume of low-value events relates mainly to card fraud and online scams
and is in line with peers. ‘Execution, delivery and process management’ volumes are as expected
and reflect the daily volume of transactions and customer interactions.
The table below outlines the operational risk losses by Basel category.
Operational risk losses by Basel category(1)(2)
Business disruption and system failures
Clients, products and business practices
Damage to physical assets
Execution, delivery and process management
External fraud
Internal fraud
% of total volume
% of total losses
2023
0.1%
0.8%
0.4%
2.6%
96.1%
0.0%
2022
0.8%
1.0%
0.8%
2.9%
94.3%
0.2%
2023
0.1%
1.2%
0.2%
3.4%
95.1%
0.0%
2022
0.6%
4.1%
1.1%
3.9%
90.2%
0.1%
(1) Losses greater than or equal to £5,000, excluding unexpected losses.
(2) Figures may not match those presented in 2022, as historical loss amounts can change due to recoveries made.
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Mitigation
In delivering its strategic objectives, the Group strives for operational efficiency and accepts a
level of loss may arise from operational failure. Implementing key controls and monitoring, with
appropriate escalation and governance, ensures operational risks are managed, and losses remain
within acceptable limits. We operate robust controls over all significant operational risks and ensure
these are sufficient to prevent material disruption of our service to customers and/or our business.
into or maintaining a relationship with. During onboarding and throughout the customer relationship,
financial crime risk is assessed and used to apply an appropriate level of due diligence.
Sanctions and embargoes
The Group has no appetite for non-compliance with the legal and regulatory obligations relating
to sanctions and embargoes.
The Group manages a multiyear programme of investment to upgrade propositions and to deliver
key change initiatives, across areas such as cyber security and data management. Delivering
change sustainably and managing execution risk is a priority for the Group.
Bribery and corruption
The Group does not tolerate the direct or indirect offer, payment, solicitation or acceptance
of bribes in any form.
Monitoring
The Group has identified, assessed and monitored all key operational and resilience risks across
the noted Basel II categories, including undertaking an assessment of control effectiveness,
monitoring trends in key risk indicators and escalating events, in accordance with policy
requirements. The Risk function performs oversight of the Group’s business planning process,
including analysis of industry trends or forward-looking threats that could lead to material impact
on our ability to deliver on the strategic objectives or result in a significant impact on assessment
of operational risk capital. It also performs ongoing oversight of the Group’s management of
operational risk, including risk and control assessment, issues and risk events.
Stress testing
The Group develops and maintains a suite of operational risk scenarios using internal and external
data. These scenarios provide insights into the stresses the business could be subject to given
extreme circumstances. Scenarios cover all material operational risks including execution of
change, failures in core processes or execution risk from a third party. Scenarios are owned by
senior management custodians with review and challenge provided by the Risk function, Executive
Risk Committee and Board Risk Committee, as part of the ICAAP process. Management actions are
agreed and monitored and linked with business resilience and continuity testing where appropriate.
Economic crime risk
Investing in our financial crime and fraud prevention
capabilities.
Economic crime risk is the risk that the Group’s products and services will be used to facilitate
financial crime and fraud against the Group, its customers or third parties.
Risk appetite
Economic crime risk is measured and reported against a defined suite of metrics within the Group
RAS. In particular:
Anti-money laundering and counter terrorist financing
The Group applies a risk-based approach model which sets out the types of customer it has no
risk appetite to onboard, as well as customers with whom the Group is prohibited from entering
External fraud
The application of the Group’s Board-approved fraud RMF seeks to manage customer disruption
and fraud exposure and keep fraud losses within an acceptable risk appetite.
Internal fraud
The Group has no appetite for internal fraud.
Exposures
Economic crime risks are inherent in doing business in the financial services industry and may
arise from failure to:
> meet legal and regulatory requirements; and
> maintain effective systems and controls to prevent the risk that the Group might be used
to further financial crime.
Measurement
All economic crime standards are reflected in the Group policy and supporting technical standards,
the content of which is provided by the Economic Crime Risk team and updated as appropriate.
Financial crime and fraud-related risk appetite metrics are monitored and reported to the Board
on a monthly basis.
Mitigation
As a Tier 1 bank, we are proactively investing in financial crime and fraud prevention, in response
to increasing public expectations and to protect our customers and the bank. We are focused on
ensuring we play our part in safeguarding the financial sector and aim to continuously improve,
whilst considering the rapidly evolving environment and expectations in the UK and are mindful
of the challenges several of our peers have experienced.
The Group has the following controls and procedures to support mitigation:
> a clearly defined economic crime risk policy statement (with supporting technical standards)
and RAS signed off by the Board;
> ongoing development, maintenance and reporting of risk appetite measures for economic
crime risk to the Executive Risk Committee and the Board;
> key performance metrics relative to critical financial crime systems are kept under review
and presented through governance to assess ongoing effectiveness;
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> consideration of economic crime risk in the context of product and proposition development
and associated appropriate governance;
>
investment to maintain compliance and progress with key implementations;
> ongoing assessment of evolving regulatory policy requirements and ensuring the Group
responds accordingly; and
>
regular oversight and review of systems, controls, higher risk activities and customers
takes place as part of a formal oversight plan.
Monitoring
The three lines of defence play a key role in managing economic crime risk. This includes
operational monitoring activities such as: financial crime screening and due diligence; fraud
detection and customer support processes; independent oversight and risk monitoring of
risk appetite and the effectiveness of the financial crime control framework; governance
and standard setting; training; and reporting to the competent authorities, as well as through
internal governance fora, such as Executive Risk Committee and the Board.
Strategic and enterprise risk
Supporting the Group’s strategy while keeping
our customers and colleagues safe.
Strategic and enterprise risk is the risk of significant loss of earnings, or damage arising from
decisions or actions that impact the long-term interests of the Group’s stakeholders or from
an inability to adapt to external developments. Strategic risk can arise if the Group designs or
implements an inappropriate strategic plan, designs an appropriate plan but fails to implement
it, or implements the strategic plan as intended, however fails to take account of a change in
external circumstances.
Exposures
Inflationary pressures in the UK are contributing to a cost of living crisis, which alongside
low economic growth, could impact customer resilience and consequently debt affordability.
These risks in aggregate put pressure on the strategic plan and the Group’s ability to grow.
The Group has considered this uncertainty and potential challenges as part of the FY24 Strategic
and Financial Plan risk assessment and planning process.
In addition, the Group operates in an increasingly competitive environment, with the pace of
change and complexity posing risks to strategic initiatives. Shareholder expectations, customer
behaviours and colleague sentiment continue to evolve, increasing the importance of being able
to respond appropriately.
The Group is also exposed to execution risk as a result of ongoing transformation activity.
Measurement
The Group’s RAS represents a ‘risk envelope’ against which chosen strategies and financial
plans are assessed and within which chosen strategies must operate. The RAS, along with the
associated RAF, is a key means of controlling strategic risk. The RAF comprises an extensive
system of measures, thresholds and other controls, which together ensure that the Group operates
within the Board’s approved appetite for strategic risk.
Mitigation
The Group undertakes thorough and regular monitoring of emerging and crystallised strategic risks,
including developments in the external geo-political environment, to ensure it is best placed to
proactively respond to changes as and when required. Robust contingency plans are in place to
ensure the impact of any changes on strategic initiatives is captured.
The Group continues to develop and embed its sustainability agenda. This includes increased
due diligence activity in relation to the lending decisions being undertaken, and social interaction
to promote inclusion and diversity in the communities in which the Group operates.
Strategic risk also includes the inability to respond effectively to cultural, structural and regulatory
change and the failure to establish and execute a compelling digital strategy or increase
organisational capability in support of this. It considers the risk of being an inefficient, high-cost,
uninspiring or uncompetitive provider of products and services.
The Risk function undertakes regular risk oversight activity, placing customers’ interests at the
centre of all aspects of change. Our Purpose of Making you happier about money underpins this
activity. The planning process for FY24 projects is overseen by the Risk function to ensure a
balanced portfolio within the funding available.
Enterprise risk includes managing and implementing effective governance and reporting and
maintaining external relations to promote the brand and support the Group’s ability to successfully
achieve strategic goals.
Risk appetite
The risk position for strategic and enterprise risk, referenced in the Group’s RAS, takes account
of the fact that the Group will need to take an acceptable level of risk to successfully grow
the business and will need to implement transformational changes to the operating model
and supporting frameworks to achieve this. There is, however, a requirement to pursue these
goals in a controlled and prudent manner given the potential downside in financial, reputational,
conduct and broader risk implications.
Monitoring
A range of financial and non-financial metrics, including RoTE, lending growth, NIM, and others,
are KPIs used to monitor performance relative to strategic objectives. They are continually
monitored against the Strategic and Financial Plan by the Board and Executive Leadership Team,
who react to deviations from targets and modify strategy accordingly.
A formal assessment of the Group’s Strategic and Financial Plan, reviewing the Group’s current
and potential strategic risks, and the impact of strategic decisions and objectives on the Group’s
risk profile, was undertaken during the year. The findings are reported to the Board Risk Committee
and the Board annually.
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Climate risk
Developing climate resilience and supporting a safe transition
to a lower carbon economy.
Mitigation
There is a specific climate risk policy framework which outlines the Group’s approach to
the identification, management and monitoring of climate risk. The framework clearly defines
and documents roles and responsibilities across the Group.
Monitoring
Climate risk is monitored and reported on a regular basis in Executive and Board Committees.
The Environment Committee oversees the management of Environmental and Climate Change
matters across the Group and is chaired by the Chief Financial Officer.
Periodic monitoring of metrics is measured against the climate policy framework (including RAS)
and strategic Group objectives. The Risk function provides oversight of the Group’s development
of processes and systems which are established to monitor and mitigate climate risk.
Further detail on how the Group identifies, manages and mitigates climate risk is included
in our Climate-related disclosures overleaf.
Climate risk is the exposures to physical and transition risks arising from climate change.
Risk appetite
The Group accepts a level of climate risk in conducting its business. The Group has developed
initial capability to assess a range of physical and transition risks within the credit portfolio in
addition to running scenario analyses which have been incorporated into RAS. However, the Group
is still evolving its approach, building new tools and exploring data solutions to support climate risk
assessment. The decisions made today could impact climate risk for years to come and it is in this
forward-looking context that risk appetite and policies are being developed.
Exposures
Physical risks arise from longer-term changes in the climate and weather-related events e.g.,
rising average temperatures, heatwaves, droughts, floods, storms, sea-level rise, coastal erosion
and subsidence. They can potentially result in large financial losses in respect of the Group’s
own properties or disrupt operations as well as impairing asset values and the financial position
of borrowers or key third-party suppliers.
Transition risks arise from the adjustment towards a low-carbon economy and could lead to
changes in appetite, strategy, policy, technology, and sentiment. These changes could prompt
a reassessment of the value of a large range of assets and create increased financial exposures
for the Group as the costs and opportunities arising from climate change become apparent.
Reputation risks may also arise from a failure to meet changing and more demanding societal,
investor or regulatory expectations.
Measurement
The Group has developed core climate change scenario analysis capability to enhance our ability to
identify climate-related risks and opportunities, and to assess the resilience of our business model.
Working with specialist third-party data providers the Group has developed capability to identify
a range of physical and transitional climate-related risks within the Group’s lending portfolio,
which is assessed on a periodic basis. The Group will continue to develop its data as climate
risk methodologies and risk management practices evolve.
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Abidur
Virgin Money Host
Abidur is part of our customer
facing team, speaking with
our customers every day
and helping them feel happier
about money.
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At Virgin Money, we’re proud to support our customers on their journey to net zero
while transitioning our own operations.
Introduction
Our Purpose of Making you happier about
money means making money simpler, easier
and more sustainable for all. A core focus of the
Group is tackling climate change in areas where
we can make the most difference, reducing
our own direct impacts and using our role as
a trusted adviser and enabler to support all
customers transition to a low-carbon economy.
In response to the UK Government’s net-zero
policy amendments, announced in September,
the UK’s Climate Change Committee (CCC)
reaffirmed that achieving the UK’s COP26 2030
commitment, to reduce emissions by 68%,
requires emission reductions outside the power
sector to quadruple. The CCC remain concerned
about the likelihood of achieving the UK’s future
targets, showing that urgent action is required
to accelerate technology development and
scaling, changes in consumer behaviour and a
commitment to sustained delivery of long-term
policies from government. We recognise the
important role banks play in facilitating this
transition to net zero.
Assurance
The Group engaged Ernst & Young LLP (EY)
to undertake an independent limited assurance
engagement over selected metrics in the
current year, highlighted with a *, using the
assurance standards ISAE (UK) 3000. EY has
issued an unqualified opinion over the selected
information. EY’s full assurance report is
available at: virginmoneyukplc.com/corporate-
sustainability/environment
Our climate aspirations for 2030
> Net zero: Direct operational emissions
Our climate commitment for 2050
> Net zero: All direct and indirect emissions
> Reduce financed emissions by at least 50%
Our progress against targets
10%
of all Business lending to
sustainability changemakers by 2027
2023: 6.7% (2022: 5.3%)
75%
£500m
Energy and Environment
lending balance by 2025(1)
2023: £317m* (2022: £224m)
>50%
of suppliers (by spend) to have committed to,
or have approved, science-based targets by 2028
of the Mortgage portfolio to
have EPC ratings of C+ by 2030(3)
2022: 38%(2)
50%
reduction in location-based
Scope 1 emissions by 2025(1)
2023: 28% (2022: 9%)
(1) Measured from 30 September 2020.
2023: 39% (2022: 38%)
10%
reduction in market-based
Scope 1 emissions by 2023
2023: 37%
(2) First year of reporting. Reporting period is 2022, based on CDP 2022 data, as this is the most recent year of measurement.
(3) Assumes unmatched proportion of Mortgage portfolio has consistent distribution with matched population.
For more information on progress against our wider
ESG goals, refer to the ESG report on pages 31-50.
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Strategy
Our transition plan to deliver on the Group’s net-zero strategy.
Completing our net-zero plans
Guided by our Purpose of Making you happier
about money, this year we delivered an
extended set of net-zero plans and targets
for our own operations, as well as continuing
work decarbonising our lending portfolios.
Building on our 2022 TCFD report, the Group
has set initial transition plans, taking into
account the draft TPT framework and guidance
from the UK CCC. We have further outlined the
Group’s transition plan across key sectors,
providing a view of our journey to transition
customers, suppliers and own operations to net
zero. We recognise we are still in the earlier
stages of that journey, navigating a rapidly
evolving landscape that requires substantial
advancements in data and technology
capabilities, so will continue to refresh our
transition plans during each financial planning
cycle, to maintain alignment with our wider
strategy and business model.
Given the nature of our balance sheet, and
as a UK-based bank, we have an opportunity
to make a real difference supporting our
customers and colleagues across the country in
making the transition to a low-carbon economy.
Meeting our targets
During 2023, we expanded our transition plans
to cover c.85% of our total customer lending,
across the most material lending sectors,
as outlined by the NZBA.
The Group expanded the Business lending
sectors covered in our financed emissions
models and targets, as well as enhancing the
modelling and methodology. Total financed
emissions estimates show an 11% decrease
from 2022, on a like-for-like basis. We will
continue to improve our climate-related data,
underpinned by our data project, responsible
for enhancing and automating our capabilities.
Engaging and supporting customers
through the transition remains fundamental.
We developed policies to mitigate the greatest
harm in our most material sub-sectors, which
will be rolled out in a phased approach through
2024. This includes analysis of customers’
own transition plans and ensures we provide
transition funding to customers who are likely
to make the biggest changes in emissions.
Given the challenge of suppliers setting
pathways to net zero across varying timelines,
we updated our 2030 aspiration to focus on
Scope 1 and 2 emissions, where we have direct
control. We continue to engage our supply
chain to set science-based targets, aligned to
net zero by 2050, in line with the goals of the
Paris Agreement and many of our suppliers’
own transition plans.
The Group is also considering the impact
our Business has on nature, in line with TNFD.
We recognise it is a complex topic, with cross-
dependencies on our climate ambitions, so will
work to develop our understanding in 2024.
Compliance
Per our TCFD summary on pages 52 to 53,
our disclosures are consistent with the
updated 2021 TCFD recommendations and
recommended disclosures, complying with
the applicable FCA Listing Rules, in addition
to amendments 414C, 414CA and 414CB
of the Companies Act 2006.
The final TPT disclosure framework was not
available in time for this report, so the Group
has used draft guidelines and the best available
guidance to present a transparent plan. We
expect to refine plans in line with TPT’s final
framework through 2024, providing updates
to track progress through the Environment
Committee, in addition to development updates
provided to the Board Risk Committee.
The regulation and guidance on environmental
reporting is a fast moving area, with the Group
working hard to progress its journey in line
with developments, such as the UK SDS,
due in July 2024. UK SDS is based on the ISSB,
which incorporate the recommendations of
the TCFD framework and key elements from
other market-leading sustainability reporting
initiatives, to deliver a global baseline. The
Group will review and consider the additional
disclosures required under ISSB in preparation
for their endorsement in the UK.
Risk types and time horizons
Our transition plan splits climate-related risks
and opportunities into the following categories:
Risk types
Description
P Physical risk
T Transition
risk
Arising from longer-term
changes in the climate and
weather-related events,
rising average temperatures,
heatwaves, droughts, floods,
storms, sea-level rise, coastal
erosion and subsidence.
Arising from the adjustment
towards a low-carbon economy
and could lead to changes in
risk appetite, strategy, policy,
technology and sentiment.
The following time horizons have also been
used when considering climate-related risks
and opportunities:
Time horizons
Description
S Short term
0-1 year
M Medium term 1-5 years
L Long term
>5 years
Many of the risks and opportunities cut across
all three time horizons, representing both the
immediate applicable actions, but also the
longer-term emerging nature of climate matters
and the related responses.
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Implementation Strategy
Our climate framework
Our Group-wide climate framework has been developed to steer the Group towards net zero by 2050, in line with UK Government commitments and the goals of the Paris Agreement:
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Making you happier about money
Enterprise net zero by 2050
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Support our customers through the UK’s transition to net zero and embed consideration of climate change risks
and opportunities across the Bank for the benefit of all stakeholders
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Put our (carbon) foot down
Reduce the impact our operations
have on the environment
The Group has a strong history of ensuring we make
as minimal impact to the environment as possible;
this extends beyond our own direct operations,
to include those of our suppliers and contractors.
We continue to ensure minimisation of our impact,
including sourcing renewable energy and
engaging our suppliers through the CDP Supplier
Engagement Programme.
Build a brighter future
Support customers in their
transition to a low-carbon economy
Given our position as the UK’s sixth largest bank,
it is central to our strategy to not only provide the
finance, but also the guidance to help customers
transition to a low-carbon economy. This includes
both lending to sustainability changemakers, as well
as developing propositions that equip customers to
decarbonise their businesses and homes. We are
guided by our sensitive sector policy and PCAF
calculated emissions methodology.
Open doors
Embed climate considerations
into the Bank’s culture and decision making
The threat posed by climate change requires a
fundamental change in business models. Embedding
climate considerations into our decision making to
deliver not only net zero, but value to our stakeholders,
has presented a shift from traditional business models.
This includes engaging at Board and local level across
all employees to ensure climate is embedded into
corporate planning, and adjusted accordingly as
external factors develop and internal processes mature.
Straight-up ESG
Identify and manage the impacts
of climate change on the business
Ensuring the Group is set up with the right skills
and structure to identify the short, medium and
long-term effects of climate change on the business.
This includes ensuring the right people, systems
and processes are in place to monitor the ongoing
and expected impacts of climate change and adjust
the Group’s overall strategy accordingly.
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Robust climate governance
and accountabilities
Dedicated climate training
for colleagues
Transparency and disclosure of climate-
related commitments and performance
Public- and private-sector
collaboration
Integrating climate data capability across the whole business
It’s important: One of the most urgent challenges facing society
with far-reaching environmental, social and economic consequences
for our customers and the Bank
We have a key role to play: in facilitating the UK’s transition
to net zero and in managing the associated risks and opportunities
to ensure the Bank’s long-term sustainable growth and resilience
But we cannot do it alone: Addressing the climate crisis and getting to
net zero will require collaboration across the public and private sectors.
Collaboration with, and action by, government, peers, industry bodies,
regulators and clients will be critical
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Mortgages
Supporting the decarbonisation of housing stock.
Overview
Buildings are the UK’s second-highest emitting sector, accounting
for 17% of total emissions(1). Mortgages represent c.79% of the Group’s
total customer lending exposure and are therefore a material area of
climate-related risk and opportunity for the Group.
Key initiatives to support transition
T S Greener Mortgage lending: Offering discounted lending rates
for purchasing a new-build property with an EPC rating of A or B. In 2023,
we achieved a 57% increase in greener lending, against a 50% target.
30 Sept 2023
30 Sept 2022
212
295(3)
54.7(3)
81.9
723
488
202.7
131.0
In the UK, 80% of the houses that will be occupied by 2050 have already
been built, and the country has the oldest housing stock in Europe(2). A
reliance on gas-based heating systems, combined with ageing, inefficient
properties poses a significant challenge in achieving our net-zero target.
No. of applications
No. of completed applications
Total value of applications (£m)
Improving the energy efficiency of homes, while installing lower carbon
energy technology is fundamental to future-proofing homes. Retrofitting
provides not only energy efficiency gains for customers, but also lowers
running costs. Supporting customers to understand the available help,
while providing knowledge and solutions to make their homes more
efficient, is core to our strategy in decarbonising our customer portfolio.
While the Group continues to work with customers on decarbonising
their properties, achieving our science-based emissions target relies
on greater certainty and urgency of government policy and accelerated
individual action. We made slower progress than planned this year due
to the tougher mortgage environment and cost of living challenges.
Engagement strategy
Customer education is key to decarbonising the housing stock. We are
developing a Green Hub with interactive tools and content to educate
customers on creating a more energy efficient home, and will engage
with individual customers to provide tailored net-zero pathways through
the development of our retrofit makeover product, to drive action.
Recent research with our Mortgage customers highlighted how important
education is in our net-zero strategy and contributed to our proposition
development. Despite >50% of homeowners and landlords either planning
to, or being interested in, including Greener measures in their homes in
the next 2-5 years, when asked about retrofitting homes, we found:
> 75% of customers want to make energy efficient improvements,
demonstrating demand.
Total value of completed applications (£m)
Our plan to extend the proposition to BTL customers and existing
homeowners have been paused given the tougher operating environment.
This will be revisited as we continue exploring Greener Mortgage
products and how to support customers to decarbonise their homes.
T S Green Reward: Launched in 2022 and extended through to
December 2023, existing mortgage customers who spend at least
£2,500 of additional borrowing on green home improvements receive
£250 cashback.
T L Green retrofit mortgage: Our brand-new product, launching
in 2024, developed with partners who will deliver an individualised
net-zero pathway for homes and estimate the benefits of retrofitting the
home, including future home market value. Virgin Money will then provide
affordable finance options for making energy efficient improvements.
T S M L Home Buying Coach: The free-to-use app is primarily
focused on supporting first-time buyers through the process of
purchasing a home, which includes guidance on the various energy
efficiency factors that homeowners should consider.
T L Customer education: Educational information to inform and build
customer confidence in what transitioning to a net-zero home means
for them. We are exploring an external net-zero hub, with interactive tools
for homeowners and landlords, as part of our mortgage product to retrofit
properties with greener solutions, through our GHFA project participation.
Summary metrics
£57.8bn gross Mortgage lending
> 74% Residential/26% BTL
Emissions intensity
2023: 31.1* kgCO2e/m2 (-4%)
2022: 32.3 kgCO2e/m2
Other targets
50% of portfolio EPC C+ by 2030
> 2023: 39% 2022: 38%
50% increase in greener lending
each year by 2026
> 2023: 57%/£82m increase
2022: 908%/£118m increase
Science-based target
31.1 kgCO2e/m2
4% reduction)
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2030
considered one.
(2) Source: UK Green Building Council – UKGBC responds to CCC housing report.
> Limited knowledge of Green Mortgage products: only 2-3% had
(1) Source: The Climate Change Committee – The Sixth Carbon Budget (Buildings).
Sector Emissions intensity (IEA NZE 2050)
Group convergence pathway Group estimate
> Only one in five were aware of the financial help available to improve
(3) Completions higher than applications due to 2022 pipeline.
energy efficiency.
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Mortgages
Risks and dependencies
There is a fundamental dependency on the collective action by a number of stakeholders to
facilitate the transition to net zero in homes. The key risks and dependencies we track include:
T L Customer education: While customer awareness continues to increase, individual action
in the absence of clear regulation requires a greater public awareness of the retrofit measures
available and the benefits of investing in them.
T S M Policy delivery: The greatest contributor to decarbonising the Mortgage book will
be the influence of the UK Government in greening the electricity grid and stimulating fabric first
and low-carbon heating installations. The UK CCC have noted that recent changes to the delivery
timescales of government policy have created widespread uncertainty for consumers and supply
chains, creating further challenges in decarbonising the housing stock.
T S M L Skilled labour for installations: A skilled UK workforce to assess UK properties
and deliver the appropriate improvements is fundamental to delivering the changes required.
T S M L Scalability of technology: Availability of heat pump technology to reduce reliance
on gas as a fuel source remains key, alongside other emerging low-carbon technologies. Incentives
and subsidies are required to lower cost barriers for consumers and generate an uptake at the
scale needed to reduce emissions over time and ultimately achieve our science-based target.
Measuring our climate-related risks
The Group receives property data from a third-party provider, to enhance our risk identification
and monitoring processes. This includes data on fluvial, pluvial and tidal flooding, coastal erosion,
subsidence, expected future insurability and EPC rating. The Risk Management section provides
further information on how risks are identified, managed and monitored.
P S M L EPC Property Ratings
An EPC gives properties an energy efficiency rating, from A (most efficient) to G (least efficient).
As we transition to a net-zero economy, more importance is placed on properties being better
equipped to reduce their energy consumption.
The tables opposite shows EPC ratings by volume. Our data provider sources EPC data via the
UK Government and matches it to the Group’s mortgage data. 73.4% of mortgaged properties were
matched to an EPC rating (70.2% Residential; 81.8% BTL), an increase of 5.8% from 2022. Of those
properties where no EPC rating was matched, this would be due to properties either not being
on the register, or located in Northern Ireland, which our data provider does not currently access.
The UK Government had plans for all new tenancies to have a minimum rating of C or above
by 2025, and all existing tenancies by 2028. However, this was reversed in the September 2023
announcement, instead encouraging homeowners to do so where they can.
The EPC profile remains stable, with the largest proportion of properties rated C to E.
Current EPC ratings
A
B
C
D
E
F
G
Total
Unmatched
31 March 2023
31 March 2022
Residential
mortgages
0.2%
8.6%
BTL
0.1%
7.2%
Total
mortgages*
Residential
mortgages
0.1%
8.2%
0.1%
7.9%
BTL
0.1%
6.8%
Total
mortgages
0.1%
7.6%
17.3%
29.2%
20.6%
15.0%
26.5%
18.1%
29.6%
34.2%
30.9%
27.0%
33.1%
28.7%
11.4%
10.1%
11.1%
10.8%
10.6%
10.7%
2.6%
0.8%
2.1%
2.4%
0.9%
2.0%
0.5%
70.2%
29.8%
0.2%
81.8%
18.2%
0.4%
73.4%
26.6%
0.5%
63.7%
36.3%
0.2%
78.2%
21.8%
0.4%
67.6%
32.4%
Potential EPC ratings(1)
Residential
mortgages
BTL
Total
mortgages
Residential
mortgages
BTL
Total
mortgages
31 March 2023
31 March 2022
A
B
C
D
E
F
G
Total
Unmatched
5.8%
2.7%
4.9%
5.2%
2.5%
4.5%
34.4%
44.8%
37.2%
30.4%
41.1%
33.3%
23.3%
29.4%
25.0%
21.4%
28.9%
23.4%
5.2%
4.2%
5.0%
1.2%
0.6%
1.0%
0.2%
0.1%
0.2%
0.1%
70.2%
29.8%
0.0%
81.8%
18.2%
0.1%
73.4%
26.6%
5.2%
1.2%
0.2%
0.1%
63.7%
36.3%
4.9%
0.7%
0.1%
0.0%
78.2%
21.8%
5.1%
1.1%
0.2%
0.1%
67.7%
32.3%
(1) The potential rating a property can achieve if all improvement measures listed in the EPC recommendations report are undertaken.
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Mortgages
P S M L Flood risk
The map opposite illustrates the potential flood risk for our Mortgage customers as at 31 March
2023, representing the proportion of lending by value at high or very high risk of flood in each
region, modelled using a high emission scenario (Representative Concentration Pathway 8.5) over
a 2050 time horizon. The ratings are a combination of the likelihood and severity of flood hazard
for each property. ‘High’ scores have a high chance of shallow or moderate flooding and moderate
chance of deep flooding, and ‘very high’ scores have a high probability of deep flooding. A property
at ‘high’ risk is likely to be expensive to insure and for those at ‘very high’ risk, insurance may be
unavailable unless the property qualifies for a scheme such as the current Flood Re scheme.
With 94% of properties matched to a flood risk rating, on a total value basis, properties at high risk
of flooding represent 3% of the portfolio, with very high risk representing 1%, in line with 2022. This
provides the Group with low current and future exposure to flood risk. Changes in climate risk and
the impact on flood risk zones will continue to be monitored and the Group’s exposure reassessed
as required.
Potential flood risk
March 2023
Prior year figures are shown in parentheses
P S M L Coastal erosion
The risk to the Mortgage portfolio from coastal erosion is minimal, as illustrated in the table below.
Scotland
High risk: 2.0% (1.9%)
Very high risk: 1.3% (1.1%)
Risk rating
Negligible
Low
Medium
Very high
Unmatched
31 March 2023
31 March 2022
Residential
mortgages
BTL
Total
mortgages
Residential
mortgages
BTL
Total
mortgages
94.70%
88.72%
93.14%
94.81%
88.09%
93.05%
–
0.02%
0.02%
5.26%
–
0.01%
0.01%
11.26%
–
0.02%
0.02%
6.82%
–
–
–
0.02%
0.01%
0.01%
–
–
–
5.17%
11.90%
6.94%
Using a high emission scenario (Representative Concentration Pathway 8.5), modelled over a
2050 time horizon, c.93% of all mortgages continue to carry a negligible risk rating. The Group
will monitor the impact of climate change on coastal erosion relative to its portfolio.
Other physical risks
Controls are in place around other environmental-related property issues, such as protected
wildlife, Japanese knotweed, fracking, sewage and drainage, high voltage electrical supply
apparatus, shale/contaminated fill, radon gas and contaminated land. In these instances,
additional environmental reports may be required.
Further information on how we manage climate-related mortgage risks is available in the Risk
Management section on pages 261 to 265.
Northern Ireland
High risk: 1.7% (1.7%)
Very high risk: 1.1% (0.9%)
North West
High risk: 2.9% (2.5%)
Very high risk: 1.7% (1.6%)
Wales
High risk: 2.6% (1.9%)
Very high risk: 1.2% (0.9%)
West Midlands
High risk: 1.8% (1.7%)
Very high risk: 0.6% (0.5%)
South West
High risk: 3.0% (2.6%)
Very high risk: 1.0% (0.9%)
4.0%+
3.0%–3.9%
2.0%–2.9%
0%–1.9%
North East
High risk: 2.0% (2.0%)
Very high risk: 1.4% (1.2%)
Yorkshire and
Humberside
High risk: 2.4% (2.2%)
Very high risk: 1.5% (1.4%)
East Midlands
High risk: 2.5% (2.1%)
Very high risk: 0.8% (0.7%)
East Anglia
High risk: 4.7% (4.5%)
Very high risk: 4.9% (4.7%)
Greater London
High risk: 3.2% (3.8%)
Very high risk: 0.8% (0.9%)
South East
High risk: 3.0% (2.9%)
Very high risk: 1.1% (1.0%)
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Business lending
Supporting SMEs transition to net zero.
Summary metrics
£8.7bn gross Business lending
c.12% of total customer lending
Financing targets
£500m Energy & Environment
lending by 2025
> 2023: £317m*
2022: £224m
10% of lending to sustainability
changemakers by 2027
> 2023: 6.7%
2022: 5.3%
Proportion of Business lending to the
highest emitting sectors to be less than
30% by 2030(1)
> 2023: 34%
2022: 37%
For more information on the Group’s financed
emissions, by sector, please refer to the Metrics
& Targets section on pages 267 to 271.
Overview
Virgin Money provides lending to >200k businesses, predominantly
comprised of SME businesses, where customers with debt sizes >£1.5m
are managed by our specialist population of relationship managers, and
businesses with <£1.5m are supported through a remote digital model.
The sectors we lend to are primarily lower risk, with limited lending to
oil and gas field services. While we do have a significant Agriculture
lending business, we have robust plans to support customers making
the transition.
We know businesses have made varying degrees of progress in
understanding their carbon footprint and putting in place reduction
measures, which are often dependent on wider supply chain pressures
and regulatory action. We are focusing our efforts on the areas where
we can make the most difference through our specialist teams, in sectors
and areas of the economy where we have the greatest share of
customers. We are also supporting our Business customers with digital
educational tools, which support action plans to manage their impacts.
Pages 249 to 251 contain the transition plans for our most material
sectors, as well as lending balances as at 31 March 2023, in line with
our financed emissions calculations.
Engagement strategy
Our primary model for engaging with larger customers is through our
relationship managers, who provide advice and support to businesses
borrowing >£1.5m. We recognise each sector requires a different
engagement approach based on transition maturity, pace of technological
change and policy development.
As a large proportion of our Business customers are privately owned
and/or SMEs, few report against voluntary disclosure initiatives, such
as CDP, TCFD or Sustainability Accounting Standards Board (SASB).
As these businesses are key to the UK economy, the Group’s focus
will be on how it can support them with adaptation and mitigation.
In 2023, we began chairing the PCAF working group on Business Loans
and Unlisted Equity, working with other banks to support SMEs with
their transition plans. The Group’s key aim is to explore the challenges
in calculating SME emissions and present a recommendation to support
the ongoing development of the PCAF standard.
Key initiatives to support transition
T M Lending to sustainability changemakers(2): Using the Sustainable
Business Coach to identify business activities that drive social or
environmental change, such as supporting the transition to a net-zero
economy or driving positive social change, in recognition of the
importance of a ‘just’ transition.
We have set a target for 10% of the Group’s Business lending to originate
from sustainability changemakers by 2027. These are facilities to
companies whose core goods or services (defined as >50% of business
revenue) enable others to operate in a more economically and
environmentally sustainable way.
T M Energy and Environment Lending: Delivering lending to
businesses or projects that support the energy transition. Eligible
projects include alternative power sources such as hydro, wind and other
renewables. Full eligibility criteria for this lending can be found in our
basis of preparation document, available at: virginmoneyukplc.com/
corporate-sustainability/environment
T S M L Sustainable Business Coach (SBC): An interactive
tool developed through our relationship with Future-Fit, a non-profit
organisation whose mission is to help the transition to a society that
is environmentally, socially and economically fair. The free-to-use app
is available to any business and provides an assessment of a company’s
ESG impacts, an overall score, and advice on how to improve the score.
This supports our ambition to have 10% of the Group’s Business lending
to originate from sustainability changemakers by 2027, with inclusion
objectively assessed by the SBC.
Our SBC was launched in October 2021. It has since been embedded
into our annual review process for customers with the potential to have
the highest exposure to climate change risk, who are borrowing over
£2.5m. Those businesses are also required to complete a climate survey,
alongside the SBC response. SBC completion and scoring outcome
is not a condition of lend.
To find out more, visit: benchmark.futurefitbusiness.org
(1) New target – Further information available on page 254.
(2) Customers included within the energy and environment sector satisfy the criteria and therefore
are included within lending to sustainability changemakers.
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Business lending
P T S M L Climate survey: The climate survey was
introduced in 2022 for Business customers borrowing >£2.5m.
The responses have been analysed to aid our understanding
of how customers are approaching climate change risks
and how the future business models or strategies of those
businesses may change over time. It has also provided an
understanding of the preparations our customers are making
to tackle these risks and will inform how the Group can support
customers to transition as the landscape evolves.
During 2023, we maintained our Sustainable Business Coach
and Climate Risk Survey. Questions from the survey focused on:
> climate strategies;
> assessments of climate-related risks;
> GHG emissions; and
>
reduction targets.
This is key to the Group’s understanding of its customer base,
to identify areas where we can support businesses in their
net-zero journey, and also to identify the trends across industries
and sectors.
This year, the Group has seen a number of key changes since
the 2022 responses:
> The number of businesses across our top five lending sectors
that have a climate strategy integrated into their business
strategy has increased by an average of 9%.
> Within the Agriculture sector, businesses now calculating
Scope 1 and 2 emissions have increased by 25%.
> The volume of businesses across our top five lending sectors,
by value, that have taken action to reduce GHG emissions
in the last two years has increased by an average of 7%
(14% for Agriculture).
> A more limited number of businesses have started calculating
Scope 3 emissions (18%) or set emission reduction targets
aligned with a recognised climate standard or initiative (32%).
Overall, the responses indicate that businesses are taking
increased action to reduce greenhouse gas emissions and
respond to climate change, however, some areas remain
more challenging, especially for SMEs. Our climate survey
is aimed at customers borrowing >£2.5m therefore is not
necessarily reflective of SMEs in general.
As we develop our sector-level transition plans, the Group will
use the insights gained from the climate surveys to develop
propositions as well as identifying and managing potential risks.
As the Group continues its engagement with Business customers
on climate-related matters, we will explore ways of capturing and
using more granular data on their climate metrics and transition
plans. We do not currently target our response rates, but as
the Group and industries move along their net-zero journeys,
the Group will review its position.
Climate survey responses
The table below summarises the positive responses on each question across our five largest lending sectors:
30 Sept 2023
30 Sept 2022
Businesses with a climate strategy integrated into business strategy
Physical risks from climate change assessed as a key risk
Transition risks from climate change assessed as a key risk
GHG emissions arising from operations calculated (i.e. Scope 1 and 2 emissions)
GHG emissions arising from value chains calculated (i.e. Scope 3 emissions)
Proportion of businesses with a plan in place to reduce GHG emissions over the next five years
Emission reduction target(s) set to align with a recognised climate standard or initiative
Businesses that have taken action to reduce GHG emissions in the last two years
Agriculture
Business
services
Healthcare
Hospitality
Manufacturing
73%
73%
67%
57%
12%
80%
28%
53%
64%
32%
33%
41%
25%
65%
30%
60%
41%
34%
37%
15%
5%
39%
22%
38%
43%
22%
36%
17%
9%
60%
28%
45%
63%
39%
42%
40%
27%
73%
28%
57%
Total
64%
45%
47%
38%
18%
67%
32%
56%
Total
50%
40%
44%
29%
14%
57%
29%
46%
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Business lending
Carbon-related assets
The Group is potentially exposed to future transition risks through its Business lending portfolio,
as a result of specific sectors being exposed to heightened transition and physical risks.
In line with TCFD guidance, the Group has identified exposures to carbon-related assets
associated with the non-financial groups: Agriculture, Food and Forest Products, Energy,
Materials and Buildings, and Transportation. These sectors are more likely to be financially
impacted due to their exposure to certain transition and physical risks such as emissions, energy
or water dependencies associated with their operations and products. A view of the Group’s
exposure to carbon-related assets within our wider Business lending sectors is shown opposite.
Resources represents only 2% of total Business lending (£165m), with £123m of this balance
made up of oil and gas field services. £167m of balances within the ‘Other’ Business lending
sector relate to construction and utilities balances.
Risks and dependencies
The Group takes a consistent approach to manage climate risk across the Business portfolio,
which includes the Group’s:
> Sensitive Sector policy;
> Credit risk assessments;
> Policy Management Framework; and
> Climate risk modelling.
Further information on these processes, alongside our wider approach to credit risk in Business
lending, is detailed in the Risk management section, on page 264.
There are also sector-specific risks that can arise. Further information on these is detailed
across the next three pages.
30 Sept 2023(2)(3)
Agriculture
Business services
Commercial Real Estate
Government, health
and education
Hospitality
Manufacturing
Resources
Retail and wholesale trade
Transport and storage
Other
Total
30 Sept 2022(4)
Agriculture
Business services
Commercial Real Estate
Government, health
and education
Hospitality
Manufacturing
Resources
Retail and wholesale trade
Transport and storage
Other
Total
of which: carbon-related assets(1)
Energy
£m
Materials &
Buildings
£m
Transpor-
tation
£m
Total
£m
% of total
Business
lending
Agriculture,
Food and
Forest
Products
£m
Total
gross
£m
1,361
1,361
1,365
719
1,238
839
746
165
903
322
1,026
–
–
–
–
220
–
–
–
–
–
–
–
–
–
–
137
–
–
7
8,684
1,581
144
1,458
1,266
607
1,062
730
749
141
894
347
915
1,458
–
–
–
–
189
–
–
–
–
–
–
–
–
–
–
105
–
–
9
8,169
1,647
114
–
–
533
–
–
88
28
–
–
160
809
–
–
472
–
–
83
36
–
–
184
775
–
1,361
15.7%
373
–
–
–
14
–
120
313
–
373
533
–
–
322
165
120
313
167
4.3%
6.1%
0.0%
0.0%
3.7%
1.9%
1.4%
3.6%
1.9%
820
3,354
38.6%
–
1,458
17.8%
246
–
–
–
16
–
111
332
–
246
472
–
–
288
141
111
332
193
3.0%
5.8%
0.0%
0.0%
3.5%
1.7%
1.4%
4.1%
2.4%
705
3,241
39.7%
(1) In line with TCFD guidance, water utilities and renewable electricity producer industries are excluded from carbon-related assets.
(2) The table has been aligned to TCFD guidance, based on the four non-financial groups noted above.
(3) The format of the 2023 carbon-related assets table has been updated for consistency with other Business lending disclosures
within the Annual Report and Accounts.
(4) Prior year figures have been restated to present Business lending on the same basis as credit risk data.
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Agriculture
Reducing farm emissions.
Summary metrics
£1,361m lending
c.16% of Business lending
Emissions intensity
2023: 1,535 tCO2e/£m revenue (+7%)
2021: 1,431 tCO2e/£m revenue(1)
(1) Baseline year.
Science-based target
y
t
i
s
n
e
t
n
i
e
u
n
e
v
e
R
)
m
£
/
e
₂
O
C
t
(
1,535tCO2e/£m revenue
7% increase)
1,550
1,350
1,150
950
750
2021
2030
2040
2050
CCC BNZ intensity pathway
Group convergence pathway Group estimate
Overview
Agriculture is the Group’s largest Business lending sector, accounting
for £1,361m of borrowing and c.16% of Business lending. The Agriculture
sector in the UK is responsible for c.12% of total UK emissions annually(1)
and is fundamental in the transition to a low-carbon economy.
Risks and dependencies
We continue to explore the levers at our disposal to support the reduction
in emissions aligned with the UK CCC pathway, however we have limited
control over a number of external dependencies which are fundamental
to an agricultural transition.
Delivering an agricultural transition requires an alignment across
regulatory, financial and supply chain incentives for businesses to invest
in low-carbon technology and practices. The Group is positioned in this
sector with a specialist team to provide the support our customers need
to make the necessary changes to their businesses.
Engagement strategy
We have a dedicated team of face-to-face relationship managers who
regularly meet with farmers to understand how they can make efficiency
improvements on their farms and the role finance can play in supporting
them. We also sponsor and attend various Agriculture shows across the
UK, using the opportunity to promote the Agri E Fund and the importance
and benefits of carbon audits.
We have set a science-based target to reduce the emissions intensity
of our Agriculture customer base by 26% by 2030, from our updated
baseline of September 2021. Underlying calculated emissions have
reduced by 7% year-on-year, but emissions intensity has increased by 7%
due to lower than expected customer revenue attributed to the lending.
For more details see page 272 of the Metrics and targets section.
Key initiatives to support transition
T S M L Agri E Fund: Our flagship Agri E Fund product, which
provides lending for green projects with no arrangement fee if farmers
undergo a carbon audit, continues to be the main lever to incentivise
and educate customers on reducing carbon in the food supply chain.
This will also improve the Group’s ability to assess progress against
targets and enhance data quality within our financed emissions
calculations. In 2023, we continued to encourage the use of the E Fund
and carbon audits, exploring ways to incentivise take-up and increase
coverage across the customer base.
T S M L Sustainable Business Coach: The SBC also supports
our Agriculture customers in identifying their high priority ESG goals,
with suggested areas for improvement highlighted.
The CCC’s 2023 progress update notes the recent UK Government
Carbon Budget Delivery Plan has a high dependency on innovation and
a reliance on voluntary measures which is stalling progress, indicating
further action is required to meet the legally binding net-zero target
within the sector. In the absence of these policy interventions, targets
set for the sector look challenging.
Key factors we are tracking include:
P T L Customer education: Areas of significant opportunity such
as regenerative farming, low-carbon technology and changes to land
use to support abatement are in their infancy in the market. Engaging
our customer base remains fundamental and our Head of Agriculture and
wider team visited >30 customer conferences across the year to discuss
net zero and increase awareness alongside other supply chain partners.
P T S M L Low-carbon farming practices and technologies:
The availability of low-carbon farming technology, such as decarbonised
vehicles and buildings, as well as broader productivity enhancements,
including the adoption of regenerative farming, continue to present
key opportunities.
P T M L Land use changes: The development of a single carbon
market for farmers will continue to incentivise farmers to develop unused
land to sequester carbon emissions, while providing an additional source
of income to decarbonise their own operations.
(1) Source: The Climate Change Committee.
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Energy
Supporting the transition to greener energy.
Renewable energy
Summary metrics
£317m lending*
c.4% of Business lending
Avoided emissions
2023: -44 ktCO2e
P T S M L Overview
Renewable energy sources such as wind,
solar, and hydropower will play a critical role
in decarbonising the energy mix of the UK’s
electricity grid. The UK Government has
committed to deliver fully decarbonised
electricity by 2035 in its energy security plan
and the support of Renewable businesses
will be pivotal to achieving this goal.
The increasing supply of renewable electricity
to the power grid will have a major impact
on heating, transport, and our industries.
Engagement strategy
Our team of Energy & Environment relationship
managers remain key to engaging customers
in the renewables sector. As a new growth area,
we remain focused on ensuring we have the
best team to support our ambitions.
In 2024, the Group will explore opportunities
to extend renewable project financing across
other sectors, such as Agriculture, as well as
exploring opportunities to fund technologies
which support the renewables sector, such as
battery storage and infrastructure investments.
The Group has no science-based target set for
Utilities, as the portfolio is mostly renewables.
Key initiatives to support transition
Our project finance supports the development
of renewables projects with a suite of Business
lending products. We have targeted £500m of
lending to the Energy & Environment sector by
2025, achieving £317m of loans in 2023. The
Agri E Fund also supports farmers to invest in
renewable energy projects to reduce emissions
or act as an alternative source of revenue.
Risks and dependencies
Delivery of the UK Government’s updated
Energy Security Plan, which set an objective
to generate up to 50 gigawatts (GW) of offshore
wind energy by 2030 and 70GW of solar by
2035, will be critical to support the sector.
This year, the CCC noted that progress in
onshore wind and solar development has been
slow due in part to barriers in the planning
system, despite being the cheapest source of
electricity. Ongoing enablers such as sufficient
network capacity and timely grid connections
are noted as a critical priority, with a need to
address supply-chain bottlenecks as they arise
to avoid delaying investment.
Oil and gas
Summary metrics
£123m lending
1.4% of Business lending
Emissions intensity
2023: 1,059 tCO2e/£m lent (-5%)
2021: 1,114.5 tCO2e/£m lent(1)
(1) Baseline year.
P T S M L Overview
Decarbonisation of the sector is fundamental
to achieving net zero and limiting warming
to 1.5ºC. UK Government plans to accelerate
the deployment of renewables become critical
to reduce reliance on imported energy, given
the recent deterioration in energy security.
Due to our Sensitive Sectors policy, we do not
have direct exposure to businesses generating
revenue directly from oil and gas extraction.
Group balances in this sector are to field
services businesses, whose expertise and
supply chain reach are crucial in the transition
to renewable energy as a key power source.
Engagement strategy
In 2023, the Group developed a high-emitting
sub-sector policy, which requires new lending
in carbon-intensive sub-sectors, including oil
and gas, to meet the following criteria:
> Measure emissions and supply the data
to Virgin Money.
> Create and share a measurable transition
plan, which demonstrates a reduction in
emissions with annual progress updates.
> New term finance must be used to fund
the business’ emissions reduction plans.
The policy will be implemented through 2024
in a phased manner and monitored for suitability.
A science-based target was set to reduce the
lending intensity by 52% by 2030, from our
updated 2021 baseline. Emissions intensity
reduced by 5% despite underlying emissions
increasing, from increased lending to the sector
at a lower emissions intensity, due to the nature
of the businesses we are financing.
Key initiatives to support transition
We continue to make a suite of finance products
available to businesses in the sector, with our
Sensitive Sectors policy continuing to ensure
the Group does not lend to extraction services,
while our emissions reductions policy introduces
carbon reduction as a condition of lend in the
sector for the first time.
Risks and dependencies
As our customers are in the supply chain for
oil and gas extraction, we expect emissions
to reduce as businesses transition their models
from fossil fuels to renewables. The CCC notes
the best way to reduce the UK’s exposure to
volatile markets is through measures such as
rapidly shifting to renewables, improving energy
efficiency and electrifying end uses.
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Transport
Delivering the transition in the transport sector.
Surface transport
Summary metrics
£163m lending
1.9% of Business lending
P T S M L Overview
The UK has a strong dependency on Surface
Transport as a key method of transportation
of people and goods. The CCC notes it remains
the UK’s highest emitting sector, responsible for
23% of total emissions. Its ability to transition
is dependent on the take-up of low-carbon
technologies and fuels, efficiency improvements
in fossil fuel powered vehicles and behavioural
changes to reduce travel demand and shift
journeys to lower-carbon modes of transport.
The Group has a dedicated Asset Finance sales
team responsible for managing our portfolio
of Asset Finance customers, which comprise
c.10% of the Business lending book.
Engagement strategy
Our Asset Finance team is an associate
member of the British Vehicle Rental and
Leasing Association, gaining insight and
engaging on ESG development within asset
finance, helping to translate this to green
finance opportunities.
We set a science-based target to reduce
the physical emissions intensity of our surface
transport customer base in 2022, however,
the exclusion of Asset Finance from our
financed emissions calculations limited our
ability to report progress against this target
in 2023. This will be updated in 2024, once
an Asset Finance model has been added.
Key initiatives to support transition
The Group offers both term lending and a
range of asset finance facilities to the sector
and explores risk appetite enhancements.
As the UK Government continues to review
its low carbon vehicle policies, we continue
to work with customers to support their ability
to transition to net zero.
Risks and dependencies
The expected take-up of low-emission EVs
requires a low-cost and efficient charging
infrastructure, scaled up to support demand.
Although it increased by almost a third in 2022,
the CCC notes concerns around reliability,
cost and consistency. This may undermine
public confidence in purchasing EVs, putting
ownership targets over time at risk.
Shipping
Summary metrics
£142m lending
1.6% of Business lending
Emissions intensity
2023: 709 tCO2e/£m lent (-63%)
2021: 1,934 tCO2e/£m lent(1)
(1) Baseline year.
P T S M L Overview
The UK CCC notes the Shipping sector
contributed 3% of UK total emissions and still
does not have a clear decarbonisation pathway,
being largely dependent on the adoption of
low-carbon fuels.
Delivery of the UK Government’s mandate
on vehicle manufacturers, placing a minimum
requirement on the proportion of new electric
car and van sales, will encourage production
and take-up of EVs. This is key to delivering
decarbonisation, particularly for van sales,
which remain off-track from CCC’s projections.
Engagement strategy
The Group has a growing number of maritime
customers who support offshore renewables,
fundamental in the transition. We continue to
engage with the sector to enable the purchase
of more energy efficient vessels in the absence
of commercially scaled low-carbon fuels.
The Group has set a high-emitting sub-sector
policy, with the same criteria as oil and gas.
We have set a science-based target to reduce
the economic emissions intensity of our
Shipping customer base by 52% by 2030,
from our updated baseline of September 2021.
We achieved a 63% year-on-year reduction in
emissions intensity (tCO2e/£m lent), largely
through improved data quality and from a
relatively low base. The Group remains
committed to updating its targets in line with
the latest science and will continue to monitor
external pathways for the Shipping sector.
Key initiatives to support transition
The Group’s high emitting subsector policy
(as outlined under Oil and gas on page 250)
will cover the Shipping sector from 2024. Given
the decarbonisation of the Shipping sector will
require new technology development, including
alternative fuels and electrification of propulsion
and shore power, we will work closely with
customers to assess the feasibility of Transition
planning within the sector.
Risks and dependencies
Zero carbon fuels account for 87% of emissions
savings from Shipping within the CCC’s
balanced net-zero pathway. The CCC noted
in its 2023 progress report that take-up of
low-carbon fuels and electrification are virtually
zero, with no clear strategy to incentivise
maritime operators to decarbonise the sector.
There are ‘significant risks’ identified in the
assessment of policies and plans for shipping.
The UK Government is due to publish its
updated Clean Maritime plan in late 2023.
The CCC notes this must address key issues
such as the planned phaseout of the sale of
non-zero emission domestic vessels and the
viability of different low-carbon fuels.
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Suppliers
Reducing the emissions in our supply chain.
Summary targets
75% of suppliers (by spend) committed
to, or have approved, science-based
targets by 2028
> 2022: 38%(1)
(1) First year of reporting. Reporting period is 2022
based on CDP 2022 data as this is the most recent
year of measurement.
Scope 3 Category
Emissions (tCO2e)(2)
Category 1: Purchased Goods
and Services
Category 2: Capital Goods
48,544
2,039
(2) First year of reporting. Reporting period is 2021 based
on 2021 spend and CDP 2022 data. This is the most recent
year of measurement and CDP emissions intensity data
is in arrears.
Targets
Given the challenge of suppliers having different timescales to net zero,
we are updating our 2030 aspiration to focus on Scope 1 and 2 emissions,
where we have direct control. We now expect to be net zero in terms
of our own operational emissions for Scope 1 and 2 by 2030.
The Group has also set a target for 75% of suppliers (by spend) to have
committed to or have approved science-based targets by 2028. Based
on CDP’s 2022 data, 42 of the Group’s suppliers in the CDP Supplier
Engagement Programme have committed to science-based targets,
representing 38% of total 2021 spend.
As data and methodologies mature and settle, the Group will be in a
better position to consider implementing targets over absolute emissions.
Supplier emissions
This year, we calculated an emissions baseline for the first time.
This covered the following Scope 3 categories:
> Category 1: Purchased Goods and Services: all upstream emissions
from the production of products (including both goods and services)
purchased or acquired by the Group; and
> Category 2: Capital Goods: all capital goods that have an extended
life, such as equipment, buildings, facilities, and vehicles.
A spend-based methodology was used for both categories. For suppliers
disclosing to CDP, we receive detailed emissions intensity data. For
non-CDP suppliers, sector average emissions data is provided by CDP.
The emissions intensity values are then multiplied by spend.
CDP Supplier Engagement Programme
We continue to deliver the CDP Supplier Engagement Programme,
requesting our suppliers to report their environmental data to CDP,
who then provide us with the necessary climate-related data to
understand our suppliers’ emissions, progress, risks and opportunities.
In 2023, we obtained a response rate of 87% from 178 suppliers
(2022: 94% of 100 suppliers), compared to an industry average of 63%.
Suppliers that responded in 2023 cover 74% of total 2021 supplier spend,
which is the data point we currently use in calculations.
The Group will look to use more recent data going forward as we embed
and improve our processes. Additionally, as we continue to engage our
suppliers and increase the number that disclose to CDP, this increases
the accuracy and reliability of the Group’s reporting.
Limitations
As with all Scope 3 emissions, the Group has less control and influence to
achieve net zero as it does with Scope 1 and 2. While some suppliers are
large corporations, which are already on net-zero journeys independent
of Virgin Money, we also have smaller suppliers who may not have the
resource or scope to embark on an ambitious net-zero programme.
Education
We educate and support suppliers disclosing to CDP by delivering
webinars and providing access to resources. This was especially
important for any suppliers who we did not engage to submit in the
2022 programme; of those we managed to encourage 78% of these
additional suppliers to submit this year.
Future focus
Our commitment to develop the Group’s CDP Supplier Engagement
Programme will help our progress in developing our supplier roadmap
to achieve net zero. It will also help improve data and track targets,
as well as gain a better understanding of the environmental impacts
and issues in our supply chain. The Group will continue to encourage
suppliers to both set science-based targets and disclose to CDP.
In 2024, we will be strengthening our focus on sustainability within our
supplier tendering and selection process and will be looking for suppliers
to tell us how their proposed products and solutions are considering the
environmental impact. The sustainability impact will feature in our scoring
methodology and influence the final outcome of supplier selection.
Furthermore, we will be enhancing our Supplier Performance Management
Programme, with our Supplier Relationship Managers working more
closely with key suppliers to understand their sustainability roadmap
and encouraging them to commit to setting science-based targets.
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Property
Colleagues
Reducing our operational emissions.
Promoting greener ways of working.
Property footprint: As we embed new ways
of working, the Group has reduced its property
footprint by c.50% since 2018. Furthermore,
when closing large offices, we engage with
local charities and community groups to donate
our surplus furniture and kitchen equipment.
Energy: Where available and where we are
responsible for the supply, 100% of the gas
and electricity in our UK stores and offices
is generated from renewable sources(2).
The continued sourcing of green energy
enables the Group to maintain low levels
of market-based emissions. We recognise
our reliance on the UK energy grid becoming
greener to continue reductions. Our Property
strategy sets a clear path to continue reducing
our location-based energy consumption by 50%
in 2025 (2023: 30%, against a 2020 baseline).
Water: The Group has already surpassed its
2025 target to reduce water consumption to
45,000m3 and achieved a further reduction
to 35,900m3 in 2023 (2022: 41,765m3).
Waste: The Group and its suppliers continue
to deliver zero waste to landfill, which has been
consistent since 2014. We continue to pursue
opportunities to reuse and recycle materials
where possible to further reduce our waste.
Paper: In 2023, our stores, offices and print
suppliers reduced paper usage by 18%, to c.449
tonnes (2022: c.544 tonnes). Prior year figures
have been restated, due to refinements in how
we track our usage, based on our procurement
of paper and envelopes.
Additionally, this year we optimised our
dedicated mail delivery routes between offices
to remove c.340 miles off the road every day,
equating to 54 tonnes of CO2 annually.
(2) c.8% of the Group’s energy utilisation is not from renewable
sources, due to either a lack of control or availability.
Summary targets
Maintain travel carbon emissions
(per FTE) below 50% of 2019 baseline:
> 2023: 38%
2022: 17%
Scope 3 Category
Emissions (tCO2e)
Category 6: Business travel(3)
Category 7: Employee commuting
and homeworking(4)
755
3,700
(3) Reporting period: July 2022 – June 2023.
(4) Based on February 2023 data, applied across 12 months.
Business travel: We recognise there is still
a need for business travel, and as part of
our team rhythms, which establishes when
and where our teams work, we encourage
colleagues to consider the environmental impact
when arranging gatherings. We enhanced
our travel policy to include more information
about the environmental impact from different
methods of travelling. Our travel booking tool
also highlights more environmentally friendly
travel options where available.
For Category 6, the Group calculated emissions
using data from our travel booking tool. A target
was set to maintain the travel carbon emissions
(per FTE) below 50% of 2019 base level (FY19:
0.27tCO2e per FTE).
Employee commuting and homeworking:
Our A Life More Virgin colleague proposition
continues to offer choice and flexibility on
where and when colleagues work.
For Category 7, a methodology and data model
has been developed, using the average-data
method, which estimates emissions from
employee commuting based on average
(e.g. national) data on commuting patterns,
combined with secondary colleague contract,
transport and activity data.
Targets are optional for this category and
as many choose to work remotely, impacting
positively on GHG emissions, and existing
working styles are not anticipated to change
in the next 12 months, we have not set a target.
Sustainability Hub: We launched an internal
Sustainability Hub to provide colleagues with
a collaborative space to receive the tools,
resources and education around sustainability
in Virgin Money and beyond.
Sustainability champions: Our store network
is supported by local sustainability champions,
who promote sustainability within the network
and look for greener ways of working.
‘Going for Green’ Teams channel: We have
facilitated a Teams channel to provide a forum
for colleagues to share their tips, triumphs and
good news stories.
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Summary targets(1)
Reduce location-based Scope 1 and 2
emissions by 50% in 2025:
> 2023: 39%
2022: 28%
Reduce location-based energy
consumption by 50% in 2025:
> 2023: 30%
2022: 21%
Reduce water consumption
by 50% in 2025:
> 2023: 60%
2022: 54%
(1) Against a 2020 baseline.
Initiatives: The Group delivered a 21% and
13% reduction in location-based Scope 1 and 2
emissions respectively, against 10% targets
for 2023. This was partly delivered through
property efficiency programmes, which we
continue to pursue further through LED lighting,
more energy efficient heating/air conditioning
and use of chemical-free cleaning products.
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Engagement strategy and financial planning.
Embedding climate within financial planning
In developing our net-zero transition plans, we’ve embedded
climate considerations across the financial planning process.
Engagement strategy across government and industry
The Group continues to participate in a number of industry-led working groups to have influence and effective engagement on policy
with the UK Government, in addition to working towards disclosure consistency with peers:
In 2023, we categorised our lending portfolio into high/
medium/low-carbon intensive sectors, using our estimates
of financed emissions (both absolute and intensities) and
external guidance from NZBA and TCFD classified high
priority sectors. These sectors were then analysed to
understand the intensity impacts to FY30 using our sector
emissions reductions targets to align our portfolio mix
projections with a decarbonising economy. This is being
measured through our newly established metric, for the
proportion of Business lending to the highest emitting
sectors to be less than 30% by 2030.
We will continue to refresh this analysis as we develop
plans further and recognise the pace of intensity reductions
will not be linear across each sector and that financing
the transition may result in a short-term increase in balance
sheet emissions intensity.
The Group has integrated a number of operational KPIs
within the financial plan, recognising the future growth
opportunities as we continue to assess changes to the
products, services and business model as we develop
our approach to Climate risks and opportunities.
We also require each business case request for
investment to set out how this aligns with the Group’s
ESG strategy, considering the carbon impact of
implementing the change. Key Climate KPIs have been
integrated within the Group’s ESG Balanced Scorecard,
which is presented to the Environment Committee
monthly, as well as executive remuneration.
The Group is on a journey to integrate climate into
everything we do, and intends to further develop the link
between our climate transition plan and financial plan,
including enhancements to stress test modelling capabilities.
Information on our critical accounting estimates and
judgements related to climate-related risks can be
found on page 289.
> UK Finance: The Group participates in a number of working
groups, including on climate-related disclosures, alongside
other UK banks. The groups work on promoting consistency
in disclosures, most recently considering how ISSB S2 will be
implemented in the UK Banking sector in the coming years.
> PCAF: The Group began chairing the working group on
Business Loans and Unlisted Equity, working with other
banks exploring the challenges in calculating SME emissions,
with the aim of recommending ways to support the ongoing
development of the PCAF Standard.
We also partnered with the following organisations to ensure a consistent and standard approach is applied to achieving net zero
within Banking:
Since January 2020, the Group has been a signatory to the UN’s Principles for Responsible Banking.
This mandates signatories to undertake three steps, which we have continued to develop through the
course of 2023:
Impact analysis
1.
2. Target setting
3. Reporting
Additionally, the Group signed up to the industry-led, UN-convened NZBA, part of the UN’s wider Race
to Zero campaign. NZBA forms part of the wider Glasgow Financial Alliance for net zero, which brings
together leading net-zero initiatives from across the financial system to accelerate the transition to
net-zero emissions by 2050 at the latest.
CDP is a global not-for-profit organisation that runs the world’s environmental disclosure system.
The Group is a CDP supply chain member and engages with our suppliers, receiving disclosures from
them to measure our indirect emissions.
Additionally, the Group is assigned its own score each year, recently attaining a C for Climate Change
2022. This was based on our 2021 Annual Report and Accounts and heightened expectations across the
sector. We expect to improve our position in 2023, following enhanced activity and disclosures in 2022.
In 2021, the Group became a member of PCAF to work with other UK banks to develop and implement
a harmonised approach to assess and disclose the GHG emissions associated with our loans. It provides
financial institutions with the starting point required to set science-based targets and align their portfolio
with the Paris Climate Agreement.
Future-Fit Foundation is a not-for-profit organisation that provides businesses, investors and policy
makers with the tools and guidance required to help transition to a society that is environmentally,
socially and economically fair. We have collaborated to adapt their Business Benchmark into a simplified
learning and assessment tool for SMEs.
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Implementation strategy within other Group activities.
Embedding climate within other Group activities
Our net-zero plans and climate strategy cover our own operations and customer lending.
However, there are other areas across the Group where climate-related risks and opportunities
are considered.
Virgin Money Unit Trust Managers (VMUTM)
Our JV with abrdn, VMUTM is a regulated investment manager with a range of investment funds,
totalling £3.6bn of assets, under management. These funds are distributed to retail customers
via tax efficient stocks and shares ISA’s and pensions, as well as general investment accounts.
All funds are currently being updated and aligned with VMUTM’s investing approach, which
requires the integration of material ESG risks and opportunities. The approach supports our belief
that investing responsibly will provide better risk-adjusted returns, seeking to lower exposure
to a broader consideration of risk, including climate, and increase opportunities in the transition
to a low-carbon sustainable economy.
This year, VMUTM has updated its three growth funds, which are central to our customer
proposition and pension scheme. These are multi-asset global fund of funds, which now incorporate
ESG integration methods, including exclusions, ESG tilts, thematic investing and stewardship.
The remaining funds are either in the process of being, or are planned to be, transitioned to
ESG-integrated approaches. Funds are expected to have lower carbon emissions than a benchmark
or comparator.
VMUTM outsources investment advice and fund management services to abrdn, who conduct
climate scenario analysis and consider value-at-risk across our investment portfolio. Working with
abrdn, the funds will continue to evolve their approach, including decarbonisation strategies.
VMUTM aims to be transparent on the changes made to funds as part of ESG integration. This year,
dedicated responsible investing resources have been made available to customers and customer
research has been carried out to ensure that changes are being communicated to customers
effectively. This is alongside disclosures that will be made to customers in annual fund accounts
and assessments of value.
Pensions
The Trustee has a primary objective to ensure that as a defined benefit scheme, the Yorkshire
& Clydesdale Bank Pension Scheme has sufficient assets to provide benefits as they fall due.
Managing the Scheme’s investments to that objective is a fiduciary responsibility to protect
the financial interests of its members. In exercising that responsibility, the Trustee believes that
the risks and opportunities relating to climate change can have a material impact on the returns
achieved from the Scheme’s assets. Sustainable investment, including management of climate risk,
has become an increasingly important focus for the Trustee when considering the construction
of the Scheme’s investment portfolio.
These assets are managed by external managers, whom the Trustee believes are best placed
to take day-to-day decisions on their sustainability, and to take action on the Scheme’s behalf.
The Trustee’s focus with the guidance of its investment adviser is on monitoring the managers’
processes and managing any outsized risks at a total Scheme level, including those arising from
climate considerations.
The Trustee will be publishing its first TCFD report by 30 April 2024, which will document the
Trustee’s position on each of the four core pillars set out by the TCFD. In preparation for the report,
the Trustee has reviewed the four required metrics adopted to measure the impact of climate
change and concluded they remain suitable for inclusion in the report. The Trustee’s advisers have
also updated the climate scenario analysis first undertaken in 2021, considering the impact of four
separate climate change scenarios. The conclusion from the analysis is that the Scheme’s low risk
investment strategy means the Scheme is well positioned to absorb the climate-related financial
impacts in a wide range of possible scenarios.
The Scheme’s funding position has continued to improve, which has enabled the Trustee to
implement further de-risking with the disposal of its allocation to broad market equities. This has
further reduced the exposure to climate risk. The Scheme also completed a longevity swap
transaction in April 2023 to hedge the longevity risk for current pensioners. This reduces the
potential materiality of the climate impact on longevity and mortality risk. The Scheme maintains
investments in UK solar assets and wind farms and is continuing to build up its investment in a fund
financing the construction of renewable energy assets across the globe.
A governance structure has been put in place with the Trustee Board being responsible for the
overarching aims and policies for managing climate risks and delegating responsibility to the
Investment Sub-Committee for monitoring and managing these risks. An initial analysis has been
undertaken to examine the impact of various future scenarios and processes agreed for identifying
and assessing climate risk.
The Trustee is supportive of the goals of the Paris Agreement and is aware of the importance of
managing the climate transition to the Scheme and its members. The Trustee has set a long-term
target of reaching net-zero greenhouse gas emissions by 2050.
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Our governance around climate-related risks and opportunities.
Board
The Board is collectively responsible for promoting the long-term, sustainable success of the
Group and generating value for its shareholders, ensuring the interests of all stakeholders and
the Group’s contribution to wider society are fully understood and considered. The Board’s role
is to provide leadership, and to set and oversee delivery of the Group’s strategy, including the
ESG strategy. It delegates some oversight and decision making to its Committees and receives
updates on progress against the Group’s four ESG goals on a quarterly basis.
Matters presented to the Board and Board Committees for decision must contain reference to the
way in which each matter supports the Group’s ESG principles and goals, including those relating
to climate risk. The Group’s governance framework is continuously reviewed to ensure it includes
sufficient focus on ESG topics, including climate risks and opportunities.
Addressing our climate strategy
The Board has been engaged in the development of the Group’s net-zero strategy and receives
regular updates on the execution of this from members of the Executive Leadership Team. In 2023,
these updates covered expanded net-zero transition planning, including progress against climate
targets and proposition delivery to achieve the 2030 aspirations.
During 2023, the Board considered the following climate-related matters:
> October 2022: Approved the Group’s 2023 Commercial net-zero strategy and targets,
the details of which can be found in the Strategic report on pages 241 to 253.
> November 2022: Confirmed its view that the 2022 Annual Report and Accounts,
taken as a whole, including the TCFD report, was fair, balanced and understandable.
> March 2023: Received updates on how the Group’s climate-related disclosures and targets
align with industry practice and regulatory expectations; and on the Group’s climate-related risk
management activity, including an assessment of the Group’s ability to meet expectations set
in the October 2022 Dear CEO letter: ‘Thematic feedback on the PRA’s supervision of climate-
related financial risk and the BoE’s Climate Biennial Exploratory Scenario (CBES) exercise’.
> June 2023: Approved the 2022 ICAAP Final Results, which included financial risk arising from
climate change.
Ongoing monitoring is achieved through the Board receiving monthly updates on our ESG Balanced
Scorecard, which includes climate-related targets. In addition, quarterly updates are received
on more in-depth ESG topics, covering metrics, targets and strategy delivery. The Board Risk
Committee is also updated on an ad hoc basis as plans are developed, typically annually.
Virgin Money UK PLC Board
Responsibility for oversight and delivery of ESG strategy
Board committees
Delegated ESG oversight and decision making
> Risk Committee
> Audit Committee
> Governance and Nomination Committee
> Remuneration Committee
Reporting
Reporting
Chief Executive Officer
Ultimate responsibility for climate-related issues affecting the Group and its customers
Reporting
Reporting
Executive Leadership Team
Responsible for delivering the ESG strategy
Executive Risk Committee
Oversees financial risks from climate change
Reporting
Reporting
Environment Committee
Activities to progress net-zero goals
Non-Financial Risk Committee
Monitors non-financial risks, incl. climate
Asset and Liability Committee
Impact of climate change on financial risks
Model Governance Committee
Oversees models related to climate change
Reporting
Reporting
ESG-related Working Groups
Senior management ensures each function supports the delivery of the ESG strategy
Business units
Ensuring that the Group’s day-to-day operations are living our Purpose-driven ESG goals
Reporting
Please refer to the following pages in the Governance report for further information:
Pages 76 to 78 – Our Board composition, skills and experience
Pages 80 to 84 – Our Board member profiles and committee memberships
Pages 88 to 89 – ESG in our Governance Framework
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Board committees
The table below shows the climate-related Board-level committees:
Climate
responsibilities
2023 activities
Risk Committee
Audit Committee
The Risk Committee has delegated authority to oversee
the activity being undertaken to embed the identification,
assessment and management of climate risk, taking a forward-
looking perspective, anticipating changes in business conditions
and promoting a risk awareness culture within the Group.
Its remit includes risk appetite, framework and limits; policies;
compliance; stress testing; and internal controls.
The Audit Committee has delegated authority to review disclosures
made within the Annual Report and Accounts and responsibility
for considering and approving climate-related disclosures and for
advising the Board on whether the Annual Report and Accounts,
taken as a whole, are fair balanced and understandable and provide
the information necessary for shareholders to assess the Group’s
performance, business model and strategy.
Both Committees have responsibilities for the statement on risk management and internal controls (including climate risk) and the
Climate-related disclosures within the Annual Report and Accounts.
> considered a 2023 Climate Risk Assessment, which provided
an overview of the risk assessment outcomes, including detail
of high-rated risks;
> heard about developments to the risk management practices
associated with the Group’s climate change scenario analysis
capabilities; and provided input to the Group’s climate strategy
and its approach to developing net-zero actions and targets
under NZBA commitments;
> approved expanded net-zero targets covering the new
operational emissions target and updated mortgage and
business portfolio targets; and
> received regular updates on climate risk as part of the CRO
report, including:
– current and planned assurance activity;
– progress with the ESG and Climate Data Programme;
– the status of Tier 1 climate risk RAS metrics;
– responses to the FCA’s Dear CEO and Dear CFO letters; and
– other climate-related initiatives within Risk, such as
refreshing roles and responsibilities.
> received regular Audit Reports from the External Auditors which
referred to:
– the External Auditor’s enhancements in audit approach
on climate risk;
– the impact of climate change on financial reporting as an area
of audit focus;
– the creation of the climate policy framework;
– the External Auditor’s assessment of the disclosure of
climate-related risks, including those to be made under TCFD
as well as the risk assessment itself;
– the External Auditor’s general observations and conclusions
on climate risk assessment; and
– key elements for the Group to consider in its plans to develop
climate capabilities, including as a result of the 2022 Dear
CFO letter.
> received an update on the methodology and key estimates
and judgements used in the application of the Partnership
for Carbon Accounting Financials (PCAF) Standard for the
calculation of financed emissions.
Both Committees received updates on the Group’s Climate-related disclosures, including the outcome of benchmarking exercises,
improvements to the disclosures, and the latest UK Government mortgage emissions update.
Key MI used
Informed by
CRO Reports
External Audit Reports
Chief Risk Officer; Executive Risk Committee
Chief Financial Officer; External Auditors
Chair and membership Pages 123 to 124 of the Risk Committee report
Page 115 of the Audit Committee report
Training
The Board received periodic updates from the
Head of Investor Relations and other subject
matter experts throughout the year on ESG
topics, helping to educate the Board on the
Group’s climate change ambitions and the key
factors that need to be considered to enable
the Group to achieve its desired outcomes.
External support and insight was drawn upon
to inform the Board updates and will continue to
be valuable as the Group’s ESG strategy evolves.
Board members also undertook the same online
‘Professional Passport’ training as all colleagues,
which in 2023 included an in-depth module
exploring ESG topics, our commitments and
strategy, including the impact of climate change
on financial services and how climate change
is considered as an integral part of the Group’s
ESG strategy.
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Management
Executive Leadership Team
The Chief Executive Officer has ultimate responsibility for any climate-related issues affecting the
Group and its customers and overall accountability to the Board and shareholders to ensure that
sustainable and responsible ESG practices are embedded into our business operations, specifically
those associated with environmental or climate areas. The Executive Leadership Team provide
input and challenge, advising the Chief Executive Officer on the strategic ESG direction and focus
areas including plans, targets and KPIs.
Under the Senior Managers and Certification Regime (SMCR), Senior Manager Responsibilities
for climate-related matters have been simplified. Previously, climate-related responsibilities
were split between Executive Leadership Team members. However, in line with the SMCR
guidance, the Chief Financial Officer has assumed sole responsibility for climate-related
matters, including:
> The Chief Operating Officer has ownership of climate-related risks arising from the Group’s
operations, including:
– calculating operational emissions, including suppliers, and setting targets for reduction;
– managing climate-related risks and impacts affecting customer experience; and
– incorporating climate considerations in investment business cases.
Each Executive Leadership Team member presents reports on the above matters to the Executive
Leadership Team and relevant Board Committees and Executive Committees when relevant.
Executive Leadership Team Committees
The Executive Leadership Team is supported in climate-related matters by its sub-committees,
each of which has membership from the Executive Leadership Team as set out in the table below,
in addition to other senior managers from specialist business areas.
> setting the overall net-zero targets, commitments and transition pathways;
>
the calculation of financed emissions and co-ordination of stress testing exercises;
> setting metrics for our ESG Balanced Scorecard; and
>
the overall ESG disclosures in the Annual Report and Accounts.
The Chief Financial Officer is supported by Executive Leadership Team members for day-to-day
activities in the relevant areas:
Environment Committee
Asset and Liability Committee
Chief Executive Officer
Chief Financial Officer
Chief Operating Officer
Chief People & Communications Officer
Chief Risk Officer
Managing Director, Business and Commercial
Chair
•
•
•
•
Chair
•
•
> The Chief Risk Officer has ownership of the Group’s approach to managing and monitoring
General Counsel & Purpose Officer
climate-related risks, including:
– providing challenge and oversight of climate-related first line activities;
– reporting updates to Board on the second-line view of climate risk;
– setting the climate risk appetite, as well as the relevant policies and minimum standards;
– the development, maintenance and monitoring of climate-related models; and
– coordinating and drafting the Group’s annual Climate-related disclosures.
> The Managing Director, Business and Commercial, has ownership of climate-related risks
arising from customer activity, including:
– capturing relevant ESG data from customers;
– carrying out climate risk assessments on selected Business customers;
– the development and implementation of greener propositions; and
– setting targets relating to the reduction of carbon emissions associated with Mortgage
and Business lending.
The majority of the climate-related matters affecting the Group are considered by the Environment
Committee, with other Executive Committees and Executive Sub-Committees also considering and
escalating climate matters as appropriate, in line with their charters. This approach provides a clear
and efficient pathway for climate-related risks and opportunities, and an effective refinement and
execution of the Group’s ESG strategy.
Further details on the activities of the Environment Committee and other Executive Committees
and Executive Sub-Committees that have been particularly active in relation to climate-specific
matters during the year are set out overleaf.
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Environment Committee
The Environment Committee has delegated responsibility to oversee and monitor the management
of environmental and climate change matters across the Group. It directs the implementation of
the Group’s environmental strategy; oversees the totality of investment in environmental initiatives,
ensuring funding is used effectively across the Group; ensures the appropriate allocation of
resource and training to embed environmental delivery into BAU activities; and monitors the
Group’s progress towards addressing risks and opportunities through internal targets and KPIs.
Membership includes members of the Executive Leadership Team (as set out on the previous
page). Standing attendees include senior managers with responsibilities for climate-related
matters, in particular, sponsorship of the Group’s ESG goals. The Environment Committee met
nine times during 2023 and is able to escalate matters to the Executive Leadership Team.
During the year, the Environment Committee was regularly updated on progress towards
the Group’s ESG Goals, Net-Zero Roadmap and Targets, and ESG Data and Climate Strategy.
More specifically, the Environment Committee:
>
regularly tracked financed emissions figures throughout the year, with particular attention
to emerging market standards and high-carbon sub-sectors;
> approved the Group’s net-zero plan for 2024;
> approved the application of the Financed Emissions Restatement Policy in the calculation
and disclosure of financed emissions;
> monitored climate-related operational and supplier submissions;
>
received an update on the outcomes of the internal climate risk assessment, which was
then used to form the Climate Risk Policy Standard;
> approved the Group’s Climate Risk Policy Standard;
> supported the Group’s participation in the Green Homes Finance Acceleration Fund; and
> was updated on the Group’s progress with climate-related reporting activities.
Asset and Liability Committee
The Asset and Liability Committee has delegated responsibility for providing oversight and
management of the Group Balance Sheet, including execution of matters in line with the Group’s
funding and capital plans. As appropriate, this includes the impact of climate change.
Membership includes members of the Executive Leadership Team (as set out on the previous
page), as well as the Treasurer, Head of Financial Risk and Head of Financial Planning & Analysis
and Capital Management. Standing attendees include other Executive Leadership Team members
and senior management from Treasury. The Asset and Liability Committee met 17 times (including
7 ad hoc meetings) during 2023 and is able to escalate matters to the Executive Leadership Team.
During the year, the Asset and Liability Committee recognised the increasing focus on climate-
related risks, specifically for ICAAP, ILAAP and the PRA’s 2023 priorities, including the expectation
that firms take a proactive approach to address financial risks arising from climate change.
Executive Risk Committee
The Executive Risk Committee is responsible for setting and monitoring the Group’s climate risk
appetite, recommending the Group’s approach to managing climate risks as defined in the RMF
and overseeing the Group’s exposures and approach to managing the financial risks arising from
climate change.
All members of the Executive Leadership Team are members of the Executive Risk Committee.
Standing attendees include senior managers from the Risk function and the GDIA. The Executive
Risk Committee met 10 times during 2023 and is able to escalate to the Board and Board Risk
Committee.
During the year, the Executive Risk Committee was updated on the latest climate-related regulatory
developments, with particular emphasis on regulatory expectations outlined in the climate-related
Dear CEO Letter, ‘Thematic feedback on the PRA’s supervision of climate-related financial risk and
the BoE’s CBES exercise’. Monthly updates on climate risk were also provided via the Chief Risk
Officer reports and RAS reports.
The Executive Risk Committee is supported by its sub-committees, with membership from the
Executive Leadership Team, as set out in the table below. The Executive sub-committees receive
updates and papers from across the business, in particular from the Finance and Risk functions.
Executive Risk
Committee
Non-Financial Risk
Committee
Model Governance
Committee
Chief Executive Officer
Chief Financial Officer
Chief Operating Officer
Chief People & Communications Officer
Chief Risk Officer
Managing Director, Business and Commercial
General Counsel & Purpose Officer
•
•
•
•
Chair
•
•
•
Chair
•
•
•
•
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Non-Financial Risk Committee
The Non-Financial Risk Committee (previously known as the Operational Risk Committee until an
expanded remit was approved by the Executive Risk Committee in July 2023) is responsible for
directing, providing decision, assessing, and managing non-financial risks. This includes reviewing
and monitoring the risk profile associated with climate change, including impacts on third parties
and ICAAP operational risk scenarios.
Membership includes members of the Executive Leadership Team (as set out on the previous
page), as well as the Chief Control Officer, Chief Compliance Officer, Head of Operational Risk
and the Money Laundering Reporting Officer. Standing attendees include relevant senior managers
from the Risk and Audit functions. The Non-Financial Risk Committee met 10 times during 2023
and is able to escalate matters to the Executive Risk Committee.
It considered climate risk from an Operational Risk Scenario Analysis Programme perspective,
providing oversight on the effectiveness of relevant controls. Updates were also provided in
relation to assurance activity on financial risks arising from the Group’s ESG & Climate Strategy;
climate risk within in the Risk Transformation Programme; and development of the Risk Taxonomy,
which included the risks from greenwashing.
Model Governance Committee
The Model Governance Committee has responsibility for ensuring the Group fulfils its governance
responsibilities for material models and rating systems, including those related to climate change.
Membership includes members of the Executive Leadership Team (as set out on the previous
page), the Head of Model Risk (who acts as Chair), and the Group Financial Controller, Chief Credit
Officer, Head of Financial Planning & Analysis and Capital Management and Head of Risk Analytics.
Standing attendees include relevant senior managers from the Risk function. Support is also
provided by its delegated sub-committees, the Credit Models Technical Forum and Finance Models
Technical Forum. The Model Governance Committee met 12 times during 2023 and is able to
escalate matters to the Executive Risk Committee.
It discussed and endorsed models related to climate change. The Model Governance Committee
also discussed and endorsed the Group’s Model Risk Policy, which sets the requirements for an
effective control environment for the development and maintenance of models, including our
Climate Risk Models, which help to manage climate-related financial risks.
ESG-related Working Groups
ESG Working Group
The Working Group oversees delivery of the ESG strategy, focusing on evolving and refining
the strategy and associated targets to keep pace with the Group’s overall ambitions.
The Working Group is chaired by the Corporate Sustainability Programme Lead and attended
by delivery leads from across the business. It meets monthly, with agenda items from members
presenting topics from their area for either noting, endorsement or escalation to the
Environment Committee.
During the year, the ESG Working Group covered various topics, including updates on the Group’s
climate-related goals; product propositions; emissions calculations; reporting regulations; and
NZBA alignment.
Internal Audit
Internal Audit continuously considers climate risk and sustainability in the dynamic risk assessment
process to inform internal audit planning priorities. Our Internal Audit team attend key climate risk
committees and forums including the executive level Environment Committee providing real time
assurance and challenge, in addition to specific engagements on the Internal Audit Plan. Internal
Audit follows standards set by the Institute of Internal Auditors, has relevant climate risk and
financial risk qualifications and knowledge, and maintains independence with a direct reporting line
to the Board Audit Committee.
Assurance approach
Virgin Money UK PLC appointed EY to provide independent limited assurance over selected
climate-related metrics, which are stated below and indicated with (*) in this section:
> Scope 1 and 2 location- and market-based emissions (tCO2e);
> Scope 1 and 2 location- and market-based emissions intensity (tCO2e/FTE);
> Scope 3 financed emissions: Mortgages (tCO2e);
> Scope 3 financed emissions: Mortgages intensity (tCO2e/£m lent & kgCO2e/m2); and
> % of Mortgage Portfolio by EPC rating.
EY’s assurance report, which includes the basis of preparation for the scope and methodology
of assured metrics, is available at: virginmoneyukplc.com/corporate-sustainability/environment
Remuneration
Our remuneration framework, which includes our ESG goals, is detailed on page 135 of the
Directors’ remuneration report.
Since 2020, the Group’s LTIP includes a 15%-weighted ESG scorecard, which vests for the first
time this year. The outcome of the 2020 LTIP can be found on page 137, with further detail
on its composition on pages 153 to 155.
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Risk Management Framework (RMF)
Climate risk is incorporated in the Group’s RMF, which supports decision making, delivers a
risk culture underpinned by our Purpose and Values and ensures a consistent approach to risk
management activities across the Group.
The Group’s Policy Management Framework is a key component of the RMF and outlines the
Group’s approach to the identification, management and monitoring of climate risk. This is
supported by:
Financial statements
> RAS measures;
Additional information
> defined climate risk roles and responsibilities; and
> climate scenario analysis.
The Climate Policy Statement and Standard define key risk management principles and minimum
control requirements to help manage key risk exposures within risk appetite. Our Climate Risk Team
independently review and oversee climate-related activities to ensure these remain aligned to the
Group’s climate strategy, policy requirements, limits and RAS.
Risk appetite
Climate risk is classified as a principal risk, reflecting its increasing relevance and materiality to the
Group’s profile.
Following data capability enhancements, a suite of climate-related metrics has been incorporated
into the risk appetite, covering physical and transition risks across the Group’s Mortgage and
Business lending portfolios and operational risk.
Current climate risk appetite metrics are outlined below, covering both physical and transition risk.
These are supported by a suite of Commercial KPIs, aligned to the Group’s net-zero pathway.
> Proportion of the book and BTL segment with lower EPC ratings.
> Proportion of the book in high or very high flood risk areas in 2050 under a high
emissions scenario.
> Proportion of the business lending portfolio to higher emitting sectors.
> Scope 1 and 2 emissions.
Risk identification
To support first line risk identification, the Group undertakes a Group-wide climate risk assessment,
coordinated by the Climate Risk team. Further detail on this assessment is provided overleaf.
The Group receives property data from a third-party provider, to enhance our risk identification and
monitoring processes for mortgages. This includes fluvial, pluvial and tidal flooding, coastal erosion,
subsidence, expected future insurability and EPC rating. Currently risks are assessed on a portfolio
basis rather than within the origination process. For larger Business lending customers, climate
risks are considered within the credit decisioning process. This is a qualitative assessment and
further work will be undertaken to consider how climate-related data could inform these
assessments.
Risks identified are assessed against our standard risk, event and issue classification criteria
to determine a sub-set of more material risks that are prioritised for management. This considers
the potential financial impact should a risk materialise, possible impacts on customers, colleagues
and reputation together with the likelihood of an event occurring.
Description of risk types
Risk
Description
Physical risk
Physical risks arise from longer-term changes in the climate and
weather-related events, rising average temperatures, heatwaves,
droughts, floods, storms, sea-level rise, coastal erosion and subsidence.
Transition risk Transition risks arise from the adjustment towards a low-carbon economy
and could lead to changes in risk appetite, strategy, policy, technology
and sentiment.
Climate risk driver
> More frequent severe weather events or general change in climate trends, including occurrence and severity of flood events.
>
Increased occurrence and severity of subsidence caused by increased precipitation followed by increased periods of drought.
> Chronic risk of coastal erosion.
> Development of climate-related government policy and legislation.
> Advances in technology through transitioning to a carbon-neutral economy.
> Changing and more demanding societal, investor or regulatory expectations.
> Shift in customer behaviour and preference for ‘greener’ products.
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Climate Risk Assessment
A Group-wide Climate Risk Assessment was undertaken this year to identify the impact to
the Group from acute and chronic physical risks, in addition to policy and legal, technology,
reputational and market transition risks. The focus for this assessment is the impact of climate
change on the Group, rather than the impact of the Group on climate and the environment.
Approach
Stakeholders were engaged across the Group, from all three Lines of Defence, to discuss climate
risk drivers and how they could impact the Group’s principal risks. Inputs included relevant climate-
related analysis data, including across different time horizons and under different Representative
Concentration Pathway scenarios, portfolio and operational data and the Group’s net-zero plan.
Where quantitative data or metrics were unavailable, the assessment was supplemented with
qualitative information and judgement. This enabled the Group to populate a materiality rating
for each risk and the associated time horizons across which the risk may crystallise.
Methodology
Risks are identified by analysing a broad range of factors which include:
> Physical and transition climate risk profiles of the Group’s lending portfolio.
>
Increasing regulation and policy action.
> Evolving climate reporting and disclosure requirements.
> Continued green energy transition from fossil fuels to low-carbon energy.
> Changing land use and the evolving role of agriculture.
> Commercialisation and adoption of low-carbon technologies.
> Consumer sentiment shifts.
>
Innovations in sustainable finance.
> More proactive investor policies and systematic assessment of climate risks.
> The Group’s strategic response to climate risk and planned mitigations and adaptations.
Physical
Transition
Acute
Chronic
Policy & Legal
Technology
Reputation
Market
Principal risk
Risk driver
Credit risk
Increased occurrence and severity of physical climate-related risks such as flooding, subsidence and
coastal erosion resulting in the devaluation of collateral value or the ability of borrowers to service debt.
Developing climate-related legislation and policy, including minimum residential efficiency standards,
may have a negative impact on collateral value.
Increased carbon pricing or requirements to reduce carbon-related energy usage and other GHG
emissions could have an impact on the Group’s lending portfolios.
Changes in climate trends may pose a risk to Business customers creating credit risk, particularly in the
Agricultural sector, because of disruption to customers’ supply chains, increased costs and decreased
revenues driven by changing customer demand, technological developments or long-term changes
in climate.
Failure to meet expectations or requirements as the regulatory landscape develops over time.
Risk that the Bank exaggerates or misstates a product’s ‘green’ credentials, which may mislead customers.
External reporting is non-compliant with regulatory requirements or expectations leading
to re-submissions and reputational damage to the Group.
Reputational risk associated with the Group’s response to climate-related risks and net-zero strategy;
or failure to meet changing and more demanding societal, investor or regulatory expectations.
The Group faces reputational risk from lending to environmentally damaging activity.
Insufficient funding or resource within the Group to deliver the Group’s climate-related targets, ambitions
and activity.
Regulatory &
Compliance risk
and Conduct risk
Strategic and
enterprise risk
Operational risk Increased climate-related legislation and policy risks, such as tighter efficiency standards,
may create future operational risk to the Group’s property and operational footprint.
•
•
•
•
•
•
•
•
•
•
Time
horizon
Long
Medium
Long
•
•
Long
•
•
•
•
•
•
•
Short-
Medium
Short
Short
Short
Short
Short
Long
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Methodology (continued)
Leveraging wider climate-related activity and
engaging subject matter experts from across
the Group, scenario analysis outputs were also
incorporated into the assessment to support
discussions, acknowledging any gaps or
limitations associated with available data or
analyses. Each principal risk was considered
along with relevant assurance activity to
capture a holistic view of all climate-related
risk within the Group along with associated
mitigants and opportunities, where available.
Risks are assessed and rated using a
defined approach in line with the Group’s
RMF using quantitative and qualitative
approach. A summary of the approach
undertaken and top risks identified were
presented to the Environment Committee
and Board Risk Committee.
Summary of conclusions
Medium-term risks to the Group primarily
result from transition risks, with policy and
legal changes within the Commercial and BTL
property sectors holding a higher relevance
and shorter time horizons within the Group’s
portfolio. Physical risks represent a longer-term
risk (primarily from Mortgage and Business
portfolios) with most material risks expected
to crystallise over the long term.
Output from the assessment supported the
development of the Group’s Climate RAF policy
enhancements and external disclosures, which
have been mapped to principal risks on the
table below.
The Group’s response to its net-zero
commitments and lending to environmentally
damaging activities were considered ‘high’
relevance by the assessment. However, these
transition risks are supported by a robust
net-zero strategy and lending framework, via
the Sensitive Sector and Credit ESG policies,
which outline the Group’s appetite to lending
in sensitive sectors.
The below table shows our key areas of progress on climate-related matters within our principal risks, and our priorities going forward:
2023 progress
Credit risk
Future focus
> As the Group’s historical climate data points increase, deeper insights of the physical
> Continue to develop capability to identify, manage and monitor climate
and transition climate-related risk profiles within the Group’s lending portfolios have been
analysed across 2023.
risk across the Group.
> Embed further climate considerations within the credit decisioning
> Following completion of our first-generation climate scenario analysis models,
process through the use of data.
development of our second-generation models has commenced, to further enhance
the sophistication of our modelling capabilities for assessing our exposure to climate risks
with the Group.
> Climate-related physical and transition risk metrics, which monitor risk against the
appetite set by the wider Climate Risk Policy Framework, have been refreshed.
> Climate survey responses within Business lending increased to 85% in 2023 vs 74%
in 2022, providing further insights within the Business lending portfolio.
Regulatory & Compliance risk and Conduct risk
> Completion of second-generation climate change scenario analysis
model enhancements.
>
In-depth assurance completed by the Climate Risk Team over the Group’s ESG strategy.
> Assessment and response to the FCA and PRA’s Dear CEO letters.
> Continued horizon-scanning to monitor for changes within the
developing regulatory and UK climate legislation landscape.
> Clearly defined climate-related roles and responsibilities have been refreshed within 2023.
Strategic and enterprise risk
> Funding plan agreed and activity phased appropriately to support the ESG & Climate
Change Programme across 2024 and beyond to deliver the Group’s data solution to
climate risk.
> Continue to support net-zero delivery, including analysis of the remaining
carbon intensive sectors and pursuing decarbonisation opportunities
within our wider value chain and across our customer portfolios.
> Assessment of the Group’s ESG Hub Sensitive Sector policy which outlines the Group’s
appetite to sensitive sectors.
> Continue to deliver enhancements to data quality and availability,
automation of modelling and delivery of customer propositions
and education.
Operational risk
> The 2023 Group-wide Climate Risk Assessment was completed to identify any impact
from physical and transition climate-related risk, including resulting operational risks.
> Strengthening consideration of sustainability in our supplier tendering
and selection process.
> Flood risk assessment completed over the Group’s own operational footprint.
> Consideration of any additional controls required to manage these risks.
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Managing risks
Credit risk
Mortgages
Our Climate Change Group Secured Lending Policy outlines how the Group considers climate-
related risk within its mortgage portfolio and continues to evolve in response to the external
environment, increasing regulation, investor and other stakeholder interest.
In accordance with current Minimum Energy Efficiency Standards regulations, all BTL properties
must have a minimum EPC rating of E, unless an exemption applies. The Group only accepts new
applications that comply with the minimum standards and as a mortgage provider, has products in
place to support current customers in retrofitting their properties to become more energy efficient.
The Group also has controls to mitigate the current flood risk, subsidence, heave and landslip
in its Mortgage portfolio. Where it is identified that a property has previously been affected by
flooding, subsidence, heave or landslip, or is situated on a flood plain, new or increased lending
is only provided where certain conditions are met.
In 2024, the Group is undertaking further work where we will consider our approach
to incorporating climate-related physical risk factors into individual lending decisions.
Implementing front book controls is an important next step for managing climate risk.
Business lending
The Group has established processes to consistently apply ESG and climate risk criteria to our
Business lending credit assessment process and lending decisions. This includes:
> Sensitive Sector policy: Assessing lending applications against our Sensitive Sector policy,
which outlines the prohibited and restricted sectors where the Group has either no or limited
appetite to lend. Our Sensitive Sector policy can be viewed at: virginmoneyukplc.com/
downloads/pdf/sensitive-sector-statement.pdf
> Credit risk assessment: For corporate transactions, climate risk mitigation and wider ESG
impacts are embedded into our due diligence and credit assessment processes. Where material
risks are identified, proposals are subject to a greater degree of review and scrutiny. For 2024
we are focusing on our approach to the further development of our credit assessments using
climate-related data. Given our largely SME portfolio this approach is likely to be iterative as
data availability and quality increases in the future.
> Policy Management Framework: Comprised of Policy Statements, which link to each principal
risk and detail the Group’s principles based approach to managing that risk category; and Policy
Standards, which provide the minimum control requirements to deliver the principles contained
within the Policy Statements.
> Climate risk modelling: The Group recognises the need to enhance capability for assessing
and modelling the impact of physical and transition risks over the long-term horizon, over which
increased risks may arise. Further information on our scenario analysis can be found overleaf.
Operational risk
Outputs from the climate risk assessment will be used to identify additional actions to further
embed climate risk within the Group’s assessment of operational resilience for critical services,
third-party policies and change management risk assessments. Focus for 2024 is on strengthening
consideration of sustainability within our supplier tendering and selection processes.
Financial risk
The Group has a low tolerance for market risk, given the lack of trading activity. Market risk
principally arises through IRRBB, very small foreign exchange exposure and the management
of assets to support our liquidity requirements. The management of each of these risks is over a
relatively short time scale and the physical risks from climate are seen as longer term. We recognise
that markets could change more quickly as a result of transition risks and that this could have
an impact on credit spreads. Our existing framework monitors and measures the impact of credit
spreads within areas of our business that are subject to market risk and we run scenarios to
consider the impact of increased volatility.
The assets we hold for liquidity purposes are all subject to credit review and the process to assess
counterparty risk considers ESG risks. The nature of these assets is overwhelmingly focused on
UK-based issuers, UK Sovereign and Supranationals along with small holdings of non-UK-based
Covered Bonds. Through the credit assessment, we will continue to evolve our approach to
how these counterparties are responding to the effects of climate risks and ESG more broadly.
The financial impacts associated with climate-related risks are considered within the ICAAP.
This uses both expert judgement and scenario analysis to assess the impacts of physical and
transition risks over a range of time horizons.
Monitoring
Climate risk appetite metrics are monitored through the Chief Risk Officer’s monthly reports
to relevant Executive and Board Committees. In addition, a number of KPIs are monitored
on a quarterly basis.
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Scenario analysis
Introduction
Climate scenario analysis allows the Group to assess a range of chosen scenarios, identifying
possible future climate-related risks and opportunities, while assessing the resilience of the
Group’s business model. Output from the analysis is also leveraged to support the Group’s ICAAP.
Following last year’s scenario analysis, the Group did not rerun the exercise in 2023, instead
focusing on developing our second-generation climate models, taking forward our learnings
from 2022. Given the lack of material change in our business model and the wider environment,
we concluded that the findings from last year remain relevant. These are summarised below,
with full details on pages 242 to 244 of the Group’s 2022 Annual Report and Accounts.
2022 analysis
The Group’s inaugural climate scenario analysis was completed across 2021 and early 2022. The
initial analysis included the Group’s lending portfolios and assessed the potential loan impairments,
with a particular focus on Mortgage and Business lending. The methodology explores the CBES
published by the BoE in 2021. These scenarios were selected as they allow us to explore the
key transition and physical risks that the Group may be exposed to across a 30-year time horizon.
This scenario analysis exercise was undertaken primarily to understand and quantify how climate
change risks may impact the Group’s lending and understand what actions might be required
to ensure the future resilience of the Group’s business model.
Scenarios and key assumptions
Aligned to the BoE CBES, the following scenarios were assessed:
Scenario
Description
Early action
Late action
No additional
action
The transition to a net‐zero emissions economy starts in 2021, so carbon taxes and
other policies intensify relatively gradually over the scenario horizon, resulting in a peak
UK shadow carbon price of 900 (2010 US$/tonne carbon equivalent). Global carbon
dioxide emissions (and all GHG emissions in the UK) drop to net zero around 2050.
Global warming is limited to 1.8°C by the end of the scenario (2050) relative to
pre-industrial levels.
The transition is delayed until 2031, at which point there is a sudden increase in
the intensity of climate policy, resulting in a peak UK shadow carbon price of 1,100
(2010 US$/tonne carbon equivalent). In the UK, GHG emissions are successfully reduced
to net zero around 2050, but the transition required to achieve that is more abrupt and
therefore disorderly. Global warming is limited to 1.8°C by the end of the scenario (2050)
relative to pre-industrial levels.
Primarily explores physical risks from climate change. In this scenario, no new climate
policies are introduced beyond those already implemented prior to 2021. The peak UK
shadow carbon price is 30 (2010 US$/tonne carbon equivalent). However, physical risks
are greater in this scenario and continue to increase beyond the horizon of the scenario.
The absence of transition policies leads to a growing concentration of GHG emissions
in the atmosphere and, as a result, global temperature levels continue to increase,
reaching 3.3°C relative to pre-industrial levels by the end of the scenario (2050).
Outcome and insights
The findings of our internal exercise were broadly aligned with the observations published
by the BoE as part of the CBES exercise.
> The ‘no additional action’ scenario had the highest physical risk impact and significantly,
its impacts continued to trend upwards towards the end of the 30-year forecasting horizon.
> An ‘orderly early transition’ (Early action) is less impactful than a ‘disorderly late’ one
(Late action), with the impact of the latter taken over a shorter time frame and resulting
in an increased impact through the mid-2030s.
The exercise emphasised the importance of capturing climate risk drivers, such as EPC ratings,
and incorporating them in risk management to ensure the Group’s lending portfolios are well
positioned for a transition to net zero.
It should be noted there is significant uncertainty in the modelling of climate change. At this stage,
our analysis is exploratory in nature and allows the Group to identify key climate risk drivers and
potential financial impacts. We will continue to explore how to advance our scenario analysis
capabilities, as methodologies are enhanced and the availability and quality of data inputs improve.
Ongoing development
Following completion of our first-generation climate models, our RACE team has developed second
generation models, to enhance the sophistication of our modelling capabilities in assessing
exposures to climate risks with the Group.
Physical and transition climate-related risks are not uniform across Mortgage and Business lending
sectors, thus enhancements have been made to assess the portfolio at more granular levels within
each sector of the Group’s lending portfolio. This will produce improved insights into the impact
on potential credit losses across a 30-year time horizon.
During 2023, the Group has expanded the use of third-party risk data, incorporating a broader
depth of risk inputs to strengthen the quality of our risk data used by second generation models.
In identifying priority areas for development, we considered the findings from the March 2023
BoE report on climate-related risks and the regulatory capital frameworks; and the October 2022
BoE Thematic feedback on the PRA’s supervision of climate-related financial risk and the BoE’s
CBES exercise.
Future focus
Our next steps for scenario analysis in 2024 include finalisation of second-generation model
development, running the models and analysing the outputs. We will continue to improve our
current models and prioritise future development work to support further embedding of scenario
analysis in strategy and decision making.
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Metrics and targets
The measures we use to assess and manage our climate-related risks and opportunities.
Operational emissions
GHG emissions(3)
Energy consumption (kWhm)
2025 target: 30,000 kWhm
2023
2022
2021
2020
42,001
47,473
55,017
59,878
Water consumption (m³ volume)
2025 target: 45,000 m
2023
2022
2021
2020
Paper used (tonnes)(1)
2023
2022
2021
2020
Waste generated (tonnes)(2)
2023
2022
2021
2020
35,900
41,765
85,787
90,008
449
544
607
817
730
1,018
1,088
877
With an aspiration for net-zero direct
emissions by 2030, the Group made good
progress in 2023 to reduce emissions and
achieve current targets, while establishing
new baselines and setting future targets.
Location-based emissions (tCO2e)
2023*
2,677
6,002
2022
2021
2020
3,395
4,066
3,716
6,891
7,678
10,604
Market-based emissions (tCO2e)
2023*
473
926
2022
2021
748
989
Scope 1 Scope 2
3,245
908
Intensity ratio
(tCO2e/FTE)
Location-based
Market-based
2023*
1.23
0.20
2022
1.48
0.25
2021
1.54
0.53
(1) 2022 figures restated, see page 253.
(2) Zero waste is sent to landfill.
(3) GHG emissions are from 1 July 2022 to 30 June 2023.
Progress against targets
Sector-specific metrics and targets are noted
throughout the Strategy section.
Location-based Scope 1 and 2 emissions,
energy and water consumption all had interim
year-on-year targets of 10% reductions
by 2023 and a longer-term target of 50%
reductions by 2025, against 2020 baselines.
All 2023 reduction targets were exceeded
and positive progress towards the 2025
targets continued, with water consumption
already surpassing its 50% target last year.
The Group updated its operational targets
to align with SBTi guidance and now expects
to reduce location-based Scope 1 emissions
by 42% by 2030, from a 2022 baseline.
Location-based Scope 1 and 2 emissions,
energy and water consumption each maintain
10% reduction targets for 2024, against the
prior year.
Market-based Scope 1 emissions targeted
a 10% reduction in 2023, achieving 37%.
Future targets have not been set for market-
based emissions as the energy purchased
by the Group is already generated from
renewable sources, where available and
where we are responsible for the supply.
Our focus going forward will be on reducing
our consumption in location-based initiatives.
Scope 3 categories
The GHG Protocol outlines 15 categories
of Scope 3 emissions. There are seven
categories relevant to the Group’s operations:
> Categories 1 and 2: Detailed in the
Suppliers section on page 252;
> Category 5: The calculation methodology
for waste emissions is currently under
review and will be disclosed next year.
A 10% reduction target for solid waste
volume has also been set for 2024;
> Categories 6 and 7: Detailed in the
Colleagues section on page 253;
> Category 13: Downstream leased assets
will be in scope for 2024 reporting; and
> Category 15: Detailed overleaf.
Our Scope 3 emissions total 55,038tCO2e,
accounting for Categories 1, 2, 6 and 7, as
summarised on page 36 of the ESG report.
As Categories 1, 2 and 7 have been reported
for the first time this year, our Scope 3 figure
is considerably higher than previously
disclosed. As is the nature of climate-related
reporting, we expect that figures can
fluctuate as data and methodologies are
enhanced and refined.
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Climate-related disclosures Metrics and targets
Financed emissions
Scope 3: Category 15 – Investments, or as they are usually known, financed emissions, are the
most material category of Scope 3 emissions for the Group. These represent our share of GHG
emissions, expressed as carbon dioxide equivalent (CO2e), that we facilitate through our
lending portfolio.
The Group recognises that measuring financed emissions is fundamental in allowing us to set
targets, inform actions and disclose progress against these. As such, the Group is committed to
disclosing financed emissions using the Partnership for Carbon Accounting Financials Global GHG
Accounting and Reporting Standard (the PCAF Standard) and has been working on deploying the
PCAF methodology to calculate our financed emissions. The Group is on a journey and is working
hard to progress the quality of the calculation, focusing on developing the data and technology
required to accurately assess and manage our carbon-related assets and exposures.
In 2022, a selection of the most appropriate internal data sources for each element of the financed
emissions calculation resulted in a divergence in reporting dates between Mortgage and Business
disclosures. In the current period, the reporting dates have been aligned, converging on 31 March
2023. This reporting date reflects the Group’s ambition to align financed emissions reporting to
financial reporting, and ultimately the goal is to report financed emissions as at the year end date.
The comparatives shown opposite reflect the previously reported financed emissions,
with Mortgage emissions based on balances as at 31 March 2022 and Business sector emissions
based on balances reported as at 30 September 2021. The Group has accepted this inconsistency,
as this has allowed the calculation of financed emissions to progress, which has been an important
contributor to the Group’s overall financed emissions journey.
We reported our financed emissions for the first time in our 2021 Annual Report. We have
continued to expand the scope of portfolios which we have included in our initial estimate
of financed emissions.
While progress has been made, we will continue to develop climate-related data across the
portfolios, to enable more in-depth analysis and reporting, which will support our efforts to
reduce financed emissions and achieve net zero by 2050 or sooner.
What’s covered in our calculations?
In line with the PCAF standard, we include on-balance sheet loans and lines of credit. For the
Business portfolio, a balance limit of £1.5m was applied. This limit was reduced to £1m for the
Agriculture portfolio and £250k for the Resources portfolio, to obtain appropriate coverage in
these portfolios. 100% of the Mortgage portfolio is included in our calculation.
The Group selected priority sectors based on the largest expected carbon impact. These sectors
have been identified based on carbon intensity, the Group’s exposure to the sector and the
requirements of key dependencies (such as setting targets). The priority sectors identified in 2022
continue to be a focus. These are Mortgages, Agriculture, Resources, Manufacturing and Transport.
In 2023, this has been expanded to include Commercial Real Estate, Health, Hospitality, Transport
(plant hire) and Utilities. Our ambition is to measure financed emissions on the full portfolio, but we
have focused initially on sectors where we believe we can have the biggest impact.
Assessed lending
Mortgages(1)
Unsecured(2)
Business, of which:
Agriculture
Business Services(3)
Commercial Real Estate
Government, Health
and Education
Hospitality
Manufacturing
Resources
Retail and Wholesale trade
Transport and storage
Other(4)
Total(5)
31 March 2023
30 Sept 2021/31 March 2022(5)
Gross
lending
£m
Assessed
lending
£m
Assessed
%
Gross
lending
£m
Assessed
lending
£m
57,998
57,998
100
57,591
57,591
6,481
–
–
6,513
–
Assessed
%
100
–
1,393
1,332
673
1,177
816
777
195
888
337
935
879
46
317
822
560
521
172
–
187
176
73,002
61,678
62
3
47
70
69
67
90
–
54
19
84
1,441
1,280
680
1,104
668
700
103
871
380
1,113
888(6)
62
–
–
–
–
219(6)
92(6)
–
228(6)
–
–
–
–
–
31
89
–
60
–
81
72,444
59,018
(1) Includes further advances to Mortgage customers as permitted (but not required) under the PCAF methodology.
(2) There is no agreed PCAF methodology for Unsecured lending, such as Credit cards and Personal loans.
(3) The assessed lending in the Business services sector is limited to Transport and Plant hire, and accounts for 75% of total
Transport and Plant hire lending.
(4) ‘Other’ includes the Utilities and Renewable lending sectors. The total gross lending to Utilities was £166m with 51% or £85m
assessed. The total gross lending to Renewables was £229m with 40% or £91m assessed for avoided emissions.
(5) 2022 disclosures reflect the position at 31 March 2022 for Mortgages and 30 September 2021 for Business. 2023 disclosures
have been aligned to 31 March 2023 for both portfolios.
(6) Restated to exclude asset finance and credit card balances. 2022 reported assessed lending: Agriculture £905m;
Manufacturing: £233m; Transport: £281m; and Resources: £99m.
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Calculation methodology
Per the PCAF Standard, financed emissions are calculated using the following formula:
For all mortgages in the portfolio, we have calculated the attribution factor with reference
to loan-to-value (LTV) based on the spot balance and original valuation(2).
Strategic report
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Attribution
Σ factor
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Financed
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240
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> Attribution factor for business loans = the outstanding lending to a customer divided
by the total debt + equity of that customer.
> Attribution factor for residential property = the outstanding lending to a customer divided
by the property value at origination.
> The emissions are Scope 1 and 2 emissions (including Scope 3 for oil and gas and mining)
as reported by the customer, or as calculated using physical activity-based emissions
(e.g. using primary energy consumption data), or as estimated using average emission
factors by sub-sector and other suitable proxies.
Accounting for 80% of the Group’s gross customer lending as at 31 March 2023, the Mortgage
portfolio has been identified as an area of material climate-related risk and opportunity. It is a
priority sector for calculating emissions baselines and developing green propositions, as detailed
in the Strategy section of this report.
The calculation approach for each mortgage is determined by the available data. Energy
consumption figures for gas and electricity were modelled for each property based on the available
property attributes, being EPC band, floor space and property type. Once electricity and gas
consumption was estimated, current electricity and gas conversion factors for the UK grid are
then applied to estimate CO2 emissions per property.
For additional methodology detail, refer to the Group’s basis of preparation for Mortgage financed
emissions metrics at: virginmoneyukplc.com/corporate-sustainability/environment
Our Business lending portfolio is a smaller proportion of gross lending than Mortgages but makes
up a larger proportion of financed emissions, making the Business portfolio a priority for the Group
to calculate baselines and develop propositions, as set out in the Strategy section. The business
loans and unlisted equity PCAF approach was applied, reflecting the SME nature of the portfolio,
with the exception of CRE, which follows the Commercial Real Estate methodology.
For a small portion of the Business portfolio, customer-specific emissions are publicly available
and they have been used in the calculation. For the majority of the portfolio, economic emission
factors have been applied to the customer revenue as reported in their latest financial statements
to estimate emissions. The emission factor used is based on the industry classification code
assigned to the loan. The attribution factor is based on total debt plus equity from the last reported
financial statements. Where this is not available, total assets has been used as a proxy(1)(3).
For the first time, we have calculated the avoided emissions from our renewable lending portfolio.
Avoided emissions are a hypothetical estimate of what would have been emitted in the absence
of the project. This estimate is based on:
> Actual electricity generated by the wind farms and hydro power projects which have
been financed.
> Attribution factor derived from the spot balance divided by the debt plus equity of the specific
project being financed.
> The emission factors (CO2e per kWh production) from the Operating Margin emission factor of
the International Financial Institutions (IFI) dataset. The Operating Margin is based on emission
factors from the power plants with the highest variable operating costs. These are the power
plants that will be replaced first when utilising new renewable power sources. Hence, this factor
provides a more realistic insight in the contribution of new renewable power sources and is
recommended by the PCAF methodology.
(1) For a small minority of loans where there are further advances to existing customers the physical valuation at the most recent borrowing date is used. The Group is continuing to refine the data used in the calculation to reduce instances of this.
(2) Use of total assets as a proxy, as permitted by the PCAF methodology.
(3) In a small number of instances, where the calculated attribution factor was greater than 100%, the attribution factor was limited to 100%. This limit was applied as it would not be appropriate for the Group to be attributed more than 100% of a customer’s absolute
emissions. The Group is continuing to refine and cleanse the data used in the calculation to further reduce the incidence of this. Only 4% (2022: 4%) of balances analysed were impacted by a fixed attribution factor.
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Financed emissions outputs
In addition to reporting absolute financed emissions, emissions intensity is measured as physical and economic emissions intensity metrics. Physical emissions intensities refer to financed emissions per
unit of physical output in the real economy such as square meters of floor space for properties. Economic emissions intensities refer to financed emissions per pound of lending or investment. These are
calculated as a metric to help the Group assess the marginal impact of its lending on financed emissions (which are the customers’ Scope 1 and 2 emissions).
31 March 2023
30 September 2021/31 March 2022
Movement
Scope 3
tCO2e
Total
emissions
tCO2e
Physical
emissions
intensity
(kgCO2e/m2)
Economic
emissions
intensity
tCO2e/£m
Scope
1 and 2
emissions
tCO2e
Scope 3
tCO2e
574,389*
31.1*
10.0*
617,314(2)
Total
emissions
tCO2e
Physical
emissions
intensity
(kgCO2e/m2)
Economic
emissions
intensity
tCO2e/£m
617,314(2)
31.9(2)
10.7(2)
Scope
1 and 2
emissions
tCO2e
574,389*
469,564
2,132
6,149
17,006
3,605
117,395
Mortgages
Business, of which:
Agriculture
Business Services
Commercial Real Estate
Government, Health and Education
Hospitality
Manufacturing
Resources
Transport and storage
Other
Total
–
–
–
–
–
–
–
469,564
2,132
6,149
17,006
3,605
117,395
–
–
40.0
–
–
–
–
–
–
534.2
504,642(1)
46.2
19.4
20.7
6.4
–
–
–
–
225.1
152,607(1)
–
–
–
–
–
–
–
504,642(1)
–
–
–
–
152,607(1)
150,764
157,828
308,592
113,115
31,651
–
–
113,115
31,651
1,797.2
91,409(1)
41,478(1)
132,887(1)
604.1
373.5
444,926(1)
–
–
–
444,926(1)
–
1,485,770
157,828
1,643,598
1,810,898(1)
41,478(1)
1,852,376(1)
Change
in total
financed
emissions
%
Change
in economic
emissions
intensity
%
(7)
(7)
–
–
–
–
(23)
132
(75)
–
(7)
(6)
–
–
–
–
(68)
24
(69)
–
–
–
–
–
–
–
–
–
–
568.0(1)
–
–
–
–
698.1(1)
1,450.4(1)
1,952.3(1)
–
Avoided emissions(3)
(43,518)
–
(43,518)
(1) Restated to exclude asset finance and credit cards. 2022 reported Scope 1 and 2 emissions: Agriculture: 517,452 tCO2e; Manufacturing: 163,287 tCO2e; Resources: 109,726 tCO2e; and Transport: 596,561 tCO2e. 2022 reported Scope 3 emissions: Resources: 50,560
tCO2e. 2022 economic emissions intensity: Agriculture: 572 tCO2e/£m; Manufacturing: 701 tCO2e/£m; Resources: 1,622 tCO2e/£m; and Transport: 2,120 tCO2e/£m.
(2) Certain enhancements have been made to the calculation of mortgage financed emissions metrics in the current year, prior year metrics have been restated using consistent methodologies. Mortgage Scope 1 and 2 emissions have been restated from 625,280 to
617,314 primarily reflecting minor changes to the modelling methodology for properties where no EPC or property type data is available. Prior year Economic emissions intensity has been restated from 10.8 tCO2e/£m to 10.7 tCO2e/£m as a result of the change to
Scope 1 and 2 emissions. Prior year Physical emissions intensity has been restated from 39 kgCO2e/m2 to 31.9 kgCO2e/m2 reflecting both the change to Scope 1 and 2 emissions as well as enhancements to the Group’s method for estimating floor space for properties
where no actual data is available.
(3) Avoided emissions have been calculated on our renewable lending book. Avoided emissions are those emissions which have been avoided by using renewable electricity generation, rather than electricity generated by fossil fuels. This calculation included wind farms,
hydro power stations and solar panels (excluding domestic solar panels), which once constructed, do not generate any Scope 1 and 2 emissions. The electricity generation data has been collated on a project-by-project basis.
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Data quality score
The estimate of financed emissions is highly sensitive to the quality of the underlying data, the
assumptions made and the approaches taken. As a result, we expect future emissions estimates to
evolve following improvements in data quality and refinements to methodologies and assumptions.
Data quality and limitations
Given the limited availability and consistency of climate-related data, the Group has made
a number of assumptions in order to calculate its emissions.
The PCAF Standard recommends applying a data quality scoring methodology to help assess data
quality challenges and recognise areas for improvement. PCAF’s ratings generally assign directly
collected customer emissions data a better score while estimated or extrapolated data achieves
lower scoring. A PCAF score of 1 is typically considered to have a very low margin of error for
estimation of financed emissions, while a PCAF score of 5 is typically considered to have a much
larger margin of error. It Is expected that the Group’s data quality scores will improve over time
as we collect more customer-level reported emissions data and enhance internal data and
modelling capabilities.
In some cases, the PCAF data score has been adjusted to reflect the quality of the data –
for example, for the Business portfolio, the data quality score has been adjusted from 4 to 4.5 to
reflect the estimates associated with translating sector industry codes, which are used to assign
emission factors.
Customer
specific
emissions
data(1)
%
1
12
18
Estimated
based on
customer
specific
physical
data points(1)
Estimated
based on
customer
specific
economic
data points(1)
%
79(3)
82(4)
10
%
99(2)
100
17(4)
100
100
88(2)
72(2)
100(2)
100(2)
31 March 2023
Mortgages
Agriculture
Business Services
Commercial Real Estate
Government, Health
and Education
Hospitality
Manufacturing
Resources
Transport and storage
Other
Avoided emissions
100
Extrap-
olated(1)
%
21(3)
1(4)
Total
population
%
Weighted
average
data score
Prior year
data score
30 Sept 2021/
31 Mar 2022
100
100
100
100
100
100
100
100
100
100
100
3.4
4.4
4.5
3.6
4.5
4.5
4.1
3.6
4.3
4.4
2
3.5
4.5
–
–
–
–
4.5
4.5
4.5
–
–
(1) Percentages calculated based on value of lending as a proportion of total population.
(2) Includes specific customer SIC codes, which achieves a data score of 4, and mapped customer SIC codes which achieves a data
score of 4.5.
(3) EPC data was available for 79% of the portfolio and a data score of 3 has been applied. For the remaining population property
specific data points have been estimated based on property type (19%), or where no EPC or property type is available (2%) and
emissions have been extrapolated based on region and product type. In both cases, a data score of 5 is applied.
(4) For 82% of the portfolio, a data quality score of 3.5 has been applied, as the calculation is based on EPC data and floorspace.
For a data quality score of 3, property type is also required. For 17% of the portfolio a data score of 4.5 was applied as EPC data
was not available, but floor space data was used. For a data score of 4, property type is also required. For 1% of the portfolio,
floor space was not known and a data quality score of 5 was applied.
> Known data limitations: For both the mortgages and CRE portfolios, EPC data is a key input.
EPCs are currently the best source of publicly available data on the energy efficiency of
a property and while useful, there are known limitations of EPC data including:
– Static data: an EPC is valid for 10 years and hence any changes to the energy efficiency
of a property (for example, due to improved insulation) may not be captured unless the
homeowner chooses to have the EPC updated.
– Are not real-world: the data within an EPC does not reflect the actual energy usage of
a home, the methodology was designed to allow purchasers to compare the running costs
of different properties independent of occupant behaviour, location or property size.
Consequently, there can be a considerable gap between EPC data and actual energy use in any
specific property.
Other limitations of the approach to calculating financed emissions include:
>
Incomplete data: In some instances, data points which are used to estimate emissions are
missing, and in these cases, the data point has been estimated or an alternative approach
to estimating emissions taken. For example, EPC data is key to our Mortgage book estimation,
and only available for 79% of the Group’s Mortgage properties, by value (2022: 75%). Where
EPC and floor space data is unavailable, alternative modelling approaches are used to estimate
emissions. These estimates make assumptions regarding property sizes and UK Government
consumption data being representative across different regions of the UK. These estimates also
assume that the portion of the Mortgage portfolio we have complete data for is representative
of the rest of the portfolio.
> Lag effect of data: Emissions have been calculated for on-balance sheet lending at 31 March
2023. Key data inputs, such as published UK Government data, customer specific emissions
and customer specific financial statement data used within the calculation does not always align
to these dates. This may result in a lag in reflecting changes in actual emissions within the
financed emissions calculations.
> Scope: The calculation of financed emissions has only considered on balance sheet exposure,
in line with the PCAF methodology. This results from undrawn commitments to customers being
excluded from the calculation – resulting in a potential increase in financed emissions if balances
are drawn in the future.
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> Availability of customer specific emissions: The most material steps forward are expected
to be made through the use of customer specific emissions or energy consumption data.
For mortgages, this would be electricity and gas consumption at a property level, and for
business, this is our customers calculating and reporting their emissions. The estimate of
emissions using this type of data is expected to be materially enhanced, however, there are
likely to be some persistent data issues, particularly related to the alignment (or misalignment)
of reporting dates. The UK Government continues to encourage (or require through legislative
changes) businesses to report emissions data, however this currently only includes the largest
corporates in the UK, and the SME nature of our portfolio means there will be a considerable
wait for these requirements to be filtered down to smaller businesses in the UK.
> Changes to the estimate and restatements: The evolving nature of climate reporting means
that it is expected that new information, including data and methodologies, will become
available. Our baseline recalculation policy determines when we might change our estimates
to ensure consistency, comparability and relevance over time. We may revise financed
emissions information where there is a change to the model or data that could lead to significant
differences in the presentation of our net-zero targets and progress related to those targets.
Future focus
Over the course of the next year, the Group will continue to refine its calculations and develop
its financed emissions methodology. Improving data availability and data quality is a key focus.
The Group encourages calculation and reporting of customer specific emissions, which is vital
to enabling further improvements. Alongside working to collate customer specific emissions,
the Group will continue to enhance and develop its modelling capability to estimate emissions.
In June 2023, PCAF made a substantial update to the PCAF Database. The Group is reviewing this
update and looking to understand how it will impact financed emissions estimates in the future.
If material, this change to the data inputs will result in a recalculation of the baseline year.
Climate-related targets
Under our obligations as a signatory to the NZBA, we’ve committed to set targets within our most
carbon intensive sectors. Our approach to developing targets is set out below:
>
Identify the most carbon intensive customer sectors, using financed emissions calculations and
alignment with external guidance. In 2023, we have measured our progress against the five key
sector targets set out in 2022. Given the majority of our lending portfolio is aligned with SMEs,
we have not developed further targets in additional sectors. We will continue to review this
position as we capture more data and external guidance develops.
> Selecting scenarios in line with a 1.5°C pathway, consistent with the Paris Agreement. There are
two key pathways selected, based on data availability:
– The UK CCC’s Balanced Net Zero has been used wherever possible, due to its UK focus.
This is preferred due to the Group’s exposure to UK-based companies.
– The SBTi 1.5°C pathway as adapted from the IEA Net Zero by 2050 scenario has been used
for our Mortgage portfolio, using SBTi guidance and tooling.
> We then define the boundaries for the target, which align with the boundaries set for the
financed emissions calculations set out on page 267.
> The base year is then selected for measuring progress against the pathway. These also align
to the base year of the emission calculation model, which is 2022 for Mortgages and 2021
for Business sectors.
To estimate interim 2030 target reductions, we have followed SBTi guidance using the Sectoral
Decarbonisation Approach wherever possible. The Sectoral Decarbonisation Approach considers
inherent differences between sectors, such as their expected growth and potential for emissions
reduction activities and is considered one of the most ambitious ways to set a Scope 3 target
under SBTi guidance. Where the Sectoral Decarbonisation Approach has not been available for
individual sectors, an economic intensity approach has been adopted, in line with SBTi guidance.
The Group has not currently submitted targets for validation under the SBTi but will consider doing
so in the future. The Group has not considered the use of carbon offsets within financed emissions
targets, focusing instead on supporting customers to decarbonise their operations.
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Enhancements to 2022 targets
We have updated our targets set in 2022 to reflect the methodology improvements developed
in our 2023 models. Therefore, all of our Business sector target baselines have been updated to
reflect a 2021 base year as consistent with the latest iteration of our models. We are committed to
continue to align to the latest guidance and external science and anticipate further developments
in future years, as we enhance data availability and methodologies across our customer portfolios.
A summary of individual portfolio performance against the targets set is outlined in the table below,
including the expected emissions intensity based on the trajectory aligned to external scenarios
and tooling. We have summarised data limitations and individual sector methodology updates.
Agriculture
The Group aims to achieve an emissions intensity reduction of 26% by 2030, based on a 2021
baseline, in line with the physical intensity approach. To estimate physical intensity, we have used
farming revenue to represent physical output of the agriculture sector, recognising there is no
single physical output due to the complexity of subsector activities. Projections of future farming
output were made using the assumption that farming revenue would grow in line with World Bank
population estimates. Despite a 7% reduction in underlying financed emissions estimates from
the base year, estimated agriculture intensity was 15% higher than the pathway convergence
point. This was due to lower customer revenue, combined with a lower attribution factor across
the sector. We are aware the SBTi are developing an SDA approach for the agriculture sector
and expect to set targets in line with updated guidance as these are developed.
Est. 2021
baseline
intensity
Est. 2023
intensity
2023
pathway
intensity
32.3
31.1*
29.9
1,431
1,535
1,336
1,115
1,059
949
N/A – see notes
Difference(2)
%
4%
15%
12%
Est. 2030
intensity
15.0
1,061
539
Oil and gas
The Group aims to achieve an emissions intensity reduction of 52% by 2030, based on a 2021
baseline, in line with the economic intensity approach. In 2023 we updated our Oil and gas target
to include Scope 1 and 2 emissions within the boundary, as our Oil and gas portfolio is comprised
of field services companies which have greater control of Scope 1 and 2 emissions. There is no
single physical output for these businesses and we expect the portfolio will transition to supporting
the renewables sector. We will continue to work with our Oil and gas field services customer base
to develop transition plans to continue to reduce the carbon intensity of their business models.
Sector
Mortgages(1)
kgCO2e/m2
Agriculture
tCO2e/£m rev
Oil and gas (Resources)
tCO2e/£m lent
Transport – Surface
Transport – Shipping
tCO2e/£m
1,934
709
1,646
57%
936
(1) Calculated on Mortgage loan level data as at 31 March 2022/31 March 2023.
(2) Percentage difference from estimated 2023 intensity relative to the 2021 pathway intensity.
Mortgages
The Group aims to achieve an emissions intensity reduction of 53% by 2030, based on a 2022
baseline, in line with the physical intensity approach. The target reduction is based on updating
the pathway used in the target estimate from the IEA B2DS scenario to the more ambitious
IEA NZE 2050 scenario available within SBTi tooling. While underlying estimated financed emissions
reduced by 7%, improved floor space estimates resulted in a higher intensity relative to the
pathway. Achieving the Mortgages portfolio target remains dependent on the delivery of a number
of external factors, which are outlined in our transition plan strategy on pages 243 to 245.
Shipping
The Group aims to achieve an emissions intensity reduction of 52% by 2030, based on a 2021
baseline, in line with the economic intensity approach. Due to a number of data enhancements
within the underlying emissions models, including the refinement of underlying industry sector
codes which determine the application of emissions factors, the Group’s targets are ahead of
the intensity target. The Group will continue to review the approach to setting targets within
the Shipping sector given the limited available pathways and uncertain decarbonisation strategy
within the sector.
Surface Transport
The Group set a science-based target in the Surface Transport sector in 2022. Due to
methodology review, the decision was made to remove Asset Finance balances from the Surface
Transport model, which resulted in a material change in the balances analysed. Plans to develop
an Asset Finance specific model are in place for 2024 and the Group will update its target for the
sector once established. We are continuing to work with customers to identify opportunities to
leverage green asset finance opportunities within the sector, while improving data quality for the
underlying calculations.
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275
283
Notes to the consolidated financial statements 288
Company financial statements
Notes to the Company financial statements
328
331
Laura
Customer Contact
Laura is part of our Customer
Contact Centre team, speaking
with our customers every day
and helping them feel happier
about money.
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financial statements
Company financial statements
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financial statements
Additional information
275
283
288
328
331
Contents
Independent auditor’s report to the members of Virgin Money UK PLC
275
Section 4: Capital
Consolidated financial statements
Consolidated income statement
Consolidated statement of comprehensive income
Consolidated balance sheet
Consolidated statement of changes in equity
Consolidated statement of cash flows
Section 1: Basis of preparation
1.1
1.2
1.3
1.4
1.5
1.6
1.7
General information
Basis of accounting
Going concern
Basis of consolidation
Critical accounting estimates and judgements
New accounting standards and interpretations
Other accounting policy and presentational changes
Section 2: Results for the year
2.1
2.2
2.3
2.4
2.5
Net interest income
Non-interest income
Operating expenses
Taxation
Earnings per share
Section 3: Assets and liabilities
3.1
3.2
3.3
3.4
3.5
3.6
3.7
Financial instruments
Intangible assets and goodwill
Retirement benefit obligations
Other assets
Other liabilities
Lessee accounting
Provisions for liabilities and charges
4.1
4.2
Equity
Pillar 3 disclosures
Section 5: Other notes
5.1
5.2
5.3
5.4
5.5
5.6
Contingent liabilities and commitments
Equity based compensation
Related party transactions
Notes to the statement of cash flows
Segment information
Post-balance sheet events
Company financial statements
Section 6: Notes to the Company financial statements
6.1
6.2
6.3
6.4
6.5
6.6
Company basis of preparation
Company investments in controlled entities
Company debt securities in issue
Company fair value of financial instruments
Company reserves
Company related party transactions
283
283
284
285
286
287
288
288
288
288
288
289
290
291
292
292
294
295
296
298
299
299
313
313
319
319
319
320
321
321
322
323
323
323
325
326
327
327
328
331
331
331
334
334
335
335
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financial statements
Company financial statements
Notes to the Company
financial statements
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Opinion
In our opinion:
We have audited the financial statements of Virgin Money UK PLC (the ‘parent company’)
and its subsidiaries (the ‘Group’) for the year ended 30 September 2023 which comprise:
> Virgin Money UK PLC’s Group financial statements and parent company financial statements
(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 30 September 2023 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 as applied in accordance with section 408 of the
Companies Act 2006; and
the financial statements have been prepared in accordance with the requirements of the
Companies Act 2006.
Group
Parent company
Consolidated balance sheet as at 30 September 2023 Company balance sheet as at 30 September 2023
Consolidated income statement for the year
then ended
Statement of changes in equity for the year then ended
Consolidated statement of comprehensive income
for the year then ended
Statement of cash flows for the year then ended
Consolidated statement of changes in equity
for the year then ended
Related notes 6.1 to 6.6 to the financial statements,
including material accounting policy information
Consolidated statement of cash flows for the year
then ended
Related notes 1 to 5.6 to the financial statements,
including material accounting policy information
Information identified as “audited” within the
Directors’ remuneration report
Information identified as “audited” within the
Risk report
The financial reporting framework that has been applied in their preparation is applicable law
and UK adopted international accounting standards and as regards the parent company financial
statements, as applied in accordance with section 408 of the Companies Act 2006.
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financial statements
Company financial statements
Notes to the Company
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Independent auditor’s report to the members of Virgin Money UK PLC
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK))
and applicable law. Our responsibilities under those standards are further described in the Auditor’s
responsibilities for the audit of the financial statements section of our report. We believe that the
audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We are independent of the Group and parent in accordance with the ethical requirements that
are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard
as applied to listed public interest entities, and we have fulfilled our other ethical responsibilities
in accordance with these requirements.
to assess the economic assumptions and their impact on the Group’s solvency and liquidity.
> We compared previous periods’ budgeted financial information with historical actual results,
in order to form a view on the reliability of management’s forecasting process.
> We considered whether there were other events subsequent to the balance sheet date which
could have a bearing on the going concern conclusion.
> We reviewed regulatory correspondence and committee and board meeting minutes to identify
events or conditions that may impact the Group’s ability to continue as a going concern.
> We reviewed the Group’s going concern disclosures included in the Annual Report in order to
assess whether the disclosures were appropriate and in conformity with the reporting standards.
The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the Group
or the parent company and we remain independent of the Group and the parent company in
conducting the audit.
Based on the work we have performed, we have not identified any material uncertainties relating
to events or conditions that, individually or collectively, may cast significant doubt on the Group
and parent company’s ability to continue as a going concern for a period of 12 months from when
the financial statements are authorised for issue.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors’ use of the going concern
basis of accounting in the preparation of the financial statements is appropriate. Our evaluation
of the directors’ assessment of the Group and parent company’s ability to continue to adopt the
going concern basis of accounting included:
In relation to the Group and parent company’s reporting on how they have applied the UK
Corporate Governance Code, we have nothing material to add or draw attention to in relation
to the directors’ statement in the financial statements about whether the directors considered
it appropriate to adopt the going concern basis of accounting.
> We obtained management’s going concern assessment for the Group, including forecasts
for the going concern period covering at least 12 months from the date of signing this audit
opinion.
> We evaluated the long-term forecasts with reference to the directors’ historical forecasting
accuracy and performed stress testing to consider the reasonableness of the trading volume
and yield assumptions and considered how management initiatives and investments could
impact the Group’s cost base.
> We used economic specialists to assess the forecast’s macroeconomic assumptions through
benchmarking to institutional, HM Treasury, and Bank of England forecasts.
> Management has modelled adverse scenarios in order to incorporate unexpected changes to
forecasted liquidity and capital positions of the Group. We reviewed these scenarios, including
a consideration of the Group’s operational resilience, to identify whether they indicated
significant issues that might impact the Group’s ability to continue as a going concern.
> We evaluated the results of management’s stress testing, including reverse stress testing,
Our responsibilities and the responsibilities of the directors with respect to going concern are
described in the relevant sections of this report. However, because not all future events or
conditions can be predicted, this statement is not a guarantee as to the Group’s ability to continue
as a going concern.
Overview of our audit approach
Audit scope
> We performed an audit of the complete financial
information of the Group and parent company.
Key audit matters
>
Impairment of loans
> Revenue recognition – Effective interest rate
method accounting
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Overview of our audit approach
Materiality
> Overall Group materiality of £29m which represents 5%
of the profit before tax adjusted for non-recurring costs.
Climate change
Stakeholders are increasingly interested in how climate change will impact Virgin Money UK PLC.
The Group has determined that the most significant future impacts from climate change on their
operations will be from physical and transitional risks and has concluded that these are medium
to longer term in nature. These risks are explained on page 238 in the Risk report, and on pages
239-272 in the required Climate-related disclosures, which form part of the ‘Other information,’
rather than the audited financial statements. Our procedures on these disclosures therefore
consisted solely of considering whether they are materially inconsistent with the financial
statements or our knowledge obtained in the course of the audit or otherwise appear to
be materially misstated.
In planning and performing our audit we assessed the potential impacts of climate change
on the Group’s business and any consequential material impact on its financial statements.
As explained in note 1.5 to the Annual Report and Accounts, the Group has made an assessment
of the observable effect of the identified physical and transitional risks on the Group’s lending
portfolio, as well as other assets such as the deferred tax asset and the pension assets held by the
Group’s defined benefit pension scheme. Whilst the effects of climate change represent a source
of material uncertainty, the effects on estimates and judgements related to financial reporting arise
in the longer term. The financial statements cannot capture all possible future outcomes as these
are not yet known and the degree of certainty of these changes may also mean that they cannot
be taken into account when determining asset and liability valuations and the timing of future cash
flows under the requirements of UK adopted international accounting standards.
Our audit effort in considering climate change on the financial statements was focused on
evaluating management’s assessment of the impact of climate risk, physical and transitional,
and ensuring that the effects of material climate risks disclosed in note 1.5 have been appropriately
reflected in the areas of judgement and estimation where relevant. As part of this evaluation,
we performed our own risk assessment, supported by our climate change internal specialists,
to determine the risks of material misstatement in the financial statements from climate change
which needed to be considered in our audit. We also challenged the Directors’ considerations
of climate change in their assessment of going concern and associated disclosures.
The Group has explained in Critical accounting estimates and judgement note 1.5 the articulation
of how climate change has been reflected in the financial statements including how this aligns
with their commitment to the aspirations of the Paris Agreement to achieve net zero emissions
by 2050. Significant judgements and estimates relating to climate change are also included in
note 1.5. These disclosures explain that risks are still developing, and the degree of certainty
of these changes means that they cannot be taken into account when determining financial
statement impact.
Based on our work we have considered the impact of climate change on the financial statements
to impact certain key audit matters. Details of our procedures and findings are included in our
explanation of key audit matters below.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance
in our audit of the financial statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to fraud) that we identified. These
matters included 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 our opinion
thereon, and we do not provide a separate opinion on these matters.
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financial statements
Company financial statements
Notes to the Company
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Risk
Impairment of loans
Consolidated balance sheet impairment of loans – £617m
(2022: £457m)
Consolidated income statement charge – £309m
(2022: £52m credit)
Please refer to page 117 (Audit Committee report), page 171
(Credit risk report) and note 3.1.1.1 (Impairment provisions
on credit exposures note).
There is uncertainty in estimating expected credit losses
(ECL), and management are required to make highly subjective
judgements which have a material impact on the financial
statements. This calculation is usually complex and higher
inflation and interest rates experienced in recent times have
increased the uncertainty and complexity. Prior to the last
two years, the current economic conditions had not been
experienced for many years, which creates modelling difficulties
due to the existing models having been developed with data
relating to different economic conditions. As a result there is
a need for management to exercise judgement and perform
assessments to consider whether these risks are appropriately
captured through models or should be captured through the
recording of post model adjustments and overlays.
Key matters that could result in material misstatement in respect
of the measurement of ECL include the:
> Allocation of assets to stage 1, 2, or 3 using criteria in
accordance with IFRS 9;
> Accounting interpretations and modelling assumptions used
to build the models that calculate the ECL;
> Completeness and accuracy of data used to calculate the ECL;
>
Inputs, assumptions and weightings used to estimate the
impact of multiple economic scenarios, particularly those
influenced by current economic conditions;
> Completeness and valuation of post model adjustments
and overlays including those required to address current
economic conditions;
> Measurements of individually assessed provisions, including
the assessment of multiple scenarios, collateral valuations
and workout strategies; and
> Adequacy of the financial statement disclosures made for
judgements on significant increase in credit risk, multiple
economic scenarios and assessment of overlays.
Our response to the risk
Key observations communicated to the Audit Committee
We communicated that we were satisfied that ECL
provisions were reasonable and in compliance with the
requirements of IFRS 9.
We communicated that our independent testing of models
and underlying modelling assumptions resulted in only
minor differences that were considered to be immaterial
in the aggregate.
We also communicated that our challenge of the forecast
macroeconomic variables and the base, downside and
upside scenarios, together with weightings adopted
by management concluded that they were reasonable.
The risk not captured by the economic scenarios was
appropriately addressed through overlays.
Our testing of recorded overlays confirmed they had been
accurately recorded, and we were satisfied that their use
was complete and appropriate.
We communicated that management’s climate risk
assessment is appropriate and makes the necessary
considerations in respect of the physical and transition
risks and their impact on ECL and related disclosures.
Our assessment of the overall provision balance through
peer benchmarking and analysis of key indicators, such
as the ratio of provisions to loan balances, indicated the
provisions recorded captured the continued uncertainty
in the overall economic environment as at year end.
We communicated that the provisions for all portfolios
are considered reasonable.
We communicated that we are satisfied with the accuracy
and adequacy of the disclosures made.
We developed a detailed understanding of the Group’s accounting policies to ensure they remained
compliant with the requirements of IFRS 9.
We assessed the appropriateness of the Group’s staging criteria including the application of
qualitative watch list backstops and their logical application through the modelled environment.
We reperformed staging on all portfolios that we determined to be of a higher risk. This was done
by independently replicating the staging models and re-running the results in our own environment.
We assessed the assumptions and performed testing over inputs and formulae used in a risk-based
sample of ECL models with involvement of our internal credit modelling specialists. This included
assessing the appropriateness of model design and the calculations used, an assessment of model
performance and recalculating Probability of Default, Loss Given Default and Exposure at Default for
a risk-based sample of portfolios. We also considered whether models appropriately capture the risks
of high inflation and high interest rates as models were developed using historic experience when
high inflation and high interest conditions were not prevalent.
We performed testing over completeness and accuracy of data used in the ECL models and calculation
by reconciling, and performing sample tests of key data fields used in the model, to source data
and corroborative evidence. We independently recalculated risk ratings for a sample of performing
and non-performing business loans and compared to the Group’s determinations.
We assessed the base case and alternative economic scenarios adopted by management utilising
economic specialists. We challenged the probability weightings ascribed to the scenarios and
compared them to other scenarios from a variety of external sources. With the assistance of
economic specialists, we assessed whether forecast macroeconomic variables were appropriate
loan loss provision drivers, and that the forecast variables were reasonable in the context of current
economic conditions.
We performed testing of model overlays, including those required to ensure the overall ECL fully
reflects the risks contained within the current economic environment. With our credit modelling
specialists, we assessed the completeness of these adjustments and any other potential post
model adjustments, their appropriateness by considering the data, judgements and methodology
for these adjustments.
With the support of our valuation specialists, we recalculated ECL provisions for a sample of
individually assessed loans including comparing to alternative scenarios and challenging probability
weightings assigned.
We also assessed a sample of individual loans classified as performing loans within higher risk
sectors, where no specific provision was held to determine whether their stage classification
was appropriate.
We obtained management’s assessment of climate risk and its impact on the recognition of ECL.
We engaged our specialists to assess the completeness of the risks in management’s risk assessment
and the appropriateness of the conclusions made in respect of estimated amounts in respect of
physical and transition risks and the timing of crystallisation of those risks. We also performed
procedures on completeness and accuracy of data used in management’s risk assessment.
Our procedures included a series of ‘stand-back’ analyses, including industry benchmarking,
internal consistency checks and analytical review.
We assessed the adequacy and appropriateness of disclosures made within the financial statements,
including those in respect of the impact of current economic conditions for significant increase in
credit risk, multiple economic scenarios and overlays.
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Risk
Our response to the risk
Key observations communicated to the Audit Committee
We assessed the Group’s EIR accounting policy and the estimation methodology for compliance
with the accounting standards.
We gained an understanding of the key processes, controls, assumptions and judgements used
within the Group’s EIR calculations.
We also assessed the inclusion or exclusion of key streams of income and expenditure within the
Group’s EIR calculations. We compared the forecasts of customer behaviours and balance attrition
rates to recent experience and historical trends within the associated lending portfolios.
With respect to the amortisation of the fair value adjustments relating to the acquired portfolios,
we assessed the key assumptions adopted by management for consistency and appropriateness
against the assumptions used in the Group’s EIR calculations, including the estimation of expected
future lives.
We performed an independent assessment by developing a reasonable range of forecast future
outcomes using the Group’s historical experience, our understanding of the industry, and our
professional judgement. We assessed management’s EIR adjustments against this range.
We performed data integrity testing on the key sources of information used within the EIR
calculations. We engaged modelling specialists to review management’s means of data extraction
as well as the appropriateness and consistency of the EIR calculators where required.
We assessed the accuracy of the financial statement disclosures reported in respect of the key
estimates within the EIR calculations, and their sensitivity to reasonable alternative assumptions.
We compared the Group’s EIR adjustments against peer benchmarks and our own expectations
at a standback level to support our conclusions.
We communicated our observations on management’s
key assumptions. We noted the risk of changes in future
customer behaviour, particularly as a result of UK
economic volatility and the likely impacts on consumer
spend and repayment. We considered the EIR adjustments
and overlays recorded by management in respect of these
risks to be within a reasonable range of outcomes.
As a result of our audit challenge and validation
management made adjustments to EIR in balance sheet and
income. Following these adjustments, we communicated
that we were satisfied that in the aggregate the reported
EIR adjustments made to income were in compliance
with the requirements of IFRS 9, the assumptions made
are cautious, and that the EIR adjustments themselves
reported as at 30 September 2023 were reasonable.
We also noted that the unwind of the fair value
adjustments recorded by management were materially
consistent in comparison to the customer behaviour
assumptions used within the Group’s EIR calculations.
Revenue recognition – effective interest rate method
Total interest income: £3,830m (2022: £2,215m)
Total EIR adjustments on balance sheet: Mortgage EIR:
£209m, Cards EIR: £259m (2022: £201m and £285m)
Please refer to note 2.1 Net Interest Income for the Group’s
disclosures in relation to EIR.
The Group records income on financial instruments under the
effective interest rate (‘EIR’) method.
As set out in note 2.1, the most material adjustments to interest
income under EIR accounting are made in respect of the Group’s
mortgage and credit card portfolios.
The EIR method spreads the income statement recognition of
income and expense cash flows that are, in substance, integral
to the overall yield of the financial instrument over its modelled
life. For both secured and unsecured lending the Group
calculates EIR adjustments based on forecast future cash flows.
Following the Group’s acquisition of Virgin Money Holdings
(UK) PLC on 15 October 2018, fair value adjustments are also
recorded on acquired portfolios and amortised through interest
income over the projected behavioural lives of the financial
instruments. As a result, the unwinding of the fair value
adjustment recorded on acquisition is connected to the EIR
calculation and its key assumptions. This adds additional
complexity to the calculation of amounts recognised in the
income statement under EIR accounting.
EIR adjustments are sensitive to judgements about the expected
behavioural lives and future yields of the product portfolios to
which they relate.
The complexity of calculations, the degree of management
judgement in respect of forecast future cash flows (particularly
in the context of uncertain future consumer behaviours and
the impact of ongoing economic volatility) and the sensitivity
of the amounts recognised in the financial statements to
key assumptions are material to the financial statements.
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Our application of materiality
We apply the concept of materiality in planning and performing the audit, in evaluating the effect
of identified misstatements on the audit and in forming our audit opinion.
Materiality
The magnitude of an omission or misstatement that, individually or in the aggregate, could
reasonably be expected to influence the economic decisions of the users of the financial statements.
Materiality provides a basis for determining the nature and extent of our audit procedures.
We determined materiality for the Group to be £29m (2022: £37m), which is 5% of the profit before
tax of the Group of £345m (2022: £595m), adjusted for non-recurring restructuring, impairment
and acquisition accounting costs. We believe removing these non-recurring charges reflects the
most useful measure for users of the statements. For the prior year audit, materiality figures for
the Group were based on equity given the uncertain economic environment, and the historic
performance of the Group. In the current year, the Group has continued to report sustained levels
of profitability, therefore we have reverted to a profit-based materiality measure.
We determined materiality for the parent company to be £29m (2022: £37m), which is 0.7%
(2022: 0.9%) of equity. We believe this reflects the most useful measure for users of the financial
statements as the parent company’s primary purpose is to act as a holding company with
investments in the Group’s subsidiaries, not to generate operating profits and therefore a profit
based measure is not relevant.
Performance materiality
The application of materiality at the individual account or balance level. It is set at an amount
to reduce to an appropriately low level the probability that the aggregate of uncorrected and
undetected misstatements exceeds materiality.
On the basis of our risk assessments, together with our assessment of the Group’s overall control
environment, our judgement was that performance materiality was 75% (2022: 75%) of our planning
materiality, namely £22m (2022: £27.7m). We have set performance materiality at this percentage
due to previous experience as auditors of the Group, from which we concluded that there is a lower
expectation of material financial statement inaccuracies due to the effective control environment
and nature of audit differences resulting from our prior and current year work. Our approach is
consistent with the prior year.
Reporting threshold
An amount below which identified misstatements are considered as being clearly trivial.
We agreed with the Audit Committee that we would report to them all uncorrected audit differences
in excess of £1.4m (2022: £1.8m), which is set at 5% of planning materiality, as well as differences
below that threshold that, in our view, warranted reporting on qualitative grounds.
We evaluate any uncorrected misstatements against both the quantitative measures of materiality
discussed above and in light of other relevant qualitative considerations in forming our opinion.
Other information
The other information comprises the information included in the annual report set out on pages 1
to 272, including the Strategic report set out on pages 2 to 72, the Governance report set out on
pages 73 to 164, the Risk report set out on pages 165 to 238, the Climate-related disclosures set
out on pages 239 to 272 and Additional information set out on pages 337 to 391, other than the
financial statements and our auditor’s report thereon. The directors are responsible for the other
information contained within the annual report.
Our opinion on the financial statements does not cover the other information and, except to
the extent otherwise explicitly stated in this report, we do not express any form of assurance
conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether the other
information is materially inconsistent with the financial statements or our knowledge obtained
in the course of the audit, or otherwise appears to be materially misstated. If we identify such
material inconsistencies or apparent material misstatements, we are required to determine whether
this gives rise to a material misstatement in the financial statements themselves. If, based on the
work we have performed, we conclude that there is a material misstatement of the other
information, we are required to report that fact.
We have nothing to report in this regard.
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Opinions on other matters prescribed by the Companies Act 2006
In our opinion, the part of the Directors’ remuneration report to be audited has been properly
prepared in accordance with the Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
>
>
the information given in the Strategic report and the Directors’ report for the financial year for
which the financial statements are prepared is consistent with the financial statements; and
the Strategic report and the Directors’ report have been prepared in accordance with applicable
legal requirements.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the Group and the parent company and its
environment obtained in the course of the audit, we have not identified material misstatements
in the Strategic report or the Directors’ report.
We have nothing to report in respect of the following matters in relation to which the Companies
Act 2006 requires us 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 and the part of the Directors’ remuneration report
to be audited 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.
Corporate Governance Statement
We have reviewed the directors’ statement in relation to going concern, longer-term viability
and that part of the Corporate Governance Statement relating to the Group and company’s
compliance with the provisions of the UK Corporate Governance Code specified for our review
by the Listing Rules.
Based on the work undertaken as part of our audit, we have concluded that each of the following
elements of the Corporate Governance Statement is materially consistent with the financial
statements or our knowledge obtained during the audit:
> Directors’ statement with regards to the appropriateness of adopting the going concern basis
of accounting and any material uncertainties identified set out on page 161;
> Directors’ explanation as to its assessment of the company’s prospects, the period this
assessment covers and why the period is appropriate set out on page 161;
> Director’s statement on whether it has a reasonable expectation that the Group will be able
to continue in operation and meets its liabilities set out on page 161;
> Directors’ statement on fair, balanced and understandable set out on page 164;
> Board’s confirmation that it has carried out a robust assessment of the emerging and principal
risks set out on pages 161 to 162;
> The section of the annual report that describes the review of effectiveness of risk management
and internal control systems set out on page 121; and
> The section describing the work of the audit committee set out on pages 115 to 122.
Responsibilities of directors
As explained more fully in the directors’ responsibilities statement set out on page 164, the directors
are responsible for the preparation of the financial statements and for being satisfied that they give
a true and fair view, and for such internal control as the directors determine is necessary to enable
the preparation of financial statements that are free from material misstatement, whether due to
fraud or error.
In preparing the financial statements, the directors are responsible for 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 the directors 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 for the audit of the financial statements
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 an auditor’s
report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a
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 the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial statements.
Explanation as to what extent the audit was considered capable of detecting irregularities,
including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations.
We design procedures in line with our responsibilities, outlined above, to detect irregularities,
including fraud. The risk of not detecting a material misstatement due to fraud is higher than
the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by,
for example, forgery or intentional misrepresentations, or through collusion. The extent to which
our procedures are capable of detecting irregularities, including fraud is detailed below.
However, the primary responsibility for the prevention and detection of fraud rests with both those
charged with governance of the company and management.
> We obtained an understanding of the legal and regulatory frameworks that are applicable
to the Group and determined that the most significant are the regulations, licence conditions
and supervisory requirements of the Prudential Regulation Authority (PRA) and the Financial
Conduct Authority (FCA).
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Financial statements
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members of Virgin Money UK PLC
Consolidated financial statements
Notes to the consolidated
financial statements
Company financial statements
Notes to the Company
financial statements
Additional information
275
283
288
328
331
Independent auditor’s report to the members of Virgin Money UK PLC
> We understood how the Group is complying with those frameworks by making enquiries
of management, internal audit and those responsible for legal and compliance matters.
Other matters we are required to address
> We were appointed as Virgin Money UK PLC’s external auditor and signed an engagement
> We also reviewed correspondence between the Group and UK regulatory bodies; reviewed
minutes of the Board and Executive Risk Committee; and gained an understanding of the
Group’s approach to governance, demonstrated by the Board’s approval of the Group’s
governance framework and the Board’s review of the Group’s risk management framework
(RMF) and internal control processes.
> Based on this understanding we designed our audit procedures to identify non-compliance with
such laws and regulations identified in the paragraphs above. Our procedures involved inquiries
of internal and external legal counsel, executive management, internal audit, and focused
testing, as referred to in the Key Audit Matters section above. We utilised forensic accounting
specialists in the design of certain key procedures.
> We assessed the susceptibility of the Group’s financial statements to material misstatement,
including how fraud might occur by considering the controls that the Group has established to
address risks identified by the entity, or that otherwise seek to prevent, deter or detect fraud.
We also considered performance and incentive plan targets and their potential to influence
management to manage earnings or influence the perceptions of investors and stakeholders.
> The Group operates in the banking industry which is a highly regulated environment. As such
the Senior Statutory Auditor considered the experience and expertise of the engagement team
to ensure that the team had the appropriate competence and capabilities, which included the
use of specialists where appropriate.
A further description of our responsibilities for the audit of the financial statements is located
on the Financial Reporting Council’s website at https://www.frc.org.uk/auditorsresponsibilities.
This description forms part of our auditor’s report.
letter on 14 January 2016, prior to Virgin Money UK PLC (formerly CYBG PLC) becoming the
holding company of the Group on its demerger and IPO in February 2016. The period of total
uninterrupted engagement as auditors of Virgin Money UK PLC including previous renewals
and reappointments, is eight years covering the years ending 30 September 2016 to
30 September 2023.
> Virgin Money UK PLC is the holding company of the Group. A subsidiary of the Group is
Clydesdale Bank PLC for which we have been the auditors for a total uninterrupted period
of 19 years, covering the years ending 30 September 2005 to 30 September 2023.
> The audit opinion is consistent with the additional report to the audit committee.
Use of our report
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.
Andrew Bates
(Senior statutory auditor)
for and on behalf of Ernst & Young LLP,
Statutory Auditor
London
22 November 2023
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Consolidated financial statements
Notes to the consolidated
financial statements
Company financial statements
Notes to the Company
financial statements
Additional information
275
283
288
328
331
Consolidated financial statements
Consolidated income statement
For the year ended 30 September
Interest income
Other similar interest
Interest expense and similar charges
Net interest income
Gains less losses on financial instruments at fair value
Other operating income
Non-interest income
Total operating income
Operating and administrative expenses before
impairment losses
Operating profit before impairment losses
Impairment losses on credit exposures
Profit on ordinary activities before tax
Tax expense
Profit for the year
Attributable to:
Ordinary shareholders
Other equity holders
Profit for the year
Basic earnings per share (pence)
Diluted earnings per share (pence)
Note
2.1
2.2
2023
£m
3,830
3
(2,146)
1,687
(12)
152
140
2022
£m
2,215
2
(641)
1,576
(17)
157
140
1,827
1,716
2.3
(1,173)
(1,069)
3.1.1.1
2.4
2.5
2.5
654
(309)
345
(99)
246
192
54
246
14.0
13.9
647
(52)
595
(58)
537
467
70
537
32.4
32.3
All items dealt with in arriving at the profit before tax for each year relate to continuing activities.
The notes on pages 288 to 327 form an integral part of these financial statements.
283
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The notes on pages 288 to 327 form an integral part of these financial statements.
Strategic report
Governance
Risk report
Climate-related disclosures
Financial statements
Independent auditor’s report to the
members of Virgin Money UK PLC
Consolidated financial statements
Notes to the consolidated
financial statements
Company financial statements
Notes to the Company
financial statements
Additional information
275
283
288
328
331
Consolidated financial statements
Consolidated statement of comprehensive income
For the year ended 30 September
Profit for the year
Items that may be reclassified to the income statement
Change in cash flow hedge reserve
(Losses)/gains during the year
Transfers to the income statement
Taxation thereon – deferred tax credit/(charge)
Change in FVOCI reserve
(Losses)/gains during the year
Transfers to the income statement
Taxation thereon – deferred tax credit/(charge)
Note
4.1.5
Total items that may be reclassified to the income statement
Items that will not be reclassified to the income statement
Change in defined benefit pension plan
3.3
Taxation thereon – deferred tax credit/(charge)
Taxation thereon – current tax credit
Total items that will not be reclassified to the income statement
Other comprehensive (losses)/income, net of tax
Total comprehensive (losses)/income for the year,
net of tax
Attributable to:
Ordinary shareholders
Other equity holders
Total comprehensive (losses)/income for the year,
net of tax
2023
£m
246
(268)
(12)
77
(203)
(49)
(1)
14
(36)
(239)
(544)
188
1
(355)
(594)
2022
£m
537
962
(13)
(260)
689
15
(4)
(1)
10
699
122
(50)
6
78
777
(348)
1,314
(402)
54
1,244
70
(348)
1,314
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Climate-related disclosures
Financial statements
Independent auditor’s report to the
members of Virgin Money UK PLC
Consolidated financial statements
Notes to the consolidated
financial statements
Company financial statements
Notes to the Company
financial statements
Additional information
275
283
288
328
331
Consolidated financial statements
Consolidated balance sheet
As at 30 September
Assets
Financial instruments
At amortised cost
Loans and advances to customers
Cash and balances with central banks
Due from other banks
At FVOCI
At FVTPL
Loans and advances to customers
Derivatives
Other
Intangible assets and goodwill
Deferred tax
Defined benefit pension assets
Other assets
Total assets
Liabilities
Financial instruments
At amortised cost
Customer deposits
Debt securities in issue
Due to other banks
At FVTPL
Derivatives
Deferred tax
Provisions for liabilities and charges
Other liabilities
Total liabilities
Equity
Share capital and share premium
Other equity instruments
Capital reorganisation reserve
Merger reserve
Other reserves
Retained earnings
Total equity
Note
3.1
3.1.1
3.1.1.1
3.1.1.2
3.1.2
3.1.3
3.1.3.1
3.1.3.2
3.1.3.3
3.2
2.4
3.3
1.7, 3.4
3.1
3.1.1
3.1.1.3
3.1.1.4
3.1.1.5
3.1.3
3.1.3.2
2.4
3.7
1.7, 3.5
4.1.1
4.1.2
4.1.3
4.1.4
4.1.5
2023
£m
2022
£m
The notes on pages 288 to 327 form an integral part of these financial statements.
These financial statements were approved by the Board of Directors on 22 November 2023
and were signed on its behalf by:
David Duffy
Chief Executive Officer
Clifford Abrahams
Chief Financial Officer
Virgin Money UK PLC, Registered number: 09595911
72,191
11,282
667
6,184
59
135
2
173
193
512
388
91,786
66,827
9,719
6,939
290
179
69
2,156
86,179
143
594
(839)
2,128
528
3,053
5,607
71,751
12,221
656
5,064
70
342
8
267
146
1,000
382
91,907
65,434
8,509
8,502
327
350
50
2,395
85,567
148
666
(839)
2,128
766
3,471
6,340
Total liabilities and equity
91,786
91,907
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Virgin Money Annual Report & Accounts 2023Financial statements
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Climate-related disclosures
Financial statements
Independent auditor’s report to the
members of Virgin Money UK PLC
Consolidated financial statements
Notes to the consolidated
financial statements
Company financial statements
Notes to the Company
financial statements
Additional information
275
283
288
328
331
Consolidated financial statements
Consolidated statement of changes in equity
Share
capital
and
share
premium
£m
4.1.1
Note
Other
equity
instruments
£m
4.1.2
Capital
reorg’
reserve
£m
4.1.3
Merger
reserve
£m
4.1.4
Own
shares
held
£m
4.1.5
Capital
redemption
reserve
£m
4.1.5
Deferred
shares
reserve
£m
4.1.5
Other reserves
Equity
based
comp’
reserve
£m
4.1.5
FVOCI
reserve
£m
4.1.5
149
915
(839)
2,128
As at 1 October 2021
Profit for the year
Other comprehensive income, net of tax
Total comprehensive income for the year
AT1 distributions paid
Dividends paid to ordinary shareholders
Ordinary shares issued
Share buyback
Transfer from equity based compensation reserve
Equity based compensation expensed
Settlement of Virgin Money Holdings (UK) Limited
share awards
AT1 issuance
AT1 redemption
As at 30 September 2022
Profit for the year
Other comprehensive losses, net of tax
Total comprehensive losses for the year
AT1 distributions paid
Dividends paid to ordinary shareholders
Ordinary shares issued
Share buyback
Purchase of own shares
Transfer from equity based compensation reserve
Equity based compensation expensed
Settlement of Virgin Money Holdings (UK) Limited
share awards
AT1 redemption
As at 30 September 2023
–
–
–
–
–
2
(3)
–
–
–
–
–
148
–
–
–
–
–
2
(7)
–
–
–
–
–
143
–
–
–
–
–
–
–
–
–
–
346
(595)
666
–
–
–
–
–
–
–
–
–
–
–
(72)
594
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(839)
2,128
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(2)
–
–
–
–
–
–
–
–
–
–
–
3
–
–
–
–
–
3
–
–
–
–
–
–
7
–
–
–
–
–
14
14
–
–
–
–
–
–
–
–
–
(3)
–
–
11
–
–
–
–
–
–
–
–
–
–
(5)
–
6
–
–
–
–
–
–
–
(9)
5
–
–
–
10
–
–
–
–
–
–
–
–
(4)
5
–
–
11
33
–
10
10
–
–
–
–
–
–
–
–
–
43
–
(36)
(36)
–
–
–
–
–
–
–
–
–
7
The notes on pages 288 to 327 form an integral part of these financial statements.
(839)
2,128
(2)
10
Cash
flow
hedge
reserve
£m
4.1.5
10
–
689
689
–
–
–
–
–
–
–
–
–
699
–
(203)
(203)
–
–
–
–
–
–
–
–
–
Retained
earnings
£m
Total
equity
£m
3,049
5,473
537
78
615
(70)
(50)
–
(63)
9
–
1
–
(20)
537
777
1,314
(70)
(50)
2
(63)
–
5
(2)
346
(615)
3,471
6,340
246
(355)
(109)
(54)
(148)
–
246
(594)
(348)
(54)
(148)
2
(112)
(112)
–
4
–
1
–
(2)
–
5
(4)
(72)
496
3,053
5,607
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Climate-related disclosures
Financial statements
Independent auditor’s report to the
members of Virgin Money UK PLC
Consolidated financial statements
Notes to the consolidated
financial statements
Company financial statements
Notes to the Company
financial statements
Additional information
275
283
288
328
331
Consolidated financial statements
Consolidated statement of cash flows
For the year ended 30 September
Operating activities
Profit on ordinary activities before tax
Adjustments for:
Non-cash or non-operating items included in profit before tax
Changes in operating assets
Changes in operating liabilities
Payments for short-term and low value leases
Interest received
Interest paid
Tax paid
Net cash provided by operating activities
Cash flows from investing activities
Interest received
Proceeds from sale and maturity of financial assets at FVOCI
Purchase of financial assets at FVOCI
Purchase of shares issued by UTM
Proceeds from sale of property, plant and equipment
Purchase of property, plant and equipment
Purchase and development of intangible assets
Net cash used in investing activities
Cash flows from financing activities
Interest paid
Repayment of principal portions of lease liabilities
Note
2023
£m
2022
£m
345
595
Movements in liabilities arising from financing activities
Term
funding
schemes(1)
£m
3.1.1.5
Debt
securities
in issue
£m
3.1.1.4
Lease
liabilities
£m
3.6
Note
Total
£m
5,896
7,678
154
13,728
5.4
5.4
5.4
3.6
3.2
3.6
At 1 October 2021
Cash flows:
Issuances
Drawdowns
Redemptions
Repayment
Non-cash flows:
(1,207)
(544)
284
(3)
3,300
(1,173)
(48)
954
232
1,868
(1,326)
1,212
(238)
(2)
2,112
(378)
(59)
1,916
47
673
Fair value and other associated adjustments
Additions to right-of-use asset in exchange for increased
lease liabilities
Remeasurement
(2,950)
(2,019)
Movement in accrued interest
–
1
(9)
(11)
(4)
1
(13)
(53)
Unrealised foreign exchange movements
Unamortised costs
At 30 September 2022
Cash flows:
(869)
(1,368)
Issuances
(742)
(24)
(246)
(26)
Redemptions
Repayment
Tax paid
(432)
(72)
–
1,826
747
–
(614)
347
2,480
–
Fair value and other associated adjustments
Additions to right-of-use asset in exchange for increased
lease liabilities
Remeasurement
Movement in accrued interest
–
2,550
Unamortised costs
(1,000)
–
At 30 September 2023
–
2,480
2,550
–
–
(1,264)
–
–
–
(1,244)
–
(26)
–
–
–
28
–
–
(400)
–
–
8
5
2
–
4
(4)
4
–
–
2,480
2,550
(1,264)
(1,270)
(400)
4
(4)
40
5
2
7,230
8,509
132
15,871
–
–
2,573
(1,444)
(1,000)
–
–
–
–
61
–
–
–
59
–
–
27
(5)
–
–
(24)
(1)
–
76
(6)
3
–
2,573
(1,444)
(1,024)
(1)
59
76
(6)
91
(5)
6,291
9,719
180
16,190
(1) This includes amounts drawn under the TFS and TFSME.
The notes on pages 288 to 327 form an integral part of these financial statements.
–
(1,244)
(112)
(54)
(148)
(1,023)
(938)
12,611
11,673
(53)
(70)
(50)
1,810
2,358
10,253
12,611
287
Redemption and principal repayment on RMBS and covered bonds
3.1.1.4
(1,012)
(1,264)
Non-cash flows:
Redemption and principal repayment on medium-term notes/subordinated debt 3.1.1.4
Redemption of AT1 securities
Proceeds from issuance of AT1 securities
Issuance of RMBS and covered bonds
Issuance of medium-term notes/subordinated debt
Amounts drawn down under the TFSME
Amounts repaid under the TFSME
Amounts repaid under the TFS
Share buybacks and purchase of own shares
AT1 distributions
Ordinary dividends paid
Net cash (used in)/provided by financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
3.1.1.4
3.1.1.4
4.1.2
Cash and cash equivalents at the end of the year
5.4
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Financial statements
Independent auditor’s report to the
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Consolidated financial statements
Notes to the consolidated
financial statements
Company financial statements
Notes to the Company
financial statements
Additional information
275
283
288
328
331
Notes to the consolidated financial statements
Section 1: Basis of preparation
Overview
This section sets out the Group’s accounting policies that relate to the consolidated financial
statements as a whole. Where an accounting policy is specific to one note, the policy is
described in the note to which it relates. This section also highlights newly adopted accounting
standards, amendments and interpretations which are relevant to the Group. Where relevant,
we explain how these changes are expected to impact the financial position and performance
of the Group.
The Group has adopted the UK Finance Code for Financial Reporting Disclosure and has
prepared the 2023 Annual Report and Accounts in compliance with the Code.
1.1 General information
The Company is a public company limited by shares, incorporated in the United Kingdom under
the Companies Act and registered in England and Wales.
The consolidated financial statements comprise those of the Company and its controlled entities,
together the ‘Group’.
1.2 Basis of accounting
The consolidated financial statements, which should be read in conjunction with the Strategic
report and the Directors’ report, have been prepared in accordance with UK adopted IASs.
The financial information has been prepared under the historical cost convention, as modified
by the revaluation of certain financial assets and liabilities at fair value through profit or loss
and other comprehensive income. Fair value is defined in note 3.1.4.
1.3 Going concern
The Group’s business activities, together with the factors likely to affect its future development,
performance and position, are set out in the Strategic report. In addition, the Risk report includes
the Group’s risk management objectives and the objectives, policies and processes for managing
its capital.
In assessing the Group’s going concern position as at 30 September 2023, the Directors have
considered a number of factors, including the current balance sheet position (which reflected the
Group’s consideration of the potential impact of climate-related risks), the Group’s strategic and
financial plan, taking account of possible changes in trading performance and funding retention,
and stress testing and scenario analysis. The assessment concluded that the Group has sufficient
capital and liquidity for at least the next 12 months. The Group’s capital ratios and its total capital
resources are comfortably in excess of PRA requirements and internal stress testing indicates the
Group can withstand severe economic and competitive stresses.
As a result of the assessment, the Directors have a reasonable expectation that the Company
and the Group have adequate resources to continue in operational existence for the foreseeable
future and that the Group is well placed to manage its business risks successfully. Accordingly,
they continue to adopt the going concern basis in preparing the consolidated financial statements.
The Directors’ report provides further detail on the Group’s going concern and viability assessment.
1.4 Basis of consolidation
Controlled entities are all entities (including structured entities) to which the Company is exposed,
or has rights, to variable returns from its involvement with the entity and has the ability to affect
those returns through its power over the entity. An assessment of control is performed if there are
indicators that control may have changed.
Controlled entities are consolidated from the date on which control is established by the Group
until the date that control ceases. The acquisition method of accounting is used to account for
business combinations other than those under common control. A non-controlling interest is
recognised by the Group in respect of any portion of the total assets less total liabilities of an
acquired entity or entities that is not owned by the Group. Balances and transactions between
entities within the Group and any unrealised gains and losses arising from those transactions
are eliminated in full upon consolidation.
The consolidated financial statements have been prepared using uniform accounting policies.
288
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Consolidated financial statements
Notes to the consolidated
financial statements
Company financial statements
Notes to the Company
financial statements
Additional information
275
283
288
328
331
Notes to the consolidated financial statements
Section 1: Basis of preparation continued
1.5 Critical accounting estimates and judgements
The preparation of financial statements requires the use of certain critical accounting estimates
and judgements that affect the reported amounts of assets, liabilities, revenues and expenses
and the disclosed amount of contingent liabilities. Actual results may differ from those on which
management’s estimates are based. Estimates and assumptions are continually evaluated and
are based on historical experience and other factors, including expectations of future events that
are believed to be reasonable.
The Group considers the most significant use of accounting estimates and judgements relate
to the following areas:
Area
Estimates
Judgements
Further detail
Impairment provisions
on credit exposures
Asset lifetimes
SICR
Economic scenarios
Definition of default
PMAs
Credit risk section
of Risk report and
note 3.1.1.1
EIR
Product life
Standard variable rate
Note 2.1
Post promotion
attrition and yield
Deferred tax
Retirement benefit
obligations
Discount rate
Inflation assumptions
Mortality assumptions
Macroeconomic
factors
Model risk reserve
(MRR)
Period for the
recoverability of
deferred tax assets
Note 2.4
Note 3.3
Critical accounting estimates and judgements related to climate-related risks
In addition, management has also considered and reflected on the potential impact of climate-related
risks on the Group’s financial position and performance.
This involved undertaking an assessment over the Group’s assets (both financial and non-financial)
and evaluating whether the observable effects of physical and transition risk of climate change
would have a material impact on the Group’s financial position and performance in the current year.
It is widely accepted that the effects of climate change in the UK will not be significant in the short
term and that the inherent risks and uncertainties in quantifying the effect of climate change in
the financial statements are considerable and more likely to impact in the medium to longer term.
The Group’s customer lending is the most significant financial asset class exposed to the potential
impact of climate-related risks, primarily through ECL implications, the ability of the customer to
meet their contractual payments and the potential for a fall in collateral values. Given the challenges
associated with modelling specific climate projections, the Group’s IFRS 9 scenarios do not make
explicit and objective assumptions about climate change impacts for which the associated
probability can be derived within the existing methodology. Instead, the Group’s base forecast,
and therefore the scenarios, incorporate the short to medium-term (five-year horizon) impact of
the domestic and global economy on demand for fossil fuel and thus emissions. Consequently we
consider that as a UK-based bank with no significant lending outside of the UK, the potential for
material ECLs to emerge as a result of climate change in the short term is negligible.
Other non-financial assets that may be impacted include the Group’s deferred tax asset and
the pension assets held by the Group’s defined benefit pension scheme. The Group assesses
the recoverability of deferred tax assets over a six-year corporate planning time horizon which
incorporates all aspects of the Group’s future performance and expectations. The Trustee of the
defined benefit pension scheme is responsible for all investment decisions, and these are made
in accordance with a SIP which incorporates climate change considerations. In addition, by necessity,
the investment decisions made by the Trustees are normally medium to long term in nature to
match the related pension obligations. The majority of the scheme assets held at 30 September
2023 are in lower risk government and corporate bonds, with the remaining investments in
secure income alternatives, property and renewables. As its funding position has improved it has
disinvested from some of the asset classes that were more exposed to climate risks (such as public
equity), but the Scheme is increasingly holding a larger proportion of longer dated assets to better
match its liabilities. The Trustee is therefore very focused on the sustainability of these assets.
Overall, while the effects of climate change represent a source of significant uncertainty, the Group
does not consider there to be a material impact on its estimates and judgements from physical and
transition risks of climate change in these financial statements.
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financial statements
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Notes to the Company
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Additional information
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Notes to the consolidated financial statements
Section 1: Basis of preparation continued
1.6 New accounting standards and interpretations
The Group adopted the following International Accounting Standards Board (IASB) pronouncements
in the current financial year, which have been endorsed for use in the UK by the UK Endorsement
Board (UKEB), and are not considered to have a material impact for the Group:
> Amendments to IAS 16 ‘Property, plant and equipment’: proceeds before intended use. This was
issued in May 2020 (applicable for accounting periods beginning on or after 1 January 2022)
and received endorsement for use in the UK in April 2022. The amendments prohibit a company
from deducting from the cost of property, plant and equipment amounts received from selling
items produced while the company is preparing the asset for its intended use. Instead,
a company will recognise such sales proceeds and related cost in profit or loss.
> Amendments to IAS 37 ‘Provisions, contingent liabilities and contingent assets’: onerous
contracts – cost of fulfilling a contract. This was issued in May 2020 (applicable for accounting
periods beginning on or after 1 January 2022) and received endorsement for use in the UK
in April 2022. The amendments clarify that for the purpose of assessing whether a contract
is onerous, the cost of fulfilling the contract includes both the incremental costs of fulfilling
that contract and an allocation of other costs that relate directly to fulfilling contracts.
> Amendments to IFRS 3 ‘Business combinations’. This was issued in May 2020 and received
endorsement for use in the UK in April 2022. The amendments update IFRS 3 to refer to the
2018 Conceptual Framework for Financial Reporting, in order to determine what constitutes
an asset or a liability in a business combination and applies to those business combinations
for which the acquisition date is on or after the start of the first annual reporting period
beginning on or after 1 January 2022.
> Annual improvements 2018-2020. This was issued in May 2020 (applicable for accounting
periods beginning on or after 1 January 2022) and received endorsement for use in the UK
in April 2022. The annual improvements package includes the following minor amendments
to: (i) IFRS 1 ‘First-time adoption of IFRS’ – Subsidiary as a first-time adopter; (ii) IFRS 9 ‘Financial
instruments’ – Fees in the ‘10%’ test for derecognition of financial liabilities; (iii) IFRS 16 ‘Leases’
– Lease incentives; and (iv) IAS 41 ‘Agriculture’ – Taxation in fair value measurements.
>
International tax reform – Pillar Two model rules: Amendments to IAS 12. This was issued in May
2023 (additional disclosure requirements are applicable for accounting periods beginning on or
after 1 January 2023, although some paragraphs were for immediate application) and received
endorsement for use in the UK in July 2023. The amendments introduce a mandatory temporary
exception to the accounting for deferred taxes arising from the implementation of the OECD
Pillar Two model rules, together with targeted disclosure requirements for affected entities.
As mandated, the Group applied the temporary exemption on adoption and has neither
recognised nor disclosed information about deferred tax assets and liabilities related to
Pillar Two income taxes.
During the year, the Group also early adopted Amendments to IAS 1 ‘Presentation of financial
statements’ and IFRS Practice Statement 2 ‘Making materiality judgements’ which was issued by
the IASB in February 2021 (applicable for accounting periods beginning on or after 1 January 2023
with early adoption permitted) and endorsed for use in the UK by the UKEB in November 2022.
The amendments require entities to disclose their material accounting policy information rather
than their significant accounting policies. As part of this, the IASB has amended IFRS Practice
Statement 2 ‘Making materiality judgements’ by adding guidance and examples of circumstances
to help entities determine when accounting policy information is material and, therefore, needs
to be disclosed.
The Group has assessed the requirements of the amendments and concluded that the disclosure
of certain accounting policies included within the 2022 Annual Report and Accounts would no
longer be necessary. Consequently, while the Group continues to apply these policies, the
following accounting policy wording has been omitted by early adopting the amendments:
> Basis of consolidation: joint ventures (JVs).
> Foreign exchange: functional and presentation currency/transactions and balances.
> Property, plant and equipment.
> Operating and administrative expenses before impairment losses.
> Taxation: income tax/current tax.
>
Intangibles and goodwill: capitalised software/goodwill/impairment.
> Retirement benefits: defined contribution scheme.
> Provisions.
> Other liabilities: deferred grants.
> Leases: as lessee/as sub-lessor.
> Equity: equity/dividends.
> Equity based compensation.
> Contingent liabilities.
>
Investment in controlled entities (this policy relates to the Company financial statements).
New accounting standards and interpretations not yet adopted
The IASB has issued a number of other minor amendments to IFRSs that are not mandatory for the
current reporting year and have not been early adopted by the Group. These amendments are not
expected to have a material impact for the Group.
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Notes to the consolidated
financial statements
Company financial statements
Notes to the Company
financial statements
Additional information
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283
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328
331
Notes to the consolidated financial statements
Section 1: Basis of preparation continued
1.7 Other accounting policy and presentational changes
The following changes took place during the year:
Investment property
IAS 40 ‘Investment property’ allows an entity to select either the fair value model or the cost model
for subsequent measurement of investment property. The Group has a historic policy of fair value
measurement for investment property but has not held any on its balance sheet for several years
prior to the current year.
During the year, the Group has classified £43m of lease right-of-use assets as investment property
on initial recognition where there is surplus space which will be sub-let under an operating lease.
The Group has also transferred freehold land and buildings with a value of £9m to investment
property where there was a change in use. Investment property balances are included within other
assets on the balance sheet (note 3.4).
From 1 October 2022 investment property has been recognised at cost, less accumulated
depreciation and impairment. The holding of investment property is not a central element of the
Group’s overarching business model or strategy; it is an incidental consequence of surplus estate
arising from changes in operational requirements. Considering the relative materiality and nature
of investment property balances, the Group has determined that changing the accounting policy
for investment property to align to the measurement basis, which is applied to the Group’s other
property related assets under IFRS 16 ‘Leases’ and IAS 16 ‘Property, plant and equipment’, will
provide greater relevance and consistency to users of the financial statements. This policy change
has no impact on prior years.
Expected credit losses
During the year, a new Business LGD model was brought into use in the Group’s ECL calculation.
The development of this model was at an advanced stage in the prior year, to the extent that a
negative management adjustment of £15m was incorporated into the ECL figure. The introduction
of the new model allowed this negative management adjustment to be removed in the current year.
Further detail can be found in the credit risk section within the Risk report, pages 195 and 206.
Presentational change
Other assets and other liabilities have been restated in the prior year in line with the current year
presentation. The balance sheet line items for property, plant and equipment and current tax have
been removed and the balances assumed into the other assets and other liabilities line items
respectively. This is a presentational change to align with peers and is not considered to be a
material change in disclosure. The table below reflects the impact of these changes on the
balances at 30 September 2022:
Original balance
Property, plant and equipment
Current tax
Restated balance
Other assets
£m
Other liabilities
£m
171
211
–
382
2,394
–
1
2,395
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Consolidated financial statements
Notes to the consolidated
financial statements
Company financial statements
Notes to the Company
financial statements
Additional information
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331
Notes to the consolidated financial statements
Section 2: Results for the year
2.1 Net interest income
Accounting policy
Interest income is recognised using the effective interest method which discounts the estimated
future cash payments or receipts, at the effective interest rate, over the expected life of the
financial instrument to the gross carrying amount of the non-credit impaired financial asset.
Interest expense is recognised using the same effective interest method on the amortised cost
of the financial liability.
When calculating the EIR, cash flows are estimated considering all contractual terms of the
financial instrument (e.g. prepayment, call and similar options) excluding future credit losses.
The calculation includes all amounts paid or received that are an integral part of the EIR such
as transaction costs and all other premiums or discounts. Where it is not possible to reliably
estimate the cash flows or the expected life of a financial instrument (or group of financial
instruments), the contractual cash flows over the full contractual term of the financial instrument
(or group of financial instruments) are used.
Loan origination and commitment fees are recognised within the EIR calculation. Fees in relation
to the non-utilisation of a commitment are recognised as revenue upon expiry of the agreed
commitment period.
Interest income on financial assets in Stages 1 and 2 is recognised on the gross carrying value
of the financial asset using the original EIR. Once a financial asset or group of similar financial
assets has been categorised as credit-impaired (Stage 3), interest income is recognised on
the net carrying value (which is after deducting the ECL allowance from the gross lending)
using the asset’s original EIR. Interest income for POCI financial assets is calculated using the
credit-adjusted EIR applied to the amortised cost of the financial asset from initial recognition.
The Group recognises and presents the reversal of ECLs following the curing of a credit
impaired financial asset as a reversal of impairment losses. The Group’s policy on ECLs can
be found in note 3.1.1.
Interest income includes finance lease income, which is recognised at a constant periodic
rate of return on the net investment.
Interest income and interest expense on hedged assets and liabilities and financial assets
and liabilities designated as FVTPL are also recognised as part of NII.
Interest income and interest expense on derivatives economically hedging interest bearing
financial assets or liabilities (but not designated as hedging instruments) and other financial
assets and liabilities held at FVTPL (either mandatory or by election) are presented as other
similar interest within NII.
Critical accounting estimates and judgements
EIR
The EIR is determined at initial recognition based upon the Group’s best estimate of the
future cash flows of the financial instrument over its expected life. Where these estimates
are subsequently revised, a present value adjustment to the carrying value of the asset
is recognised in profit or loss. Such adjustments can introduce income statement volatility
and consequently the EIR method is a source of estimation uncertainty.
The Group considers that significant judgement is exercised over the mortgage and credit
card portfolios. Due to the inherent judgement and estimation uncertainty that exists in
determining the EIR adjustment, an MRR is held to mitigate this uncertainty.
The Group assesses the quantification of the EIR adjustment, including the MRR, on a quarterly
basis with the CFO making recommendations to the Board Audit Committee twice a year at
each external reporting period.
Mortgages
For mortgage products the main accounting estimates and judgements when assessing the
cash flows are the product life (including assumptions based on observed historic customer
behaviour when in a standard variable rate (SVR) period) and the applicable SVR. As at
30 September 2023, a total EIR adjustment of £209m (2022: £201m) has been recognised for
mortgages. This represented 0.4% (2022: 0.3%) of the balance sheet carrying value of gross
loans and advances to customers for mortgage lending. The net impact of the mortgage EIR
adjustments on the income statement in the year represented 0.5% of gross customer interest
income for mortgages (2022: (0.7)%).
Product life
This primarily involves assumptions of customer behaviour when a fixed rate product comes
to an end and reverts to the Group’s SVR. The current assumptions indicate that 89% (2022:
85%) of customers will have fully repaid or switched to a new product within two months of
reverting to SVR.
SVR
Changes to the BoE base rate have an impact on the SVR charged to customers and
consequently on the Group’s interest income. The Group historically passes base rate changes
through to the SVR in full but, on occasion, may choose not to do so.
The significant accounting estimates above are monitored on an ongoing basis to ensure they
remain appropriate based on recent, observable customer behaviour, market data (such as
market derived base rate forecasts) and take account of the competitive environment in which
the Group operates. The Group also considers potential changes to future customer behaviour
as a result of macroeconomic factors. There continues to be increased uncertainty in purchase
and switching activity as a result of actual and anticipated base rate rises. The Group has taken
this into account when determining the EIR modelling assumptions.
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Notes to the consolidated
financial statements
Company financial statements
Notes to the Company
financial statements
Additional information
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Notes to the consolidated financial statements
Section 2: Results for the year continued
2.1 Net interest income continued
Sensitivity analysis
As noted above, the calculation of the Group’s EIR adjustment is sensitive to changes in product
life and SVR assumptions. There are inter-dependencies between the assumptions which add
to the complexity of the judgements the Group has to make. This means that no single factor
is likely to move independently of others, however, the sensitivities disclosed below assume
all other assumptions remain unchanged.
Sensitivity impact on the mortgage EIR adjustment
2023
£m
2022
£m
+/- 1 month change to the timing of customer repayments, redemptions and product
transfers
21/(18)
16/(13)
50bps increase to the BoE base rate not passed through to the Group’s SVR
(42)
(46)
Credit cards
An EIR adjustment arises on credit card products that have a low introductory rate, followed by
a higher reversionary rate in future years when the promotional period expires. However, receipt
of such interest income depends on the customer staying with the Group beyond promotional
expiry and therefore significant judgement is involved in forecasting customer behaviour and
estimating the future cash flows. Key behavioural assumptions include an estimation of the
utilisation of available credit, transaction and repayment activity and the retention of the
customer balance after the end of a promotional period. As at 30 September 2023, a total EIR
adjustment of £259m (2022: £285m) has been recognised for credit cards. This represented
4.5% (2022: 5.5%) of the balance sheet carrying value of gross loans and advances to
customers for credit cards. The impact of the net credit card EIR adjustments on the income
statement was a charge in the year representing (6.2)% of gross customer interest income
for credit cards (2022: a credit representing 3.3% of gross customer interest income for
credit cards).
Expected cash flows are estimated based on historical experience of similar products and
are consistent with those used in product pricing models. The Group reviews and adjusts
assumptions where necessary on an ongoing basis, using the most recent observable customer
behaviour and market data. The Group also considers potential future changes to customer
behaviour as a result of macroeconomic factors.
Post-promotional yield
The yield on a credit card following the post-promotional period is a significant estimate within
the EIR assumptions. Yield is a function of the Interest Bearing Balance (IBB) and the APR
charged to customers. IBB is impacted by customer behaviour and while there is evidence to
support the expected IBB following the post-promotional period, there is inherent risk that this
data may differ in the future. If the IBB differs to the Group’s estimate it can have a material
impact on the revised future cash flows. Based on recent experience, the Group has applied
an average IBB of 55% (2022: 55%) following the end of the promotional period.
Post-promotional attrition
The level of repayment in the post-promotional period is a key sensitivity within the EIR
assumptions. There is evidence to support the expected behaviour of customers after the end
of promotional periods, however there is inherent risk that this data may not be indicative of
actual future behaviour. If the proportion of customers who repay their balance post-promotion
differs to the Group’s estimate it can have a material impact on the revised future cash flows.
Based on recent experience, the Group has applied a long run average attrition rate of 1.5%
per month (2022: 1.5% per month) following the end of the promotional period.
Macroeconomic factors
When determining assumptions, the Group has considered the impact to customers of
inflationary pressures including high energy and utility costs and the recent base rate rises.
As a result, temporary adjustments have been made to assumptions. Post-promotional IBB
has been decreased to 50% for 18 months and balance attrition has been increased to reflect
customer reaction to the high-rate environment for 18 months. If, however, the stress period
was to increase to 30 months, the Group estimates it would result in a negative present value
adjustment of approximately £19m, which would be recognised in the income statement.
Sensitivity analysis
As noted above, the calculation of the Group’s EIR adjustment for credit cards is sensitive to
changes in post-promotional yield and post-promotional attrition. There are inter-dependencies
between the key assumptions which add to the complexity of the judgements the Group has
to make. This means that no single factor is likely to move independently of others, however,
the sensitivities disclosed below assume all other assumptions remain unchanged.
Sensitivity impact on the credit card EIR adjustment
+/- 5 ppts change to post-promotional IBB assumption(1)
(9.1% relative increase/decrease)
+/- 0.5 ppts change to post-promotional monthly balance attrition rate
(33% relative increase/decrease)
2023
£m
2022
£m
25/(26)
34/(28)
(7)/7
(20)/23
(1) Where the IBB assumption is already equal to or less than 50% IBB, no further adjustment has been made on the basis
this already represents a downside economic stress.
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2.1 Net interest income continued
2.2 Non-interest income
Notes to the consolidated financial statements
Section 2: Results for the year continued
Governance
Risk report
Climate-related disclosures
Financial statements
Independent auditor’s report to the
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Consolidated financial statements
Notes to the consolidated
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Company financial statements
Notes to the Company
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Additional information
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283
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331
Interest income
Loans and advances to customers
Loans and advances to other banks
Financial assets at FVOCI
Total interest income
Other similar interest
Financial assets at FVTPL
Derivatives economically hedging interest bearing assets
Total other similar interest
Less: interest expense and similar charges
Customer deposits
Debt securities in issue
Due to other banks
Other interest expense
Total interest expense and similar charges
Net interest income
2023
£m
3,150
435
245
3,830
3
–
3
(1,233)
(537)
(372)
(4)
(2,146)
1,687
2022
£m
2,095
70
50
2,215
5
(3)
2
(342)
(227)
(70)
(2)
(641)
1,576
Accounting policy
Gains less losses on financial instruments at fair value
This includes fair value gains and losses from three distinct activities:
> Derivatives classified as held for trading – the full change in fair value of trading derivatives
is recognised inclusive of interest income and interest expense arising on those derivatives
except when economically hedging other assets and liabilities at fair value as outlined in
note 2.1.
> Other financial assets designated at FVTPL – these relate principally to the Group’s fixed
interest rate loan portfolio (note 3.1.3.1), which were designated at inception as FVTPL.
The fair value of these loans is derived from the future loan cash flows using appropriate
discount rates and includes adjustments for credit risk and credit losses.
> Hedged assets, liabilities and derivatives designated in hedge relationships – fair value
movements are recognised on both the hedged item and hedging derivative in a fair
value hedge relationship, the net of which represents hedge ineffectiveness, and hedge
ineffectiveness on cash flow hedge relationships (note 3.1.3.2).
Fees and commissions
Fees and commissions receivable which are not an integral part of the EIR are recognised
as income as the Group fulfils its performance obligations. The Group’s principal performance
obligations arising from contracts with customers are in respect of current accounts, debit
cards and credit cards. The Group provides the service and consequently generates the fee and
commission income monthly, with amounts recognised in income on this basis. Costs incurred
to generate this income are charged to fees and commissions expense as they are incurred.
Net interest income includes a charge of £29m (2022: £16m) in relation to acquisition accounting
unwinds as shown in the reconciliation of statutory to underlying results table on page 67.
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Notes to the consolidated
financial statements
Company financial statements
Notes to the Company
financial statements
Additional information
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Notes to the consolidated financial statements
Section 2: Results for the year continued
2.2 Non-interest income continued
2.3 Operating expenses
(1) Included within financial assets at fair value is a credit risk gain on loans and advances at fair value of £Nil (2022: £1m gain),
Equity based compensation(1)
Gains less losses on financial instruments at fair value
Held for trading derivatives
Financial assets at fair value(1)
Ineffectiveness arising from fair value hedges (note 3.1.3.2)
Amounts recycled to profit and loss from cash flow hedges(2) (note 3.1.3.2)
Ineffectiveness arising from cash flow hedges (note 3.1.3.2)
Other operating income
Net fee and commission income
Margin on foreign exchange derivative brokerage
Gains on sale of financial assets at FVOCI
Share of JV loss after tax
Other income
Total non-interest income
2023
£m
1
2
33
2
(50)
(12)
128
19
1
–
4
152
140
and a fair value gain on equity investments of £2m (2022: £2m gain).
(2) In respect of terminated hedges.
The Group’s unrecognised share of losses of JVs for the year was £6m (2022: £8m).
For loss-making entities, subsequent profits earned are not recognised until previously
unrecognised losses are extinguished. On a cumulative basis, the Group’s unrecognised
share of losses net of unrecognised profits of JVs is £15m (2022: £9m).
Non-interest income includes the following fee and commission income disaggregated
by income type:
Current account and debit card fees
Credit cards
Insurance, protection and investments
Other fees(1)
Total fee and commission income
Total fee and commission expense
Net fee and commission income
(1) Other fees include mortgages, invoice and asset finance and ATM fees.
2023
£m
100
63
7
16
186
(58)
128
2022
£m
102
52
8
26
188
(54)
134
2022
£m
6
(19)
46
(4)
(46)
(17)
Staff costs
Property and infrastructure
Technology and communications
Corporate and professional services
Depreciation, amortisation and impairment
Other expenses
2023
£m
432
74
130
240
116
181
2022
£m
435
38
119
135
179
163
Total operating and administrative expenses
1,173
1,069
134
Staff costs comprise the following items:
19
4
(4)
4
157
140
Salaries and wages
Social security costs
Defined contribution pension expense
Defined benefit pension credit (note 3.3)
Compensation costs
Bonus awards
Performance costs
Redundancy and restructuring
Temporary staff costs
Other(2)
Other staff costs
Total staff costs
2023
£m
275
32
56
(50)
313
6
22
28
7
24
60
91
2022
£m
254
30
50
(24)
310
4
27
31
3
13
78
94
432
435
(1) Includes National Insurance on equity based compensation.
(2) Includes a one-off cost of living allowance of £Nil (2022: £7m).
Phase 2 of the ongoing Pension Increase Exchange (PIE) exercise completed in FY22, and the third
and final phase is due to complete in the final quarter of calendar year 2023. The defined benefit
pension credit in the current year therefore includes no impact (2022: £10m credit) arising from the
PIE exercise. A PIE gives members the option to exchange future increases on their pensions for a
one-off uplift to their current pension.
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Notes to the consolidated
financial statements
Company financial statements
Notes to the Company
financial statements
Additional information
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331
Notes to the consolidated financial statements
Section 2: Results for the year continued
2.3 Operating expenses continued
The average number of FTE employees of the Group during the year was made up as follows:
2.4 Taxation
Managers(1)
Clerical staff
2023
Number
3,436
3,730
7,166
2022
Number
2,574
4,292
6,866
Accounting policy
Deferred tax assets and liabilities are recognised on temporary differences arising between
the tax bases of assets and liabilities and their carrying amounts in the financial statements.
Deferred tax is determined using tax rates and laws that have been enacted or substantively
enacted by the balance sheet date and are expected to apply when the related deferred tax
asset is realised, or the deferred tax liability is settled.
A deferred tax asset is recognised for unused tax losses and unused tax credits only if it
is probable that future taxable amounts will arise against which those temporary differences
and losses may be utilised.
Critical accounting estimates and judgements
In arriving at the Group’s deferred tax asset balance of £193m (2022: £146m), significant
judgement is exercised on the component of deferred tax assets that relate to tax losses
carried forward of £267m (2022: £302m).
Consistent with prior years, deferred tax assets are recognised to the extent that they are
expected to be utilised over six years from the balance sheet date. Gross losses of £83m are
not forecast to reverse within this period and have been derecognised (2022: £Nil). If instead
of six years the period were five years or seven years, the recognised deferred tax asset would
decrease to £148m or increase to £213m respectively, with the latter being full recognition of
all losses. If Group profit forecasts were 10% lower than anticipated, the deferred tax asset
would be £168m. If Group profit forecasts were 10% higher than anticipated, the deferred tax
asset would be £213m. All tax assets arising will be used within the UK.
(1) Includes a combination of managers with and without staff responsibilities.
The average monthly number of employees was 8,110 (2022: 7,829). All staff are contracted
employees of the Group and its subsidiary undertakings. The average figures above do not
include contractors.
Auditor’s remuneration included within other operating and administrative expenses:
Fees payable to the Company’s auditor for the audit of the Company’s
financial statements
Fees payable to the Company’s auditor for the audit of the Company’s
subsidiaries(1)
Total audit fees
Audit related assurance services
Other assurance services
Total non-audit fees
Fees payable to the Company’s auditor in respect of associated
pension schemes
Total fees payable to the Company’s auditor
(1) Includes the audit of the Group’s structured entities.
2023
£’000
25
4,787
4,812
562
276
838
126
5,776
2022
£’000
24
4,564
4,588
262
1,877
2,139
107
6,834
Non-audit fees of £1m (2022: £2m) were paid to the auditor during the year for services including
UN PRB and the second Payment Services Directive assurance, the review of the Interim Financial
Report, PRA Written Auditor Reporting, comfort letters for the global medium-term note and
covered bond programmes, client money reviews and profit attestations.
Deferred tax
Current year
Adjustment in respect of prior years
Out of pocket expenses of £26k (2022: £13k) were borne by the Group during the year.
Tax expense for the year
Current tax
Current year
Adjustment in respect of prior years
2023
£m
2022
£m
36
2
38
65
(4)
61
99
81
4
85
(21)
(6)
(27)
58
296
Virgin Money Annual Report & Accounts 2023Financial statements
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Notes to the consolidated financial statements
Section 2: Results for the year continued
2.4 Taxation continued
The tax assessed for the year differs from that arising from applying the standard rate of
corporation tax in the UK of 22% (2022: 19%). 22% is the average standard rate for the full financial
year, comprising 19% to 1 April 2023 then 25% to 30 September 2023. A reconciliation from the
expense implied by the standard rate to the actual tax expense is as follows:
In February 2022 legislation was enacted to reduce the banking surcharge from 8% to 3%, and to
increase the threshold below which it is not chargeable to £100m (previously £25m). The impact on
deferred tax was reflected in the large rate change charge for the year ended 30 September 2022.
The changes are effective for current tax from 1 April 2023 resulting in an average tax rate for the
year of 22% (comprising 19% for the six months to 1 April 2023 then 25% to 30 September 2023).
Climate-related disclosures
Profit on ordinary activities before tax
Financial statements
Independent auditor’s report to the
members of Virgin Money UK PLC
Consolidated financial statements
Notes to the consolidated
financial statements
Company financial statements
Notes to the Company
financial statements
Additional information
275
283
288
328
331
Tax expense based on the standard rate of corporation tax in the UK of 22%
(2022: 19%)
Effects of:
Disallowable expenses
Conduct indemnity adjustment
Deferred tax assets derecognised/(recognised)
Impact of rate changes
AT1 distribution
Banking surcharge
Adjustments in respect of prior years
Tax expense for the year
The Group’s effective tax rate is 28.7% (2022: 9.7%). The primary driver of this is the derecognition
of losses following a reduction in forecast profits over the corporate planning horizon, and a fall in
the cash flow hedge reserve due to market conditions.
The current period rate change charge of £9m arises mainly in relation to the defined benefit
pension scheme, where current period amounts that are recognised in the income statement are
reflected at 22%, while the deferred tax liability on the ultimate accounting surplus is measured
at 35%.
2023
£m
345
76
5
(1)
19
9
(12)
5
(2)
99
2022
£m
595
113
4
(12)
(83)
23
(13)
28
(2)
58
The Group has recognised deferred tax in relation to the following items in the balance sheet, income statement, and statement of other comprehensive income:
Movement in deferred tax asset/(liability)
At 1 October 2021
Income statement credit/(charge)
Other comprehensive income charge
At 30 September 2022
Income statement credit/(charge)
Other comprehensive income credit
At 30 September 2023
Acquisition
accounting
adjustments
£m
Cash flow
hedge reserve
£m
Gains on financial
instruments at
FVOCI
£m
Tax losses
carried
forward
£m
Capital
allowances
£m
Pension
spreading
£m
Other
temporary
differences
£m
Total deferred
tax assets
£m
Defined benefit
pension scheme
surplus
£m
Total deferred
tax liabilities
£m
(10)
2
–
(8)
2
–
(6)
(9)
2
(260)
(267)
1
77
(189)
(15)
–
(1)
(16)
–
14
(2)
255
47
–
302
(35)
–
267
124
(13)
–
111
(8)
–
103
5
–
(5)
–
–
–
–
27
(2)
(1)
24
(4)
–
20
377
36
(267)
146
(44)
91
193
(296)
(9)
(45)
(350)
(17)
188
(179)
(296)
(9)
(45)
(350)
(17)
188
(179)
297
Virgin Money Annual Report & Accounts 2023Financial statements
Notes to the consolidated financial statements
Section 2: Results for the year continued
2.4 Taxation continued
Other temporary differences include the IFRS 9 transitional adjustment of £9m and equity based
compensation of £5m (2022: £11m and £6m respectively).
The deferred tax assets and liabilities detailed above arise primarily in Clydesdale Bank PLC which
has a right to offset current tax assets against current tax liabilities and is party to a Group Payment
Arrangement for payments of tax to HMRC. Therefore, in accordance with IAS 12, deferred tax
assets and deferred tax liabilities have also been offset in this year where they relate to payments
of income tax to this tax authority.
The Group has unrecognised deferred tax assets of £21m (2022: £Nil) (£83m gross loss valued
at the mainstream rate of 25%) representing tax losses whose use is not forecast within the
foreseeable future.
On 22 November 2023 the Chancellor announced that the authorised surplus payments charge will
be reduced from 35% to 25% from 6 April 2024. If this measure had been enacted on the balance
sheet date the deferred tax liability in respect of the defined benefit pension surplus would have
reduced from £179m to £128m.
Strategic report
Governance
Risk report
Climate-related disclosures
Financial statements
Independent auditor’s report to the
members of Virgin Money UK PLC
Consolidated financial statements
Notes to the consolidated
financial statements
Company financial statements
Notes to the Company
financial statements
Additional information
275
283
288
328
331
2.5 Earnings per share
Accounting policy
Basic EPS
Basic EPS is calculated by taking the profit attributable to ordinary shareholders of the parent
company and then dividing this by the weighted average number of ordinary shares outstanding
during the year after deducting the weighted average of the Group’s holdings of its own shares.
Diluted EPS
This requires the weighted-average number of ordinary shares in issue to be adjusted to
assume conversion of all dilutive potential ordinary shares. These arise from awards made
under equity based compensation schemes. Share awards with performance conditions
attaching to them are not considered to be dilutive unless these conditions have been met
at the reporting date.
Profit attributable to ordinary equity holders for the purposes of basic
and diluted EPS
Weighted-average number of ordinary shares in issue (millions)
– Basic
Adjustment for share awards made under equity based compensation schemes
– Diluted
Basic earnings per share (pence)
Diluted earnings per share (pence)
2023
£m
192
2023
1,375
4
1,379
14.0
13.9
2022
£m
467
2022
1,441
3
1,444
32.4
32.3
Basic earnings per share has been calculated after deducting 0.2m (2022: 0.3m) ordinary shares
representing the weighted-average of the Group’s holdings of its own shares.
Note 4.1 provides details of the share buyback programme including buybacks intended for beyond
30 September 2023.
298
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Consolidated financial statements
Notes to the consolidated
financial statements
Company financial statements
Notes to the Company
financial statements
Additional information
275
283
288
328
331
Notes to the consolidated financial statements
Section 3: Assets and liabilities
3.1 Financial instruments
3.1.1 Financial instruments at amortised cost
Accounting policy
Recognition and derecognition
Financial instruments are recognised when the Group becomes party to the contractual
provisions of the instrument. Purchases and sales of financial assets classified within FVTPL
or FVOCI are recognised on trade date.
Accounting policy
A financial asset is measured at amortised cost when: (1) the asset is held within a business
model whose objective is achieved by collecting contractual cash flows; and (2) the contractual
terms give rise to cash flows on specified dates which are solely payments of principal and
interest on the principal amount outstanding.
The Group derecognises a financial asset when the contractual cash flows from the asset expire
or it transfers the right to receive contractual cash flows on the financial asset in a transaction
in which substantially all the risks and rewards of ownership are transferred. Financial liabilities
are derecognised when the Group has discharged its obligation to the contract, or the contract
is cancelled or expires.
All financial liabilities are measured at amortised cost, except for financial liabilities at FVTPL.
Such liabilities include derivative contracts, other than those which are financial guarantee
contracts or designated and effective hedging instruments.
Financial assets classified at amortised cost are subject to expected credit loss (ECL)
impairment requirements.
Note 3.1.4 contains information on the valuation techniques and methodologies applied
to financial instruments and their classification within the fair value hierarchy.
Classification and measurement
The Group measures a financial asset or liability on initial recognition at its fair value, plus or
minus transaction costs that are directly attributable to the acquisition or issue of the financial
asset or the financial liability (with the exception of financial assets or liabilities at FVTPL,
where transaction costs are recognised directly in the income statement as they are incurred).
Subsequent accounting for a financial asset is determined by the classification of the asset
depending on the underlying business model and contractual cash flow characteristics. This
results in classification within one of the following categories: (i) amortised cost (note 3.1.1);
(ii) FVOCI (note 3.1.2); or (iii) FVTPL (note 3.1.3).
Repurchase agreements
Securities sold subject to sale and repurchase agreements (‘repo’) are retained in their
respective balance sheet categories. The associated liabilities are included in amounts due
to other banks based upon the counterparties to the transactions. The difference between
the sale and repurchase price of repos is treated as interest and accrued over the life of the
agreements using the effective interest method.
Offsetting
This can only occur, and the net amount be presented on the balance sheet, when the Group
currently has a legally enforceable right to offset the recognised amounts and intends either
to settle on a net basis, or to realise the asset and settle the liability simultaneously.
Presentation of risk, offsetting and maturity disclosures
Certain disclosures required under IFRS 7 ‘Financial instruments: disclosures’ and IAS 1
‘Presentation of financial statements’ have been included within the audited sections of the
Risk report. Where information is marked as audited, it is incorporated into these financial
statements by this cross reference, and it is covered by the Independent auditor’s report.
At each reporting date, the Group assesses financial assets measured at amortised cost,
as well as loan commitments and financial guarantees not measured at FVTPL, for impairment.
The impairment loss allowance is calculated using an ECL methodology and reflects: (i) an
unbiased and probability weighted amount; (ii) the time value of money which discounts the
impairment loss; and (iii) 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.
ECL methodology is based upon the combination of PD, LGD and EAD estimates that consider
a range of factors that impact on credit risk and consequently the level of impairment loss
provisioning. The Group uses reasonable and supportable forecasts of future economic
conditions in estimating the ECL allowance. The methodology and assumptions used in the
ECL calculation are reviewed regularly and updated as necessary. ECLs are assessed either
collectively or individually.
The Group’s impairment policy for debt instruments at FVOCI is included in note 3.1.2.
The impact of the ECL methodology on amounts due from other banks balances held at
amortised cost is immaterial. ECLs relating to loan commitments and financial guarantees
can be found in note 3.7.
SICR assessment and staging
The ECL is calculated as either 12-month (Stage 1) or lifetime depending on whether the
financial asset has suffered a SICR since origination (Stage 2) or has otherwise become credit
impaired (Stage 3) as at the reporting date. The Group uses a PD threshold curve (distinct for
each portfolio) to assess for a SICR in addition to the 30 DPD and 90 DPD backstops for
recognising Stage 2 and Stage 3 ECLs respectively.
299
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financial statements
Company financial statements
Notes to the Company
financial statements
Additional information
275
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288
328
331
Notes to the consolidated financial statements
Section 3: Assets and liabilities continued
3.1 Financial instruments continued
3.1.1 Financial instruments at amortised cost continued
Financial assets can move between stages when the relevant staging criteria are no longer
satisfied subject to certain restrictions for forborne assets. If the level of impairment loss
reduces in a subsequent year, the previously recognised impairment loss allowance is reversed
and recognised in the income statement.
POCI financial assets are those which are credit impaired upon initial recognition (being the
point at which the asset was either purchased or originated). Once a financial asset is classified
as POCI, it remains as such until derecognition irrespective of its credit quality at each reporting
date. POCI financial assets are disclosed separately from those financial assets in Stage 3.
The Group regards the date of acquisition as the origination date for purchased portfolios.
The Group has not made use of the low credit risk option under IFRS 9 for loans and advances
at amortised cost.
Regardless of the calculation basis, the Group generates a modelled ECL allowance at the
individual financial instrument level. The modelled ECL output can be supplemented by
management adjustments (MAs) where appropriate.
Write-offs and recoveries
When there is no reasonable expectation of recovery for a loan, it is written off against the
related provision. Such loans are written off after all the necessary procedures have been
completed and the amount of the loss has been determined. Subsequent recoveries of amounts
previously written off decrease the amount of the impairment charge in the income statement.
Critical accounting estimates and judgements
ECL methodology requires the Group to apply estimates and exercise judgement when
calculating an impairment allowance for credit exposures.
Further information on the chosen scenarios, macroeconomic assumptions, and scenario
weightings used in the ECL calculation, including the use of MAs together with sensitivity
analysis, is contained in the credit risk section of the Risk report on pages 200 to 208.
3.1.1.1 Loans and advances to customers
Accounting policy
Loans and advances to customers arise when the Group provides money directly to a customer
and includes mortgages, term lending, overdrafts, credit card lending, lease finance and invoice
financing. They are recognised initially at fair value and are subsequently measured at amortised
cost, using the effective interest method and adjusted for ECLs. They are derecognised when
the rights to receive cash flows have expired or the Group has transferred substantially all the
risks and rewards of ownership.
Leases entered into by the Group as lessor, where the Group transfers substantially all the risks
and rewards of ownership to the lessee, are classified as finance leases. The leased asset is
not held on the Group balance sheet; instead, a finance lease is recognised representing the
minimum lease payments receivable under the terms of the lease, discounted at the rate of
interest implicit in the lease. Interest income is recognised in interest receivable, allocated to
accounting years to reflect a constant periodic rate of return.
Gross loans and advances to customers
Impairment provisions on credit exposures(1)
Fair value hedge adjustment
2023
£m
2022
£m
73,295
73,146
(612)
(492)
(454)
(941)
72,191
71,751
(1) ECLs on off-balance sheet exposures of £5m (2022: £3m) are presented as part of the provisions for liabilities and charges
balance (note 3.7).
The Group has a portfolio of fair valued business loans of £59m (2022: £70m) which are classified
separately as financial assets at FVTPL (note 3.1.3.1). Combined with the above, this is equivalent
to total loans and advances to customers of £72,250m (2022: £71,821m).
The fair value hedge adjustment represents an offset to the fair value movement on hedging
derivatives transacted to manage the interest rate risk inherent in the Group’s fixed rate
mortgage portfolio.
The Group has transferred a proportion of mortgages to the securitisation and covered bond
programmes (note 3.1.5).
300
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Consolidated financial statements
Notes to the consolidated
financial statements
Company financial statements
Notes to the Company
financial statements
Additional information
275
283
288
328
331
Notes to the consolidated financial statements
Section 3: Assets and liabilities continued
3.1 Financial instruments continued
3.1.1 Financial instruments at amortised cost continued
3.1.1.1 Loans and advances to customers continued
Lease finance
The Group leases a variety of assets to third parties under finance lease arrangements, including
vehicles and general plant and machinery. The cost of assets acquired by the Group during the
year for the purpose of letting under finance leases and hire purchase contracts amounted to £71m
(2022: £46m) and £557m (2022: £405m) respectively.
Finance lease receivables are presented in the statement of financial position within loans and
advances to customers. The maturity analysis of lease receivables, including the undiscounted
lease payments to be received, is as follows:
Gross investment in finance lease and hire purchase receivables
Less than 1 year
1-2 years
2-3 years
3-4 years
4-5 years
More than 5 years
Unearned finance income
Net investment in finance lease and hire purchase receivables
2023
£m
373
223
158
95
59
31
939
(83)
856
Finance income recognised on the net investment in the lease was £38m (2022: £21m) and is
included in interest income (note 2.1).
Impairment provisions on credit exposures
Opening balance
ECL charge for the year(1)
Amounts written off
Recoveries of amounts written off in previous years
Closing balance
2023
£m
454
307
(187)
38
612
2022
£m
269
170
117
66
46
24
692
(45)
647
2022
£m
496
57
(129)
30
454
(1) The £309m charge (2022: £52m) for impairment losses on credit exposures shown in the income statement also includes a £2m
charge (2022: £5m credit) in respect of off-balance sheet ECLs which are presented as part of the provisions for liabilities and
charges balance (note 3.7).
3.1.1.2 Cash and balances with central banks
Accounting policy
Cash and balances with central banks are measured at amortised cost, using the effective
interest method, and are derecognised when the rights to receive cash flows have expired or
the Group has transferred substantially all the risks and rewards of ownership. These balances
form part of the Group’s treasury-related activities and are mostly short term in nature and
repayable on demand or within a short timescale, generally three months.
The impact of the ECL impairment requirements (note 3.1.1) on the Group’s cash and balances
with central banks is immaterial.
Cash assets
Balances with central banks (including EU payment systems)
Less mandatory deposits with central banks(1)
Included in cash and cash equivalents (note 5.4)
2023
£m
1,089
10,193
11,282
(275)
11,007
(1) Mandatory deposits are not available for use in the Group’s day-to-day business and are non-interest bearing.
3.1.1.3 Customer deposits
Interest bearing demand deposits
Term deposits
Non-interest bearing demand deposits
Accrued interest
2023
£m
39,292
22,775
4,542
66,609
218
66,827
2022
£m
1,206
11,015
12,221
(266)
11,955
2022
£m
46,457
13,951
4,952
65,360
74
65,434
301
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Climate-related disclosures
Financial statements
Independent auditor’s report to the
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Consolidated financial statements
Notes to the consolidated
financial statements
Company financial statements
Notes to the Company
financial statements
Additional information
275
283
288
328
331
Notes to the consolidated financial statements
Section 3: Assets and liabilities continued
3.1 Financial instruments continued
3.1.1 Financial instruments at amortised cost continued
3.1.1.4 Debt securities in issue
The following tables provide a breakdown of the medium-term notes and subordinated debt
by instrument as at 30 September (excluding accrued interest):
Medium-term notes
Accounting policy
Debt securities comprise short and long-term debt issued by the Group including, medium-term
notes, subordinated debt, covered bonds and RMBS notes.
Debt securities are initially recognised at fair value, being the issue proceeds, net of transaction
costs incurred. These instruments are subsequently measured at amortised cost using the
effective interest method resulting in premiums, discounts and associated issuance costs being
recognised in the income statement over the life of the instrument.
Where relevant, fair value hedge adjustments have been applied.
Medium-term
notes
£m
Subordinated
debt
£m
Securitisation
£m
Covered
bonds
£m
Total
£m
VM UK 3.125% fixed-to-floating rate callable senior notes due 2025
VM UK 4% fixed rate reset callable senior notes due 2026
VM UK 3.375% fixed rate reset callable senior notes due 2026
VM UK 4% fixed rate reset callable senior notes due 2027
VM UK 2.875% fixed rate reset callable senior notes due 2025
VM UK 0.375% fixed rate reset callable senior notes due 2024
VM UK 4.625% fixed rate reset callable senior notes due 2028
VM UK 7.625% fixed rate reset callable senior notes due 2029
2023
£m
300
463
330
350
418
–
421
302
2022
£m
299
444
317
331
413
432
–
–
2,584
2,236
2023
Debt securities
Accrued interest
2022
Debt securities
Accrued interest
2,584
28
2,612
2,236
13
2,249
938
14
952
899
14
913
1,729
4,392
9,643
Subordinated debt
11
23
76
VM UK 7.875% fixed rate reset callable subordinated notes due 2028
1,740
4,415
9,719
VM UK 5.125% fixed rate reset callable subordinated notes due 2030
VM UK 2.625% fixed rate reset callable subordinated notes due 2031
1,875
3,450
8,460
5
17
49
2023
£m
250
424
264
938
1,880
3,467
8,509
Details of securitisation and covered bond issuances are included in note 3.1.5.
Key movements in the year are shown in the table below(1). Full details of all notes in issue can be
found at https://www.virginmoneyukplc.com/investor-relations/debt-investors/
3.1.1.5 Due to other banks
2023
2022
Secured loans
Issuances
Redemptions
Issuances
Redemptions
Securities sold under agreements to repurchase(1)
Denomination
£m Denomination
£m Denomination
£m Denomination
EUR
432
–
–
–
£m
–
Transaction balances with other banks
Deposits from other banks
Medium-term notes
EUR, GBP
Securitisation
GBP
Covered bonds
EUR, GBP
747
900
926
2,573
USD, GBP
1,012
GBP
700
USD, GBP
1,264
–
–
EUR, GBP
1,780
1,444
2,480
–
–
1,264
(1) The underlying securities sold under agreements to repurchase have a carrying value of £1,047m (2022: £1,873m) and relate
to internally held debt securities, backed by mortgage assets, issued from the Group’s securitisation programmes (note 3.1.5).
6,939
8,502
(1) Other movements relate to foreign exchange, hedging adjustments and the capitalisation and amortisation of issuance costs.
Secured loans comprise amounts drawn under the TFSME scheme (including accrued interest).
302
2022
£m
249
400
250
899
2022
£m
7,230
1,205
17
50
2023
£m
6,291
552
19
77
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Climate-related disclosures
Financial statements
Independent auditor’s report to the
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Consolidated financial statements
Notes to the consolidated
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Company financial statements
Notes to the Company
financial statements
Additional information
275
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288
328
331
Notes to the consolidated financial statements
Section 3: Assets and liabilities continued
3.1 Financial instruments continued
3.1.2 Financial assets at fair value through other comprehensive income
3.1.3 Financial assets at fair value through profit or loss
Accounting policy
A financial asset is measured at FVOCI when: (i) the asset is held within a business model
whose objective is achieved by both collecting contractual cash flows and selling financial
assets; and (ii) the contractual terms give rise to cash flows on specified dates which are solely
payments of principal and interest on the principal amount outstanding unless the financial asset
is designated at FVTPL on initial recognition. An option for equity investments that are not held
for trading can be taken to classify them at FVOCI where an irrevocable election is made at
initial recognition. This is available for each separate investment, and the Group has not
exercised this option for any equity investments.
Interest income and impairment gains and losses on FVOCI assets are measured in the same
manner as for assets measured at amortised cost and recognised in the income statement,
with all other gains or losses recognised in other comprehensive income as a separate
component of equity in the year in which they arise. Gains and losses arising from changes in
fair value are included as a separate component of equity until sale, when the cumulative gain
or loss is transferred to the income statement. For all FVOCI assets, the gain or loss is calculated
with reference to the gross carrying amount.
Debt instruments at FVOCI are subject to the same impairment criteria as amortised cost
financial assets (note 3.1.1), with the ECL element recognised directly in the income statement.
As the financial asset is fair valued through other comprehensive income, the change in its
value includes the ECL element, with the remaining fair value change recognised in other
comprehensive income. Any reversal of the ECL is recorded in the income statement up to
the value recognised previously.
A low credit risk option is available which allows entities not to assess whether there has
been a significant increase in credit risk since initial recognition where the financial asset
is deemed as being of low credit risk at the reporting date. The result of exercising the low
credit risk exemption is that the financial assets are classed under Stage 1 with a 12-month
ECL calculation applied.
The Group exercises the low credit risk option for debt instruments classified as FVOCI,
recognising the high credit quality of the instruments. Consequently, no material ECL provision
is held for these financial assets.
Financial assets at FVOCI consists of £6,184m of listed securities (2022: £5,064m).
Note 3.1.4 contains further information on the valuation methodology applied to financial
instruments at FVOCI at 30 September 2023 and their classification within the fair value hierarchy.
Details of the credit quality of financial assets is provided in the Risk report.
Accounting policy
A financial asset is measured at FVTPL if it: (i) does not fall into one of the business models
for amortised cost (note 3.1.1) or FVOCI (note 3.1.2); (ii) is specifically designated as FVTPL
on initial recognition in order to eliminate or significantly reduce a measurement mismatch;
or (iii) is classified as held for trading.
A financial instrument is classified as held for trading if it is acquired principally for the purpose
of selling in the near term, forms part of a portfolio of financial instruments that are managed
together and for which there is evidence of short-term profit taking, or it is a derivative not
in a qualifying hedge relationship.
Associated gains and losses are recognised in the income statement as they arise (note 2.2).
Derivatives
The Group uses derivative financial instruments to manage exposure to interest rate,
contractually specified inflation and foreign currency risk. Interest rate risk arises primarily due
to the mismatch, or duration, between repricing dates of interest-bearing assets and liabilities,
or basis risk from assets and liabilities repricing to different reference rates. Contractually
specified inflation risk arises from financial instruments whose cash flows are linked to an
inflation index. Currency risk arises when assets and liabilities are not denominated in the
functional currency of the entity. Derivatives are recognised on the balance sheet at fair value
on trade date and are measured at fair value throughout the life of the contract. Derivatives are
carried as assets when the fair value is positive and as liabilities when the fair value is negative.
The notional amount of a derivative contract is not recorded on the balance sheet but is
disclosed as part of this note.
Netting
Derivative assets and liabilities are offset against collateral received and paid respectively, and
the net amount reported in the balance sheet only when there is a legally enforceable right to
offset the recognised amounts, and there is an intention to settle on a net basis. Amounts offset
on the balance sheet represent the Group’s centrally cleared derivative financial instruments
and collateral paid to/from central clearing houses, which meet the criteria for offsetting under
IAS 32.
Hedge accounting
The Group elects to apply hedge accounting for the majority of its risk management activity
that uses derivatives. This results in greater alignment in the timing of recognition of gains
and losses on hedged items and hedging instruments and therefore reduces income statement
volatility. The Group does not have a trading book, however derivatives that do not meet the
hedging criteria, or for which hedge accounting is not applied, are classified as held for trading.
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Company financial statements
Notes to the Company
financial statements
Additional information
275
283
288
328
331
Notes to the consolidated financial statements
Section 3: Assets and liabilities continued
3.1 Financial instruments continued
3.1.3 Financial assets at fair value through profit or loss continued
The Group has elected, as a policy choice permitted under IFRS 9, to continue to apply hedge
accounting in accordance with IAS 39. The method of recognising the fair value gain or loss
on a derivative depends on whether it is designated as a hedging instrument and the nature of
the item being hedged. Certain derivatives are designated as either hedges of highly probable
future cash flows attributable to a recognised asset or liability, or a highly probable forecast
transaction (a cash flow hedge); or hedges of the fair value of recognised assets or liabilities
or firm commitments (a fair value hedge).
Cash flow hedge
The effective portion of changes in the fair value of derivatives that are designated and qualify
as cash flow hedges is recognised in equity. Specifically, the separate component of equity
(note 4.1) is adjusted to the lesser of the cumulative gain or loss on the hedging instrument and
the cumulative change in fair value of the expected future cash flows on the hedged item from
the inception of the hedge. Any remaining gain or loss on the hedging instrument is recognised
in the income statement. The carrying value of the hedged item is not adjusted. Amounts
accumulated in equity are transferred to the income statement in the period in which the
hedged item affects profit or loss.
When a hedging instrument expires or is sold, or when a hedge is discontinued or no longer
meets the criteria for hedge accounting, any cumulative gain or loss remains in equity and is
recognised when the forecast transaction is ultimately recognised in the income statement.
When a forecast transaction is no longer expected to occur, the cumulative gain or loss that
was reported in equity is immediately transferred to the income statement.
Fair value hedge
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are
recorded in the income statement, together with any changes in the fair value of the hedged
asset or liability that are attributable to the hedged risk. This movement in the fair value of the
hedged item is made as an adjustment to the carrying value of the hedged asset or liability.
Where the hedged item is derecognised from the balance sheet, the adjustment to the carrying
amount of the asset or liability is immediately transferred to the income statement. When a
hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge
accounting, the adjustment to the carrying amount of a hedged item is amortised to the income
statement over the remaining life of the asset or liability.
Derivatives held for trading
Changes in value of held for trading derivatives are immediately recognised in the income
statement (note 2.2).
3.1.3.1 Loans and advances to customers
Included in financial assets at FVTPL is a historical portfolio of loans. Interest rate risk associated
with these loans is managed using interest rate derivative contracts and the loans are recorded
at fair value to avoid an accounting mismatch. The maximum credit exposure of the loans is £59m
(2022: £70m). The cumulative loss in the fair value of the loans attributable to changes in credit
risk amounts to £1m (2022: £1m); the change for the current year is £Nil (2022: decrease of £1m),
of which £Nil (2022: £1m) has been recognised in the income statement.
3.1.3.2 Derivatives
The tables below analyse derivatives between those designated as hedging instruments and those
classified as held for trading:
Fair value of derivative financial assets
Designated as hedging instruments
Designated as held for trading
Fair value of derivative financial liabilities
Designated as hedging instruments
Designated as held for trading
2023
£m
96
39
135
204
86
290
2022
£m
277
65
342
201
126
327
Cash collateral totalling £267m (2022: £241m) has been pledged and £33m has been received
(2022: £38m) in respect of derivatives with other banks. These amounts are included within due
from and due to other banks respectively. Net collateral received from clearing houses, which did
not meet offsetting criteria, totalled £116m (2022: £149m) and is included within other assets and
other liabilities.
The derivative financial instruments held by the Group are further analysed below. The notional
contract amount is the amount from which the cash flows are derived and does not represent the
principal amounts at risk relating to these contracts.
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Company financial statements
Notes to the Company
financial statements
Additional information
275
283
288
328
331
Notes to the consolidated financial statements
Section 3: Assets and liabilities continued
3.1 Financial instruments continued
3.1.3 Financial assets at fair value through profit or loss continued
3.1.3.2 Derivatives continued
Total derivative contracts
Hedge accounting
The hedging strategy of the Group is divided into micro hedges, where the hedged item is a distinctly
identifiable asset or liability, and portfolio hedges, where the hedged item is a homogeneous
portfolio of assets or liabilities.
2023
2022
Notional
contract
amount
£m
Fair value
of assets
£m
Fair value
of liabilities
£m
Notional
contract
amount
£m
Fair value
of assets
£m
Fair value
of liabilities
£m
Derivatives designated as hedging
instruments
Cash flow hedges
Interest rate swaps (gross)
51,185
1,295
545
35,753
1,988
Less: net settled interest rate swaps(1)
(49,888)
(1,222)
(531)
(33,188)
(1,803)
Interest rate swaps (net)(2)
1,297
73
14
2,565
185
Fair value hedges
Interest rate swaps (gross)(3)
19,203
1,219
862
16,600
1,201
Less: net settled interest rate swaps(1)
(18,113)
(1,206)
(820)
(14,611)
(1,144)
Interest rate swaps (net)(2)
Cross currency swaps(2)
Total derivatives designated
as hedging instruments
1,090
2,350
3,440
13
10
23
42
148
190
1,989
2,113
4,102
57
35
92
4,737
96
204
6,667
277
Derivatives designated
as held for trading
Foreign exchange rate related contracts
Spot and forward foreign exchange(2)
Options(2)
Interest rate related contracts
Interest rate swaps (gross)
Less: net settled interest rate swaps(1)
Interest rate swaps (net)(2)
Swaptions(2)
Options(2)
Commodity related contracts
Total derivatives designated
as held for trading
654
–
654
1,910
(753)
1,157
10
1,067
2,234
167
3,055
7
–
7
47
(43)
4
–
16
20
12
39
9
–
9
50
(1)
49
1
16
66
11
599
1
600
1,411
(665)
746
10
501
1,257
199
86
2,056
26
–
26
52
(50)
2
–
16
18
21
65
930
(900)
30
636
(570)
66
105
171
201
20
–
20
66
–
66
2
17
85
21
126
(1) Presented within other assets and other liabilities.
(2) Presented within derivative financial instruments.
(3) Includes inflation and interest rate risk related swaps detailed in the summary of hedging instruments in designated hedge
relationships table on page 307.
In some hedge accounting relationships, the Group designates risk components of hedged items
as follows:
> Benchmark interest rate risk as a component of interest rate risk, such as the SONIA
component.
> Exchange rate risk for foreign currency financial assets and financial liabilities.
>
Inflation risk where it is a contractually specified component of a debt instrument.
> Components of cash flows of hedged items, for example cash flows linked to benchmark rates
such as SONIA.
Other risks such as credit risk and liquidity risk are managed by the Group but are not included
in the hedge accounting relationship. Changes in the designated risk component usually account
for the largest portion of the overall change in fair value or cash flows of the hedged item.
Portfolio cash flow hedges
The Group applies macro cash flow hedge accounting to a portion of its floating rate financial
assets and liabilities. The hedged cash flows are a group of forecast transactions that result in
cash flow variability from resetting of interest rates, reinvestment of financial assets, or refinancing
and rollovers of financial liabilities. This cash flow variability can arise on recognised assets or
liabilities or highly probable forecast transactions. The hedged items are designated as the gross
asset or liability positions allocated to time buckets based on projected repricing and interest
profiles. The Group aims to maintain a position where the principal amount of the hedged items
is greater than or equal to the notional amount of the corresponding interest rate swaps used
as the hedging instruments. The hedge accounting relationship is reassessed on a monthly basis
with the composition of hedging instruments and hedged items changing frequently in line with
the underlying risk exposures. If necessary, the hedge relationships are de-designated and
redesignated based on the effectiveness test results.
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Company financial statements
Notes to the Company
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Additional information
275
283
288
328
331
Notes to the consolidated financial statements
Section 3: Assets and liabilities continued
3.1 Financial instruments continued
3.1.3 Financial assets at fair value through profit or loss continued
3.1.3.2 Derivatives continued
Portfolio fair value hedges
The Group applies macro fair value hedging to a portion of its fixed rate mortgages. The Group
determines hedged items by identifying portfolios of homogeneous loans based on their contractual
maturity and other risk characteristics. Loans within the identified portfolios are allocated to
repricing time buckets based on expected, rather than contractual, repricing dates. The hedging
instruments are designated to those repricing time buckets. Hedge effectiveness is measured on
a monthly basis, by comparing fair value movements of the designated proportion of the bucketed
loans due to the hedged risk against the fair value movements of the derivatives.
The aggregated fair value changes in the hedged loans are recognised on the Group’s balance
sheet as an asset. At the end of every month, in order to minimise the ineffectiveness from early
repayments and accommodate new exposures, the Group voluntarily de-designates the hedge
relationships and redesignates them as new hedges. Fair value hedging of fixed rate deposits
was discontinued in 2020, and the hedge adjustment recognised on the Group’s balance sheet
is amortised to profit and loss over the life of the hedged item.
Micro fair value hedges
The Group uses this hedging strategy on GBP, inflation or foreign currency denominated fixed rate
assets held at FVOCI and GBP and foreign currency denominated fixed rate debt issuances by the
Group. Where assets and liabilities are exposed to multiple risk components, for example interest
rate and foreign currency risk, these components are simultaneously designated as hedged risks
within the same hedge relationship.
Hedge ineffectiveness
Hedge ineffectiveness can arise from:
> mismatches between the contractual terms of the hedged item and hedging instrument,
including basis differences;
> differences in timing of cash flows of hedged items and hedging instruments;
> changes in expected timings and amounts of forecast future cash flows; and
> derivatives used as hedging instruments having a non-zero fair value at the time of designation.
Additionally, for portfolio fair value hedges of the Group’s fixed rate mortgage portfolio,
ineffectiveness also arises from the difference between forecast and actual repayments
(i.e. prepayment risk).
The Group has no remaining hedge relationships exposed to LIBOR and as no uncertainty
remains regarding interest rate benchmark reform, the Group no longer applies the reliefs provided
by ‘Interest Rate Benchmark Reform – Phase 1 and Phase 2 amendments’ to hedge accounting.
Further detail on the Group’s approach to managing the risk of LIBOR replacement, including
derivatives designated as held for trading that have not yet transitioned, is provided on page 229.
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Company financial statements
Notes to the Company
financial statements
Additional information
275
283
288
328
331
Notes to the consolidated financial statements
Section 3: Assets and liabilities continued
3.1 Financial instruments continued
3.1.3 Financial assets at fair value through profit or loss continued
3.1.3.2 Derivatives continued
Summary of hedging instruments in designated hedge relationships
In the table below, the Group sets out the accumulated adjustments arising from the corresponding continuing hedge relationships, irrespective of whether or not there has been a change in hedge
designation during the year:
Cash flow hedges
Interest rate risk
Interest rate swaps(1)
Total derivatives designated as cash flow hedges
Fair value hedges
Interest rate risk
Interest rate swaps(1)
Inflation and interest rate risk
Inflation linked interest rate swaps(1)
Foreign exchange and interest rate risk
Cross currency swaps
Total derivatives designated as fair value hedges
2023
2022
Notional
contract
amount
£m
Carrying amount
Assets
£m
Liabilities
£m
Change in fair
value of hedging
instrument in the
year used for
ineffectiveness
measurement(2)
£m
Notional
contract
amount
£m
Carrying amount
Assets
£m
Liabilities
£m
Change in fair
value of hedging
instrument in the
year used for
ineffectiveness
measurement(2)
£m
51,185
51,185
1,295
1,295
545
545
(318)
(318)
35,753
35,753
1,988
1,988
17,683
1,520
2,350
21,553
983
236
10
1,229
257
606
148
1,011
(368)
16,150
1,059
43
450
142
(58)
(383)
2,113
18,713
35
1,236
930
930
361
275
105
741
916
916
1,052
96
6
1,154
(1) As shown in the total derivatives contracts table on page 305, for centrally cleared derivatives, where the IAS 32 ‘Financial instruments: presentation’ netting criteria is met, the derivative balances are offset within other assets.
For all other derivatives, the derivative balances are presented within derivative financial instruments.
(2) Changes in fair value of cash flow hedging instruments are recognised in other comprehensive income. Changes in fair value of fair value hedging instruments are recognised in the income statement in non-interest income.
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Company financial statements
Notes to the Company
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Additional information
275
283
288
328
331
Notes to the consolidated financial statements
Section 3: Assets and liabilities continued
3.1 Financial instruments continued
3.1.3 Financial assets at fair value through profit or loss continued
3.1.3.2 Derivatives continued
Summary of hedged items in designated hedge relationships
In the table below, the Group sets out the accumulated adjustments arising from the corresponding continuing hedge relationships, irrespective of whether or not there has been a change in hedge
designation during the year.
2023
2022
Change in fair
value of
hedged
item in the
year used for
ineffectiveness
measurement
£m
Cash flow hedge reserve
Continuing
hedges
£m
Discontinued
hedges
£m
Change in fair
value of
hedged
item in the
year used for
ineffectiveness
measurement
£m
Cash flow hedge reserve
Continuing
hedges
£m
Discontinued
hedges
£m
Cash flow hedges
Interest rate risk
Gross floating rate assets and gross floating rate liabilities(1)
Total
268
268
625
625
59
59
2023
Carrying amount of hedged items
Assets
£m
Liabilities
£m
Accumulated
hedge adjustment
on the hedged
item
£m
Change in fair
value of hedged
items in the
year used for
ineffectiveness
measurement
£m
Carrying amount of hedged items
Assets
£m
Liabilities
£m
Accumulated
hedge adjustment
on the hedged
item
£m
Change in fair
value of hedged
items in the
year used for
ineffectiveness
measurement
£m
979
979
(14)
(14)
(962)
(962)
2022
Fair value hedges
Interest rate risk
Fixed rate mortgages(3)
Fixed rate customer deposits(4)
Fixed rate FVOCI debt instruments(5)
Fixed rate issuances(2)
Inflation and interest rate risk
Fixed rate FVOCI debt instruments(5)
Foreign exchange and interest rate risk
Fixed rate currency FVOCI debt instruments(5)
Fixed rate currency issuances(2)
Total
10,864
–
2,692
–
–
–
–
(2,810)
1,116
64
–
14,736
–
–
(2,156)
(4,966)
(492)
–
(568)
234
426
–
92
(116)
(92)
(43)
(2)
140
(780)
1
56
416
9,520
–
2,443
–
589
76
–
12,628
–
–
–
(2,392)
–
–
(1,954)
(4,346)
(941)
(2)
(613)
350
(105)
(3)
83
(779)
–
(629)
388
(96)
(3)
11
(1,231)
(1,108)
(1) Highly probable future cash flows arising from loans and advances to customers, due to customers and debt securities in issue.
(2) Hedged item is recorded in debt securities in issue.
(3) Hedged item and the cumulative fair value changes are recorded in loans and advances to customers.
(4) Hedge relationship was discontinued in 2020. The fair value adjustment taken will be amortised over the remaining life of the hedged items, and is recorded in customer deposits.
(5) Hedged item is recorded in financial assets at FVOCI.
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financial statements
Company financial statements
Notes to the Company
financial statements
Additional information
275
283
288
328
331
Notes to the consolidated financial statements
Section 3: Assets and liabilities continued
3.1 Financial instruments continued
3.1.3 Financial assets at fair value through profit or loss continued
3.1.3.2 Derivatives continued
2023
2022
Hedge
ineffectiveness
recognised
in income
statement(1)
£m
Effective
portion
recognised
in other
comprehensive
income
£m
Reclassified into income
statement as
Net interest
income
£m
Non-interest
income
£m
Hedge
ineffectiveness
recognised
in income
statement(1)
£m
Effective
portion
recognised
in other
comprehensive
income
£m
Reclassified into income
statement as
Net interest
income
£m
Non-interest
income
£m
Cash flow hedges
Interest rate risk
Gross floating rate assets and gross floating rate liabilities
Total (losses)/gains on cash flow hedges
(50)
(50)
(268)
(268)
10
10
2
2
(46)
(46)
962
962
17
17
(4)
(4)
Fair value hedges
Interest rate risk
Fixed rate mortgages
Fixed rate FVOCI debt instruments
Fixed rate issuances
Inflation and interest rate risk
Fixed rate FVOCI debt instruments
Foreign exchange and interest rate risk
Fixed rate currency FVOCI debt instruments
Fixed rate currency issuances
Total losses on fair value hedges(1)
(1) Recognised in gains less losses on financial assets at fair value.
3.1.3.3 Other
Included in other financial assets is £1m (2022: £7m) of unlisted securities and £1m (2022: £1m) of debt instruments.
Hedge ineffectiveness
recognised in income
2023
£m
2022
£m
31
3
–
–
–
(1)
33
33
(2)
1
–
(1)
15
46
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Consolidated financial statements
Notes to the consolidated
financial statements
Company financial statements
Notes to the Company
financial statements
Additional information
275
283
288
328
331
Notes to the consolidated financial statements
Section 3: Assets and liabilities continued
3.1 Financial instruments continued
3.1.4 Fair value of financial instruments
Accounting policy
Fair value is the price that would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at the valuation date.
When available, the Group measures the fair value of a financial instrument using quoted prices
in an active market for that instrument. Where no such active market exists for the particular
asset or liability, the Group uses a valuation technique to arrive at the fair value, including
the use of transaction prices obtained in recent arm’s length transactions where possible,
discounted cash flow analysis, option pricing models and other valuation techniques commonly
used by market participants. In doing so, fair value is estimated using a valuation technique
that makes maximum possible use of market inputs and that places minimal possible reliance
upon entity-specific inputs.
The best evidence of the fair value of a financial instrument at initial recognition is the
transaction price, which represents the fair value of the consideration paid or received,
unless the fair value of that instrument is evidenced by comparison with other observable
current market transactions in the same instrument (i.e. without modification or repackaging)
or based on a valuation technique whose variables include only data from observable markets.
When such evidence exists, the Group recognises profits or losses on the transaction date.
In certain limited circumstances, the Group applies the fair value measurement option to
financial assets including loans and advances where the inherent market risks (principally
interest rate and option risk) are individually hedged using appropriate interest rate derivatives.
The loan is designated as being carried at FVTPL to offset the movements in the fair value
of the derivative within the income statement and therefore avoid an accounting mismatch.
When a loan is held at fair value, a statistical-based calculation is used to estimate credit
losses attributable to adverse movements in credit risk on the assets held. This adjustment
to the credit quality of the asset is then applied to the carrying amount of the loan to arrive
at fair value and recognised in the income statement.
(a) Fair value of financial instruments recognised at amortised cost
The tables show a comparison of the carrying amounts of financial assets and liabilities measured
at amortised cost, as reported on the balance sheet, and their fair values where these are not
approximately equal.
There are various limitations inherent in this fair value disclosure, particularly where prices
are derived from unobservable inputs due to some financial instruments not being traded in an
active market. The methodologies and assumptions used in the fair value estimates are therefore
described in the notes to the tables. The difference between carrying value and fair value is
relevant in a trading environment but is not relevant to assets such as loans and advances.
2023
2022
Carrying value
£m
Fair value
£m
Carrying value
£m
Fair value
£m
Financial assets
Loans and advances to customers(1)
72,191
71,611
71,751
69,277
Financial liabilities
Customer deposits(2)
Debt securities in issue(3)
Due to other banks(2)
66,827
9,719
6,939
66,625
9,788
6,959
65,434
8,509
8,502
65,069
8,515
8,485
(1) Loans and advances to customers are categorised as Level 3 in the fair value hierarchy with the exception of £1,085m
(2022: £1,098m) of overdrafts which are categorised as Level 2.
(2) Categorised as Level 2 in the fair value hierarchy.
(3) Categorised as Level 2 in the fair value hierarchy with the exception of £3,597m of listed debt (2022: £3,156m)
which is categorised as Level 1.
The Group’s fair values disclosed for financial instruments at amortised cost are based on the
following methodologies and assumptions:
Analysis of the fair value disclosures uses a hierarchy that reflects the significance of inputs
used in measuring fair value. The level in the fair value hierarchy within which a fair value
measurement is categorised is determined on the basis of the lowest level input that is
significant to the fair value measurement in its entirety. The fair value measurement hierarchy
is as follows:
(a) Loans and advances to customers – determined by firstly segregating them into portfolios
which have similar characteristics. Contractual cash flows are then adjusted for ECLs and
expectations of customer behaviour based on observed historic data. The cash flows are then
discounted at a weighted average cost of capital (appropriate to the portfolio) to arrive at an
estimate of their fair value.
> Level 1 – quoted prices (unadjusted) in active markets for an identical financial asset
or liability.
> Level 2 – inputs other than quoted prices within Level 1 that are observable for the financial
asset or liability, either directly (as prices) or indirectly (derived from prices).
> Level 3 – inputs for the financial asset or liability that are not based on observable market
data (unobservable inputs).
For the purpose of reporting movements between levels of the fair value hierarchy,
transfers are recognised at the beginning of the reporting year in which they occur.
(b) Customer deposits – determined using a replacement cost method which assumes alternative
funding is raised in the most advantageous market. The contractual cash flows have been
discounted using a funding curve with credit spreads reflecting the tenor of each deposit.
(c) Debt securities in issue – taken directly from quoted market prices where available or
determined from a discounted cash flow model using current market rates for instruments of similar
terms and maturity.
(d) Due to other banks – determined from a discounted cash flow model using current market
rates for instruments of similar terms and maturity.
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financial statements
Company financial statements
Notes to the Company
financial statements
Additional information
275
283
288
328
331
Notes to the consolidated financial statements
Section 3: Assets and liabilities continued
3.1 Financial instruments continued
3.1.4 Fair value of financial instruments continued
(b) Fair value of financial instruments recognised on the balance sheet at fair value
The following tables provide an analysis of financial instruments that are measured subsequent
to initial recognition at fair value, using the fair value hierarchy described above:
2023
2022
Level 1
£m
Level 2
£m
Level 3
£m
Total
£m
Level 1
£m
Level 2
£m
Level 3
£m
Total
£m
(d) Other (Level 3) – represents unlisted equity investments for which the transaction price is
considered the best representation of the exit price and is the Group’s best estimate of fair value.
The Visa Inc. Series B preferred stock received as partial consideration for the sale of the Group’s
share in Visa Europe, was sold in full during the year.
(e) Derivative financial assets and liabilities – includes foreign exchange contracts, interest rate
swaps, interest rate and currency option contracts, and currency swaps, and are obtained from
discounted cash flow models or option pricing models as appropriate.
Financial assets
Held at FVOCI
6,184
–
Loans and advances
to customers
Other
Derivatives
–
–
–
59
–
135
Total financial assets
at fair value
6,184
194
Financial liabilities
Derivatives
Total financial
liabilities at fair value
–
–
290
290
–
–
2
–
2
–
–
6,184
5,064
–
59
2
135
–
–
–
70
4
342
6,380
5,064
416
290
290
–
–
327
327
–
–
4
–
4
–
–
Level 3 movement analysis:
5,064
70
8
Balance at the beginning of the year
342
Fair value gains recognised(1)
In profit or loss – unrealised
5,484
Sales
Settlements
Balance at the end of the year
2023
2022
Financial assets
at FVTPL
£m
Derivative
financial assets
£m
Financial assets
at FVTPL
£m
Derivative
financial assets
£m
4
–
(2)
–
2
–
–
–
–
–
6
–
–
(2)
4
1
(1)
–
–
–
327
327
(1) Net gains or losses were recorded in non-interest income.
There were no transfers between Level 1 and 2 in the current or prior year.
The Group’s valuations for financial instruments that are measured subsequent to initial recognition
at fair value are based on the following methodologies and assumptions:
(a) Held at FVOCI – based on quoted closing market prices.
(b) Loans and advances to customers – derived from data or valuation techniques based upon
observable market data and non-observable inputs as appropriate to the nature and type of the
underlying instrument.
(c) Other (Level 2) – represents £Nil (2022: £4m) of Visa Inc. Series A preferred stock received
following a conversion event in July 2022. This is calculated by taking the year end New York
Stock Exchange share price for Visa inc. The preferred stock was sold in full during the year.
Sensitivity of Level 3 fair value measurements to reasonably possible alternative assumptions
The Group has limited exposure to Level 3 fair value measurements. If all risks inherent in the
valuations were to crystallise in their entirety, total assets would reduce by £2m which would
be recognised directly in the income statement.
311
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Strategic report
Governance
Risk report
Climate-related disclosures
Financial statements
Independent auditor’s report to the
members of Virgin Money UK PLC
Consolidated financial statements
Notes to the consolidated
financial statements
Company financial statements
Notes to the Company
financial statements
Additional information
275
283
288
328
331
Notes to the consolidated financial statements
Section 3: Assets and liabilities continued
3.1 Financial instruments continued
3.1.5 Securitisation and covered bond programmes
The assets and liabilities in relation to securitisation and covered bonds in issue at 30 September
are as follows (excluding accrued interest):
Accounting policy
The Group sponsors the formation of structured entities, primarily for the purpose of facilitation
of asset securitisation and covered bond transactions, the full details of which can be found in
note 6.2 to the Company financial statements. The Group has no shareholding in these entities,
but is exposed, or has rights, to variable returns and has the ability to affect those returns.
The entities are consolidated in the Group’s financial statements in accordance with note 1.4.
Securitisation
The Group has securitised a portion of its retail mortgage loan portfolio under master trust
securitisation programmes. The securitised mortgage loans have been assigned at principal
value to bankruptcy remote structured entities. The securitised debt holders have no recourse
to the Group other than the principal and interest (including fees) generated from the
securitised mortgage loan portfolio.
The externally held securitised notes in issue are included within debt securities in issue
(note 3.1.1.4). There are a number of notes held internally by the Group which are used as
collateral for repurchases and similar transactions or for credit enhancement purposes.
Covered bond
A subset of the Group’s retail mortgage loan portfolio has been ring-fenced and assigned to
a bankruptcy remote limited liability partnership, Eagle Place Covered Bonds LLP, to provide
a guarantee for the obligations payable on the covered bonds issued by the Group.
The covered bond partnership is consolidated with the mortgage loans retained on
the Group balance sheet and the covered bonds issued included within debt securities
in issue (note 3.1.1.4). The covered bond holders have dual recourse: firstly, to the bond issuer
on an unsecured basis; and secondly, to the LLP under the Covered Bond Guarantee secured
against the mortgage loans.
Under both the securitisation and covered bond programmes, the mortgage loans do not qualify
for derecognition because the Group remains exposed to the majority of the risks and rewards
of the mortgage loan portfolio, principally the associated credit risk. The Group continues to
service the mortgage loans in return for an administration fee and is also entitled to any residual
income after all payment obligations due under the terms of the programmes and senior
programme expenses have been met. A deemed loan liability is recognised in the programme
sponsor for the proceeds of the funding transaction.
Significant restrictions
Where the Group uses its financial assets to raise finance through securitisation and the sale
of securities subject to repurchase agreements, the assets become encumbered and are not
available for transfer around the Group.
Securitisation programmes
Lanark
Lannraig
Gosforth 2018-1
Less held by the Group
Covered bond programmes
Clydesdale Bank PLC
(formerly Virgin Money PLC)
2023
2022
Loans and
advances
securitised
£m
3,743
1,620
–
5,363
Loans and
advances
securitised
£m
3,776
768
872
5,416
Notes
in issue
£m
2,967
1,090
–
4,057
(2,328)
1,729
Notes
in issue
£m
2,768
622
745
4,135
(2,260)
1,875
7,575
4,392
6,739
3,450
The fair values of financial assets and associated liabilities relating to the securitisation programmes
were £5,311m and £1,749m respectively (2022: £5,235m and £1,878m) where the counterparty
to the liabilities has recourse only to the financial assets.
There were no events during the year that resulted in any Group transferred financial assets
being derecognised.
The Group has contractual and non-contractual arrangements which may require it to provide
financial support as follows:
Securitisation programmes
The Group provides credit support to the structured entities via reserve funds, which are partly
funded through subordinated debt arrangements and by holding junior notes. Exposures are shown
in the table below:
Beneficial interest held
Subordinated loans
Junior notes held
2023
£m
1,137
75
853
2,065
2022
£m
1,239
42
978
2,259
Looking forward through future reporting years there are a number of date-based options on the
notes issued by the structured entities which could be actioned by them as issuer. These could
require the Group, as sponsor, to provide additional liquidity support.
312
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Notes to the consolidated financial statements
Section 3: Assets and liabilities continued
3.1 Financial instruments continued
3.1.5 Securitisation and covered bond programmes continued
Covered bond programmes
The nominal level of over-collateralisation was £2,670m (2022: £3,127m) in the Clydesdale
Bank PLC (formerly Virgin Money PLC) programme. From time to time the obligations of the Group
to provide over-collateralisation may increase due to the formal requirements of the programme.
Climate-related disclosures
Under all programmes, the Group has an obligation to repurchase mortgage exposures if certain
mortgage loans no longer meet the programme criteria.
Financial statements
3.2 Intangible assets and goodwill
Independent auditor’s report to the
members of Virgin Money UK PLC
Consolidated financial statements
Notes to the consolidated
financial statements
Company financial statements
Notes to the Company
financial statements
Additional information
275
283
288
328
331
Capitalised
software
£m
Goodwill
£m
Core deposit
intangible
£m
Cost
At 1 October 2021
Additions
Write-off
Disposal
At 30 September 2022
Additions
Write-off
Disposal
At 30 September 2023
Accumulated amortisation and impairment
At 1 October 2021
Charge for the year
Impairment
Disposal
At 30 September 2022
Charge for the year
Disposal
At 30 September 2023
Net book value
At 30 September 2023
At 30 September 2022
1,043
53
(28)
(8)
1,060
11
(45)
(714)
312
684
81
47
(8)
804
60
(714)
150
162
256
11
–
–
–
11
–
–
–
11
–
–
–
–
–
–
–
–
11
11
6
–
–
–
6
–
–
–
6
3
3
–
–
6
–
–
6
–
–
Total
£m
1,060
53
(28)
(8)
1,077
11
(45)
(714)
329
687
84
47
(8)
810
60
(714)
156
173
267
In both FY22 and FY23 all software additions form part of internally generated software projects.
A write-off charge of £45m (2022: £28m) was recognised in relation to the Group’s mortgage
digitisation programme. Following an assessment of the progress of the project to upgrade the
mortgage platform and challenges identified during testing, we now anticipate a significant deferral
and redesign as we implement the upgraded capability.
£714m of fully amortised assets were disposed of during the year following a data cleanse exercise
conducted on the Group’s intangible asset registers ahead of a migration to a single asset register
in FY24.
3.3 Retirement benefit obligations
Accounting policy
Defined benefit pension scheme
A liability or asset is recognised on the balance sheet in respect of the defined benefit scheme
and is measured as the difference between the present value of the defined benefit obligation
less the fair value of the defined benefit scheme assets at the reporting date. The present value
of the defined benefit obligation for the scheme is discounted by high-quality corporate bond
rates that have maturity dates approximating to the terms of the defined benefit obligation.
Surpluses are only recognised to the extent that they are recoverable through reduced
contributions in the future or through refunds from the scheme. In assessing whether a surplus
is recoverable, the Group considers its current right to obtain a refund or a reduction in future
contributions and does not anticipate any future acts by other parties that could change the
amount of the surplus that may ultimately be recovered.
Pension expense attributable to the Group’s defined benefit scheme comprises current service
cost, past service cost resulting from a scheme amendment or curtailment, net interest on the
net defined benefit obligation/asset, gains or losses on settlement and administrative costs
incurred. Where actuarial remeasurements arise, the Group recognises such amounts directly
in equity through the statement of comprehensive income in the year in which they occur.
Actuarial remeasurements arise from experience adjustments (the effects of differences
between previous actuarial assumptions and what has actually occurred) and changes in
actuarial assumptions.
The Group’s principal trading subsidiary, Clydesdale Bank PLC, is the sponsoring employer of the
Yorkshire and Clydesdale Bank Pension Scheme, a defined benefit pension scheme, which was
closed to future benefit accrual for the majority of current employees on 1 August 2017.
313
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Risk report
Climate-related disclosures
Financial statements
Independent auditor’s report to the
members of Virgin Money UK PLC
Consolidated financial statements
Notes to the consolidated
financial statements
Company financial statements
Notes to the Company
financial statements
Additional information
275
283
288
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331
Notes to the consolidated financial statements
Section 3: Assets and liabilities continued
3.3 Retirement benefit obligations continued
The following table summarises the present value of the defined benefit obligation and fair value
of plan assets for the Scheme as at 30 September:
Active members’ defined benefit obligation
Deferred members’ defined benefit obligation
Pensioner and dependant members’ defined benefit obligations
Total defined benefit obligation
Fair value of Scheme assets
Net defined benefit pension asset
Post-retirement medical benefits obligations(1)
2023
£m
(4)
(988)
(1,292)
(2,284)
2,796
512
(2)
2022
£m
(9)
(987)
(1,220)
(2,216)
3,216
1,000
(2)
(1) Post-retirement medical benefits obligations are included within other liabilities (note 3.5).
The Group’s pension arrangements
The current version of the Scheme was established under trust on 30 September 2009 with
the assets held in a Trustee administered fund. The Trustee is responsible for the operation
and governance of the Scheme, including making decisions regarding the Scheme’s funding
and investment strategy.
The Scheme is subject to the funding legislation outlined in the Pensions Act 2004 which came
into force on 30 December 2005. This, together with documents issued by the Pensions Regulator,
sets out the framework for funding defined benefit occupational pension plans in the UK.
The Group has implemented several reforms to the Scheme to manage the obligation. It closed
the Scheme to new members in 2004 and since April 2006 has provided benefits accruing on
a career average revalued earnings basis. On 1 August 2017, the Scheme was closed to future
benefit accrual for the majority of current employees, with both affected and new employees’
future pension benefits being provided through the Group’s existing defined contribution scheme,
‘My Retirement’. The income statement charge for this is separately disclosed in note 2.3.
The Group also provides post-retirement healthcare under a defined benefit scheme for some
pensioners and their dependant relatives for which provision has been made on a basis consistent
with the methodology applied to the defined benefit pension scheme. This is a closed scheme
and the provision will be utilised over the life of the remaining scheme members. The obligation
in respect of this scheme was £2m at 30 September 2023 (2022: £2m) and is included within
other liabilities in note 3.5.
Scheme valuations
There are a number of means of measuring liabilities in the defined benefit schemes, with the
ultimate aim of the Trustee being that the Scheme is 100% funded on an agreed self-sufficiency
basis (which is where the Scheme is essentially self-funded and does not need to call on the
Group for any additional funding). The two bases used by the Group to value its obligations are:
(i) an IAS 19 accounting basis; and (ii) a Trustee’s Technical Provision basis.
(i) IAS 19 accounting basis
The valuations of the Scheme assets and obligations are calculated on an accounting basis
in accordance with the applicable accounting standard IAS 19 which provides the basis for
the accounting framework and methodology for entries in the income statement, balance sheet
and capital reporting. The principal purpose of this valuation is to allow comparison of pension
obligations between companies. The obligation under an accounting valuation can be higher
or lower than those under a Trustee’s Technical Provision valuation.
The rate used to discount the obligation on an IAS 19 basis is a key driver of any potential volatility
and is based on yields on AA rated high-quality corporate bonds, regardless of how the Trustee
of the Scheme invests the assets. The accounting valuation under IAS 19 can therefore move
adversely because of low rates and narrowing credit spreads which are not fully matched by
the Scheme assets. Inflation is another key source of volatility and arises as a result of member
benefits having an element of index linking, which causes the obligation to increase in line with
rises in long-term inflation assumptions. In practice however, over the long term, the relationship
between interest and inflation rates tends to be negatively correlated resulting in a degree of
risk offset.
(ii) Trustee’s Technical Provision basis
This valuation basis reflects how much money the Trustee considers is required now in order
to provide for the promised benefits as they come up for payment in the future. The Trustee
is responsible for ensuring that the calculation is conducted prudently on an actuarial basis,
considering factors including the Scheme’s investment strategy and the relative financial strength
of the sponsoring employer.
A key aspect of this valuation is the investment strategy the Trustee proposes to follow as part
of the policy for meeting the Scheme’s obligations. Because there are no guarantees about
investment returns over long periods, legislation requires the Trustee to consider carefully how
much of their expected future investment returns it would be prudent for them to account for
in advance.
On 6 April 2023, the Scheme entered into a longevity swap transaction with Pacific Life Re
International Limited and Zurich Assurance Ltd to manage longevity risk in relation to c.£1.6bn of
pensioner liabilities. The arrangement provides long term protection to the Scheme against costs
resulting from pensioners or their dependants living longer than currently expected, enhancing
security for Scheme members and reducing risk for the Group. The fair value of the hedge
instrument at 30 September 2023 was £Nil.
314
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Notes to the consolidated financial statements
Section 3: Assets and liabilities continued
Strategic report
Governance
Risk report
3.3 Retirement benefit obligations continued
During 2023 the Trustee concluded the latest triennial valuation for the Scheme, which was conducted in accordance with Scheme data and market conditions as at 30 September 2022. The valuation
resulted in an improvement in the Scheme’s funding position, with a reported surplus of £256m (previously a surplus of £144m based on Scheme data and market conditions as at 30 September 2019)
and a technical provisions funding level of 109% (previously 103%). As the 2022 valuation outcome was a funding surplus, a deficit recovery plan is not required and the Group is not required to make
any additional contributions to the Scheme other than the ongoing funding of the Scheme’s administrative expenses.
The next triennial valuation will be conducted in the year ending 30 September 2026 based on Scheme data and market conditions as at 30 September 2025.
Climate-related disclosures
Scheme assets are not subject to the same valuation differences as Scheme obligations and are consistently valued at current market value.
Financial statements
Independent auditor’s report to the
members of Virgin Money UK PLC
Consolidated financial statements
Notes to the consolidated
financial statements
Company financial statements
Notes to the Company
financial statements
Additional information
275
283
288
328
331
IAS 19 position
The Scheme movements in the year are as follows:
Balance sheet surplus at 1 October
(Charges)/credits
Past service credit
Interest (expense)/income
Administrative costs
Total (charge)/credit recognised in the consolidated income statement (note 2.3)
Remeasurements
2023
2022
Present value
of obligation
£m
Fair value
of plan assets
£m
(2,216)
3,216
–
(117)
–
(117)
–
172
(5)
167
Total
£m
1,000
–
55
(5)
50
Cumulative
impact in other
comprehensive
income
£m
(126)
Present value
of obligation
£m
Fair value
of plan assets
£m
(3,789)
4,636
9
(84)
–
(75)
–
104
(5)
99
Cumulative
impact in other
comprehensive
income
£m
(248)
Total
£m
847
9
20
(5)
24
Return on Scheme assets greater than discount rate
–
(470)
(470)
(470)
–
(1,393)
(1,393)
(1,393)
Actuarial:
Loss – experience adjustments
(Loss)/gain – demographic assumptions
Gain – financial assumptions
Remeasurement (losses)/gains recognised in other comprehensive income
Contributions and payments
Employer contributions
Disbursements
(151)
(27)
104
(74)
–
123
123
–
–
–
(470)
6
(123)
(117)
(151)
(27)
104
(544)
6
–
6
Balance sheet surplus at 30 September
(2,284)
2,796
512
(151)
(27)
104
(544)
(670)
(16)
36
1,495
1,515
–
133
133
(2,216)
–
–
–
(1,393)
7
(133)
(126)
3,216
(16)
36
1,495
122
7
–
7
1,000
(16)
36
1,495
122
(126)
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Climate-related disclosures
Financial statements
Independent auditor’s report to the
members of Virgin Money UK PLC
Consolidated financial statements
Notes to the consolidated
financial statements
Company financial statements
Notes to the Company
financial statements
Additional information
275
283
288
328
331
Notes to the consolidated financial statements
Section 3: Assets and liabilities continued
3.3 Retirement benefit obligations continued
In July 2021, the Trustees communicated a Pension Increase Exchange (PIE) exercise to members.
A PIE gives members the option to exchange future increases on their pensions for a one-off
uplift to their current pension. The exercise is being undertaken in three phases and is due to
complete later in calendar year 2023. The defined benefit pension credit in the current year
therefore includes no impact (2022: £10m credit) arising from the PIE exercise; any past service
credit arising is not expected to be material and will be recognised when the exercise concludes
in FY24.
The expected contributions and benefit payments for the year ending 30 September 2024 are £6m
(2023: £10m) and £115m (2023: £118m) respectively.
During the year, the Group and Trustee to the Scheme ceased their previous contingent security
arrangement, subsequently the Group has granted a £75m uncommitted liquidity facility to the
Scheme as an additional contingency against future short-term liquidity challenges resulting from
unexpected market turbulence. As at 30 September 2023 the amount drawn under the facility
was £Nil.
Scheme assets
In order to meet the obligations of the Scheme, the Trustee invests in a diverse portfolio of assets,
with the level and volatility of asset returns being a key factor in the overall investment strategy.
The investment portfolio is subject also to a range of risks typical of the types of assets held, such
as: equity risk; credit risk on bonds; currency risk; interest rate and inflation risk; and exposure to
the property market. The Trustee’s investment strategy (including physical assets and derivatives)
seeks to reduce the Scheme’s exposure to these risks. In managing interest rate and inflation risks,
the investment strategy seeks to hold portfolios of matching assets (including derivatives) that
enable the Scheme’s assets to better match movements in the value of liabilities due to changes
in interest rates and inflation.
As at 30 September 2023, the interest rate and inflation rate hedge ratios were 90% and 90%
respectively (2022: 97% and 95%) of the obligation when measured on a self-sufficiency basis.
This strategy reflects the Scheme’s obligation profile and the Trustee’s and the Group’s attitude to
risk. The Trustee monitors the investment objectives and asset allocation policy on a regular basis.
The Trustee’s investment strategy involves two main categories of investments:
Maturity of Scheme liabilities
The estimated maturity period of Scheme obligations on an IAS 19 accounting basis is as follows:
> Matching assets – a range of investments that provide a match to changes in obligation values.
> Return seeking assets – a range of investments designed to provide specific, planned and
consistent returns.
Annual Pension Scheme liability cash flows (£m)
160
140
120
100
80
60
40
20
0
Sept
2023
Sept
2033
Sept
2043
Sept
2053
Sept
2063
Sept
2073
Sept
2083
Sept
2093
Sept
2103
The discounted mean term of the defined benefit obligation at 30 September 2023 is 13 years
(2022: 14 years).
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Climate-related disclosures
Financial statements
Independent auditor’s report to the
members of Virgin Money UK PLC
Consolidated financial statements
Notes to the consolidated
financial statements
Company financial statements
Notes to the Company
financial statements
Additional information
275
283
288
328
331
Notes to the consolidated financial statements
Section 3: Assets and liabilities continued
3.3 Retirement benefit obligations continued
The major categories of plan assets for the Scheme, stated at fair value, are as follows:
2023
Quoted
£m
Unquoted
£m
Bonds
Fixed government
Index-linked government
Global sovereign
Corporate and other
Equities(1)
Global equities
Emerging market equities
UK equities
Other
Alternative credit investments(2)
Derivatives(3)
Repurchase agreements
Property
Renewables
Cash
558
824
84
924
2,390
–
–
–
–
–
–
–
–
–
–
–
Total Scheme assets
2,390
–
–
–
–
–
–
–
–
–
352
30
(383)
47
238
122
406
406
%
Quoted
£m
Unquoted
£m
2022
Total
£m
558
824
84
924
2,390
85%
–
–
–
–
352
30
(383)
47
238
122
406
–%
15%
350
1,314
90
781
2,535
–
–
–
–
–
–
–
–
–
–
–
2,796
100%
2,535
Total
£m
350
1,314
92
818
2,574
137
14
7
158
874
(83)
(803)
59
194
243
484
%
80%
5%
15%
3,216
100%
–
–
2
37
39
137
14
7
158
874
(83)
(803)
59
194
243
484
681
(1) Equity investments are classified as unquoted, reflecting the nature of the funds in which the Scheme invests directly. The underlying investments within those funds are, however, mostly quoted.
(2) Alternative credit investments includes both secured income alternatives and alternative credit which were presented separately in the prior year.
(3) Derivative financial instruments are used to modify the profile of the assets of the Scheme to better match the Scheme liabilities. Derivative holdings may lead to increased or decreased exposures to the physical asset categories disclosed above.
The nature of the Scheme assets held has remained broadly consistent year on year, with the exception of equities and certain alternative credit assets (principally hedge equity and hedge multi
strategy assets) which the Trustee made a conscious decision to sell out of as part of its de-risking strategy and to raise further liquidity for collateral purposes.
At 30 September 2023, the Scheme had employer-related investments within the meaning of Section 40 (2) of the Pensions Act 1995 totalling £1m (2022: £2m).
317
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Climate-related disclosures
Financial statements
Independent auditor’s report to the
members of Virgin Money UK PLC
Consolidated financial statements
Notes to the consolidated
financial statements
Company financial statements
Notes to the Company
financial statements
Additional information
275
283
288
328
331
Notes to the consolidated financial statements
Section 3: Assets and liabilities continued
3.3 Retirement benefit obligations continued
Actuarial assumptions
The following assumptions were used in arriving at the IAS 19 defined benefit obligation:
Financial assumptions
Discount rate
Inflation (RPI)
Inflation (CPI)
Career average revalued earnings revaluations:
Pre 31 March 2012 benefits (RPI)
Post 31 March 2012 benefits (CPI capped at 5% per annum)
Pension increases (capped at 2.5% per annum)
Pension increases (capped at 5% per annum)
Rate of increase for pensions in deferment
Demographic assumptions
Post-retirement mortality:
Current pensioners at 60 – male
Current pensioners at 60 – female
Future pensioners at 60 – male
Future pensioners at 60 – female
2023
% p.a.
2022
% p.a.
5.65
3.30
2.70
3.30
2.66
2.14
3.15
2.66
2023
Years
27.2
29.4
28.3
30.4
5.45
3.58
2.94
3.58
2.90
2.21
3.37
2.91
2022
Years
27.0
29.3
28.0
30.4
Critical accounting estimates and judgements
The value of the Group’s defined benefit pension scheme requires management to make
several assumptions. The key areas of estimation uncertainty in these assumptions are:
discount rate: this is set with reference to market yields at the end of the reporting year on
high-quality corporate bonds in the currency and with a term consistent with the Scheme’s
obligations. The average duration of the Scheme’s obligations is approximately 13 years.
The market for bonds with a similar duration is illiquid and, as a result, significant management
judgement is required to determine an appropriate yield curve on which to base the
discount rate;
inflation: this is set with reference to market expectations of the RPI measure of inflation
for a term consistent with the Scheme’s obligations, based on data published by the BoE.
Other measures of inflation (such as CPI, or inflation measures subject to an annual cap)
are derived from this assumption; and
mortality: the cost of the benefits payable by the Scheme will also depend upon the life
expectancy of the members. The assumptions for mortality rates are based on standard
mortality tables (as adjusted to reflect the characteristics of Scheme members) which allow
for future improvements in life expectancies.
The table below sets out the sensitivity and impact on the balance sheet surplus position
of the Scheme, the defined benefit obligation and pension cost to changes in the key
actuarial assumptions:
Assumption change
Discount rate
Inflation
Life expectancy
Balance sheet
surplus
£m
Obligation
£m
Pension cost
£m
+0.25%
−0.25%
+0.25%
−0.25%
+1 year
−1 year
(18)
17
9
(6)
(22)
22
(70)
74
42
(43)
50
(50)
–
–
–
–
(1)
1
The above sensitivity analyses are based on a change in an assumption while holding all other
assumptions constant. In practice, changes in some of the assumptions may be correlated.
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3.4 Other assets
Notes to the consolidated financial statements
Section 3: Assets and liabilities continued
Property, plant and equipment
Investment properties
Finance sub-leases
Investment in associates
Prepayments
Other receivables
Current tax
Other
Governance
Risk report
Climate-related disclosures
Financial statements
Independent auditor’s report to the
members of Virgin Money UK PLC
Consolidated financial statements
Notes to the consolidated
financial statements
Company financial statements
Notes to the Company
financial statements
Additional information
275
283
288
328
331
2023
£m
184
40
2
10
59
66
21
6
388
3.6 Lessee accounting
a) Amounts recognised in the income statement
The income statement includes the following amounts related to leases:
Interest expense and similar charges
Interest expense
Other operating income
Income from operating sub-leases where the Group is a lessor
Operating and administrative expenses
Depreciation and impairment of right-of-use assets
2022
£m
211
–
3
10
66
87
–
5
382
Expense relating to short-term leases
Expense relating to leases of low-value assets that are not short-term leases
Amounts recognised in the income statement
Total leasing cash outflow in the year was £27m (2022: £28m).
b) Amounts recognised on the balance sheet
Right-of-use assets
As at 1 October
Additions
Remeasurements
Disposals
Depreciation and impairment
As at 30 September
Of which:
Property, plant and equipment (note 3.4)
Investment property (note 3.4)
2023
£m
2022
£m
(4)
1
(26)
(2)
(1)
(32)
2023
£m
113
76
(4)
(1)
(31)
153
115
38
(2)
1
(26)
(1)
(1)
(29)
2022
£m
135
4
1
(1)
(26)
113
113
–
In February 2023, the Group announced plans for the closure of six leased office properties.
Following the announcement, the associated right-of-use assets were assessed for impairment.
An impairment charge of £3m has been recognised within operating and administrative expenses.
319
The prior year balance of £382m has been restated from the original £171m by the addition of
the property, plant and equipment balance of £211m (note 1.7). This includes right-of-use assets
of £115m (2022: £113m) (note 3.6).
The Group classified £43m of lease right-of-use assets as investment property on initial
recognition this year as there is surplus space which will be sub-let under an operating lease.
Also in the year, freehold land and buildings with a carrying value of £9m were transferred from
property, plant and equipment to investment properties following a change in use (note 1.7).
Subsequently, an impairment of £6m was recognised in respect of these freehold land and
buildings based on the fair value confirmed by an independent professional valuation by Royal
Institution of Chartered Surveyors registered valuers. The Group estimated the fair value of the
leased right-of-use investment property assets at 30 September 2023 using income based fair
value techniques and available market data, an independent valuation was not obtained.
The estimated fair value approximates the carrying value.
No material rental income from investment property was received in the year, with the majority
of assets currently being marketed for rental.
3.5 Other liabilities
Notes in circulation
Accruals and deferred income
Current tax
Other
2023
£m
1,675
67
–
414
2,156
2022
£m
1,822
74
1
498
2,395
The prior year balance of £2,395m has been restated from the original £2,394m by the addition
of the current tax balance of £1m (note 1.7).
Virgin Money Annual Report & Accounts 2023Financial statements
Strategic report
Governance
Risk report
Climate-related disclosures
Financial statements
Independent auditor’s report to the
members of Virgin Money UK PLC
Consolidated financial statements
Notes to the consolidated
financial statements
Company financial statements
Notes to the Company
financial statements
Additional information
275
283
288
328
331
Notes to the consolidated financial statements
Section 3: Assets and liabilities continued
3.6 Lessee accounting continued
In July 2023, the Group announced plans for the closure of 39 stores, of which 34 were leasehold
properties. Following the announcement, the associated right-of-use assets were assessed for
impairment. Where it is expected that the Group can sub-lease the property, the recoverable
amount was determined based on expected sub-lease income. Where the Group does not expect
to be able to generate any cash inflows beyond the closure date, the value-in-use was determined
to be £Nil. An impairment charge of £7m has been recognised within operating and administrative
expenses. In addition to the impairment charge relating to the right-of-use assets, a provision has
been recognised for other costs associated with the closures (note 3.7).
In the prior year, 19 surplus properties were impaired following a reduction in estimated value-in-use,
resulting in an impairment charge of £4m. In addition, an impairment of £5m was recognised in
relation to right-of-use assets for office estate where no further economic benefit was expected
following exit.
Sub-leases
Future undiscounted minimum payments receivable in respect of sub-leased assets
at 30 September were as follows:
Operating leases
Finance leases
Lease liabilities
Lease liabilities(1)
2023
£m
3
2
5
2023
£m
180
(1) Lease liabilities are presented within other liabilities (note 3.5) on the balance sheet.
Future undiscounted minimum payments under lease liabilities at 30 September are as follows:
Amounts falling due
Within 1 year
Between 1 and 5 years
Over 5 years
2023
£m
22
63
142
227
c) Lease commitments not recognised on the balance sheet
In addition to the lease liabilities recognised on the balance sheet, the Group also has lease
commitments relating to leases which have not yet commenced at the balance sheet date.
2022
£m
1
3
4
2022
£m
132
2022
£m
22
60
66
148
Future undiscounted minimum payments on leases which are yet to commence were as follows:
Amounts falling due
Within 1 year
Between 1 and 5 years
Over 5 years
2023
£m
–
1
5
6
2022
£m
4
22
99
125
d) Leased investment property
Right-of-use asset additions shown in 3.6(b) above include £43m of assets classified as investment
property (2022: £Nil). Depreciation charges of £1m were recognised in the year (2022: £Nil) and
a £4m impairment charge was also recognised (2022: £Nil) relating to leased investment property
floors. The leased investment property balance at 30 September 2023 was £38m (2022: £Nil).
3.7 Provisions for liabilities and charges
Employee related
costs provision
£m
Customer related
provision
£m
Property
provision
£m
As at 1 October 2021
Charge/(credit) to the
income statement
Utilised
As at 30 September 2022
Charge to the
income statement
Utilised
As at 30 September 2023
22
2
(17)
7
7
(6)
8
19
8
(14)
13
–
(3)
10
55
–
(28)
27
24
(5)
46
(1) The Group’s ECL accounting policy can be found in note 3.1.1.1.
Off-balance sheet
ECL provisions(1)
£m
8
(5)
–
3
2
–
5
Total
104
5
(59)
50
33
(14)
69
Employee related costs provision
This includes provision for staff redundancies and for NIC on equity based compensation.
During the year, provisions of £7m (2022: £2m) were raised relating to staff redundancy costs.
Customer related provision
This relates to customer matters, legal proceedings, and claims arising in the ordinary course of
the Group’s business. A number of these matters are now reaching a conclusion and the risk that
the final amount required to settle the Group’s potential liabilities in these matters being materially
more than the remaining provision is now considered to be low.
Property provision
This includes costs for stores and office closures. During the year, provisions of £24m (2022: £Nil)
were raised.
320
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Strategic report
Governance
Risk report
Climate-related disclosures
Financial statements
Independent auditor’s report to the
members of Virgin Money UK PLC
Consolidated financial statements
Notes to the consolidated
financial statements
Company financial statements
Notes to the Company
financial statements
Additional information
275
283
288
328
331
Notes to the consolidated financial statements
Section 4: Capital
4.1 Equity
4.1.1 Share capital and share premium
Share capital
Share premium
Share capital and share premium
2023
Number of shares
2022
Number of shares
Ordinary shares of £0.10 each –
authorised, allotted, called up and fully
paid
Opening ordinary share capital
1,408,530,988 1,439,993,431
Issued under employee share schemes
3,947,282
2,982,745
Share buyback programme
(67,837,302)
(34,445,188)
Closing ordinary share capital
1,344,640,968 1,408,530,988
2023
£m
134
9
143
2023
£m
141
–
(7)
134
2022
£m
141
7
148
2022
£m
144
–
(3)
141
The holders of ordinary shares are entitled to dividends as declared from time to time and are
entitled to one vote per share at meetings of the shareholders of the Company. All shares in issue
at 30 September 2023 rank equally with regard to the Company’s residual assets.
The following dividends were declared in the current and prior periods:
> A final dividend in respect of the year ended 30 September 2021 of 1p per ordinary share
in the Company, amounting to £14m, was paid in March 2022.
> An interim dividend in respect of the year ended 30 September 2022 of 2.5p per ordinary share
in the Company, amounting to £36m, was paid in June 2022.
> A final dividend in respect of the year ended 30 September 2022 of 7.5p per ordinary share
in the Company, amounting to £103m, was paid in March 2023.
> An interim dividend in respect of the year ended 30 September 2023 of 3.3p per ordinary share
in the Company, amounting to £45m, was paid in June 2023.
The Directors have recommended a final dividend in respect of the year ended 30 September 2023
of 2.0p per ordinary share in the Company, to be paid in March 2024. The payment of the final
dividend is subject to approval of the shareholders at the 2024 AGM. These financial statements
do not reflect the recommended dividend.
The following share buybacks have been announced in the current and prior periods:
> On 30 June 2022, the Company announced an initial repurchase of up to £75m. The buyback
commenced on 30 June 2022 and ended on 9 December 2022.
> On 21 November 2022, the Company announced an extension to the share buyback programme
with an intent to repurchase a further £50m. The buyback extension commenced on
21 November 2022 and ended on 7 March 2023.
> On 2 August 2023, the Company announced a new share buyback programme to repurchase
£50m. The buyback commenced on 2 August 2023 and ended on 22 November 2023.
68m ordinary shares (2022: 34m), with a nominal value of £7m (2022: £3m), were repurchased
in the year for a total consideration of £112m (2022: £50m).
Each buyback is completed in aggregate between the Company’s ordinary shares of £0.10
each listed on the LSE and CDIs, each representing one share, listed on the ASX. The Company
repurchased shares and CDIs in approximately equal proportions. All shares repurchased were
cancelled and the nominal value of the share cancellation transferred to the capital redemption
reserve with the premium paid deducted from retained earnings.
On 23 November 2023, the Company announced a further share buyback with an intent
to repurchase another £150m, ending no later than 16 May 2024.
Share premium represents the aggregate of all amounts that have ever been paid above par value
to the Company when it has issued ordinary shares.
A description of the other equity categories included within the consolidated statement of changes
in equity, and significant movements during the year, is provided below:
4.1.2 Other equity instruments
Other equity instruments comprises AT1 capital which consists of the following Perpetual
Contingent Convertible Notes:
Perpetual securities (fixed 8% up to the first reset date)
issued on 8 February 2016 with an optional redemption
on 8 December 2022.
Perpetual securities (fixed 9.25% up to the first reset date)
issued on 13 March 2019 with an optional redemption
on 8 June 2024.
Perpetual securities (fixed 8.25% up to the first reset date)
issued on 17 June 2022 with an optional redemption
on 17 June 2027.
2023
2022
Carrying
value
£m
Nominal
value
£m
Carrying
value
£m
Nominal
value
£m
–
–
72
73
247
250
247
250
347
594
350
600
347
666
350
673
On 8 December 2022, perpetual securities (fixed 8% up to the first reset date) issued on
8 February 2016 totalling £72m were redeemed.
The issuances are treated as equity instruments in accordance with IAS 32 ‘Financial instruments:
presentation’ with the proceeds included in equity, net of transaction costs, which is the difference
between the nominal and carrying values. AT1 distributions of £54m were paid in the year
(2022: £70m).
321
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Strategic report
Governance
Risk report
Climate-related disclosures
Financial statements
Independent auditor’s report to the
members of Virgin Money UK PLC
Consolidated financial statements
Notes to the consolidated
financial statements
Company financial statements
Notes to the Company
financial statements
Additional information
275
283
288
328
331
Notes to the consolidated financial statements
Section 4: Capital continued
4.1 Equity continued
4.1.3 Capital reorganisation reserve
The capital reorganisation reserve of £839m was recognised on the issuance of the Company’s
ordinary shares in February 2016 in exchange for the acquisition of the entire share capital of
the Group’s previous parent company, CYB Investments Limited (CYBI). The reserve reflects the
difference between the consideration for the issuance of the Company’s shares and CYBI’s share
capital and share premium.
4.1.4 Merger reserve
A merger reserve of £633m was recognised on the issuance of the Company’s ordinary shares
in February 2016 in exchange for the acquisition of the entire share capital of CYBI. An additional
£1,495m was recognised on the issuance of the Company’s ordinary shares in October 2018
in exchange for the acquisition of the entire share capital of Virgin Money Holdings (UK) Limited.
The merger reserve reflects the difference between the consideration for the issuance of the
Company’s shares and the nominal value of the shares issued.
4.1.5 Other reserves
Own shares held
Virgin Money Holdings (UK) Limited established an EBT (the ‘VMH EBT’) in 2011 in connection with
the operation of its share plans. On the date of acquisition by the Company, the shares held in the
VMH EBT were converted to the Company’s shares at a ratio of 1.2125 Company shares for each
Virgin Money Holdings (UK) Limited share. The investment in own shares as at 30 September 2023
is £0.3m (2022: £0.6m). The market value of the shares held in the VMH EBT at 30 September
2023 was £0.2m (2022: £0.4m).
During the current year, Virgin Money UK PLC also established an EBT (the ‘VMUK EBT’) in
connection with the operation of its share plans. The investment in own shares as at 30 September
2023 was £2.0m (2022: £Nil). The market value of the shares held in the VMUK EBT at
30 September 2023 was £1.9m (2022: £Nil).
The total investment in own shares as at 30 September 2023 was £2.3m (2022: £0.6m). The total
market value of the shares held in both EBTs at 30 September 2023 was £2.1m (2022: £0.4m).
As part of the buyback programme, the Company has entered a non-discretionary arrangement
with Citigroup Global Markets Limited to purchase shares as riskless principal and to make trading
decisions independently of the Company. Any purchase of shares pursuant to this engagement
will be carried out on the LSE or other recognised investment exchange. This arrangement results
in the recognition of a liability (included within due to other banks) and a deduction from retained
earnings of £14m at 30 September 2023 (2022: £11m). The liability will reduce as shares are
repurchased and cancelled with the impact on share capital and capital redemption reserve
as described elsewhere within this note.
Capital redemption reserve
Under UK companies legislation, when shares are redeemed or purchased wholly or partly out
of the company’s profits, the amount by which the company’s issued share capital is diminished
must be transferred to the capital redemption reserve. The capital maintenance provisions of UK
companies legislation apply to the capital redemption reserve as if it were part of the company’s
paid up share capital. The nominal value of the shares repurchased and cancelled under
the buyback programmes has been transferred to the capital redemption reserve.
Deferred shares reserve
The deferred shares reserve comprises shares to be issued in the future relating to employee share
plans in regard to the settlement of outstanding Virgin Money Holdings (UK) Limited share awards,
which will be settled through the issuance of the Company’s shares at a future date in line with the
vesting profile of the underlying plans.
Equity based compensation reserve
The Group’s equity based compensation reserve records the value of equity settled share based
payment benefits provided to the Group’s employees as part of their remuneration that has been
charged through the income statement and adjusted for deferred tax.
FVOCI reserve
The FVOCI reserve records the unrealised gains and losses arising from changes in the fair value
of financial assets at FVOCI. The movements in this reserve are detailed in the consolidated
statement of comprehensive income.
Cash flow hedge reserve
The cash flow hedge reserve represents the effective portion of cumulative post-tax gains and
losses on derivatives designated as cash flow hedging instruments that will be recycled to the
income statement when the hedged items affect profit or loss.
At 1 October
Amounts recognised in other comprehensive income:
Cash flow hedge – interest rate risk
Effective portion of changes in fair value of interest rate swaps
Amounts transferred to the income statement
Taxation
Cash flow hedge – foreign exchange risk
Effective portion of changes in fair value of cross currency swaps
Amounts transferred to the income statement
At 30 September
2023
£m
699
(268)
(12)
77
–
–
496
2022
£m
10
962
(13)
(260)
–
–
699
4.2 Pillar 3 disclosures
UK Capital Requirements Regulation
Pillar 3 disclosure requirements are set out within the Disclosure (CRR) part of the PRA rulebook.
The disclosures required under the PRA framework are substantially equivalent to those required
by Part Eight of the EU CRR. The consolidated disclosures of the Group, for the 2023 financial
year, will be issued concurrently with the Annual Report and Accounts and can be found at
www.virginmoneyukplc.com/investor-relations/results-and-reporting/annual-reports/
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Climate-related disclosures
Financial statements
Independent auditor’s report to the
members of Virgin Money UK PLC
Consolidated financial statements
Notes to the consolidated
financial statements
Company financial statements
Notes to the Company
financial statements
Additional information
275
283
288
328
331
Notes to the consolidated financial statements
Section 5: Other notes
5.1 Contingent liabilities and commitments
Accounting policy
Financial guarantees
The Group provides guarantees in the normal course of business on behalf of its customers.
Guarantees written are conditional commitments issued by the Group to guarantee the
performance of a customer to a third party and are primarily issued to support direct financial
obligations such as commercial bills or other debt instruments issued by a counterparty.
The rating of the Group as a guarantee provider enhances the marketability of the paper
issued by the counterparty in these circumstances.
The ECL requirements as described in note 3.1.1 apply to loan commitments and financial
guarantee contracts, with the ECL allowance held as part of the provisions for liabilities and
charges balance (note 3.7).
The table below sets out the amounts of financial guarantees and commitments which are
not recorded on the balance sheet. Financial guarantees and commitments are credit-related
instruments which include acceptances, letters of credit, guarantees and commitments to extend
credit. The amounts do not represent the amounts at risk at the balance sheet date but the
amounts that would be at risk should the contracts be fully drawn upon and the customer default.
Since a significant portion of guarantees and commitments is expected to expire without being
drawn upon, the total of the contract amounts is not representative of future liquidity requirements.
Guarantees and assets pledged as collateral security:
Due in less than 3 months
Due between 3 months and 1 year
Due between 1 year and 3 years
Due between 3 years and 5 years
Due after 5 years
Other credit commitments
2023
£m
12
18
8
1
40
79
2022
£m
33
23
9
3
44
112
Undrawn formal standby facilities, credit lines and other commitments
to lend at call
17,921
19,247
Capital commitments
The Group had future capital expenditure which had been contracted for, but not provided for,
at 30 September 2023 of £0.1m (2022: £0.4m).
Other contingent liabilities
Conduct risk related matters and legal claims
There continues to be uncertainty with judgement required in determining the quantum of conduct
risk related liabilities, with note 3.7 reflecting the Group’s current position where a provision can
be reliably estimated. Until all matters are resolved the final amount required to settle the Group’s
potential liabilities for conduct related matters remains uncertain.
The Group will continue to reassess the adequacy of provisions for these matters and the
assumptions underlying the calculations at each reporting date based upon experience and other
relevant factors at that time.
The Group’s subsidiary, Clydesdale Bank PLC, along with its former parent company, National
Australia Bank Limited, is a defendant in nine separate claims (comprising 904 individual claimants)
co-ordinated by the claims management company, RGL Management Limited, in connection with
(i) the payment of break costs and (ii) the composition of fixed interest rates, both, in respect
of historic tailored business loans. The cases involving four individual claimants (being the first
and fourth claims) are currently being heard before His Majesty’s High Court of Justice, with the
hearing scheduled to conclude on 20 December 2023. The remaining claims are currently stayed
by agreement and court order. Clydesdale Bank PLC is robustly defending all such claims.
No provision has been made in these financial statements in respect of the current claims,
nor any other claims of a similar nature which may be brought by other claimants.
The Group is named in and is defending a number of other legal claims arising in the ordinary
course of business. No material adverse impact on the financial position of the Group is expected
to arise from the ultimate resolution of these legal actions.
5.2 Equity based compensation
The equity settled share based payment charge for the year is £5m (2022: £5m).
Virgin Money UK PLC awards
The Group issues awards to employees under the following share plans:
Plan
Eligible employees
Nature of award
Vesting conditions(1)
Grant dates(2)
DEP(3)
Selected
employees
Conditional rights
to shares
Continuing employment or leaving
in certain limited circumstances
2017, 2018, 2019, 2020,
2021 and 2022
LTIP
Selected senior
employees
Conditional rights
to shares
Continuing employment or leaving
in certain limited circumstances
and achievement of delivery of the
Group’s strategic goals and growth
in shareholder value
2017, 2018, 2019, 2020,
2021 and 2022
(1) All awards are subject to vesting conditions and therefore may or may not vest.
(2) The year in which grants have been made under the relevant plan.
(3) Grants made under the DEP are made the year following the financial year to which they relate.
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Independent auditor’s report to the
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Consolidated financial statements
Notes to the consolidated
financial statements
Company financial statements
Notes to the Company
financial statements
Additional information
275
283
288
328
331
Notes to the consolidated financial statements
Section 5: Other notes continued
5.2 Equity based compensation continued
Further detail on each plan is provided below:
DEP
Under the plan, employees are awarded conditional rights to Virgin Money UK PLC shares.
The shares are subject to forfeiture conditions including forfeiture as a result of resignation,
termination by the Group or failure to meet compliance requirements. Awards include:
>
the upfront and deferred elements of bonus awards where required to comply with the PRA
Remuneration Code or the Group’s deferral policy; and
> buyout of equity from previous employment.
LTIP
Under the plan, employees are awarded conditional rights to Virgin Money UK PLC shares.
The shares are subject to forfeiture conditions including forfeiture as a result of resignation,
termination by the Group or failure to meet compliance requirements. The performance conditions
of the plan must be met over a three-year performance period. The measures reflect a balanced
approach between financial and non-financial performance and are aligned to the Group’s strategic
goals. Measures, relative weightings and the quantum for assessing performance are outlined in
the Directors’ remuneration report.
Awards/rights made during the year
Number
outstanding at
1 October 2022
Number
awarded
Number
forfeited
Number
released
Number
outstanding at
30 September
2023
Average
fair value
of awards
at grant
pence
Plan
DEP
2016 Commencement
2017 Bonus
2018 Bonus
2019 Bonus
2019 Commencement
2020 Commencement
1,310
2,120
136,520
79,160
8,046
9,600
2021 Commencement
107,747
2022 Bonus
2023 Commencement
–
–
1,289,482
567,651
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(1,310)
(2,120)
–
–
(34,129)
102,391
(18,388)
60,772
(5,195)
(5,908)
2,851
3,692
(64,315)
43,432
(1,109,992)
179,490
(110,384)
457,267
(125,918)
143,711
(620,091)
1,380,220
(4,721,502)
(694,962)
1,524,843
(274,998)
(531,566)
–
–
–
8,084,761
5,956,257
6,900,152
266.03p
313.20p
192.35p
174.50p
174.50p
135.40p
142.70p
176.75p
158.95p
313.20p
190.47p
174.50p
135.40p
172.65p
176.75p
269,629
2,000,311
6,941,307
8,359,759
6,487,823
–
–
–
–
–
–
7,265,385
(365,233)
LTIP
2017 LTIP
2018 LTIP
2019 LTIP
2020 LTIP
2021 LTIP
2022 LTIP
Determination of grant date fair values
Where awards are subject to only non-market performance conditions the grant date fair value
of the awards has been taken as the middle market share price value on the day immediately
preceding the grant. An estimate is made of the number of awards expected to vest in order to
determine the overall share based payment charge to be recognised over the vesting period.
Where awards contain market performance conditions, these are incorporated into the calculation
of grant date fair value using Monte Carlo simulation pricing models. During the year, awards were
granted under the LTIP on 9 December 2022 and under the DEP on 9 December 2022 and 20 June
2023, based on the middle market share price on the day immediately preceding the grant.
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Independent auditor’s report to the
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Consolidated financial statements
Notes to the consolidated
financial statements
Company financial statements
Notes to the Company
financial statements
Additional information
275
283
288
328
331
Notes to the consolidated financial statements
Section 5: Other notes continued
5.3 Related party transactions
The Group undertakes activity with the following entities which are considered to be related
party transactions:
Other related party transactions with Virgin Group
The Group has related party transactions with other Virgin Group companies(1):
Yorkshire and Clydesdale Bank Pension Scheme (‘the Scheme’)
The Group provides banking services to the Scheme, with customer deposits of £7m (2022: £12m).
Pension contributions of £7m were made to the Scheme in the year (2022: £7m).
During the year, the Group and Trustee to the Scheme ceased their previous contingent security
arrangement, subsequently the Group has granted a £75m uncommitted liquidity facility to the
Scheme as an additional contingency against future short-term liquidity challenges resulting from
unexpected market turbulence. As at 30 September 2023, the amount drawn under the facility was
£Nil. There is also a £7m BACS facility held for the Scheme in relation to payments to the Scheme’s
members (2022: £7m). As at 30 September 2023, the amount drawn on the facility was £Nil
(2022: £Nil).
JVs and associates
The Group holds investments in JVs of £10m (2022: £10m). The total share of profit for the year
was £Nil (2022: loss of £4m). In addition, the Group had the following transactions with JV entities
during the year:
> Salary Finance – the Group provides Salary Finance with a revolving credit facility funding line,
of which the current gross lending balance was £290m (2022: £318m) and the undrawn facility
was £60m (2022: £32m). The facility is held under Stage 2 for credit risk purposes (2022:
Stage 2), with an ECL allowance of £22m (2022: £19m) held against the lending. An impairment
charge of £3m (2022: £19m) was recognised in the year. The lending made via Salary Finance
continues to be held as part of the Group’s Unsecured lending portfolio and consists of personal
lending to Salary Finance customers. During the year, the number of customers not maintaining
scheduled loan repayments has reduced slightly with no material change to the ECL allowance
held from that at September 2022. Additionally, the Group received £16m (2022: £10m) of
interest income from Salary Finance in the year and holds deposits of £10m (2022: £10m).
Board approval is in place for this facility up until December 2025 with £350m being the
approved limit; and
> UTM – the Group provides banking services to UTM which has resulted in amounts due of £3m
(2022: £4m). Additionally, the Group received £9m of recharge income in the year (2022: £7m)
from UTM in accordance with a Service Level Agreement in respect of resourcing, infrastructure
and marketing. During the year, the Group provided no additional funding to UTM (2022: £4m).
The Group has also paid consortium relief to UTM of £1m (2022: £Nil) for losses surrendered
from UTM in respect of FY21 and FY22. During the year, the Group provided UTM with a 30 day
notice account with customer deposits of £17m (2022: £Nil) which resulted in interest of £0.5m
being paid to UTM (2022: £Nil). The Group also provided UTM with five term deposit accounts
during the year. £16m was originally held in deposit, however these matured in September 2023
(2022: £Nil).
> Licence fees due to Virgin Enterprises Limited for the use of the Virgin Money brand trademark
resulted in an amount payable of £5m (2022: £5m), with expenses incurred in the year of £17m
(2022: £15m).
> The Group incurs credit card commissions and air mile charges with Virgin Atlantic Airways
Limited (VAA) in respect of an agreement between the two parties. Amounts payable to VAA
totalled £2m (2022: £1m) and expenses of £17m were incurred in the year (2022: £16m).
> The Group incurs charges and receives commissions concerning the cashback incentive
scheme with Virgin Red Limited in relation to the credit card and PCA portfolio. Amounts
receivable totalled £0.2m (2022: £0.1m), amounts payable totalled £0.1m (2022: £1m) and
during the year this resulted in expenses of £0.5m (2022: £3m) along with income of £0.4m
(2022: £0.5m).
> The Group has an arrangement with Virgin Start Up Limited to host a series of events, podcasts
and videos and other digital content. During the year this resulted in amounts payable of £0.1m
(2022: £Nil) and expenses of £0.4m (2022: £0.5m).
> The Group paid £20m (2022: £7m) of ordinary dividends to Virgin Group Holdings Limited.
(1) All companies are incorporated in England and Wales with the exception of Virgin Group Holdings Limited, which is incorporated
in the British Virgin Islands.
Charities
The Group provides banking services to The Virgin Money Foundation (‘the Foundation’) which has
resulted in customer deposits of £1m (2022: £1m). The Group has made donations of £1m in the
year (2022: £1m) to the Foundation to enable it to pursue its charitable objectives. The Group has
also provided a number of support services to the Foundation on a pro bono basis, including use
of facilities and employee time. The estimated gift in kind for support services provided during the
year was £0.5m (2022: £0.4m).
Compensation of key management personnel (KMP)
KMP comprises Directors of the Company and members of the Executive Leadership Team.
Salaries and short-term benefits
Equity based compensation(1)
2023
£m
9
3
12
2022
£m
9
3
12
(1) The expense recognised in the year is in accordance with IFRS 2 ‘Equity based compensations’, including associated
employers’ NIC.
325
Virgin Money Annual Report & Accounts 2023Financial statements
Notes to the consolidated financial statements
Section 5: Other notes continued
Strategic report
Governance
Risk report
5.3 Related party transactions continued
The following information regarding Directors’ remuneration is presented in accordance
with the Companies Act 2006.
5.4 Notes to the statement of cash flows
Aggregate remuneration(1)
2023
£m
5
2022
£m
5
Adjustments included in the profit before tax
Interest receivable
Interest payable
Climate-related disclosures
(1) Aggregate remuneration includes amounts paid for the 2023 financial year and amounts paid under the LTIPs in relation to the
2018 and 2019 LTIP awards. LTIP figures in the single figure table for Executive Directors’ 2023 remuneration in the Remuneration
report relate to the 2019 LTIP award in respect of the 2020–2022 LTIP performance period cycle.
Depreciation, amortisation and impairment (note 2.3)
Derivative financial instruments fair value movements
Financial statements
Independent auditor’s report to the
members of Virgin Money UK PLC
Consolidated financial statements
Notes to the consolidated
financial statements
Company financial statements
Notes to the Company
financial statements
Additional information
275
283
288
328
331
None of the Directors were members of the Group’s defined contribution or defined benefit pension
schemes during 2023 (2022: none).
Impairment losses on credit exposures (note 3.1.1.1)
Net charge in respect of provisions for liabilities and charges
Equity based compensation (note 5.2)
None of the Directors hold share options and none were exercised during the year (2022: none).
Gain on disposal of FVOCI assets (note 2.2)
Transactions with KMP
KMP, their close family members, and any entities controlled or significantly influenced by the
KMP have undertaken the following transactions with the Group in the normal course of business.
The transactions were made on the same terms and conditions as applicable to other Group
employees, or on normal commercial terms:
Loans and advances
Deposits
2023
£m
1
1
2022
£m
1
1
No provisions have been recognised in respect of loans provided to KMP (2022: £Nil). There were
no debts written off or forgiven during the year to 30 September 2023 (2022: £Nil). Included in the
above are five (2022: five) loans totalling £0.6m (2022: £0.3m) made to Directors. In addition to
the above, there are guarantees of £Nil (2022: £Nil) made to Directors and their related parties.
Other non-cash movements(1)
Changes in operating assets
Net (increase)/decrease in:
Balances with supervisory central banks
Derivative financial instruments
Financial assets at FVTPL
Loans and advances to customers
Defined benefit pension assets
Other assets
Changes in operating liabilities
Net increase/(decrease) in:
Due to other banks
Derivative financial instruments
Customer deposits
Provisions for liabilities and charges
Other liabilities
2023
£m
(3,833)
2,146
116
12
309
31
5
(1)
8
2022
£m
(2,217)
641
179
17
52
–
4
(4)
2
(1,207)
(1,326)
–
(269)
18
(303)
(7)
17
(544)
(627)
(37)
1,249
(14)
(287)
284
(3)
1,847
57
(713)
(7)
31
1,212
1,235
119
(1,510)
(50)
(32)
(238)
(1) Included within other non-cash movements is a net credit in respect of defined benefit pension schemes of £49m (2022: £24m)
(note 2.3) and the share of post-tax losses of associates and joint ventures of £Nil (2022: £4m).
326
Virgin Money Annual Report & Accounts 2023Financial statements
Strategic report
Governance
Risk report
Notes to the consolidated financial statements
Section 5: Other notes continued
5.4 Notes to the statement of cash flows continued
For the purposes of the statement of cash flows, cash and cash equivalents comprise the following
balances with less than three months’ maturity from the date of acquisition. This includes cash and
liquid assets and amounts due from other banks (to the extent less than 90 days).
5.6 Post-balance sheet events
On 23 November 2023, the Company announced a further share buyback with an intent to
repurchase another £150m in aggregate of shares and CDIs, ending no later than 16 May 2024.
Climate-related disclosures
Cash and balances with central banks (less mandatory deposits)
Due from other banks (less than three months)
2023
£m
11,007
666
11,673
2022
£m
11,955
656
12,611
Financial statements
Independent auditor’s report to the
members of Virgin Money UK PLC
Consolidated financial statements
Notes to the consolidated
financial statements
Company financial statements
Notes to the Company
financial statements
Additional information
275
283
288
328
331
5.5 Segment information
The Group’s operating segments are operating units engaged in providing different products
or services and whose operating results and overall performance are regularly reviewed by the
Group’s Chief Operating Decision Maker, the Executive Leadership Team.
The Group operates under four commercial lines: Mortgages, Unsecured, Business, and Deposits,
which are reported through the Chief Commercial Officer. At this point in time, the business
continues to be reported to the Group’s Chief Operating Decision Maker as a single segment
and decisions made on the performance of the Group on that basis. Segmental information will
therefore continue to be presented on this single segment basis.
Summary income statement
Net interest income
Non-interest income
Total operating income
Operating and administrative expenses
Impairment losses on credit exposures
Segment profit before tax
2023
£m
1,687
140
1,827
2022
£m
1,576
140
1,716
(1,173)
(1,069)
(309)
345
(52)
595
Average interest earning assets
89,810
86,275
The Group has no operations outside the UK and therefore no secondary geographical area
information is presented. The Group is not reliant on a single customer. Liabilities are managed
on a centralised basis.
327
Virgin Money Annual Report & Accounts 2023Financial statements
The Company made a profit of £292m (2022: £426m) during the year.
The notes on pages 331 to 336 form an integral part of these financial statements.
Strategic report
Governance
Risk report
Climate-related disclosures
Financial statements
Independent auditor’s report to the
members of Virgin Money UK PLC
Consolidated financial statements
Notes to the consolidated
financial statements
Company financial statements
Notes to the Company
financial statements
Additional information
275
283
288
328
331
Company financial statements
Company balance sheet
As at 30 September
Assets
Investments in controlled entities
Due from related entities
Due from other banks
Financial assets at FVTPL
Current tax assets
Other assets
Total assets
Liabilities
Debt securities in issue
Due to other banks
Due to related entities
Other liabilities
Total liabilities
Equity
Share capital and share premium
Other equity instruments
Merger reserve
Other reserves
Retained earnings
Total equity
Total liabilities and equity
Note
6.2
6.6
6.3
6.6
4.1
6.5
6.5
6.5
6.5
2023
£m
4,016
3,816
6
1
–
–
2022
£m
4,085
3,526
–
6
6
1
7,839
7,624
3,764
128
7
6
3,459
129
8
6
3,905
3,602
143
594
2,128
25
1,044
3,934
7,839
148
666
2,128
24
1,056
4,022
7,624
328
Virgin Money Annual Report & Accounts 2023Financial statements
Strategic report
Governance
Risk report
Climate-related disclosures
Financial statements
Independent auditor’s report to the
members of Virgin Money UK PLC
Consolidated financial statements
Notes to the consolidated
financial statements
Company financial statements
Notes to the Company
financial statements
Additional information
275
283
288
328
331
Company financial statements
Company statement of changes in equity
At 1 October 2021
Profit for the year
AT1 distribution paid
Dividends paid to ordinary shareholders
Ordinary shares issued
Share buyback
Transfer from equity based compensation reserve
Equity based compensation expensed
Settlement of Virgin Money Holdings (UK) Limited share awards
AT1 issuance
AT1 redemption
As at 30 September 2022
Profit for the year
AT1 distribution paid
Dividends paid to ordinary shareholders
Ordinary shares issued
Share buyback
Purchase of own shares
Transfer from equity based compensation reserve
Equity based compensation expensed
Settlement of Virgin Money Holdings (UK) Limited share awards
AT1 redemption
As at 30 September 2023
Share
capital
and share
premium
£m
149
Other
equity
instruments
£m
919
Merger
reserve
£m
2,128
Note
–
–
–
2
(3)
–
–
–
–
–
6.5
148
–
–
–
2
(7)
–
–
–
–
–
6.5
143
–
–
–
–
–
–
–
–
346
(599)
666
–
–
–
–
–
–
–
–
–
(72)
594
–
–
–
–
–
–
–
–
–
–
2,128
–
–
–
–
–
–
–
–
–
–
2,128
The notes on pages 331 to 336 form an integral part of these financial statements.
Other reserves
Own
shares
held
£m
Capital
redemption
reserve
£m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(2)
–
–
–
–
(2)
–
–
–
–
–
3
–
–
–
–
–
3
–
–
–
–
7
–
–
–
–
–
10
Deferred
shares
reserve
£m
14
–
–
–
–
–
–
–
(3)
–
–
11
–
–
–
–
–
–
–
–
(5)
–
6
Equity
based
compensation
reserve
£m
Retained
earnings
£m
14
–
–
–
–
–
(9)
5
–
–
–
10
–
–
–
–
–
–
(4)
5
–
–
11
792
426
(70)
(50)
–
(63)
9
–
1
–
11
1,056
292
(54)
(148)
–
(112)
–
4
–
2
4
Total
equity
£m
4,016
426
(70)
(50)
2
(63)
–
5
(2)
346
(588)
4,022
292
(54)
(148)
2
(112)
(2)
–
5
(3)
(68)
1,044
3,934
329
Virgin Money Annual Report & Accounts 2023Financial statements
Strategic report
Governance
Risk report
Climate-related disclosures
Financial statements
Independent auditor’s report to the
members of Virgin Money UK PLC
Consolidated financial statements
Notes to the consolidated
financial statements
Company financial statements
Notes to the Company
financial statements
Additional information
275
283
288
328
331
Company financial statements
Company statement of cash flows
For the year ended 30 September
Operating activities
Profit on ordinary activities before tax
Adjustments for:
Non-cash or non-operating items included in profit before tax
Interest receivable
Interest payable
Costs recharged from subsidiary
Fair value movements on other financial assets designated at FVTPL
Changes in operating assets
Financial assets at FVTPL
Other assets
Net increase in amounts due from related entities
Changes in operating liabilities
Other liabilities
Net increase in amounts due to related entities
Interest received
Tax received – Group relief
Net cash provided by operating activities
Cash flows from investing activities
Investment in controlled entities
Net cash provided by investing activities
Cash flows from financing activities
Interest paid
Issuance of medium-term notes/subordinated debt
AT1 issuance
Redemption of medium-term notes/subordinated debt
Redemption of AT1 securities
Share buybacks
Ordinary dividends paid
AT1 distributions
Net cash used in financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
2023
£m
295
(144)
148
(1)
4
6
1
(311)
(3)
1
123
2
121
72
72
(122)
743
–
(432)
(72)
(112)
(148)
(54)
(197)
(4)
50
46
2022
£m
Additional information on operational cash flows:
424
Dividends received
AT1 distributions received
2023
£m
248
54
2022
£m
367
60
For the purposes of the statement of cash flows, cash and cash equivalents comprise the following
balances with less than three months’ maturity from the date of acquisition.
Due from other banks
Due from related parties (note 6.6)
2023
£m
6
40
2022
£m
–
50
The amount included in due from other banks relates to the Company EBT which was initiated
in the year.
Movements in liabilities arising from financing activities:
At 1 October 2021
Non-cash flows:
Unamortised costs
Other movements
At 30 September 2022
Cash flows:
Issuances
Redemptions
Non-cash flows:
Movement in accrued interest
Unamortised costs
Unrealised foreign exchange movements
At 30 September 2023
Debt securities
in issue
£m
3,428
10
21
Total
£m
3,428
10
21
3,459
3,459
744
(432)
14
7
(28)
744
(432)
14
7
(28)
3,764
3,764
The notes on pages 331 to 336 form an integral part of these financial statements.
(129)
133
(3)
(2)
–
–
–
–
11
130
–
564
37
37
(131)
–
347
–
(614)
(52)
(50)
(70)
(570)
31
19
50
330
Virgin Money Annual Report & Accounts 2023Financial statements
Notes to the Company financial statements
Strategic report
Governance
Risk report
Climate-related disclosures
Financial statements
Independent auditor’s report to the
members of Virgin Money UK PLC
Consolidated financial statements
Notes to the consolidated
financial statements
Company financial statements
Notes to the Company
financial statements
Additional information
275
283
288
328
331
Section 6: Notes to the Company financial statements
6.2 Company investments in controlled entities
6.1 Company basis of preparation
The Company is incorporated in the UK and registered in England and Wales.
At 30 September
2023
£m
4,016
2022
£m
4,085
The Company financial statements of Virgin Money UK PLC, the parent company (the Company),
which should be read in conjunction with the Group Directors’ report, have been prepared on
a going concern basis in accordance with UK adopted IAS.
No individual income statement or statement of comprehensive income is presented for the
Company, as permitted by Section 408 of the Companies Act 2006.
Basis of measurement
The financial information has been prepared under the historical cost convention. The preparation
of the financial statements in accordance with UK adopted IASs requires management to make
judgements, estimates and assumptions that affect the application of accounting policies and
the reported amounts of assets, liabilities, income and expenses. Actual results may differ from
these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting
estimates are recognised in the year in which the estimates are revised and in any future
years affected.
The accounting policies of the Company are the same as those of the Group, which are set out
in the notes to the consolidated financial statements, except that the Company has no policy in
respect of consolidation. These accounting policies have been applied consistently to all years
presented in these financial statements.
The decrease in the year resulted from the redemption of £72m perpetual securities issued by
Clydesdale Bank PLC to the Company on the same terms as the Company’s externally issued
perpetual securities that were redeemed in December 2022 (see note 4.1). Associated transaction
and discount costs of £4m were also released by the Company to retained earnings as part of the
redemption, resulting in a net decrease of £68m.
The remaining movement of £1m in the Company’s investment in Clydesdale Bank PLC relates to
the Group’s historic Conduct Indemnity arrangement with National Australia Bank (NAB). Claims
under the Conduct Indemnity Deed have been made by the Company in prior years, while the
provisions in respect of the qualifying conduct costs and associated losses were raised and
incurred by Clydesdale Bank PLC. Under this arrangement, the Company has historically recovered
the cost of relevant conduct provisions raised by Clydesdale Bank PLC from NAB (minus a loss
share borne by Clydesdale Bank PLC of 9.7%). Where reimbursement income has been received
from NAB, an amount equal to the tax relief on the qualifying conduct costs (less the loss share
of 9.7%) becomes repayable to NAB upon utilisation of that tax relief in a filed tax computation
and saving an amount of tax. For the Company, the substance of the indemnity agreement is that
of variable consideration in relation to its investment in Clydesdale Bank PLC. A liability for the
repayment of these amounts is recognised. Changes in the value of the liability result in a
corresponding purchase price adjustment to the investment in Clydesdale Bank PLC.
331
Virgin Money Annual Report & Accounts 2023Financial statements
Strategic report
Governance
Risk report
Climate-related disclosures
Financial statements
Independent auditor’s report to the
members of Virgin Money UK PLC
Consolidated financial statements
Notes to the consolidated
financial statements
Company financial statements
Notes to the Company
financial statements
Additional information
275
283
288
328
331
Notes to the Company financial statements
Section 6: Notes to the Company financial statements continued
6.2 Company investments in controlled entities continued
The table below represents the wholly-owned subsidiary undertakings of the Group and Company as at 30 September 2023:
Wholly-owned subsidiary undertakings
Nature of business
Class of share held
Proportion held
Country of
incorporation
Registered office
Financial year end
Direct holdings
Clydesdale Bank PLC
Banking
CYB Investments Limited
Lending company
Virgin Money Retirement Savings Plan Trustee
Limited
Dormant
YCBPS Property Nominee Company Limited
Dormant
Yorkshire and Clydesdale Bank Pension
Trustee Limited
Indirect holdings
CGF No. 9 Limited
Clydesdale Bank Asset Finance Limited
CYB Intermediaries Limited
St Vincent (Equities) Limited
Virgin Money Giving Limited
Dormant
Leasing
Leasing
Insurance intermediary
Investment company
Non-trading company
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Virgin Money Holdings (UK) Limited
Intermediate holding company Ordinary
Virgin Money Management Services Limited
Non-trading company
Ordinary
Virgin Money Personal Financial Service
Limited
Insurance intermediary
Virgin Money Limited
Dormant
Yorkshire Bank Home Loans Limited
Mortgage finance
Ordinary
Ordinary
Ordinary
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
C.B. Nominees Limited
CYB SSP Trustee Limited
Northern Rock Limited
Yorkshire Bank Limited
Dormant
Dormant
Dormant
Dormant
Limited by guarantee 100%
Ordinary
Ordinary
Ordinary
100%
100%
100%
Impairment of investment in Clydesdale Bank PLC
An impairment test on the carrying value of the Company’s investment in Clydesdale Bank PLC
has been undertaken. The recoverable amount as determined by a value-in-use (VIU) calculation
was higher than the carrying value and therefore no impairment charge has been recognised
for the current year (2022: £Nil).
Key assumptions used in value-in-use calculation
The VIU calculation uses discounted cash flow projections based on the Board approved five-year
Strategic and Financial Plan. Cash flows beyond the forecast period have been extrapolated with
a terminal growth rate applied.
Scotland
England
Scotland
England
177 Bothwell Street, Glasgow, G2 7ER
30 September
Jubilee House, Gosforth, Newcastle upon Tyne, NE3 4PL
30 September
177 Bothwell Street, Glasgow, G2 7ER
30 September
Jubilee House, Gosforth, Newcastle upon Tyne, NE3 4PL
30 September
Scotland
177 Bothwell Street, Glasgow, G2 7ER
30 September
Scotland
Scotland
England
Scotland
England
England
England
England
England
England
Scotland
England
England
England
177 Bothwell Street, Glasgow, G2 7ER
177 Bothwell Street, Glasgow, G2 7ER
30 September
30 September
Jubilee House, Gosforth, Newcastle upon Tyne, NE3 4PL
30 September
177 Bothwell Street, Glasgow, G2 7ER
30 September
Jubilee House, Gosforth, Newcastle upon Tyne, NE3 4PL
31 March
Jubilee House, Gosforth, Newcastle upon Tyne, NE3 4PL
30 September
Jubilee House, Gosforth, Newcastle upon Tyne, NE3 4PL
31 March
Jubilee House, Gosforth, Newcastle upon Tyne, NE3 4PL
30 September
Jubilee House, Gosforth, Newcastle upon Tyne, NE3 4PL
30 September
20 Merrion Way, Leeds, Yorkshire, LS2 8NZ
177 Bothwell Street, Glasgow, G2 7ER
30 September
30 September
Jubilee House, Gosforth, Newcastle upon Tyne, NE3 4PL
30 September
Jubilee House, Gosforth, Newcastle upon Tyne, NE3 4PL
30 September
Jubilee House, Gosforth, Newcastle upon Tyne, NE3 4PL
30 September
The following assumptions are used in the VIU calculation:
> Discount rate: 16.7% (2022: 16.7%).
> Annual growth rate (years 6-10): 2%.
> Projected terminal growth rate: 2%.
The five-year forecast projections encompass a range of economic indications such as GDP
growth, unemployment statistics as well as a range of other business assumptions specific to
the Group such as asset volumes, product volumes and margins which are commercially sensitive.
332
Virgin Money Annual Report & Accounts 2023Financial statements
Strategic report
Governance
Risk report
Climate-related disclosures
Financial statements
Independent auditor’s report to the
members of Virgin Money UK PLC
Consolidated financial statements
Notes to the consolidated
financial statements
Company financial statements
Notes to the Company
financial statements
Additional information
275
283
288
328
331
Notes to the Company financial statements
Section 6: Notes to the Company financial statements continued
6.2 Company investments in controlled entities continued
Discount rate
The discount rate applied reflects the current market assessment of the risk specific to the Group.
The discount rate was calculated by reference to a series of internal indicators combined with
certain identifiable and available sector specific information.
Growth rate
The growth rate is based on management’s expectation of the long-term average growth prospects
for UK GDP after taking into account the broader historic UK economic outlook and trends.
Sensitivity to changes in assumptions
Changes in the discount rate or projected terminal growth rate will impact the Company’s
assessment of the value-in-use of Clydesdale Bank PLC. If adjusted independently of all other
variables, a 10 basis point increase in the discount rate would decrease the headroom by £27m
and a 10 basis point decrease in the projected terminal growth rate would decrease the headroom
by £8m.
Interest in charitable foundations
The Group has an interest in The Virgin Money Foundation, a charitable foundation registered
in England as a company limited by guarantee. Clydesdale Bank PLC acts as a guarantor
for £1 and is also a donor.
The Company also has an interest in a number of structured entities:
Other controlled entities as at 30 September 2023
Nature of business
Country of incorporation
Registered office
Eagle Place Covered Bonds LLP
Gosforth Funding 2017-1 PLC (in liquidation)
Gosforth Funding 2018-1 PLC
Acquisition of mortgage loans
Issuer of securitised notes
Issuer of securitised notes
Gosforth Holdings 2017-1 Limited (in liquidation)
Gosforth Holdings 2018-1 Limited
Holding company
Holding company
Gosforth Mortgages Trustee 2018-1 Limited
Trust
Lanark Funding Limited
Lanark Holdings Limited
Lanark Master Issuer PLC
Lanark Trustees Limited
Lannraig Funding Limited
Lannraig Holdings Limited
Lannraig Master Issuer PLC
Lannraig Trustees Limited
Red Grey Square Funding LLP
Funding company
Holding company
Issuer of securitised notes
Mortgages trustee
Funding company
Holding company
Issuer of securitised notes
Mortgages trustee
Security provider
England
England
England
England
England
England
England
England
England
England
England
England
England
Jersey
England
Jubilee House, Gosforth, Newcastle upon Tyne, NE3 4PL
10 Fleet Place, London, EC4M 7RB
Eighth Floor, 100 Bishopsgate, London, EC2N 4AG
10 Fleet Place, London, EC4M 7RB
Eighth Floor, 100 Bishopsgate, London, EC2N 4AG
Eighth Floor, 100 Bishopsgate, London, EC2N 4AG
Suite 2, Seventh Floor, 50 Broadway, London, SW1H 0DB
Suite 2, Seventh Floor, 50 Broadway, London, SW1H 0DB
Suite 2, Seventh Floor, 50 Broadway, London, SW1H 0DB
Suite 2, Seventh Floor, 50 Broadway, London, SW1H 0DB
1 Bartholomew Lane, London, EC2N 2AX
1 Bartholomew Lane, London, EC2N 2AX
1 Bartholomew Lane, London, EC2N 2AX
44 Esplanade, St Helier, Jersey, JE4 9WG, Channel Islands
1 Bartholomew Lane, London, EC2N 2AX
Details of the Group’s interests in consolidated structured entities associated with securitisation and covered bond arrangements are set out in note 3.1.5.
Financial year end
30 September
30 September
30 September
30 September
30 September
30 September
30 September
30 September
30 September
30 September
30 September
30 September
30 September
30 September
30 September
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financial statements
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Notes to the Company financial statements
Section 6: Notes to the Company financial statements continued
6.2 Company investments in controlled entities continued
The Group also has a participating interest in the following undertakings as either an associate (A) or a joint venture (JV):
Name of undertaking
Eagle Place Covered Bonds Finance Limited(1)
Salary Finance Loans Limited
Virgin Money Unit Trust Managers Limited(2)
Status
A
JV
JV
% of share class held by immediate parent company
(or by the Group where this varies)
20%
50%
Registered office address and principal place of business
Financial year end
1 Bartholomew Lane, London, EC2N 2AX
Scale Space, 58 Wood Lane, London, W12 7RZ
31 December
31 December
50% (plus one share)
Jubilee House, Gosforth, Newcastle Upon Tyne, NE3 4PL
31 December
(1) Eagle Place Covered Bonds Finance Limited is a dormant company within the Group’s covered bond programme.
(2) Virgin Money Unit Trust Managers Limited owns 100% of the share capital of Virgin Money Nominees Limited and Virgin Money Trustee Limited, both dormant companies registered at Jubilee House, Gosforth, Newcastle upon Tyne, NE3 4PL.
Investments in JVs are recognised in the consolidated financial statements within other assets and accounted for using the equity method. The undertakings above are incorporated in the UK.
Further details on the JV arrangements are provided in note 5.3.
6.3 Company debt securities in issue
Medium-term notes
Subordinated debt
2023
£m
2,728
1,036
3,764
2022
£m
2,425
1,034
3,459
Information on subordinated debt and medium-term notes is provided in note 3.1.1.4 to the consolidated financial statements.
Hedge accounting is not applicable to the debt securities in issue at the Company level.
6.4 Company fair value of financial instruments
The accounting policy for fair value of financial instruments is provided in note 3.1.4 to the consolidated financial statements. The table below shows a comparison of the carrying amounts of financial
assets and liabilities as reported on the balance sheet and their fair values where these are not approximately equal.
There are various limitations inherent in this fair value disclosure as not all of the Company’s financial instruments can be exchanged in an active trading market.
2023
2022
Fair value measurement using:
Fair value measurement using:
Financial assets
Due from related entities
Other financial assets at FVTPL
Financial liabilities
Debt securities in issue
Carrying value
£m
Fair value
£m
Level 1
£m
3,816
1
3,699
1
–
–
3,764
3,597
3,597
Level 2
£m
3,699
–
–
Level 3
£m
Carrying value
£m
Fair value
£m
Level 1
£m
–
1
–
3,526
6
3,292
6
–
–
3,459
3,156
3,156
Level 2
£m
3,292
4
–
Level 3
£m
–
2
–
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Consolidated financial statements
Notes to the consolidated
financial statements
Company financial statements
Notes to the Company
financial statements
Additional information
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Notes to the Company financial statements
Section 6: Notes to the Company financial statements continued
6.4 Company fair value of financial instruments continued
Notes
The Company’s fair values disclosed for financial instruments are based on the following
methodologies and assumptions:
6.6 Company related party transactions
During the year there have been transactions between the Company, controlled entities of the
Company, and other related parties. The Company receives and provides a range of services
from/to its principal subsidiary undertaking, Clydesdale Bank PLC, including loans and deposits.
Due from related entities – derived from quoted market prices of the debt security in issue after
accounting for differences in credit spread. All other amounts due from related entities are
redeemable at call and therefore carrying value approximates fair value.
Amounts due from related entities
Bank accounts held with controlled entity of the Company
Other financial assets at FVTPL (Level 3) – the Company holds £1m (2022: £1m) of debt
investments measured at FVTPL. These investments are categorised as Level 3, as the valuations
incorporate significant unobservable inputs. Valuation is based on the transaction price which the
Company believes is the best representation of an exit price. The significant unobservable input
is the recoverable amount which could range from 0 to 100%.
Medium-term notes
Subordinated debt
Other receivables
Total amounts due from related entities
2023
£m
40
2,735
1,036
5
3,816
2022
£m
50
2,437
1,034
5
3,526
Debt securities in issue – taken directly from quoted market prices.
6.5 Company reserves
6.5.1 Other equity instruments and reserves
Information on other equity instruments and other reserves is provided in note 4.1 to the Group’s
consolidated financial statements.
6.5.2 Available distributable items
Distributable reserves are determined as required by the Companies Act 2006 by reference to a
company’s individual financial statements. At 30 September 2023, the Company had accumulated
distributable reserves of £1,044m (2022: £1,056m).
Interest income on the above amount was as follows:
Interest income from related parties
144
129
These are all classified as amortised cost and, for IFRS 9 purposes, are held under Stage 1.
The impact of the ECL requirements on these financial assets is immaterial.
Medium-term notes comprise dated, unsecured loans issued by Clydesdale Bank PLC.
These securities will, in the event of the winding-up of the issuer, be subordinated to the claims
of depositors and all other creditors of the issuer, other than creditors whose claims rank junior
to the claims of the holders of the medium-term note liabilities, including those of subordinated
debt holders.
Subordinated debt comprises dated, unsecured loan capital issued by Clydesdale Bank PLC.
These securities will, in the event of the winding-up of the issuer, be subordinated to the claims
of depositors and all other creditors of the issuer, other than creditors whose claims rank junior
to the claims of the holders of subordinated liabilities.
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Section 6: Notes to the Company financial statements continued
6.6 Company related party transactions continued
Total amounts due to related entities
Other payables
Total amounts due to related entities
Climate-related disclosures
Other transactions with related entities
Financial statements
Independent auditor’s report to the
members of Virgin Money UK PLC
Consolidated financial statements
Notes to the consolidated
financial statements
Company financial statements
Notes to the Company
financial statements
Additional information
275
283
288
328
331
Non-interest income received
Dividends received
AT1 distributions received
Other expenses
Other related party transactions
As detailed in note 5.2 to the consolidated financial statements, the Group provides share based
compensation to employees through a number of schemes, all in relation to shares in the Company.
The cost of providing these benefits is recharged to the employing company, Clydesdale Bank PLC.
Recharges are calculated based on the fair value of awards expensed in the year in accordance
with IFRS 2 ‘Share based payments’. The key management personnel of the Company are the
key management personnel of the Group, with relevant disclosures given in note 5.3 to the
consolidated financial statements. The Company has no employees (2022: Nil).
Other related party transactions with the Virgin Group
The Company has related party transactions with other Virgin Group companies(1):
> Licence fees due to Virgin Enterprises Limited for the use of the Virgin Money brand trademark
resulted in payables of £5m (2022: £5m), with expenses incurred in the year of £17m
(2022: £15m).
> The Company paid £20m (2022: £7m) of ordinary dividends to Virgin Group Holdings Limited.
2023
£m
7
7
2023
£m
21
248
54
323
4
2022
£m
8
8
2022
£m
18
367
60
445
1
(1) Virgin Enterprises Limited is incorporated in England and Wales, with Virgin Group Holdings Limited incorporated in the British Virgin Islands.
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Glossary
Abbreviations
Country by country reporting
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Basis of presentation
Forward-looking statements
338
366
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382
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389
391
391
Justin
Digital & Innovation
Justin is one of our upcoming
digital apprentices helping us
on our mission to be the UK’s
best digital bank.
Virgin Money Annual Report & Accounts 2023
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Principles for Responsible Banking report
The Principles of Responsible Banking were launched by the United Nations in 2019 with the aim of accelerating the banking industry’s contribution to the SDGs.
This is our second self-assessment report which outlines our progress in implementing the principles across VMUK.
Reporting and Self-Assessment Requirements
Response
Links and references
Principle 1: Alignment
We will align our business strategy to be consistent with and contribute to individuals’ needs and society’s goals, as expressed in the Sustainable Development Goals,
the Paris Climate Agreement and relevant national and regional frameworks.
Business model
Describe (high-level) your bank’s business model, including
the main customer segments served, types of products and
services provided, the main sectors and types of activities
across the main geographies in which your bank operates
or provides products and services. Please also quantify the
information by disclosing e.g. the distribution of your bank’s
portfolio (%) in terms of geographies, segments (i.e. by
balance sheet and/or off-balance sheet) or by disclosing
the number of customers and clients served.
Virgin Money is the UK’s 6th largest bank, serving 6.6m retail and small and medium sized business
banking customers through an innovative digital platform and a network of stores, contact centres
and relationship managers. We are led by our Purpose of Making you happier about money which
informs our strategic ambition to be the UK’s best digital bank.
Page 54
Our business is comprised of three customer facing functions:
> Personal – offering rewarding current accounts, savings, unsecured lending, investments
and insurance
> Business – helping small and medium businesses save and grow
> Mortgages – for homeowners and landlords, and working with intermediaries
More information can be found in our Commercial review starting on page 54 of the ARA.
Our sector credit exposures are detailed in credit risk tables on page 179 of the ARA,
covering sector breakdowns across mortgages, unsecured and business lending.
Page 179
Strategic report
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Financial statements
Additional information
Principles for Responsible
Banking report
ESG index
Measuring the Group’s performance
Underlying adjustments to the statutory
view of performance
Glossary
Abbreviations
Country by country reporting
Shareholder information
Basis of presentation
Forward-looking statements
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Country by country reporting
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Forward-looking statements
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Reporting and Self-Assessment Requirements
Response
Strategy alignment
Does your corporate strategy identify and reflect
sustainability as strategic priority/ies for your bank?
We are led by our Purpose, Making you happier about money, which establishes us as a bold, proactive,
customer, colleague and community focused business with a desire to help people feel better about
their relationship with money.
Links and references
Pages 31 to 50
Yes
No
Please describe how your bank has aligned and/or is planning
to align its strategy to be consistent with the Sustainable
Development Goals (SDGs), the Paris Climate Agreement,
and relevant national and regional frameworks.
Does your bank also reference any of the following
frameworks or sustainability regulatory reporting requirements
in its strategic priorities or policies to implement these?
UN Guiding Principles on Business and Human Rights
International Labour Organization fundamental
conventions
UN Global Compact
UN Declaration on the Rights of Indigenous Peoples
Any applicable regulatory reporting requirements on
environmental risk assessments, e.g. on climate risk –
please specify which ones
Any applicable regulatory reporting requirements
on social risk assessments, e.g. on modern slavery –
please specify which ones
None of the above
Our Purpose informs our strategic ambition to be the UK’s best digital bank. Our strategic priorities are:
> Delighted customers and colleagues;
> Super straightforward efficiency;
> Pioneering growth; and
> Discipline and sustainability.
Our ESG strategy is embedded throughout the organisation with specific alignment to our 4th strategic
goal, and is structured around 4 ESG Goals:
Page 32
> Put our carbon (footprint) down
> Building a brighter business
> Open doors
> Straight up ESG
In 2020, we set 2030 aspirations across our four ESG Goals, and through a detailed mapping assessment
against the United Nations SDGs, we identified where we believe we can have most intentional and
sustained positive impact, which is outlined in our Strategic report and subsequent pages outlining our
ESG strategy and goals.
We became a signatory to the NZBA in September 2021 and we are committed to realising the
ambitions of the Paris Climate Agreement to support society’s low-carbon transition. We’ve developed
science-based targets across our priority business sectors, Mortgages portfolio and our operations,
which have been disclosed within our FY23 ARA using decarbonisation scenarios which are from
independent and reputable national/international bodies. These are aligned to a maximum 1.5 degree
temperature rise by 2050 wherever possible e.g. UK’s Climate Change Committee (CCC) Balanced Net
Zero (BNZ) pathway selected for Businesses, International Energy Agency’s (IEA) Net Zero 2050
pathway for Mortgages.
We are compliant with the TCFD, as outlined on pages 52 and 53 of our Strategic report, with additional
detail in our Climate-related disclosures starting on page 240.
Pages 52 to 53, 240 to 272
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Response
Links and references
Strategy alignment
(continued)
In FY21 we started utilising the scenarios published by the BoE as part of its CBES to identify climate-
related risks and opportunities and assess the resilience of our business model in line with the Paris
Agreement. This exercise continues to provide insights into potential vulnerabilities and opportunities
across the Group’s lending portfolio, which will be considered through the strategic and financial
planning cycles.
Under Goal 3 we have set 2030 Aspirations to (i) work towards the eradication of the poverty premium
and (ii) Empower and enable those most in need to gain digital access (digital inclusion) and vital skills
to better manage their finances (financial education).
The Group GHG reporting is undertaken in line with the requirements of the Companies (Directors’
Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018. These
regulations are also known as Streamlined Energy and Carbon Reporting (SECR). Full details are
included in the SECR table on page 36.
GHG emissions are reported in accordance with the GHG Protocol, which sets a global standard for
how to measure, manage and report emissions. Scope 1 and 2 location based emissions for the past
12 months are 16% less than the prior year on a combined basis.
Page 36
https://
www.virginmoneyukplc.com/
corporate-sustainability/
modern-slavery-statement/
We align with the recommendations of the ILO standards as outlined within our Modern Slavery
statement which is made pursuant to the UK’s Modern Slavery Act 2015. Our statement is also available
on the Government’s Modern Slavery Statement Registry.
https://modern-slavery-
statement-registry.service.
gov.uk/search
Strategic report
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Risk report
Climate-related disclosures
Financial statements
Additional information
Principles for Responsible
Banking report
ESG index
Measuring the Group’s performance
Underlying adjustments to the statutory
view of performance
Glossary
Abbreviations
Country by country reporting
Shareholder information
Basis of presentation
Forward-looking statements
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Response
Links and references
Principle 2: Impact and Target Setting
We will continuously increase our positive impacts while reducing the negative impacts on, and managing the risks to, people and environment resulting from our activities,
products and services. To this end, we will set and publish targets where we can have the most significant impacts.
2.1 Impact Analysis (Key Step 1)
Show that your bank has performed an impact analysis of
its portfolio/s to identify its most significant impact areas
and determine priority areas for target-setting. The impact
analysis shall be updated regularly(1) and fulfil the following
requirements/elements (a-d)(2):
a) Scope: What is the scope of your bank’s impact analysis?
Please describe which parts of the bank’s core business
areas, products/services across the main geographies that
the bank operates in (as described under 1.1) have been
considered in the impact analysis. Please also describe
which areas have not yet been included, and why.
Virgin Money is the UK’s 6th largest bank, serving 6.6m retail and small and medium sized business
banking customers through an innovative digital platform and a network of stores, contact centres
and relationship managers.
Our business is comprised of three customer facing functions:
> Mortgages – for homeowners and landlords, and working with intermediaries
> Personal banking – offering rewarding current accounts, savings, unsecured lending, investments
and insurance
> Business banking – helping small and medium businesses save and grow
In 2019, we conducted our initial Materiality Assessment, seeking views of our key internal and external
stakeholders on the sustainability issues of greatest importance: the results of which informed the
refresh of our ESG strategy. The scope of the Materiality Assessment included the whole of the UK
business operations corresponding with our geographical coverage and customer base.
In October 2022, we undertook a follow-on Materiality Assessment, executed by an independent
consultant, gathering a balance of perspectives from internal and external stakeholders, to identify the
critically important sustainability issues to them and to Virgin Money’s long-term business success.
The assessment focused on double-materiality: to understand i) financially material sustainability risks
to our business and ii) impact of our business activities on society and the environment.
Climate
In accordance with our NZBA commitment, we have assessed the impact of our mortgages and
business lending portfolio by calculating estimates of the financed emissions across key carbon-
intensive sectors. A breakdown of these estimates can be found on pages 246 to 251 of our report.
Mortgages comprises 79% of customer lending, whilst Business accounts for 12%. The breakdown of
the Group balance sheet can be found on page 65 of our Annual Report and shows a split by
mortgages, business and unsecured lending.
Pages 246 to 251
Page 65
We have also performed detailed climate risk assessment exercises to identify the impact to the Group
from physical and transitional risks, through which we’ve been able to identify the highest impact
(material) risks to our portfolio, across different time horizons.
(1) That means that where the initial impact analysis has been carried out in a
previous period, the information should be updated accordingly, the scope
expanded as well as the quality of the impact analysis improved over time.
(2) Further guidance can be found in the Interactive Guidance on impact analysis
and target setting.
Unsecured personal lending does not currently have an approved PCAF emissions calculation
methodology, so does not currently form part of our disclosures. This comprises 9% of the Group’s
customer lending.
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Response
Links and references
2.1 Impact Analysis (Key Step 1)
(continued)
Financial & Digital Inclusion
Financial Inclusion was identified as a priority within the 2022 Materiality Assessment. Internal
segmentation analysis of our customer base reveals that approximately 1 in 4 of our customers
(1.6 million) live in some of the most deprived areas in the UK.
Given our strategic ambition to be the UK’s best digital bank, the data and findings above have informed
our decision to focus on ‘super-themes’ of Digital Inclusion and Financial Education which we believe
are aligned with the UN PRB impact area: Financial Inclusion & Health.
We will continue to work with Smart Data Foundry (alongside others) to collate consumer data across
the industry which will help to identify potential triggers. This impact analysis is a complex and lengthy
undertaking. We expect to be able to disclose more on our strategy, goals and delivery plans to 2030
in our 2024 UN PRB submission.
Strategic report
Governance
Risk report
Climate-related disclosures
Financial statements
Additional information
Principles for Responsible
Banking report
ESG index
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Underlying adjustments to the statutory
view of performance
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Abbreviations
Country by country reporting
Shareholder information
Basis of presentation
Forward-looking statements
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Response
Links and references
2.1 Impact Analysis (Key Step 1)
(continued)
b) Portfolio composition: Has your bank considered
the composition of its portfolio (in %) in the analysis?
Please provide proportional composition of your portfolio
globally and per geographical scope
i) by sectors & industries3 for business, corporate and
investment banking portfolios (i.e. sector exposure
or industry breakdown in %), and/or
ii) by products & services and by types of customers
for consumer and retail banking portfolios.
If your bank has taken another approach to determine the
bank’s scale of exposure, please elaborate, to show how
you have considered where the bank’s core business/
major activities lie in terms of industries or sectors.
Climate
We are a wholly UK-based bank. Detailed breakdown of our portfolio exposures is found
in the table below:
Segment
Mortgages
Business
Unsecured
Business sector breakdown
Business sector
Agriculture
Business services
Commercial Real Estate
Govt, health & education
Hospitality
Manufacturing
Resources
Retail and wholesale trade
Transport and storage
Other
% of Group
customer loans
79%
12%
9%
% of
Business loans
16%
16%
8%
14%
10%
9%
2%
10%
4%
12%
Emissions disclosed in our FY23 ARA now extends to c.85% of Group balances and science-based
targets cover material carbon-intensive sectors. See our Climate-related disclosures for decarbonisation
plans for our priority sectors.
Detail on the approach, methodology, prioritisation, the targets themselves and governance/tracking
undertaken is also outlined within the FY23 ARA, in the Climate-related disclosures report.
Methodologies for metrics subject to assurance can be found within the basis of preparation document,
which can be found on the ESG Hub.
Pages 247 to 259
EY’s full assurance report
is available at:
virginmoneyukplc.com/
corporate-sustainability/
environment
(3) ‘Key sectors’ relative to different impact areas, i.e. those sectors whose positive
and negative impacts are particularly strong, are particularly relevant here.
Business Banking customers are predominantly SME so no Corporate/Investment Banking analysis
is required.
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Country by country reporting
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Reporting and Self-Assessment Requirements
Response
Links and references
2.1 Impact Analysis (Key Step 1)
(continued)
Financial Inclusion
Virgin Money has undertaken Internal segmentation analysis of our full customer base (covering
Mortgages, Unsecured, Business, and Deposits, which includes current accounts and savings)
to understand how our portfolio aligns to both the UK Government’s Index of Multiple Deprivation
and Experian’s Financial Strategy Segments (FSS).
Experian’s Financial Strategy Segments focuses on the behaviour of the whole UK population across
1.7 million postcodes, 26 million households and 50 million individuals, and is underpinned by almost
2,500 data variables to classify customers into 15 groups, 55 types and 135 distinct person-level types.
Virgin Money’s customers have been profiled into six customer segments which inform seven personas.
These profiles are built around a collection of quantitative data sources and highlight the most typical
behaviours and financial goals of these FSS classifications.
We have identified Financial Inclusion as our second impact area throughout FY24 will be structuring
our work across Customers and Communities around ‘super themes’ of Digital Inclusion and Financial
Education. Through that work we will be confirming KPIs, action plans, measurement and reporting and
governance for disclosure within our 2024 update report.
We will also continue to review the findings and recommendations from the Centre for Social Justice
report to inform our strategy/approach.
https://
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2.1 Impact Analysis (Key Step 1)
(continued)
c) Context: What are the main challenges and priorities
related to sustainable development in the main countries/
regions in which your bank and/or your clients operate?(4)
Please describe how these have been considered,
including what stakeholders you have engaged to help
inform this element of the impact analysis.
This step aims to put your bank’s portfolio impacts
into the context of society’s needs.
The Materiality Assessment outlined in 2.1 focused on key topics suggested by the independent
consultancy and agreed as relevant to our UK operations. Climate Change and Financial Inclusion were
amongst the highest materiality topics for the Bank alongside digital transformation, customer relations,
corporate governance, ethics, conduct and compliance and data security.
Throughout the Materiality Assessment process we engaged:
>
Internal stakeholders: Employees, ESG working group, Leadership Team Goal Sponsors and Board
members
> External stakeholders: Suppliers (CDP survey), Partners, Business Customer panel and customers
utilising Sustainability tools (business and personal), industry collaboration, Investor meetings
As noted in 1 and 2.1, we are a wholly UK focused bank and consider sustainable development within
this context. We plan to refresh our Impact Analysis using the UN PRB Impact Analysis tool in FY24.
Throughout the preparation of our plans and targets, we have referred to the Committee on Climate
Change’s 2023 Progress Report and subsequent response from UK Government. Given the large
percentage of our lending to Mortgage customers, the reference to Empowering households and
communities to make low carbon choices is of particular note, in addition to ensuring we are not
contributing to the increase of ‘mortgage prisoners’ through our propositions. The research informing
the development of our Green Makeover product has incorporated a representative spread of our
customer portfolio and reflects feedback on accessibility and affordability.
(4) Global priorities might alternatively be considered for banks with highly
diversified and international portfolios.
We’ve also reviewed and considered the approach of our industry peers within our recommendations
and plans.
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Links and references
2.1 Impact Analysis (Key Step 1)
(continued)
Climate (Priority impact area 1)
We have identified material risks and opportunities for our business lending through portfolio
assessment, stakeholder surveys (Sustainable Business Coach and Carbon Audits) and consideration
of key trends. A Group-wide climate risk assessment was undertaken to identify the impact to the
Group from physical and transitional climate-related risks, including materiality and associated time
horizons. Potential acute and chronic physical risks were assessed, as well as policy and legal,
technological, reputational and market transition risks.
Our Climate-related disclosures report outlines the processes used to determine material risks and
opportunities, including our RMF, detail on significant short- to medium-term ESG trends in the UK, and
our progress on scenario analysis.
Page 244
Financial Inclusion (Priority impact area 2)
Virgin Money sponsored the Centre for Social Justice (CSJ) Over the Odds report which was published
in November 2022. The report, which used data submitted for UK Household Longitudinal Survey About
us | Understanding Society Wave 12 and qualitative evidence gathered with the support of small
charities, outlined that nearly 7 million people in Great Britain were paying multiple poverty premiums
costing on average £478 a year. Digital exclusion and limited internet access were identified as
consistent barriers to consumers accessing the most suitable and fairly priced products.
We commissioned a further report in 2023, Left Out: How to tackle digital inclusion and reduce the
poverty premium. The report highlights some of the key challenges around digital access and the
financial impact this has on individuals, particularly those on lower incomes. Findings tell us that 11%
of households cannot access the internet at home, with those on lower incomes most impacted.
The analysis identified the four areas most at risk of digital exclusion as Northern Ireland, Scotland,
North-East England and Yorkshire & Humber: the latter 3 of these 4 are the heartland of our business.
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Links and references
Based on these first 3 elements of an impact analysis, what positive and negative impact areas has your bank identified?
Which (at least two) significant impact areas did you prioritize to pursue your target setting strategy (see 2.2)(5)? Please disclose.
2.1 Impact Analysis (Key Step 1)
(continued)
Priority impact area 1: Climate
The carbon intensity of material sectors within the Business portfolio (Agriculture, Oil & Gas field
services, Transport & Residential Mortgages) have presented significant areas of opportunity to develop
positive impacts and mitigate the negative effects customer activity can have on the environment.
Pages 243 to 251
We recognise that the construction of our portfolio means we are more exposed to negative impact
in two key areas: Mortgages and Agriculture.
Mortgages: We are working with partners to gain insight into the barriers faced by consumers
(general public and a representative sample of VMUK customers) in addressing energy efficiency
needs, which we are using within the design of a new proposition.
Agriculture: VM has strong presence within the Agri sector, which has potential for environmental
impact and degradation including climate change, deforestation and biodiversity loss. In FY24 we will
aim to better understand the impacts of our business on nature and biodiversity. Through customer
insight and engagement, alongside a review of the TNFD framework, we will define our approach to
comply with future reporting requirements.
The financing of transitioning businesses and supporting the energy efficiency of UK housing will
provide new product and policy areas for the bank, whilst also providing clear criteria for reducing the
negative impacts of our lending through sector specific policies and exclusions. These are all guided by
our sensitive sectors policy, which has provided a strong grounding in limiting the impact of our
financing on the climate.
We’ve reported on Operational Scope 1 and 2 emissions since 2014 and continue to source renewable
electricity and gas to minimise our own direct impact. In FY23, we analysed the Suppliers’ emissions
targets for our top suppliers for the first time, highlighting opportunities for positive supplier selection
and areas for engagement to ensure full supply chain alignment to net zero by 2050.
Pages 252 to 253
Priority impact area 2: Financial Inclusion
As we execute on our ambition to be the UK’s best digital bank, we will need to support customers,
offering additional support to those less digitally able to help them to transition.
Pages 43 to 46
The cost of living crisis has put increased pressure on customers’ affordability and the banking sector
has had to respond with additional support, resources and greater flexibility.
Our 2030 Aspiration to work towards the eradication of poverty premium for our customers and our
refreshed focus on Digital Inclusion and Financial Education supports our focus in this area. Throughout
FY23, we have worked across various partnerships to develop a deeper understanding, provide
resources, and tools to alleviate some of the financial and digital challenges faced by our customer
base. This work has had positive results (as outlined within the FY23 ARA, Goal 3, references to Turn2us
and Good Things Foundation) and, alongside more detailed insight through our partnership with Smart
Data Foundry, is informing our approach for FY24 and beyond.
347
(5) To prioritize the areas of most significant impact, a qualitative overlay to
the quantitative analysis as described in a), b) and c) will be important, e.g.
through stakeholder engagement and further geographic contextualisation.
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2.1 Impact Analysis (Key Step 1)
(continued)
d) For these (min. two prioritized impact areas):
Performance measurement: Has your bank identified
which sectors & industries as well as types of customers
financed or invested in are causing the strongest actual
positive or negative impacts? Please describe how you
assessed the performance of these, using appropriate
indicators related to significant impact areas that apply
to your bank’s context.
In determining priority areas for target-setting among
its areas of most significant impact, you should consider
the bank’s current performance levels, i.e. qualitative
and/or quantitative indicators and/or proxies of the social,
economic and environmental impacts resulting from the
bank’s activities and provision of products and services.
If you have identified climate and/or financial
health&inclusion as your most significant impact areas,
please also refer to the applicable indicators in the Annex.
If your bank has taken another approach to assess the
intensity of impact resulting from the bank’s activities and
provision of products and services, please describe this.
The outcome of this step will then also provide the
baseline (incl. indicators) you can use for setting targets
in two areas of most significant impact.
We’ve assessed the impact of our portfolio on climate using the framework recommended by the NZBA.
In FY21, we calculated emissions for Mortgages & Agriculture, extending to also include Transport &
Storage and Resources in FY22. In FY23 we expanded this further to now disclose for all priority
sectors (so additionally covering Health, Hospitality, Utilities (non-renewables) Business Services and
CRE). Through this analysis we’ve been able to identify which are the most carbon-intensive sectors,
and have built this into our roadmaps and target setting. The methodology/approach/assumptions and
outputs for these can be found in the Climate-related disclosures report.
We are measuring our performance against these impacts through the following metrics:
> Scope 1 & 2 emissions 8,679 tCO2e at FY23* (16% reduction on FY22)
> Energy & Environment lending totalling £317m at FY23*
> Mortgage lending to homes with an EPC of C or above is 39% where a positive match is made
(29% of the full mortgage portfolio, including properties which have not been matched to EPCs*)
> Lending to Sustainability Changemakers is 6.7% of portfolio at end FY23
> c.85% of balance sheet now has measured emissions
> 34% of Business lending is to highest-emitting sectors
Metrics with * are within scope of EY assurance.
Methodologies for metrics subject to assurance can be found within the basis of preparation document,
which can be found on our ESG Hub.
We have a 2030 aspiration to work towards eliminating poverty premium for our customers and
are committed to continue working with Smart Data Foundry to gain greater insight into the triggers
of the poverty premium through analysis of customer data (both VMUK customers and other
financial institutions).
Our refreshed ‘S’ strategy is focused on ‘super themes’ of Digital Inclusion and Financial Education,
and throughout FY24 we will develop long term plans and performance measurement including
choosing indicators, setting quantitative targets, initiatives and governance to work towards eradication
of the poverty premium for our customers by 2030.
As we work through the data and learnings, we will continue to distribute free data and devices through
our store network as part of our Partnership with the Good Things Foundation, and signpost Turn2us’
Benefits Calculator to our customers and wider society to identify potential unclaimed benefits.
Links and references
Pages 240 to 272
EY’s full assurance report
is available at:
virginmoneyukplc.com/
corporate-sustainability/
environment
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Self-assessment summary
Which of the following components of impact analysis has your bank completed, in order to identify
the areas in which your bank has its most significant (potential) positive and negative impacts?(6)
Scope:
Yes In progress No
Portfolio composition:
Yes In progress No
Context:
Yes In progress No
Performance measurement:
Yes In progress No
Which most significant impact areas have you identified for your bank, as a result of the
impact analysis?
Climate change mitigation, climate change adaptation, resource efficiency & circular economy,
biodiversity, financial health & inclusion, human rights, gender equality, decent employment, water,
pollution, other: please specify
> climate change mitigation
> climate change adaptation
>
>
resource efficiency & circular economy
financial health & inclusion
How recent is the data used for and disclosed in the impact analysis?
Up to 6 months prior to publication
Up to 12 months prior to publication
Up to 18 months prior to publication
Longer than 18 months prior to publication
Open text field to describe potential challenges, aspects not covered by the above etc.: (optional)
(6) You can respond “Yes” to a question if you have completed one of the described steps, e.g. the initial impact analysis has been carried
out, a pilot has been conducted.
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2.2 Target Setting (Key Step 2)
Show that your bank has set and published a minimum of two
targets which address at least two different areas of most
significant impact that you identified in your impact analysis.
The targets(7) have to be Specific, Measurable (qualitative or
quantitative), Achievable, Relevant and Time-bound (SMART).
Please disclose the following elements of target setting (a-d),
for each target separately:
a) Alignment: which international, regional or national
policy frameworks to align your bank’s portfolio with(8)
have you identified as relevant? Show that the selected
indicators and targets are linked to and drive alignment
with and greater contribution to appropriate Sustainable
Development Goals, the goals of the Paris Agreement,
and other relevant international, national or regional
frameworks.
We have set 2030 aspirations across our four ESG Goals, and we became a signatory to the NZBA in
September 2021. We have set the ambition to be net zero by 2030 in our own direct operations and
across our full value chain by 2050. We’ve set Scope 1 emissions reduction targets using the SBTi
methodology and are committed to continue sourcing our electricity from 100% renewable sources(1)
where available and where we are responsible for supply, including biogas. We will also engage our
supply chain to set their own science-based targets, targeting 75% of suppliers by spend to have
committed or approved science-based targets by 2028.
We have set financed emissions reduction targets aligned to the SBTi methodology, using their Sectoral
Decarbonisation Approach (SDA) wherever possible to calculate emissions intensity estimates for 2030.
Where the SDA has not been available for individual sectors, an economic intensity approach has been
adopted, in line with SBTi guidance. These cover 81% of the balance sheet and aim to limit warming
to 1.5degC in line with the Paris Agreement.
As outlined in target 1.1, through a detailed mapping assessment of our strategy against the United
Nations SDGs, we identified where we believe we can have most intentional and sustained positive
impact, which is outlined on page 32 of our Strategic report and subsequent pages outlining our ESG
Strategy and Goals.
Page 32
You can build upon the context items under 2.1.
Indicators map to SDGs as follows (those being assured):
> Scope 1 & 2 Emissions – SDG12 & SDG13
> EPC C+ & Mortgages Emissions – SDG7 & SDG13
> Energy & Environment lending – SDG7 & SDG12
(7) Operational targets (relating to for example water consumption in office
buildings, gender equality on the bank’s management board or business-trip
related greenhouse gas emissions) are not in scope of the PRB.
(8) Your bank should consider the main challenges and priorities in terms
of sustainable development in your main country/ies of operation for the
purpose of setting targets. These can be found in National Development
Plans and strategies, international goals such as the SDGs or the Paris Climate
Agreement, and regional frameworks. Aligning means there should be a clear
link between the bank’s targets and these frameworks and priorities, therefore
showing how the target supports and drives contributions to the national and
global goals.
Throughout FY24 we will continue to develop the detail around Financial Inclusion plans to show how
we believe we can have a positive impact on the relevant SDGs, as outlined in the ESG Goals section of
the Strategic report.
Pages 43 to 46
We’ve aligned our work across Customer and Community stakeholders with a focus on Digital Inclusion
and Financial Education. In early FY24 we will define our plans and targets, develop delivery plans and
required governance with the aim of reporting progress against these within our 2024 submission.
In the meantime, we have been collecting high level data on the impact of some of our actions/
interventions, which are outlined within the ESG Goals section of the Strategic report.
(1) c.8% of the Group’s energy utilisation is not from renewable sources, due to either a lack of control or availability
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2.2 Target Setting (Key Step 2)
(continued)
Impact area
Indicator
code
b) Baseline: Have you determined a baseline for selected
indicators and assessed the current level of alignment?
Please disclose the indicators used as well as the year
of the baseline.
You can build upon the performance measurement
undertaken in 2.1 to determine the baseline for your target.
A package of indicators has been developed for climate
change mitigation and financial health & inclusion to
guide and support banks in their target setting and
implementation journey. The overview of indicators
can be found in the Annex of this template.
If your bank has prioritized climate mitigation and/or
financial health & inclusion as (one of) your most
significant impact areas, it is strongly recommended
to report on the indicators in the Annex, using an
overview table including the impact area, all relevant
indicators and the corresponding indicator codes.
In case you have identified other and/or additional
indicators as relevant to determine the baseline and
assess the level of alignment towards impact driven
targets, please disclose these.
Response
We have determined baselines for selected indicators below, and more detail
can be found in Climate-related disclosures including the baseline year. These are
aligned to SBTi methodology and scenarios as outlined in 2.2a and within
Climate-related disclosures pages.
Links and references
Page 270
Climate change
mitigation
A.1.4
A.2.2
% of Mortgage Portfolio by EPC Rating (Baseline: FY22, Set: FY22)
Scope 3 Emissions Mortgages (tCO2e) (Baseline: FY22, Set FY22)
Scope 3 financed emissions: Mortgages intensity (kgCO2e/m2)
(Baseline: FY22, Set FY23)
A.3.1
Energy & Environment lending (Baseline: FY21, Set: FY21)
No UNEPFI
Indicator
Scope 1 and 2 location-based emissions (tCO2e) (Baseline: FY20, Set: FY20)
Scope 1 market-based emissions (tCO2e) (Baseline: FY22, Set FY22)
Scope 2 market-based emissions (tCO2e) (Baseline: FY21, No target set)
Scope 1 & 2 location-based intensity (tCO2e/FTE) (Baseline: FY20, Set FY20)
Scope 1 market-based intensity (tCO2e/FTE) (Baseline: FY22, Set FY22)
Financial health
& inclusion
n/a
No metrics to be included in this report as we are in the process of defining
our strategy. We will set explicit targets in FY24 submission.
Climate:
Alongside net zero operations and halving the emissions of everything we finance by 2030 and net zero
by 2050 commitment, we’ve set interim KPIs across different baseline years:
> Business lending to sustainability changemakers (Baseline: FY20, Set: FY20)
> Proportion of lending to high emitting sectors (Baseline: FY23, Set: FY23)
> % Annual spend covered by suppliers committed to Science-based targets (Baseline: FY23, Set: FY23)
N.B. Baseline performance has not been subject to assurance across all metrics
Financial Inclusion
In early FY24 we will define our baselines, plans and targets, with the aim of reporting progress against
these within our 2024 submission. We will use the outputs of various initiatives (usage numbers and
for Turn2us, the benefits identified) to inform our ‘S’ strategy and approach for FY24.
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2.2 Target Setting (Key Step 2)
(continued)
c) SMART targets (incl. key performance indicators
(KPIs))(9): Please disclose the targets for your first and
your second area of most significant impact, if already
in place (as well as further impact areas, if in place).
Which KPIs are you using to monitor progress towards
reaching the target? Please disclose.
Alongside the net zero by 2050 commitment, we have set the following interim targets:
> 55% of Mortgage Portfolio is EPC C+ rated by FY30
> Reduce Scope 3 financed emissions across the Mortgages portfolio to 334,323 (tCO2e) by FY30
> Mortgages physical intensity (kgCO2e/m2) to reach 14.9 by FY30
> Achieve £500m in Energy & Environment lending by FY25
> Reduce Scope 1 emissions (Location based) to 1,969 (tCO2e) by FY30
> Maintain net zero Scope 2 emissions through continued sourcing of renewable electricity.
Where the Group is responsible for the supply and where available, 100% of gas and electricity
in our UK stores and offices is generated from green sources(1)
> 10% of Business lending to sustainability changemakers by FY27
> Proportion of lending to high emitting sectors reduced to 30% by FY30
> Achieve 75% annual spend covered by suppliers committed to Science-based targets by FY30(2)
N.B. Targets are not within scope of EY assurance
Financial Inclusion
In early FY24 we will define our baselines, plans and targets, with the aim of reporting progress against
these within our 2024 submission. We will use the outputs of various initiatives (usage numbers and
for Turn2us, the benefits identified) to inform our ‘S’ strategy and approach for FY24.
(1) c.8% of the Group’s energy utilisation is not from renewable sources, due to either a lack of control or availability
(9) Key Performance Indicators are chosen indicators by the bank for the purpose
(2) As a baseline, in 2022,42 suppliers in the CDP Supplier Engagement Programme committed to science-based targets, representing 38%
of monitoring progress towards targets.
of total FY21 spend. Current year performance for this metric has not been disclosed due to a delay in data availability
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Links and references
2.2 Target Setting (Key Step 2)
(continued)
d) Action plan: which actions including milestones have
you defined to meet the set targets? Please describe.
Please also show that your bank has analysed and
acknowledged significant (potential) indirect impacts of
the set targets within the impact area or on other impact
areas and that it has set out relevant actions to avoid,
mitigate, or compensate potential negative impacts.
Climate
We have set out roadmaps to achieve targeted reductions in our emissions which are tracked at least
quarterly. Our action plans include proposition development, customer engagement and education and
industry collaboration (to share data, learning and influence policy to drive action).
We have identified our highest carbon sub-sectors and agreed our approach to support those
customers to transition to low carbon as opposed to immediately exiting our relationships, addressing
the potential indirect impact of our net zero plans and targets.
The ambition to increase the percentage of our Mortgage book which has EPC rating of C or above has
potential impact to generate mortgage prisoners for those customers with financial or physical property
constraints. To ensure we are not contributing to the increase of ‘mortgage prisoners’ through our
propositions, we have assessed a representative spread of our customer portfolio and are ensuring we
reflect this feedback on accessibility and affordability in the development of our Green Makeover product.
For more detail on specific plans we have in place across our portfolio within the Climate impact area,
please refer to our Climate-related disclosures.
Pages 240 to 272
Stress testing and scenario planning has been carried out to assess climate risk implications and we
have a climate risk policy framework to identify and manage exposure.
KPIs are tracked quarterly and reported to Environment Committee. Assumptions are included within
roadmaps and clearly documented in models/methodologies. We have also produced a Basis of
Preparation document which outlines the scope, methodologies, assumptions and sources of
information used in the Group’s environmental reporting within the FY23 ARA that has been subject
to limited assurance by EY.
We’ve defined a revised approach to the highest impacting sub-sectors, to reduce exposure over time
(Air transportation, Shipping, Chemical manufacture, Oil & Gas exploration, production and related
services), which was approved by Environment Committee in FY23 and goes live from early FY24.
Customers must provide scope 1 & 2 emissions and have in place emission reduction plans as a
condition of lending. This is part of our Policy and Procedures and will be enforced by customer facility
documentation.
Financial Inclusion
In early FY24 we will define our baselines, plans and targets, with the aim of reporting progress against
these within our 2024 submission. We will use the outputs of various initiatives (usage numbers and
for Turn2us, the benefits identified) to inform our ‘S’ strategy and approach for FY24.
In the meantime, we will continue to signpost tools and resources/guidance on money management and
budgeting, extend Databank and Devicebank across our store network, as well as identifying eligibility
for additional benefits income through the Turn2us Benefits Calculator.
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Links and references
Self-assessment summary
Which of the following components of target setting in line with the PRB requirements has your bank completed
or is currently in a process of assessing for your…
Alignment
Baseline
SMART targets
Action plan
… first area of most
significant impact: …
(please name it)
Climate
Yes
… second area of most
significant impact: …
(please name it)
Financial Inclusion
and Health
(If you are setting targets
in more impact areas) …
your third (and subsequent)
area(s) of impact: …
(please name it)
Yes
Yes
In progress
In progress
In progress
No
Yes
No
Yes
No
Yes
In progress
In progress
In progress
No
Yes
No
Yes
No
Yes
In progress
In progress
In progress
No
Yes
No
Yes
No
Yes
In progress
In progress
In progress
No
No
No
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Underlying adjustments to the statutory
view of performance
Glossary
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Country by country reporting
Shareholder information
Basis of presentation
Forward-looking statements
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2.3 Target implementation and monitoring
(Key Step 2)
For each target separately:
Show that your bank has implemented the actions
it had previously defined to meet the set target.
Report on your bank’s progress since the last report
towards achieving each of the set targets and the
impact your progress resulted in, using the indicators
and KPIs to monitor progress you have defined
under 2.2.
Or, in case of changes to implementation plans
(relevant for 2nd and subsequent reports only):
describe the potential changes (changes to priority
impact areas, changes to indicators, acceleration/
review of targets, introduction of new milestones
or revisions of action plans) and explain why those
changes have become necessary.
Climate
>
In FY22 we committed to expand the scope of our net zero work plans, disclosing remaining priority business
sectors and operational emissions; targets and plans to net zero set in FY23 can be found in our Climate-
related disclosures report.
> Achieved FY23 targets for scope 1 & 2 reduction through the execution of our Property strategy. We’ve
reduced Scope 1 location based emissions to 2,677* and maintained net zero Scope 2 emissions through
continued sourcing of renewable energy. Where the Group is responsible for the supply and where available,
100% of gas and electricity in our UK stores and offices is generated from green sources(1).
> Achieved our targeted growth in lending to sustainability changemakers (7% by FY23), by embedding the
Sustainable Business Coach app within our annual review process for customers who are borrowing over
£2.5m and have the potential to have the highest exposure to climate risk.
> Following a successful first round application to the government’s GHFA fund, we are developing a mortgage
retrofit product to improve energy efficiency in the housing stock.
> By reviewing existing credit risk appetite, we’ve increased the availability of the credit parameters for lending
to the Energy and Environment sector and have delivered £317m of lending*.
> Launched Greener Mortgages for new-builds and a Green Reward product which provides additional
borrowing for green home improvements. Due to dependencies on a number of external factors, the tougher
mortgage environment and cost of living challenge, we’ve made slower progress than planned this year.
> We updated our Mortgage financed emissions target to align to a 1.5deg pathway as required to meet the
goals of the Paris Agreement.
> Mortgage lending to homes with an EPC of C or above is 39% where a positive match is made (29% of the full
mortgage portfolio, including properties which have not been matched to EPCs*), with a physical intensity
of 31.1kgCO2e and a reduction in financed emissions to 574ktCO2e*.
Metrics with * are within scope of EY assurance
Financial Inclusion
Within our FY22 report,we had identified our second impact area as Diversity and Inclusion. Feedback provided
from UNEPFI noted that our DE&I focus was largely internal and therefore we would be advised to consider
Financial Inclusion as an alternative, given the commitment the Bank has already made to alleviating the poverty
premium and our Purpose of Making you happier about money, across all our customer segments. As as result of
those discussions, we are now focusing on Financial Inclusion as our second impact area. We are currently
taking ‘S’ strategy through approval (super themes of Digital Inclusion and Financial Education, which align to UN
PRB Impact area: Financial Inclusion). In early FY24 we will define our baselines, plans and targets, with the aim
of reporting progress against these within our 2024 submission.
(1) c.8% of the Group’s energy utilisation is not from renewable sources, due to either a lack of control or availability
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Links and references
Principle 3: Clients and Customers
We will work responsibly with our clients and our customers to encourage sustainable practices and enable economic activities that create shared prosperity
for current and future generations.
This principle is delivered through Goals 2 and 3 of our ESG Strategy:
> Goal 2: Deliver products and services that help our customers make a positive impact on society
Pages 38 to 42
and the environment
> Goal 3: Work with customers, colleagues & communities to encourage sustainable practices & economic
activity that creates shared prosperity
We are led by our Purpose of Making you happier about money, and are passionate about empowering and
educating our customers, whilst offering products and services that help them lead more sustainable lives.
Engaging Business Customers around Climate and Sustainability
Further information on our Sustainable Business Coach initiative and Sustainability linked products such as
Sustainability Linked Loans, Greener Mortgages and the launch of our Agri E-Fund can be found in the ESG
report of the ARA.
We have embedded the Sustainable Business Coach within our credit risk assessment for all lending >£2.5m,
and have set a target of achieving 10% of all lending to Sustainability Changemakers by FY27.
We engage our Agri customers in an annual survey, to understand the key issues affecting their business
today and in the future, the headlines of which can be found on our corporate website. 50% of the respondents
have carried out a carbon audit to identify sustainability improvements, and we continue to encourage and
incentivise wider adoption through preferential lending terms for our E-Fund.
Pages 43 to 45
https://
www.virginmoneyukplc.com/
newsroom/article/rising-
costs-threaten-uk-food-
production/
3.1 Client engagement
Does your bank have a policy or engagement
process with clients and customers(10) in place
to encourage sustainable practices?
Yes In progress No
Does your bank have a policy for sectors in
which you have identified the highest (potential)
negative impacts?
Yes In progress No
Describe how your bank has worked with and/or
is planning to work with its clients and customers
to encourage sustainable practices and enable
sustainable economic activities(11). It should
include information on relevant policies, actions
planned/implemented to support clients’ transition,
selected indicators on client engagement and,
where possible, the impacts achieved.
This should be based on and in line with the impact
analysis, target-setting and action plans put in place
by the bank (see P2).
(10) A client engagement process is a process of supporting clients
towards transitioning their business models in line with
sustainability goals by strategically accompanying them through
a variety of customer relationship channels.
(11) Sustainable economic activities promote the transition to a
low-carbon, more resource-efficient and sustainable economy.
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3.1 Client engagement
(continued)
Policies
We’ve reviewed the Group’s Sensitive Sector Statement, elevated Climate Risk to principal risk status,
undertaken a climate risk assessment and embedded climate risk into the Sustainable Business Coach.
Environment Committee approved the introduction of an emissions reduction policy which will drive
selected exposure in four sub-sectors of the Business portfolio with the highest emissions intensity.
The four sub-sectors are:
(1) Air transportation
(2) Shipping
(3) Chemical manufacture
(4) Oil & Gas exploration, production and related services
This will be delivered through a phased approach during FY24 and, in combination with other targets,
will enable Virgin Money to continue to pro-actively finance businesses in these sectors transitioning to a more
environmentally sustainable model, whilst positioning to exit those not planning to transition, or not transitioning
at an appropriate pace.
We have a suite of ESG Policies across a wide range of sustainability topics, which are available through our
ESG Hub within the corporate website. We also issue our Supplier Code of Conduct to all suppliers.
Customer engagement around Financial inclusion and education
We have continued to embed our Purpose-led approach to financial inclusion across the business. Following
the setup of our Customer Care team during FY23, we have made nearly 32,000 calls to customers who are
impacted by our change projects, and who we have identified as vulnerable or potentially vulnerable. We continue
to collaborate around poverty premium data and insights with Smart Data Foundry and industry partners.
Our cost-of-living hub supports customers with money saving suggestions, budgeting tools and links to external
resources and has received over 60,000 visits across our personal and business sites.
We have embedded the Turn2Us benefits calculator on our website, helping people assess what they are
entitled to and how to claim it. To date this has helped over 50,000 individuals to identify unclaimed benefits
in excess of £4.5m.
Through our partnership with Good Things Foundation, we’re the first bank to support Databank and Devicebank
initiatives – distributing free mobile data and more than 200 devices to those in need through our store network.
Links and references
https://
www.virginmoneyukplc.com/
downloads/pdf/sensitive-
sector-statement.pdf
https://
www.virginmoneyukplc.com/
corporate-sustainability/
esg-hub/
https://uk.virginmoney.com/
service/support-hub/
cost-of-living/tips-to-
manage-your-money/
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3.2 Business opportunities
Describe what strategic business opportunities in
relation to the increase of positive and the reduction
of negative impacts your bank has identified and/or
how you have worked on these in the reporting
period. Provide information on existing products
and services , information on sustainable products
developed in terms of value (USD or local currency)
and/or as a % of your portfolio, and which SDGs
or impact areas you are striving to make a positive
impact on (e.g. green mortgages – climate, social
bonds – financial inclusion, etc.).
Business: Through the introduction of additional climate focused questions within Sustainable Business Coach
(SBC) we’re gaining greater insight into how our business customers are thinking about their sustainability plans.
To date, 74% of Business customers that were selected have completed the SBC benchmarking tool and climate
survey. We recognise that achievement of our financed emissions targets is inextricably linked to the performance
of our Business customers, and throughout FY24 we are working to increase the percentage of customer
originated data within our calculations as we continue to track performance of the defined delivery plans.
The results of the annual Agri surveys have given us valuable insight into the key priorities for our customers
and the wider sector, where investment will be targeted, and where additional support is needed. Alongside this,
we’ve hosted and sponsored a series of thought leadership events aimed at increasing sustainability awareness
and focus amongst the audience.
Mortgages: Following a successful first round application to the government’s GHFA fund, we’ve been working
with RightMove and Sero to design and test the concept of a new customer proposition which incentivises
energy efficiency in homes: Green Makeover. We’re in the process of identifying a new supplier to access a more
complete data set.
This new proposition is driving the portfolio change required to meet our emissions reduction targets within
the Mortgages portfolio.
Links and references
Pages 38 to 42
Financial Inclusion: we’ve reached over 50k individuals through our signposting of the Turn2us Benefits
Calculator, helping to identify £4.5m in unclaimed benefits. We’ve distributed free mobile data and more than
200 devices through our stores network as part of our partnership with Good Things Foundation. These
partnership continue into FY24, with targets to be confirmed.
Pages 43 to 45
Our Customer care team has made nearly 32,000 calls to customers who are impacted by our change projects,
and who we have identified as vulnerable or potentially vulnerable.
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Principle 4: Stakeholders
We will proactively and responsibly consult, engage and partner with relevant stakeholders to achieve society’s goals.
4.1 Stakeholder identification and consultation
Does your bank have a process to identify and
regularly consult, engage, collaborate and partner
with stakeholders (or stakeholder groups(12)) you
have identified as relevant in relation to the impact
analysis and target setting process?
Yes In progress No
Please describe which stakeholders (or groups/types
of stakeholders) you have identified, consulted,
engaged, collaborated or partnered with for the
purpose of implementing the Principles and
improving your bank’s impacts. This should include
a high-level overview of how your bank has
identified relevant stakeholders, what issues were
addressed/results achieved and how they fed into
the action planning process.
Our stakeholder groups cover:
Pages 98 to 104
>
Internal stakeholders: Colleagues, ESG working group, Leadership Team Goal Sponsors and Board members
> External stakeholders: Suppliers (CDP survey), Partners, Business Customer panel and customers utilising
Sustainability tools (business and personal), industry collaboration, Investors
We’ve collaborated with industry experts on development of tools (Future Fit and Life Moments for Sustainable
Business Coach, Carbon Metrics within Agri) and to signpost resources to our customer base and wider society
(Turn2us, Good things Foundation).
Pages 256 to 259
We’re working with partners to improve data quality and insight:
> Smart Data Foundry for poverty premium triggers
> RightMove and Sero for market insight on energy efficiency proposition development
> Climate X and Hometrack for EPC data to underpin mortgages financed emissions calculations
> PCAF for carbon accounting methodologies and data quality improvement areas
We have proactively engaged with an increased proportion of our supply chain to undertake the CDP Supply
Chain survey. We’ve provided clear articulation of the requirement from VMUK and support resources/materials
to aid completion of submissions. We’ve exceeded our targeted response rate for FY23, achieving 87% response
rate from those invited, which corresponds to 72% of total supplier spend. Within our future targets to net zero,
we have set an internal metric to track the percentage of suppliers who are setting science based targets.
The data from the CDP survey will be used to inform supplier action plans in FY24 and beyond.
We’ve participated in a number of industry and cross-sector forums hosted by our peers and UK Finance,
aimed at building greater awareness and making recommendations on necessary action from Government.
Through our poverty premium/cost of living taskforce we’ve engaged with the Economic Secretary and
convened a taskforce of industry experts, including Smart Data Foundry and other corporate institutions,
to collate and analyse data which will lead to better understanding of the triggers of poverty premium.
We commissioned a report from CSJ which provides insight into Digital exclusion and the impact it has on
poverty. We’ve raised awareness of the work we’re doing with local MPs and at political party conferences.
(12) Such as regulators, investors, governments, suppliers, customers
and clients, academia, civil society institutions, communities,
representatives of indigenous population and non-profit
organizations
We’re the first bank to have a formal partnership with Turn2Us, signposting the Benefits Calculator through
a successful social media campaign receiving over 700k views, with >50k users, confirming/uplifting benefits
by £4.5million as outlined within our ESG Goals update in the Strategic report, pages 43 to 44.
CSJ article https://
www.virginmoneyukplc.com/
newsroom/article/poverty-
premium
Pages 43 to 45
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Principle 5: Governance & Culture
We will implement our commitment to these Principles through effective governance and a culture of responsible banking
5.1 Governance Structure for Implementation
of the Principles
Does your bank have a governance system in place
that incorporates the PRB?
Yes In progress No
Please describe the relevant governance structures,
policies and procedures your bank has in place/is
planning to put in place to manage significant
positive and negative (potential) impacts and
support the effective implementation of the
Principles. This includes information about
> which committee has responsibility over the
sustainability strategy as well as targets approval
and monitoring (including information about
the highest level of governance the PRB is
subjected to),
> details about the chair of the committee and
the process and frequency for the board having
oversight of PRB implementation (including
remedial action in the event of targets or
milestones not being achieved or unexpected
negative impacts being detected), as well as
>
remuneration practices linked to
sustainability targets.
Our ESG Strategy is set out under 4 Goals, which are aligned to strategic priorities and underpin our Purpose.
More information on ESG related Governance can be found in the Climate-related disclosures report within
the ARA. ESG Goals are incorporated within functional scorecards and the overall Group Scorecard.
Pages 240 to 272
Board Governance: ESG and Climate strategy is approved at Board and Board subcommittees. We provide
a monthly update on the Balanced Scorecard which includes ESG targets and quarterly updates to present
progress against agreed plans and any remedial action. Board is also asked to approve strategic decisions as
recommended through Environment Committee, such as setting/approving targets and roadmaps to net zero.
Page 90
Board Risk Committee is updated as required when plans are developed, typically annually.
The CEO has overall accountability to the Board and shareholders to ensure that sustainable and responsible
practices (ESG) are embedded into our business operations, including those associated with the environmental/
climate area.
Executive Committees:
Environment Committee (Monthly): Chaired by the CFO, the committee supports the CEO in exercising the
authority delegated to him by the Board specifically in relation to the implementation of the Group’s
environmental strategy, including coordinating resources, investment and activity across the Group. This is the
primary governance forum for making decisions on internal targets and KPIs to monitor progress in addressing
risks and opportunities from climate change/environmental matters. Our annual UN PRB report is tabled at EC
for approval.
Executive Leadership Team: From FY24 we will introduce an additional requirement to take ESG plans
(across both ‘E’ and ‘S’ strategies) through the Leadership Team executive forum.
Remuneration: We have incorporated an ESG Scorecard within our LTIP since FY20. This accounts for 15%
weighting and covers operational emissions targets.
We also have a number of operational governance forums to track progress and escalate issues:
ESG Working Group (Monthly): Responsible for supporting delivery of the Group’s ESG strategy and associated
targets, oversees ESG delivery across the business and escalates any risks or issues.
ESG & Climate Change Data Project Control Board (Monthly): Responsible for reviewing progress against
change activity to deliver Climate data and solutions to drive improvements in reporting and all ESG data
use cases.
TCFD Working Group: Responsible for monitoring progress against TCFD reporting recommendations;
runs monthly from July once report drafting commences, concluding once disclosures have been fully approved.
Horizon Scanning Group: Responsible for tracking changes in regulatory requirements, including those
with specific ESG focus, and ensuring relevant focus and ownership across the Group.
Pages 256 to 260
Pages 129 to 141
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5.1 Governance Structure for Implementation
of the Principles
(continued)
Training
We have undertaken various upskilling activities around the topic of Climate, including:
> Financed emissions training for Relationship Managers (calculations methodology, data quality improvements)
> Review sessions with external advisors EY, PwC, TPT, Deloitte etc on various areas of Climate Risk, strategy,
5.2 Promoting a culture of responsible banking:
Describe the initiatives and measures of your bank to
foster a culture of responsible banking among
its employees (e.g., capacity building, e-learning,
sustainability trainings for client-facing roles,
inclusion in remuneration structures and
performance management and leadership
communication, amongst others).
external benchmarking
> Carbon metrics training for Relationship Managers
> Multiple internal sessions on our Net zero strategy across the Group
> Five VMUK colleagues are undergoing the recently launched PCAF accreditation, with further plans to upskill
those directly involved with financed emissions calculations
> The Board receives regular updates on Climate strategy, ambitions and the key factors that need to be
considered to enable the Group to achieve its desired outcomes
> All colleagues undertake Professional Learning Passports across ESG topics exploring our commitments and
strategy, including the impact of climate change on financial services and how climate change is considered
an integral part of the Group’s ESG strategy
Our Purpose of Making you happier about money articulates why Virgin Money exists, what problems we are
here to solve, and who we want to be to each person we touch through the work we do, as outlined on pages
2 to 4 of our FY23 ARA. It guides the way we do business every day and is the (Virgin) red thread that weaves
throughout every decision we make, aided by our Purpose decision making framework.
Pages 2 to 4
Training: All colleagues are required to complete four mandatory training modules each year that include
content specifically related to ESG and the training is linked to annual remuneration decisions. Role-specific
training is delivered through specialist Learning and Development teams – for example, enhancements to the
SBC with our Business Relationship Managers – and we undertake frequent education and upskilling sessions
across the business. Our annual digital Financial Inclusion event (FinInc) for colleagues focused on the barriers
to banking and understanding the challenges people face when managing their money. We’ve rolled out ESG
specific training across the Group through our Learning in a Life more Virgin initiative.
Colleague Engagement: We have developed a Sustainability Hub as a central resource for all colleagues,
which contains tools, information and topical news which colleagues are encouraged to contribute to. We have
Sustainability Champions across our stores network – driving activity within their local community. We host an
annual PurposeFest event which celebrates how colleagues have connected with our Purpose and showcases
activity across our Customer, Colleague and Community groups. We track colleague sentiment on visibility
of sustainability in decision making through our Pulse survey. Colleagues are encouraged to participate in
community and environmental volunteering.
Industry Forums: We participate in a variety of forums hosted by industry bodies including UK Finance, UN PRB,
CDP and NZBA. We chair the PCAF Business Loans and Unlisted Equity Working Group.
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5.2 Promoting a culture of responsible banking
(continued)
Supplier Engagement: We have provided CDP training to our Suppliers and our internal Supplier Relationship
Managers. We incorporate ESG criteria within our supplier selection and management processes, and have
a Supplier Code of Conduct which all suppliers are required to comply with.
Scorecards: ESG objectives and metrics are embedded within our Group and functional scorecards and we
have enhanced the ESG scorecard element of our Long Term Incentive Plans as outlined on page 153 to 155.
Pages 153 to 155
5.3 Policies and due diligence processes
Does your bank have policies in place that
address environmental and social risks within
your portfolio?(13) Please describe.
Please describe what due diligence processes
your bank has installed to identify and manage
environmental and social risks associated with
your portfolio. This can include aspects such
as identification of significant/salient risks,
environmental and social risks mitigation and
definition of action plans, monitoring and reporting
on risks and any existing grievance mechanism,
as well as the governance structures you have
in place to oversee these risks.
(13) Applicable examples of types of policies are: exclusion policies
for certain sectors/activities; zero-deforestation policies;
zero-tolerance policies; gender-related policies; social
due diligence policies; stakeholder engagement policies;
whistle-blower policies etc., or any applicable national guidelines
related to social risks.
DE&I: We have launched our new BRAVER Framework: an enterprise wide allyship campaign designed to inspire
and support our colleagues to be “Braver” and more meaningful allies for inclusion, and for colleagues from
under-represented communities.
Virgin Money has a range of internal policies addressing climate, sustainability, environmental management and
financial inclusion and accessibility, hosted on our Policy Hub. We also maintain external facing versions of these
policies/positioning statements on our ESG Hub, all of which are subject to periodic refresh.
Our Chief Financial Officer holds SMF accountability on Climate Risk and chairs the Environment Committee,
which oversees progress and any issues and escalations across our Climate related plans. We’ve defined roles
and responsibilities across the Group, including specialist 2nd line climate risk resource, which are reviewed
and approved at least annually. See our TCFD Compliance table for more detail.
The Bank maintains a RAS which covers various principal risks including Climate. We have developed initial
capability to assess a range of physical and transition risks within the credit portfolio in addition to running
scenario analyses which have been incorporated into RAS. We have Climate RAS metrics in place covering a
range of higher relevance physical and transitional climate risk metrics to support policy and ensure the Group
operates within an accepted level of risk tolerance. These metrics are reported to Board monthly.
Climate risk is a principal risk, reflecting its increasing relevance and materiality to the Group’s profile.
A dedicated Climate Risk Team has been created to provide oversight of climate-related risk activity, monitor
climate risk against the Group’s risk appetite and report on a regular basis to Executive and Board Committees
on progress. Further work is being progressed for FY24 to support greater quantification and embedding with
underwriting decisions where appropriate.
A specific Climate Risk Policy Framework has been established, which outlines the Group’s approach
to the identification, management and monitoring of climate risk. The framework is supported by:
>
risk appetite measures to monitor physical and transitional climate-related risks;
> clearly defined Climate risk roles and responsibilities across the Group; and
> climate change scenario analysis to identify climate-related risks and opportunities, and to assess
the resilience of our business model.
ESG Hub https://
www.virginmoneyukplc.com/
corporate-sustainability/
esg-hub/#tackling-our-
impact-on-the-environment-
is-a-top-priority-for-the-
group
Pages 52 to 53
Pages 73, 242
Our Climate-related disclosures report outlines the processes used to determine material risks and
opportunities, including our RMF, detail on significant short- to medium-term ESG trends in the UK, and our
progress on scenario analysis.
Pages 240 to 272
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Self-assessment summary
Does the CEO or other C-suite officers have regular oversight over the implementation of the Principles
through the bank’s governance system?
Yes No
Does the governance system entail structures to oversee PRB implementation (e.g. incl. impact analysis
and target setting, actions to achieve these targets and processes of remedial action in the event targets/
milestones are not achieved or unexpected neg. impacts are detected)?
Yes No
Does your bank have measures in place to promote a culture of sustainability among employees
(as described in 5.2)?
Yes In progress No
Principle 6: Transparency & Accountability
We will periodically review our individual and collective implementation of these Principles and be transparent about and accountable for our positive and negative impacts and our contribution
to society’s goals.
6.1 Assurance
Has this publicly disclosed information on
your PRB commitments been assured by an
independent assurer?
Yes Partially No
If applicable, please include the link or description
of the assurance statement.
The Group engaged Ernst & Young LLP (EY) to undertake an independent limited assurance engagement
over selected metrics in the current year, as annotated throughout the report, using the assurance standards
ISAE (UK) 3000. EY has issued an unqualified opinion over the selected information. A limited assurance
engagement consists principally of applying analytical procedures, making inquiries of persons responsible for
the subject matter. EY’s full assurance report is available on our ESG Hub.
ESG Hub https://
www.virginmoneyukplc.com/
corporate-sustainability/
esg-hub/#tackling-our-
impact-on-the-environment-
is-a-top-priority-for-the-
group
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Governance
Risk report
Climate-related disclosures
Financial statements
Additional information
Principles for Responsible
Banking report
ESG index
Measuring the Group’s performance
Underlying adjustments to the statutory
view of performance
Glossary
Abbreviations
Country by country reporting
Shareholder information
Basis of presentation
Forward-looking statements
338
366
372
381
382
386
388
389
391
391
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Reporting and Self-Assessment Requirements
Response
Links and references
6.2 Reporting on other frameworks
Does your bank disclose sustainability information in
any of the listed below standards and frameworks?
GRI
SASB
CDP
IFRS Sustainability Disclosure Standards
(to be published)
TCFD
Other:
6.3 Outlook
What are the next steps your bank will undertake
in next 12 month-reporting period (particularly
on impact analysis(14), target setting(15) and
governance structure for implementing the PRB)?
Please describe briefly.
(14) For example outlining plans for increasing the scope by including
areas that have not yet been covered, or planned steps in terms
of portfolio composition, context and performance measurement
(15) For example outlining plans for baseline measurement,
developing targets for (more) impact areas, setting interim targets,
developing action plans etc.
Climate
We will continue to track performance towards net zero roadmaps and targets, and against operational
emissions. Following analysis of the FY23 CDP Supplier survey data, we will develop our strategy to drive down
supplier emissions over time.
Pages 243 to 251
The development of our strategic ESG data platform will continue alongside engagement with customers and
other stakeholders to extract accurate data at source, leading to refinement of calculations and commitments.
We will build a further iteration of our Transition Plan in line with finalised TPT Disclosure Guidance framework,
and continue to undertake horizon scanning for emerging sustainability-related standards and frameworks,
including ISSB.
Financial Inclusion
We will define our plans, targets, develop delivery plans and required governance around our 2nd key impact
area – Financial Inclusion, with the aim of reporting progress against these within our 2024 submission.
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Banking report
ESG index
Measuring the Group’s performance
Underlying adjustments to the statutory
view of performance
Glossary
Abbreviations
Country by country reporting
Shareholder information
Basis of presentation
Forward-looking statements
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366
372
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391
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Reporting and Self-Assessment Requirements
Response
Links and references
6.4 Challenges
Here is a short section to find out about challenges
your bank is possibly facing regarding the
implementation of the Principles for Responsible
Banking. Your feedback will be helpful to
contextualise the collective progress of PRB
signatory banks.
What challenges have you prioritized to address
when implementing the Principles for Responsible
Banking? Please choose what you consider the top
three challenges your bank has prioritized to address
in the last 12 months (optional question).
If desired, you can elaborate on challenges and how you are tackling these:
Embedding PRB oversight into governance
Gaining or maintaining momentum in the bank
Getting started: where to start and what to focus on in the beginning
Conducting an impact analysis
Assessing negative environmental and social impacts
Choosing the right performance measurement methodology/ies
Setting targets
Other:
Customer engagement
Stakeholder engagement
Data availability
Data quality
Access to resources
Reporting
Assurance
Prioritizing actions internally
If desired, you can elaborate on challenges and how you are tackling these:
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ESG index
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Underlying adjustments to the statutory
view of performance
Glossary
Abbreviations
Country by country reporting
Shareholder information
Basis of presentation
Forward-looking statements
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In addition to the information found within this document, you can read more about our commitment to be a positive influence in society and how we’re guided by our Purpose of Making you happier
about money in our ESG Resource Hub https://www.virginmoneyukplc.com/corporate-sustainability/esg-hub.
General disclosures
Our four Big ESG Goals are aligned to our strategic goals and underpin our Purpose of Making you happier about money as outlined on pages 31-50.
The Group is a member, signatory or a partner of the following:
> United Nations Principles of Responsible Banking; signed
> Fair by Design;
November 2019. See our latest report on page 338
> PCAF;
> CDP Corporate and CDP Supplier Survey;
> NZBA;
> Carbon Neutral Britain;
> Prompt Payment Code;
> Smart Data Foundry;
> Women in Finance Charter;
> Race at Work Charter;
> Black Professionals Scotland;
> Disability Confident Employer;
> Stonewall Diversity Champion; and
> The Code of Practice On Taxation for Banks;
> Armed Forces Covenant Employee Recognition Scheme Gold award member.
Our latest ESG rating agency scores:
MSCI
Sustainalytics
CDP
Moody’s Analytics
2023
AA
18.5
tbc
51
2022
AA
18.1
C
50
2021
A
25.7
B
49
2020
BBB
27.5
B
42
2019
BB
Scale
AAA to CCC, AAA as a best possible score
31.58
0-100, 0 as a best possible score
C
44
A+ to F, with A+ as a best score
0-100, 100 as a best possible score
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Business ethics
Data security, privacy
and protection
Strategic report
Governance
Risk report
Climate-related disclosures
Financial statements
Additional information
Principles for Responsible
Banking report
ESG index
Measuring the Group’s performance
Underlying adjustments to the statutory
view of performance
Glossary
Abbreviations
Country by country reporting
Shareholder information
Basis of presentation
Forward-looking statements
338
366
372
381
382
386
388
389
391
391
We pride ourselves on being an ethical business and are committed to addressing major business ethics risks. We have developed a Board approved, Group wide
colleague code of conduct which clearly sets out the standards of operating guidelines, responsibility and the ethical conduct we expect from all our employees.
This is underpinned by the following policies and statements:
> Whistleblowing;
> Tax transparency;
> Modern slavery; and
> Conflicts of interest.
We expect our suppliers to work alongside us, upholding our values and ethics, and in accordance with our Supplier Code of Conduct which forms part of our
3rd party contract terms.
We have developed our response to modern slavery and financial crime, rolling out training and increasing the profile of these issues with the Board and Leadership
Team. More detail on this can be found on our corporate website https://www.virginmoneyukplc.com/corporate-sustainability/modern-slavery-statement/ and on
pages 48 to 49.
Colleagues, including contractors inside IR35, complete four mandatory training modules each year that include our Code of Conduct and content specifically
related to ESG.
Details of legal disputes and conduct related matters are detailed in note 1.5 on page 289.
We are conscious of how we operate online, and you can read more about this in our Fraud and cyber-enabled crime policy.
To maintain customer trust in the security of our services we work continuously to mitigate the risks of cyber-attack, exposure or manipulation of confidential data,
and of unauthorised access to information, as outlined in our Information Security Management policy.
Our Operational risk section on pages 234 to 236 outlines the risks we face as a UK bank and what we do to mitigate these risks. Business units are responsible
for the management of technology risk, with oversight from the risk management function and independent assurance activities undertaken by Internal Audit.
All our colleagues, including contractors inside IR35, complete data protection, data privacy and data management training at least once a year, with extra training
for people who handle customer data more frequently. You can read more about this in the Data privacy policy.
Our regulatory and compliance risk team is responsible for managing privacy and data protection risks, which may result from non-compliance with data privacy,
legal and regulatory obligations. Read more within our Operational risk update on pages 234 to 236.
We are committed to respecting human rights in our data management. Virgin Money’s Chief Information Officer owns the Data Management Policy Standard,
and the management of risks relating to privacy and data protection for the Group.
Our Data Governance Working Group is responsible for providing direction and oversight for data privacy and data management practices including privacy horizon
scanning, personal data breaches, rights requests, Data Protection Assessment trends and data maturity tracking. We also have the Data Enterprise Forum –
responsible for investigation and decision making around escalated issues.
To comply with regulatory requirements under UK GDPR the Group has in place a process for regular reporting.
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Banking report
ESG index
Measuring the Group’s performance
Underlying adjustments to the statutory
view of performance
Glossary
Abbreviations
Country by country reporting
Shareholder information
Basis of presentation
Forward-looking statements
338
366
372
381
382
386
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389
391
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ESG index
Governance
ESG is integrated within our Governance structure as detailed in the Governance report starting on page 74. This report complies with the requirements of the
Corporate Governance Code 2018 and the Companies Act 2006.
The Group considers the Board to be key in its overall implementation of our ESG strategy and effectiveness is demonstrated as follows:
> An experienced and well-governed Board, supported by Board Committees. The responsibility of each Board Committee is clearly defined in the Board and Board
Committee charters and attendance at Board and Board Committee meetings is disclosed on page 87.
>
‘How our Board operates’ is set out from page 87 onwards and details the structure of the Board and frequency of meetings along with the management of
conflicts of interest, time commitments and the training and development of Board members.
> The Board understands the benefits of diversity and has a Board diversity and inclusion policy. Charts providing a summary of Board diversity and the
composition of the Board by age, role and tenure are detailed on pages 76 to 78, and 80 to 85.
> Details of the skills of each Board member and the training and development opportunities they are offered to support them to discharge their responsibilities
is outlined on pages 80 to 85.
> ESG is governed by the Board and supported by management, as outlined on page 89, reflecting its importance to the Group. During the year, the Board
is engaged in regular discussion on the execution of our ESG and Climate strategy.
> The Board’s established Committees support the delivery of ESG objectives, as set out on page 89.
> How the Board considers stakeholders in its decision-making process is shown within the s.172 report from page 98 onwards.
> The Audit Committee oversees external assurance which is sought by the Group. The policy in relation to the statutory auditor is set out in the Audit Committee
report on page 120 and the Audit Committee charter.
> The Directors’ report on pages 159 to 164 sets out shareholder rights (including voting rights).
>
Information regarding political donations (of which there were none) can be found in the Directors’ report starting on page 159 and our approach is set out in our
Political involvement, communications and donations policy.
> We operate a series of other committees and forums through which we manage and report on our ESG activities, including our Environment Committee,
ESG Working Group, Vulnerable Customer Steering Group and the Non-Financial Risk committee: details of which can be found in the Governance section
of our TCFD report.
> ESG objectives are embedded within our functional and Group scorecards which are presented to our Leadership Team and Board monthly, and Climate-related
KPIs are tracked through Environment Committee monthly.
> EY has performed limited assurance on a selection of our ESG metrics, as outlined within the UN PRB report pages 338 to 365.
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Banking report
ESG index
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Underlying adjustments to the statutory
view of performance
Glossary
Abbreviations
Country by country reporting
Shareholder information
Basis of presentation
Forward-looking statements
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391
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Digital inclusion and
financial education
We continue to evolve our purpose-led approach to Digital Inclusion and Financial Education through our customer proposition as outlined within our Open Doors
policy, including: our M account; our partnerships with Good Things Foundation and Turn2us; the support through our Vulnerable Customer Care team; our Cost
of Living hub https://uk.virginmoney.com/service/support-hub/cost-of-living/#tips-to-manage-your-money, alongside other financial wellbeing resources for both
customers and colleagues, and further initiatives outlined on pages 43 to 46.
We’ve sponsored the Centre for Social Justice to produce reports which highlight some of the key challenges around digital access and the financial impact
this has on individuals, particularly those on lower incomes. Given our strategic ambition to be the UK’s best digital bank, the data and findings above have informed
our decision to focus on ‘super-themes’ of Digital Inclusion and Financial Education within our United Nations Principles of Responsible Banking 2023 report which
can be found from page 338 onwards.
We are committed to ensuring that all new product terms and conditions have Fairer Finance accreditation. This ensures that, by an objective standard, we are
delivering clarity of language, design and content. One in seven adults in the UK has a reading age below 11 years. We want to know that our customers understand
what they are buying, so we have stripped back lots of the small print, included examples to explain trickier concepts, and we ensure that the layout and spacing
is a help rather than a hindrance.
We have a range of tools, training materials and design resources which help us ensure we’re designing customer experiences with vulnerabilities in mind.
Our Financial Inclusion Panel (FIP) provides insight on making our customer experiences more inclusive and our annual FinInc all-colleague event provides
an opportunity for wider engagement on what we’re doing across the Bank.
We have provided additional support for vulnerable customers and have established a dedicated Customer Care team who proactively contact vulnerable
and potentially vulnerable customers who may be impacted by our digitisation projects.
Read more about our approach to forbearance and collections on page 175 and in our Collections and recoveries policy.
We continue to distribute free mobile data to those unable to afford it and experiencing data poverty, and have donated funds to Good Things Foundation
for databank devices, with more detail provided on Pages 43 to 46. The service will be available in all VMUK stores by the end of 2023.
Through its grant making programmes, the Virgin Money Foundation directly supports locally-led organisations who are driving positive economic, social
or environmental change within a community https://virginmoneyfoundation.org.uk/
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Underlying adjustments to the statutory
view of performance
Glossary
Abbreviations
Country by country reporting
Shareholder information
Basis of presentation
Forward-looking statements
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Environment
Tackling our impact on the environment is a top priority for the Group. We are signatories to the NZBA and have disclosed our roadmaps and targets to net zero
across our operations and priority business sectors, in accordance with the PCAF standard. You can read more on the work undertaken to date, including detailed
targets and underpinning assumptions, and our focus for the coming financial year in the climate-related disclosures report on pages 240 to 272.
Pages 34 to 37 and the climate-related disclosures report starting on page 240 provide detail on our own operational footprint, including our Scope 1 and 2
emissions, and the steps we are taking to reduce these emissions on our journey to net zero. Our approach to reducing our GHG emissions is outlined in our
Environmental policy and performance against carbon reduction targets has been independently assured by EY as documented on page 36.
ESG, and specifically climate risk, has been embedded within the Group’s RMF with climate risk being elevated to principal risk status. Read more about the actions
we’ve taken in the risk overview on pages 68 to 72.
Conscious of the impact of our commercial lending book, we are seeking to support our customers in their own sustainability efforts through the launch of green
products and tools which help them identify their risks and opportunities, and we regularly review our Sensitive sectors policy to ensure the Group maintains a low
exposure to sensitive sectors. You can read more about our offering and how it is helping customers and the environment on pages 38 to 42.
The Group participates in a number of industry-led working groups to have influence and effective engagement on policy with the UK Government, in addition
to working towards a standard approach to achieving net zero and disclosure consistency with peers (e.g. UK Finance, PCAF, UN PRB).
We participate in the CDP Supplier Programme where we ask our top suppliers to complete the CDP climate survey as outlined on page 37. We use their reported
information to inform our targets, action plans and roadmaps to net zero and will use future years to assess performance against targets outlined from page 266.
We have documented our TCFD compliance statement on pages 52 to 53 of our Strategic report, with further detail across the four thematic areas: governance,
strategy, risk management, and metrics and targets outlined in the climate-related disclosures on pages 240 to 272, which outlines the progress made in assessing
climate-related risks and opportunities, whilst also identifying where we have further ambitions to enhance our disclosures on environmental measures.
Risk and conduct
Risk management is a central part of our business: our RMF sets out our risk appetite and our approach to managing the principal risks of the Group as outlined
in the Risk report beginning on page 166.
Our regulatory and compliance risk function monitors how we conduct business and handles our reporting of breaches, including sharing the number of reportable
customer complaints received every six months in line with FCA regulations – www.fca.org.uk/data/complaints-data/. The Financial Ombudsman Service also
publishes data on complaints referred to it by individual firms – www.financial-ombudsman.org.uk/data-insight/half-yearly-complaints-data. More information
on our approach can be found on page 233.
Our conduct risk function outlined on page 233 monitors the treatment of customers, our complaints handling and whether our processes support fair customer
outcomes. We’re responding to the new Consumer Duty legislation introduced by the FCA and are developing a more data-led approach to designing and monitoring
customer outcomes, abiding by the principle that business ‘act to deliver good outcomes for retail customers’.
We develop products in accordance with our product development and monitoring policy standard. This standard sets the tone for the design and ongoing
monitoring of products to ensure we are being inclusive, offer good value to customers, and are supported by a sustainable business model and business practices.
We provide product-specific training to customer-facing colleagues and follow this up with regular oversight for every colleague. Diversity and inclusion, and
specifically vulnerable customers are considered at every step in the product development process. We do not incentivise sales and we train our colleagues to
support our customers with the products that best meet their needs.
The following policies are in place for the Group:
> Anti-money laundering and counter-terrorist financing;
> Statement of financial crime policies and principles; and
> Sanctions and embargoes;
> Anti-bribery and corruption
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ESG index
Measuring the Group’s performance
Underlying adjustments to the statutory
view of performance
Glossary
Abbreviations
Country by country reporting
Shareholder information
Basis of presentation
Forward-looking statements
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366
372
381
382
386
388
389
391
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Delighted colleagues,
diversity & inclusion
We are committed to being a fair, equitable and inclusive employer and throughout FY23 have continued to evolve our A Life More Virgin colleague proposition.
We’ve been shortlisted for a People Management Award by the CIPD for the best flexible working initiative. Pages 22 to 24 of our Strategic report focus on our
strategic goal: Delighted Colleagues, providing more information on A Life more Virgin and a variety of initiatives across colleague recruitment and development,
which are driving positive action towards our DE&I commitments.
We have mature recruitment and development practices which include: early careers (such as internships and apprenticeships); internal mobility approaches;
redeployment support; and career sponsorship programmes.
We have introduced our BRAVER framework, our Virgin Money allyship framework. BRAVER is about building a culture of trust and inclusion at Virgin Money.
We want to create a culture where we value colleagues for their unique perspectives and where we accept, welcome and support them however they show up.
We are committed to helping all colleagues grow and develop, through digital and collaborative learning and to support them with their wellbeing. All colleagues
are required to complete annual, mandatory training courses as part of their learning plan which includes: I Can Be Me; Health & Wellbeing; Code of Conduct
(Doing the Red Thing); ESG; Conduct Rules; Data Protection & Privacy; Data Management; Be Cyber Smart; Financial Crime; Conflicts of Interest; Whistleblowing;
Fraud Awareness; Preventing Market Abuse; Consumer Duty; Handling Complaints at Virgin Money; Modern Slavery; and Customers with Vulnerabilities.
Our Workforce Engagement programme outlined on page 97 aims to provide representation from across Virgin Money ensuring the Board hears the broadest
spectrum of views.
We recognise the importance of the colleague voice and our colleagues’ right to join an independent trade union and will take steps to ensure that no colleague
suffers any detriment as a result of being a member of any trade union. Virgin Money formally recognises Unite the Union and has an established Recognition
and Procedural Agreement in place for collective bargaining purposes.
The Directors’ remuneration report sets out a comparison of how all-colleague and Executive Director remuneration align as well as providing details on the
ratio of CEO pay to that of the median colleague. All colleagues are paid at or above the real Living Wage.
See our progress on strategic goal ‘Delighted Colleagues’ on pages 22 to 24 for colleague data points like survey participation rates and engagement scores.
We’ve been making steady progress against the significant representation targets and pages 22 to 24 outline the work we’re doing to create and sustain an
increasingly representative workforce and a fair, equitable and inclusive culture. We publish our Gender Pay report and progress towards our Women in Finance
Charter commitment annually on our corporate website.
We are a Disability Confident Employer – Leader Status, achieved Gold Employer award in Stonewall’s Workplace Equality Index and are signatories to the Women
in Finance and Race at Work Charters.
The approach set out above is supported by a suite of policies, including:
> Health and safety;
> Code of conduct;
>
Inclusion Standard; and
> Fit and proper
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Underlying adjustments to the statutory
view of performance
Glossary
Abbreviations
Country by country reporting
Shareholder information
Basis of presentation
Forward-looking statements
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366
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386
388
389
391
391
Measuring the Group’s performance
As highlighted within the Strategic report, Financial results, Directors’ remuneration report, and Risk report, a range of metrics are considered that measure and track the Group’s performance.
Some of these metrics will be the Group’s KPIs, which are a set of quantifiable measurements used to gauge the Group’s overall long-term performance. Others are not referred to as KPIs,
but are still useful metrics for the Group to reflect on and are disclosed to aid comparisons with peers.
These metrics fall into two main categories:
> Financial – which are further split into:
– IFRS based – meaning the basis of the calculation is derived from a measure that can be found and is directly required under generally accepted accounting principles (GAAP); and
– Non-IFRS based – these are also referred to as APMs and can be derived from non-GAAP measures.
> Non-Financial – being those that are not directly linked to the Group’s financial performance, but more in relation to other external factors.
Non-IFRS based financial performance metrics can be calculated on either a statutory or an ‘underlying’ basis; further detail on how the underlying measure is arrived at, along with management’s
reasoning for excluding the impact of certain items from the Group’s current underlying performance rationale, can be found on page 381, directly following this section.
Financial performance metrics
Profitability:
Metric
KPI
LTIP
LTIP
Year
Page
Basis
Definition/formula
Why it matters
Gross
annualised
cost savings
Yes
No
N/a
11
Non-
IFRS
Annualised gross cost savings benefits driven from the Group’s efficiency programmes.
Statutory
return on
tangible
equity
(RoTE)
Yes
Yes
2023
2022
2021
2020
2019
11
Non-
IFRS
Statutory profit after tax attributable to ordinary equity holders as a percentage of average
tangible equity (average total equity less intangible assets and AT1) for a given year.
Statutory profit after tax attributable to ordinary
equity holders (a)
Average tangible equity (b)
Statutory RoTE (a)/(b)
2023
2022
2021
2020
£192m
£467m
£395m
£(220)m
£4,971m
£4,539m
£3,875m
£3,554m
3.9%
10.3%
10.2%
(6.2)%
It provides an annualised progress indicator
for the Group’s accelerated digital strategy and
stated target of delivering approximately £175m
of additional cost savings by FY24, enabled by
£275m of restructuring investment.
It’s an indicator of the Group’s profitability and
gives the return generated for shareholders
as a percentage of the Group’s tangible equity.
Yes
Yes
Underlying
cost: income
ratio
2021
2020
2019
11
Non-
IFRS
Underlying operating and administrative expenses as a percentage of underlying total operating
income for a given year.
Underlying operating and administrative expenses (a)
£971m
£914m
£902m
£917m
Underlying total operating income (b)
£1,873m
£1,742m
£1,564m
£1,558m
Underlying cost: income ratio (a)/(b)
51.9%
52.5%
57.7%
58.9%
Restated(1)
Restated(1)
Restated(1)
2023
2022
2021
2020
It’s a measure of efficiency in terms of how total
operating expenses compare to total operating
income on an underlying basis.
(1) Hedge ineffectiveness (2022: income of £13m, 2021: income of £8m, 2020: expense of £16m) is now presented as an adjustment to underlying earnings. The comparative periods have been adjusted accordingly.
This restatement does not impact the statutory results of the Group.
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Underlying adjustments to the statutory
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Glossary
Abbreviations
Country by country reporting
Shareholder information
Basis of presentation
Forward-looking statements
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Measuring the Group’s performance
Metric
KPI
LTIP
LTIP
Year
Page
Basis
Definition/formula
Net interest
margin
(NIM)
Statutory
basic
earnings
per share
(EPS)
Statutory
cost: income
ratio
No
No
N/a
11
Non-
IFRS
Underlying NII as a percentage of average interest earning assets (which is adjusted to exclude
short-term repos used for liquidity management purposes) for a given year.
Underlying NII (a)
2023
2022
2021
2020
£1,716m
£1,592m
£1,412m
£1,351m
Average interest earning assets (b)
£89,810m £86,275m £86,947m £86,826m
Short-term repos used for liquidity management (c)
NIM (a)/((b)-(c))
£-m
1.91%
£12m
1.85%
£16m
1.62%
£16m
1.56%
Why it matters
It’s an indicator of the Group’s profitability
by showing the difference between how much
the Group is earning in interest on its loans
compared to how much it is paying out in
interest on deposits.
No
No
N/a
67
IFRS
Statutory profit after tax attributable to ordinary equity shareholders, divided by the weighted
average number of ordinary shares in issue for a given year (which includes deferred shares
and excludes own shares held or contingently returnable shares).
It’s an indicator of the Group’s profitability
on a statutory basis.
Statutory profit/(loss) after tax attributable to ordinary
equity shareholders (a)
£192m
£467m
£395m
£(220)m
Weighted average number of ordinary shares in issue (b)
1,375m
1,441m
1,442m
1,440m
Statutory basic earnings/(loss) per share (a)/(b)
14.0p
32.4p
27.3p
(15.3)p
2023
2022
2021
2020
No
No
N/a
67
Non-
IFRS
Statutory operating and administrative expenses as a percentage of statutory total operating
income for a given year.
Statutory operating and administrative expenses (a)
£1,173m
£1,069m
£1,203m
£1,104m
Statutory total operating income (b)
£1,827m
£1,716m
£1,489m
£1,443m
Statutory cost: income ratio (a)/(b)
64.2%
62.3%
80.8%
76.5%
2023
2022
2021
2020
It’s a measure of efficiency in terms of how total
operating expenses compare to total operating
income on a statutory basis.
Statutory
return on
assets
No
No
N/a
67
Non-
IFRS
Statutory profit after tax as a percentage of average total assets for a given year.
It’s an indicator of the Group’s profitability
on a statutory basis.
Statutory profit/(loss) after tax (a)
£246m
£537m
£474m
£(141)m
Average total assets (b)
£92,188m £89,504m £90,537m £90,522m
Statutory return on assets (a)/(b)
0.27%
0.60%
0.52%
(0.16)%
2023
2022
2021
2020
373
Virgin Money Annual Report & Accounts 2023Additional information
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Financial statements
Additional information
Principles for Responsible
Banking report
ESG index
Measuring the Group’s performance
Underlying adjustments to the statutory
view of performance
Glossary
Abbreviations
Country by country reporting
Shareholder information
Basis of presentation
Forward-looking statements
338
366
372
381
382
386
388
389
391
391
Measuring the Group’s performance
Metric
KPI
LTIP
LTIP
Year
Page
Basis
Definition/formula
Why it matters
Underlying
basic EPS
No
No
N/a
67
Non-
IFRS
Underlying profit after tax attributable to ordinary equity shareholders, divided by the weighted
average number of ordinary shares in issue for a given year (which includes deferred shares
and excludes own shares held or contingently returnable shares).
It’s an indicator of the Group’s profitability
on an underlying basis.
Underlying profit after tax attributable to ordinary
equity shareholders (a)
£376m
£602m
£685m
£33m
Weighted average number of ordinary shares in issue (b)
1,375m
1,441m
1,442m
1,440m
Underlying basic earnings per share (a)/(b)
27.4p
41.8p
47.5p
2.3p
Restated(1)
Restated(1)
Restated(1)
2023
2022
2021
2020
Underlying
profit
before tax
No
No
N/a
60
Non-
IFRS
Statutory profit before tax plus total underlying adjustments to the statutory view of performance.
It’s an indicator of the Group’s profitability
on an underlying basis.
Statutory profit/(loss) before tax (a)
Restructuring charges (b)
Acquisition accounting unwinds (c)
Legacy conduct (d)
Hedge ineffectiveness (e)
Other (f)
Restated(1)
Restated(1)
Restated(1)
2023
2022
2021
2020
£345m
£131m
£29m
£12m
£16m
£60m
£595m
£417m
£(168)m
£82m
£35m
£8m
£(13)m
£69m
£146m
£88m
£76m
£(8)m
£74m
£139m
£113m
£26m
£16m
£14m
Underlying profit before tax (a) + (b) + (c) + (d) + (e) + (f)
£593m
£776m
£793m
£140m
Underlying
profit
after tax
attributable
to ordinary
equity
shareholders
No
No
N/a
374
Non-
IFRS
Underlying profit before tax less underlying tax charge, less AT1 distributions. The underlying
tax charge (or credit) is the difference between the statutory tax charge (or credit) and the tax
attributable to exceptional items.
It’s an indicator of the Group’s profitability
on an underlying basis.
Underlying profit before tax (a)
Underlying tax charge (b)
AT1 distributions (c)
2023
£593m
£163m
£54m
Restated(1)
Restated(1)
Restated(1)
2022
£776m
£104m
£70m
2021
2020
£793m
£140m
£29m
£79m
£28m
£79m
Underlying profit after tax attributable to ordinary
equity shareholders (a) - (b) - (c)
£376m
£602m
£685m
£33m
(1) Hedge ineffectiveness (2022: income of £13m, 2021: income of £8m, 2020: expense of £16m) is now presented as an adjustment to underlying earnings.
The comparative periods have been adjusted accordingly. This restatement does not impact the statutory results of the Group.
374
Virgin Money Annual Report & Accounts 2023Additional information
Strategic report
Governance
Risk report
Climate-related disclosures
Financial statements
Additional information
Principles for Responsible
Banking report
ESG index
Measuring the Group’s performance
Underlying adjustments to the statutory
view of performance
Glossary
Abbreviations
Country by country reporting
Shareholder information
Basis of presentation
Forward-looking statements
338
366
372
381
382
386
388
389
391
391
Measuring the Group’s performance
Metric
KPI
LTIP
LTIP
Year
Page
Basis
Definition/formula
Underlying
RoTE
No
No
N/a
63
Non-
IFRS
Underlying profit after tax attributable to ordinary equity holders as a percentage of average
tangible equity (average total equity less intangible assets and AT1) for a given year.
Underlying profit after tax attributable to ordinary
equity holders (a)
Average tangible equity (b)
Underlying RoTE (a)/(b)
Restated(1)
Restated(1)
Restated(1)
2023
2022
2021
2020
£376m
£602m
£685m
£33m
£4,971m
£4,539m
£3,875m
£3,554m
7.6%
13.3%
17.7%
0.9%
Why it matters
It’s an indicator of the Group’s profitability on an
underlying basis and gives the return generated
for shareholders as a percentage of the Group’s
tangible equity.
(1) Hedge ineffectiveness (2022: income of £13m, 2021: income of £8m, 2020: expense of £16m) is now presented as an adjustment to underlying earnings. The comparative periods have been adjusted accordingly.
This restatement does not impact the statutory results of the Group.
Lending (Basis – non-IFRS):
Metric
KPI
LTIP
LTIP
Year
Page
Definition and formula (where applicable)
Why it matters
Yes
No
N/a
11
Target lending segment asset growth over the year. Target lending is defined as Unsecured
and BAU Business lending (excluding Government lending schemes noting these are closed
and in run off).
It’s an indicator of how well the Group is
performing against its ‘pioneering growth’
strategic priority.
Total lending – current year (a)
Total lending – prior year (b)
2023
2022
2021
2020
£14,632m £13,448m £12,573m £13,006m
£13,448m £12,573m £13,006m £12,900m
Target lending growth ((a)-(b))/(b)
8.8%
7.0%
(3.3)%
0.8%
Relationship deposit growth over the year.
Total relationship deposits – current year (a)
£35,394m £34,649m £30,596m £25,675m
Total relationship deposits – prior year (b)
£34,649m £30,596m £25,675m £21,347m
Relationship deposit growth ((a)-(b))/(b)
2.2%
13.2%
19.2%
20.3%
2023
2022
2021
2020
It’s an indicator of how well the Group is
performing against its ‘pioneering growth’
strategic priority.
375
Target
lending
segment
asset
growth
Relationship
deposits
growth
No
Yes
2021
2020
10
Virgin Money Annual Report & Accounts 2023Additional information
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Principles for Responsible
Banking report
ESG index
Measuring the Group’s performance
Underlying adjustments to the statutory
view of performance
Glossary
Abbreviations
Country by country reporting
Shareholder information
Basis of presentation
Forward-looking statements
338
366
372
381
382
386
388
389
391
391
Measuring the Group’s performance
Asset quality (Basis – non-IFRS):
Metric
KPI
LTIP
LTIP
Year
Page
Definition/formula
Why it matters
Impairment
charge to
average
customer
loans
(cost
of risk)
% of loans
in Stage 2
% of loans
in Stage 3
Total book
coverage
No
No
N/a
178
Impairment losses on credit exposures as a percentage of average customer loans (defined as
loans and advances to customers, other financial assets at fair value and due from customers
on acceptances).
It’s an indicator of the asset quality of the
Group’s lending portfolio.
Impairment charge/(credit) (a)
Average customer loans (b)
Cost of risk (a)/(b)
2023
2022
2021
2020
£309m
£52m
£(131)m
£501m
£72,770m £71,989m £72,447m £73,403m
0.42%
0.07%
(0.18)%
0.68%
No
No
N/a
178
Stage 2 loans as a percentage of gross loans and advances.
Stage 2 loans (a)
Gross loans and advances (b)
% of loans in Stage 2 (a)/(b)
2023
2022
2021
2020
£6,326m
£5,736m £10,178m £12,844m
£73,295m £73,146m £72,551m £72,925m
8.6%
7.8%
14.1%
17.7%
No
No
N/a
178
Stage 3 loans as a percentage of gross loans and advances.
Stage 3 loans (a)
Gross loans and advances (b)
% of loans in Stage 3 (a)/(b)
2023
2022
2021
2020
£1,080m
£1,038m
£957m
£862m
£73,295m £73,146m £72,551m £72,925m
1.5%
1.4%
1.3%
1.2%
It allows period-on-period comparison of
Stage 2 loans as a percentage of overall gross
loans and advances and therefore provides
insight into the asset quality of the Group’s
lending portfolio over time.
It allows period-on-period comparison of
Stage 3 loans as a percentage of overall gross
loans and advances and therefore provides
insight into the asset quality of the Group’s
lending portfolio over time.
No
No
N/a
178
Total impairment provisions on credit exposures as a percentage of total customer loans.
It provides a measure of the level of provision
the Group holds for the total lending portfolio.
Impairment provisions on credit exposures (a)
£617m
£457m
£504m
£735m
Gross loans and advances (b)
Total book coverage (a)/(b)
£73,295m £73,146m £72,551m £72,925m
0.84%
0.62%
0.70%
1.03%
2023
2022
2021
2020
Stage 2
coverage
No
No
N/a
178
Stage 2 impairment provisions as a percentage of Stage 2 gross loans and advances
(excluding government backed loans).
It provides a measure of the level of provision
the Group holds for the lifetime of the Stage 2
lending portfolio.
Stage 2 impairment provisions on credit exposures (a)
£400m
£268m
£302m
£465m
Stage 2 gross loans and advances (b)
£6,305m
£5,736m £10,178m £12,844m
Total Stage 2 book coverage (a)/(b)
6.33%
4.72%
3.02%
3.66%
2023
2022
2021
2020
376
Virgin Money Annual Report & Accounts 2023Additional information
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Risk report
Climate-related disclosures
Financial statements
Additional information
Principles for Responsible
Banking report
ESG index
Measuring the Group’s performance
Underlying adjustments to the statutory
view of performance
Glossary
Abbreviations
Country by country reporting
Shareholder information
Basis of presentation
Forward-looking statements
338
366
372
381
382
386
388
389
391
391
Measuring the Group’s performance
Metric
KPI
LTIP
LTIP
Year
Page
Definition/formula
Stage 3
coverage
No
No
N/a
178
Stage 3 impairment provisions as a percentage of Stage 3 gross loans and advances
(excluding government backed loans).
Why it matters
It provides a measure of the level of provision
the Group holds for the lifetime of the Stage 3
lending portfolio.
Stage 3 impairment provisions on credit exposures (a)
£128m
£104m
2023
2022
2021
£91m
Stage 3 gross loans and advances (b)
£920m
£1,038m
£957m
2020
£134m
£862m
Total Stage 3 book coverage (a)/(b)
13.93%
11.24%
9.59%
15.73%
Capital (Basis – non-IFRS):
Metric
KPI
LTIP
LTIP
Year
Page
Definition/formula
Why it matters
Announced
shareholder
distributions
Common
Equity Tier 1
(CET1) ratio
(IFRS 9
transitional)
CET1 ratio
(IFRS 9 fully
loaded)
Yes
No
N/a
11
Dividends announced for the year plus buybacks as a percentage of statutory profit after tax
attributable to ordinary shareholders.
Interim dividend (a)
Final dividend (b)
Buybacks (c)
Statutory profit after tax attributable to ordinary
equity holders (d)
2023
£45m
£27m
£200m
2022
£36m
£106m
£125m
2021
n/a
£14m
n/a
2020
n/a
n/a
n/a
£192m
£467m
£395m
£(220)m
Announced shareholder distributions ((a)+(b)+(c))/(d)
142%
57%
4%
n/a
No
No
N/a
11
CET1 capital as a percentage of RWAs, on an IFRS 9 transitional basis.
CET1 capital (IFRS 9 transitional) (a)
£3,711m
£3,633m
£3,616m
£3,271m
RWA (IFRS 9 transitional) (b)
£25,176m £24,148m £24,232m £24,399m
CET1 ratio (IFRS 9 transitional) (a)/(b)
14.7%
15.0%
14.9%
13.4%
2023
2022
2021
2020
No
No
N/a
65
CET1 capital as a percentage of RWAs, on an IFRS 9 fully loaded basis.
CET1 capital (IFRS 9 fully loaded) (a)
£3,599m
£3,519m
£3,482m
£2,961m
RWA (IFRS 9 fully loaded) (b)
£25,087m £24,056m £24,156m £24,246m
CET1 ratio (IFRS 9 fully loaded) (a)/(b)
14.3%
14.6%
14.4%
12.2%
2023
2022
2021
2020
It shows how much of our profits after tax
and distributions we are paying out to
our shareholders.
It’s an indicator of bank solvency that gauges
the strength of the Group’s CET1 capital relative
to RWA.
It’s an indicator of bank solvency that gauges
the strength of the Group’s CET1 capital without
adjusting for temporary IFRS 9 relief.
377
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Climate-related disclosures
Financial statements
Additional information
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ESG index
Measuring the Group’s performance
Underlying adjustments to the statutory
view of performance
Glossary
Abbreviations
Country by country reporting
Shareholder information
Basis of presentation
Forward-looking statements
338
366
372
381
382
386
388
389
391
391
Measuring the Group’s performance
Metric
KPI
LTIP
LTIP
Year
Page
Definition/formula
Tier 1 ratio
No
No
N/a
215
Tier 1 capital as a percentage of RWAs.
Total capital
ratio
Tangible net
asset value
(TNAV)
per share
Tier 1 capital (a)
RWA (b)
Tier 1 ratio (a)/(b)
No
No
N/a
65
Total capital resources as a percentage of RWAs.
Total capital (a)
RWA (b)
Total capital ratio (a)/(b)
2023
2022
2021
2020
£4,305m
£4,299m
£4,313m
£4,186m
£25,176m £24,148m £24,232m £24,399m
17.1%
17.8%
17.8%
17.2%
2023
2022
2021
2020
£5,327m
£5,319m
£5,332m
£4,935m
£25,176m £24,148m £24,232m £24,399m
21.2%
22.0%
22.0%
20.2%
No
No
N/a
63
Tangible equity (total equity less intangible assets and AT1) divided by the number of ordinary
shares in issue at the year end (which includes deferred shares and excludes own shares held).
Tangible equity (a)
2023
2022
2021
2020
£4,840m
£5,407m
£4,185m
£3,526m
Number of ordinary shares in issue (b)
1,345m
1,409m
1,440m
1,439m
Deferred shares (c)
Own shares held (d)
2m
1.3m
3m
0.3m
5m
0.1m
6m
0.2m
Tangible net asset value per share (a)/((b)+(c)-(d))
359.8p
383.0p
289.8p
244.2p
Why it matters
It’s an indicator of bank solvency that gauges
the strength of the Group’s Tier 1 capital relative
to RWA.
It’s an indicator of bank solvency that gauges
the strength of the Group’s total capital relative
to RWA.
It represents the value per share of the Group
based on the Group’s tangible net assets and
can be used as a comparison against the
current market share price.
Total
shareholder
return (TSR)
No
Yes
2023
2022
156
Share price at the end of the financial period, less the share price at the start of the financial
period including dividends received over the period, divided by the share price at the start
of the financial period.
The use of total shareholder return enables us
to target a measure that is directly linked to an
investor’s total return on a share, incorporating
both share price movement and dividends paid.
Share price at the end of the financial period (a)
Share price at the start of the financial period (b)
Dividends (assuming reinvestment) (c)
Total shareholder return ((a)-(b)+(c))/(b)
2023
168.4p
124.3p
12.6p
45.5%
2022
124.3p
204.4p
3.2p
2021
204.4p
2020
73.0p
73.0p
114.9p
n/a
n/a
(37.6)%
180.1%
(36.5)%
378
Virgin Money Annual Report & Accounts 2023Additional information
Measuring the Group’s performance
Strategic report
Non-financial performance metrics:
Colleague
engagement
Customer
complaints
per 1,000
accounts
Governance
Risk report
Climate-related disclosures
Financial statements
Additional information
Principles for Responsible
Banking report
ESG index
Measuring the Group’s performance
Underlying adjustments to the statutory
view of performance
Glossary
Abbreviations
Country by country reporting
Shareholder information
Basis of presentation
Forward-looking statements
338
366
372
381
382
386
388
389
391
391
Metric
KPI
LTIP
LTIP
Year
Page
Definition/formula (where applicable)
Why it matters
Yes
No
N/a
11
Outcomes from the MyVoice colleague engagement survey preceding the end of the financial year. Measures our understanding of employee
Yes
No
N/a
11
In line with FCA regulations, number of complaints per thousand accounts calculated as:
Total number of complaints received in six-month period to reporting date
x 1,000
Total number of accounts as at reporting date
Currently excludes complaints relating to Insurance and Pure Protection FCA reporting group
given historically skewed influence of legacy payment protection insurance.
Digital
primacy
Yes
No
N/a
11
It measures the proportion of active PCA and Card customers who are digital-only in their
engagement with Virgin Money. To qualify, each customer must:
1. be digitally adopted and active (successfully logged in to the mobile app in the past 90 days);
2. be signed up to our paperless proposition;
3. have not transacted in stores within the last 90 days; and
4. have not completed an authenticated call with contact centres in the past 90 days.
Yes
Yes
2023
11
Group
diversity
indicators
Percentage of colleagues who identify as female within our 0-3 leadership population and
percentage of colleagues from under-represented cultural heritage backgrounds within our
0-3 leadership population and overall Virgin Money colleague base.
Group Smile
score
Yes
No
N/a
11
% of interactions scored as a ‘Smile’. A ‘Smile’ is determined by our customers and only counted
as a ‘Smile’ if they score the following three aspects at the highest ranking:
> Whether the customer got what they wanted on an interaction.
> How easy the interaction was.
> How the interaction made them feel.
sentiment noting our Purpose of Making you
happier about money extends to our colleagues
and ensures our customers will be supported
by delighted colleagues working in a healthy,
flexible, digitally-led environment.
Provides a measure to benchmark against peers
and drives accountability within the Group to
improve customer service and ensure we are
making our customers happier about money.
Measures the level of digitisation across our
customer journeys while demonstrating the
realisation of our ambition ‘to be the UK’s best
digital bank’.
Having a diverse and representative workforce
at all levels of our organisation enables us to
better reflect, understand and support our
customers. It also creates the conditions for
rapid innovation, balanced perspective on risk
and improved problem solving organisationally.
It’s a score that is used to supplement NPS,
however we use the Smile scores as our
key customer experience metric given its
ability to capture the role of emotion in
customer advocacy.
379
Virgin Money Annual Report & Accounts 2023Additional information
Strategic report
Governance
Risk report
Climate-related disclosures
Financial statements
Additional information
Principles for Responsible
Banking report
ESG index
Measuring the Group’s performance
Underlying adjustments to the statutory
view of performance
Glossary
Abbreviations
Country by country reporting
Shareholder information
Basis of presentation
Forward-looking statements
338
366
372
381
382
386
388
389
391
391
Measuring the Group’s performance
Metric
KPI
LTIP
LTIP
Year
Page
Definition/formula (where applicable)
Why it matters
Yes
No
N/a
11
Active PCA, BCA and Card customer accounts where active is defined as > £0 balance for Cards;
transaction in the last 12 months for PCA and BCA customer accounts.
Total active
relationship
customer
accounts
ESG
scorecard
No
Yes
2023
2022
135
Demonstrating progress against the Group’s short, medium and long-term targets for:
1. senior colleague gender representation(1);
2. senior colleague ethnic minority representation(1);
3. Group-wide ethnic minority representation(1);
4. carbon emissions, Scope 1 and 2;
5. net zero plan delivery (financed emissions reduction); and
6. colleague engagement.
(1) As a percentage of the population declared.
Risk
scorecard
No
Yes
2023
2022
135
Demonstrating progress against the Group’s targets for customer complaints,
operational risk losses, cost of risk, Group risk profile and Group risk appetite.
It’s an indicator of how well the Group is
performing against its ‘pioneering growth’
strategic priority.
Our ESG scorecard tracks our progress in
creating a sustainable future and the inclusion
of an ESG scorecard within our LTIP ensures
that Executive Director remuneration is aligned
with the Group’s aspiration to drive positive
social and environmental impact through
everything we do.
Our Risk scorecard demonstrates our
commitment to, and monitoring of, prudent
risk management within the business, and its
inclusion within our LTIP ensures Executive
Director remuneration is aligned with the
Group’s aspirations to deliver exceptional
customer experience and ensure operations
and processes drive resilience and positive
customer outcomes.
380
Virgin Money Annual Report & Accounts 2023Additional information
Underlying adjustments to the statutory view of performance
Strategic report
Governance
Risk report
Climate-related disclosures
Financial statements
Additional information
Principles for Responsible
Banking report
ESG index
Measuring the Group’s performance
Underlying adjustments to the statutory
view of performance
Glossary
Abbreviations
Country by country reporting
Shareholder information
Basis of presentation
Forward-looking statements
338
366
372
381
382
386
388
389
391
391
Management exclude certain items from the Group’s statutory position to arrive at an underlying performance basis. Management’s approach to underlying adjustments is aligned to the European
Securities and Markets Authority (ESMA) guidelines on APMs and recommendations are subject to review and agreement by the Board Audit Committee. Additional detail on these items is provided
below to help understand their exclusion from underlying performance.
Item
Restructuring charges
Acquisition accounting unwinds
Legacy conduct
Hedge ineffectiveness(1)
Other:
UTM transition costs
Visa shares
Internally developed
software adjustments
Property, plant and equipment, and
investment property adjustments
Total other
Total underlying adjustments
2023
£m
(131)
(29)
(12)
(16)
(2)
1
(47)
(12)
(60)
(248)
Restated
2022
£m
(82)
(35)
(8)
13
(9)
2
(62)
Reason for exclusion from the Group’s current underlying performance
These costs relate to the Group’s Digital-First strategy. The Group expects to incur c.£275m of restructuring charges across FY22-24.
This consists of the unwind of the IFRS 3 fair value adjustments created on the acquisition of Virgin Money Holdings (UK) PLC in October 2018.
These represent either one-off adjustments or are the scheduled reversals of the accounting adjustments that arose following the fair value exercise
required by IFRS 3. These will continue to be underlying adjustments until the remaining amounts have been fully reversed.
These costs are historical in nature and are not indicative of the Group’s current practices.
The result of hedge accounting and fair value movements on derivatives in economic hedges to the extent they either do not meet the criteria
for hedge accounting or give rise to hedge ineffectiveness. These items are often volatile, driven by accounting requirements and not generally
considered as a component of the core financial result.
These costs relate to UTM’s transformation costs, principally for the build of a new platform for administration and servicing.
A one-off gain on conversion of Visa B Preference shares to Series A preference shares.
These costs relate to the write-off of WIP and intangible asset balances held on the balance sheet as a result of a reassessment of the Group’s
practices on capitalisation against the backdrop of the move to an Agile project delivery in FY22, and in FY23 the write-off charge is in relation
to the Group’s mortgage digitisation programme. Following an assessment of the progress of the project to upgrade the mortgage platform and
challenges identified during testing, we now anticipate a significant deferral and redesign as we implement the upgraded capability.
–
£6m of these costs relate to a data cleanse exercise conducted on the Group’s fixed asset registers ahead of a migration to a single fixed asset
register in FY24 and a £6m reduction in the valuation of an investment property due to changes in market conditions.
(69)
(181)
(1) Hedge ineffectiveness is now presented as an adjustment to underlying earnings due to the increase in volatility caused by the recent significant changes in interest rates. The comparative period has been adjusted accordingly.
381
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Governance
Risk report
Climate-related disclosures
Financial statements
Additional information
Principles for Responsible
Banking report
ESG index
Measuring the Group’s performance
Underlying adjustments to the statutory
view of performance
Glossary
Abbreviations
Country by country reporting
Shareholder information
Basis of presentation
Forward-looking statements
338
366
372
381
382
386
388
389
391
391
Glossary
Term
Definition
Term
Definition
Additional Tier 1 (AT1)
Securities that are considered AT1 capital in the context of CRD IV.
Agile
arrears
Agile working is about bringing people, processes, connectivity and technology,
time and place together to find the most appropriate and effective way of working.
A customer is in arrears (or in a state of delinquency) when they fail to adhere to
their contractual payment obligations resulting in an outstanding loan that is unpaid
or overdue. When a customer is in arrears, the total outstanding loans on which
payments are overdue are said to be delinquent.
carrying value
(also referred to as
carrying amount)
cash and cash
equivalents
The value of an asset or a liability in the balance sheet based on either amortised
cost or fair value principles.
For the purposes of the statement of cash flows, cash and cash equivalents
comprise cash and non-mandatory deposits with central banks and amounts
due from other banks with a maturity of less than three months.
Code
The 2018 UK Corporate Governance Code.
average assets
Represents the average of assets over the year adjusted for any disposed operations.
collateral
The assets of a borrower that are used as security against a loan facility.
Bank
Basel II
Basel III
Basel 3.1
Clydesdale Bank PLC.
Common Equity Tier 1
capital (CET1)
The highest quality form of regulatory capital that comprises total shareholders’
equity, less goodwill and intangible assets and certain other regulatory adjustments.
The capital adequacy framework issued by the Basel Committee on Banking
Supervision (BCBS) in June 2004.
Company
Virgin Money UK PLC.
Reforms issued by the BCBS in December 2017 with subsequent revisions.
An updated version of the Basel III reforms of the regulatory framework issued
by the BCBS in December 2017. These are being implemented in the UK by the PRA
from 1 July 2025.
basis points (bps)
One hundredth of a percent (0.01%); meaning that 100 basis points is equal to 1%.
This term is commonly used in describing interest rate movements.
BAU Business lending
Business lending excluding government lending scheme balances.
Board
Refers to the Virgin Money UK PLC Board or the Clydesdale Bank PLC Board
as appropriate.
Bounce back loan
scheme
Business lending
A scheme implemented by the UK Government to provide financial support to
businesses across the UK that were losing revenue, and seeing their cash flow
disrupted as a result of COVID-19, enabling them to benefit from £50,000 or less
in finance.
Coronavirus business
interruption loan scheme
A scheme implemented by the UK Government to provide financial support to
smaller businesses across the UK that were losing revenue, and seeing their cash
flow disrupted, as a result of COVID-19.
Coronavirus large
business interruption
loan scheme
A scheme implemented by the UK Government to provide financial support to
mid-sized and larger businesses across the UK that were suffering disruption
to their cash flow due to lost or deferred revenues as a result of COVID-19.
counterparty
coverage ratio
covered bonds
The other party that participates in a financial transaction, with every transaction
requiring a counterparty in order for the transaction to complete.
Impairment allowance as at the year end shown as a percentage of gross loans
and advances as at the year end.
A corporate bond with primary recourse to the institution and secondary recourse
to a pool of assets that act as security for the bonds on issuer default. Covered
bonds remain on the issuer’s balance sheet and are a source of term funding for
the Group.
Lending to non-retail customers, including overdrafts, asset and lease financing,
term lending, bill acceptances, foreign currency loans, international and trade
finance, securitisation and specialised finance.
CRD IV
Capital Requirements Directive (EU) 2013/36 revised by Directive (EU) 2019/878,
as implemented in the UK by PRA Policy Statement 22/21 and incorporated into
the PRA Rulebook from 1 January 2022.
carbon related assets
Assets tied to the energy and utilities sectors under the Global Industry
Classification Standard (mapped to internal industry classifications), excluding
water utilities and independent power and renewable electricity producer industries.
credit conversion factor
(CCF)
CCFs are used in determining the EAD in relation to a credit risk exposure. The CCF
is an estimate of the proportion of undrawn and off-balance sheet commitments
expected to be drawn down at the point of default.
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Climate-related disclosures
Financial statements
Additional information
Principles for Responsible
Banking report
ESG index
Measuring the Group’s performance
Underlying adjustments to the statutory
view of performance
Glossary
Abbreviations
Country by country reporting
Shareholder information
Basis of presentation
Forward-looking statements
338
366
372
381
382
386
388
389
391
391
Glossary
Term
Definition
credit impaired
financial asset
credit risk mitigation
A financial asset that is in default or has an individually assessed provision.
This is also referred to as a ‘Stage 3’ impairment loss and subject to a lifetime ECL
calculation. The Group considers 90 DPD as a backstop in determining whether
a financial asset is credit impaired.
Techniques to reduce the potential loss in the event that a customer (borrower or
counterparty) becomes unable to meet its obligations. This may include the taking
of financial or physical security, the assignment of receivables or the use of credit
derivatives, guarantees, credit insurance, set-off or netting.
CRR
Capital Requirements Regulation (EU) 575/2013 revised by Regulation (EU)
2019/876, as implemented in the UK by PRA Policy Statement 22/21 and
incorporated into the PRA Rulebook from 1 January 2022.
customer deposits
Money deposited by individuals or corporate entities that are not credit institutions,
and can be either interest bearing, non-interest bearing or term deposits.
days past due (DPD)
The number of days a facility has borrowing in excess of an agreed or expired limit
or, where facilities are subject to a regular repayment schedule, contractual
payments are not fully up to date.
default
A customer is in default when either they are more than 90 DPD on a credit
obligation to the Group, or are considered unlikely to pay their credit obligations
in full without recourse to actions such as realisation of security (if held).
delinquency
See ‘arrears’.
Demerger
The demerger of the Group from NAB which took effect on 8 February 2016
pursuant to which all of the issued share capital of CYB Investments Limited was
transferred to the Company (formerly CYBG PLC) by NAB in consideration for the
issue and transfer of the Company (formerly CYBG PLC) shares to NAB in part for
the benefit of NAB (which NAB subsequently sold pursuant to the Company’s IPO)
and in part for the benefit of NAB shareholders under a scheme of arrangement
under part 5.1 of the Australian Corporations Act.
derivative
A financial instrument that is a contract or agreement whose value is related
to the value of an underlying instrument, reference rate or index.
Term
exposure
exposure at default
(EAD)
fair value
Flood Re
forbearance
Definition
A claim, contingent claim or position which carries a risk of financial loss.
The estimate of the amount that the customer will owe at the time of default.
The price that would be received to sell an asset or paid to transfer a liability
in an orderly transaction in the principal (or most advantageous) market at the
measurement date under current market conditions.
A joint initiative between the UK Government and home insurers to provide widely
available and affordable insurance for homes in high-risk flood areas.
The term generally applied to the facilities provided or changes to facilities
provided to assist borrowers, who are experiencing, or are about to experience,
a period of financial stress.
full time equivalent (FTE)
The standardised method of measurement that represents the number of hours
worked by all Virgin Money employees, both full time and part time (excluding
contractors or long-term absences).
Group
Virgin Money UK PLC and its controlled entities.
hedge ineffectiveness
Represents the extent to which the income statement is impacted by changes in
fair value or cash flows of hedging instruments not being fully offset by changes
in fair value or cash flows of hedged items.
IFRS 9
The financial instrument accounting standard which was adopted by the Group
with effect from 1 October 2018.
IFRS 9 transitional
adjustments – dynamic
That part of the transitional adjustments on regulatory capital arising from the
increase in impairment provisions (on non-credit impaired exposures) from the date
of initial adoption of IFRS 9 to the reporting date.
IFRS 9 transitional
adjustments – static
That part of the transitional adjustments on regulatory capital arising from the
increase in impairment provisions on initial adoption of IFRS 9 from those calculated
under IAS 39.
effective interest rate
(EIR)
The rate used to calculate interest income or expense under the effective
interest method.
impairment allowances
An ECL provision held on the balance sheet for financial assets calculated
in accordance with IFRS 9. The impairment allowance is calculated as either
a 12-month or a lifetime ECL.
emissions intensity
Emission rate of a given pollutant per unit of economic output or activity.
impairment losses
encumbered assets
Assets that have been pledged as security, collateral or legally ‘ring-fenced’
in some other way which prevents those assets being transferred, pledged,
sold or otherwise disposed.
The ECL calculated in accordance with IFRS 9 and recognised in the income
statement with the carrying value of the financial asset reduced by creating
an impairment allowance. Impairment losses are calculated as either a 12-month
or lifetime ECL.
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Governance
Risk report
Climate-related disclosures
Financial statements
Additional information
Principles for Responsible
Banking report
ESG index
Measuring the Group’s performance
Underlying adjustments to the statutory
view of performance
Glossary
Abbreviations
Country by country reporting
Shareholder information
Basis of presentation
Forward-looking statements
338
366
372
381
382
386
388
389
391
391
Glossary
Term
Definition
Term
Definition
Internal Capital Adequacy
Assessment Process
(ICAAP)
Internal Liquidity
Adequacy Assessment
Process (ILAAP)
The Group’s assessment of the levels of capital that it needs to hold through
an examination of its risk profile from regulatory and economic capital viewpoints.
Low-carbon economy
An economy based on energy sources that produce low levels of greenhouse
gas emissions.
The Group’s assessment and management of balance sheet risks relating
to funding and liquidity.
market-based emissions
Calculated as the electricity that companies have purposefully chosen to purchase.
It derives emission factors from contractual instruments, which include any type
of contract between two parties for the sale and purchase of energy bundled with
attributes about the energy generation, or for unbundled attribute claims.
Internal Ratings-Based
approach (IRB)
A method of calculating credit risk capital requirements using internal, rather than
supervisory, estimates of risk parameters.
medium-term notes
Debt instruments issued by corporates, including financial institutions, across
a range of maturities.
investment grade
The highest possible range of credit ratings, from ‘AAA’ to ‘BBB’, as measured
by external credit rating agencies.
Minimum Requirement for
Own Funds and Eligible
Liabilities (MREL)
A minimum requirement for institutions to maintain equity and eligible debt
liabilities, to help ensure that if an institution fails the resolution authority can use
these financial resources to absorb losses and recapitalise the continuing business.
Level 1 fair value
measurements
Financial instruments whose fair value is derived from unadjusted quoted prices
for identical instruments in active markets.
National Databank
The National Databank provides free mobile data, texts and calls to people in need
via Good Things Foundation’s network of local community partners.
Level 2 fair value
measurements
Financial instruments whose fair value is derived from quoted prices for similar
instruments in active markets and financial instruments valued using models
where all significant inputs are observable.
net interest income (NII)
The amount of interest received or receivable on assets, net of interest paid
or payable on liabilities.
Level 3 fair value
measurements
Financial instruments whose fair value is derived from valuation techniques
where one or more significant inputs are unobservable.
Net Promoter Score
(NPS)
This is an externally collated customer loyalty metric that measures loyalty between
a provider, who in this context is the Group, and a consumer.
lifetime ECL
Listing Rules
The ECL calculation performed on financial assets where a SICR since origination
has been identified. This can be either a ‘Stage 2’ or ‘Stage 3’ impairment loss
depending on whether the financial asset is credit impaired.
Regulations applicable to any company listed on a UK stock exchange, subject
to the oversight of the UK Listing Authority (UKLA). The Listing Rules set out
mandatory standards for any company wishing to list its shares or securities
for sale to the public.
Net zero
Negating the amount of greenhouse gases produced by human activity.
Paris Climate Agreement
Legally binding international treaty to limit global warming to below 2 degrees
Celsius, and preferably to 1.5 degrees Celsius above pre-industrial levels.
Personal lending
Lending to individuals rather than institutions excluding mortgage lending which
is reported separately.
loan to value ratio (LTV)
A ratio that expresses the amount of a loan as a percentage of the value of the
property on which it is secured.
probability of default (PD)
The probability that a customer will default over either the next 12 months
or lifetime of the account.
location-based emissions
Calculated using the average emissions intensity of the grids on which energy
consumption occurs, using mostly grid-average emission factor data.
Recovery loan scheme
(RLS)
A scheme implemented by the UK Government to provide financial support to small
and medium-sized businesses across the UK to promote growth and investment
following the disruption caused by COVID-19.
loss-absorbing capacity
(LAC) requirement
The required level of MREL resources that the Group is required to hold to meet
its MREL requirement and applicable capital buffers set by the BoE.
regulatory capital
The capital which the Group holds, determined in accordance with rules
established by the PRA.
loss given default (LGD)
The estimate of the loss that the Group will suffer if the customer defaults
(incorporating the effect of any collateral held).
relationship deposits
Current account and linked savings balances.
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Strategic report
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Risk report
Climate-related disclosures
Financial statements
Additional information
Principles for Responsible
Banking report
ESG index
Measuring the Group’s performance
Underlying adjustments to the statutory
view of performance
Glossary
Abbreviations
Country by country reporting
Shareholder information
Basis of presentation
Forward-looking statements
338
366
372
381
382
386
388
389
391
391
Glossary
Term
Definition
residential mortgage-
backed securities (RMBS)
Securities that represent interests in groups or pools of underlying mortgages.
Investors in these securities have the right to cash received from future mortgage
payments (interest and principal).
Term
segment
ring-fencing
A regime of rules which require banks to change the way that they are structured
by separating retail banking services from investment and international banking.
This is to ensure the economy and taxpayers are protected in the event of any
future financial crises.
significant increase
in credit risk (SICR)
risk appetite
The level and types of risk the Group is willing to assume within the boundaries
of its risk capacity to achieve its strategic objectives.
standardised approach
risk-weighted asset
(RWA)
On and off-balance sheet assets of the Group are allocated a risk weighting based
on the amount of capital required to support the asset.
sale and repurchase
agreement (repo)
A short-term funding agreement that allows a borrower to create a collateralised
loan by selling a financial asset to a lender. As part of the agreement, the borrower
commits to repurchase the security at a date in the future repaying the proceeds
of the loan. For the counterparty (buying the security and agreeing to sell in the
future) it is a reverse repurchase agreement or a reverse repo.
Scheme
The Group’s defined benefit pension scheme, the Yorkshire and Clydesdale Bank
Pension Scheme.
stress testing
structured entity
Definition
Generally refers to customer, product or commercial lines unless used within the
financial statements where the results are disclosed on a single segment basis in
line with that reported to the Group’s Chief Operating Decision Maker.
The assessment performed on financial assets at the reporting date to determine
whether a 12-month or lifetime ECL calculation is required. Qualitative and
quantitative triggers are assessed in determining whether there has been a SICR
since origination. The Group considers 30 DPD as a backstop in determining
whether a SICR since origination has occurred.
In relation to credit risk, a method for calculating credit risk capital requirements
using External Credit Assessment Institutions ratings and supervisory risk weights.
In relation to operational risk, a method of calculating the operational capital
requirement by the application of a supervisory defined percentage charge to
the gross income of eight specified business lines.
The term used to describe techniques where plausible events are considered
as vulnerabilities to ascertain how this will impact the own funds or liquidity which
a bank holds.
An entity created to accomplish a narrow well-defined objective (e.g. securitisation
of financial assets). An SE may take the form of a corporation, trust, partnership or
unincorporated entity. SEs are often created with legal arrangements that impose
strict limits on the activities of the SE. May also be referred to as an SPV.
science-based targets
Scope 1/2/3 emissions
secured lending
securitisation
Science-based targets provide a clearly defined pathway for companies and
financial institutions to reduce GHG emissions, helping prevent the worst impacts
of climate change and future-proof business growth.
Targets are considered ‘science based’ if they are in line with what the latest
climate science deems necessary to meet the goals of the Paris Agreement –
limiting global warming to 1.5°C above pre-industrial levels.
subordinated debt
Liabilities which rank after the claims of other creditors of the issuer in the event
of insolvency or liquidation.
Term Funding Scheme
(TFS)
A scheme launched in 2016 by the BoE to allow banks and building societies
to borrow from the BoE at rates close to base rate. This is designed to increase
lending to businesses by lowering interest rates and increasing access to credit.
Scope 1, 2, and 3 emissions are a way of categorising business emissions,
accounting for both direct and indirect emitted GHGs. Scope 1 emissions are GHGs
released directly from a business. Scope 2 emissions are indirect GHGs released
from the energy purchased by an organisation. Scope 3 emissions are also indirect
GHG emissions, accounting for upstream and downstream emissions of a product
or service, and emissions across a business’s value chain.
Tier 1 capital
Tier 2 capital
A measure of a bank’s financial strength defined by CRD IV. It captures CET1 capital
plus other Tier 1 securities (as defined by CRD IV) in issue, subject to deductions.
A component of regulatory capital, including qualifying subordinated debt, eligible
collective impairment allowances and other Tier 2 securities as defined by CRD IV.
Lending in which the borrower pledges some asset (e.g. property) as collateral
for the lending.
unsecured lending
Lending in which the borrower pledges no assets as collateral for the lending
(such as credit cards and current account overdrafts).
The practice of pooling similar types of contractual debt and packaging the
cash flows from the financial asset into securities that can be sold to institutional
investors in debt capital markets. It provides the Group with a source of secured
funding that can achieve a reduction in funding costs by offering typically ‘AAA’
rated securities secured by the underlying financial asset.
value at risk (VaR)
A measure of the loss that could occur on risk positions as a result of adverse
movements in market risk factors (e.g. rates, prices, volatilities) over a specified
time horizon and to a given level of confidence.
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Governance
Risk report
Climate-related disclosures
Financial statements
Additional information
Principles for Responsible
Banking report
ESG index
Measuring the Group’s performance
Underlying adjustments to the statutory
view of performance
Glossary
Abbreviations
Country by country reporting
Shareholder information
Basis of presentation
Forward-looking statements
338
366
372
381
382
386
388
389
391
391
Abbreviations
ACS
AFD
Annual cyclical scenario
CMA
Competition and Markets Authority
FVTPL
Fair value through profit or loss
Approaching financial difficulty
CPI
Consumer Price Index
GAAP
Generally Accepted Accounting Principles
AGM
Annual General Meeting
CRD
Capital Requirements Directive
GDIA
Group Director Internal Audit
ISDA
ISSB
International Swaps and
Derivatives Association
International Sustainability
Standards Board
AI
Artificial intelligence
ALCO
Asset and Liability Committee
CRE
CRR
Commercial Real Estate
GDP
Gross Domestic Product
JV
Joint venture
Capital Requirements Regulation
GDPR
General Data Protection Regulation
KMP
Key management personnel
ALMV
A Life More Virgin
CSRBB
Credit spread risk in the banking book
GFC
Global financial crisis
APM
Alternative Performance Measure
CYBI
CYB Investments Limited
GHFA
Green Homes Finance Accelerator
Australian Securities Exchange
DE&I
Diversity, equity and inclusion
GHG
Greenhouse gases
Additional Tier 1
Deferred Equity Plan
G-SII
Global Systemically Important Institution
KPI
LAC
LCR
LDR
Key Performance Indicator
Loss-absorbing capacity
Liquidity coverage ratio
Loan to deposit ratio
ASX
AT1
ATM
Automated teller machine
AUM
Assets under management
BAU
BCA
Business as usual
Business current account
BCBS
Basel Committee on Banking Supervision
BoE
bps
BTL
Bank of England
Basis points
Buy-to-let
CBES
Climate Biennial Exploratory Scenario
CCC
Climate Change Committee
CCF
Credit conversion factor
CCyB
Countercyclical Capital Buffer
CDI
CDP
CER
CHESS Depositary Interest
Carbon Disclosure Project
Certified Emissions Reduction
CET1
Common Equity Tier 1 Capital
CIPD
Chartered Institute of Personnel
and Development
DEP
DPD
DTR
EAD
EBA
EBT
ECL
EIR
EPC
EPS
ESG
EY
FCA
FIRB
FPC
FRC
FTE
Days past due
Disclosure Guidance and
Transparency Rules
HaRi
Human resources meets
artificial intelligence
LGBTQ+ Lesbian, gay, bisexual, transgender,
queer (or questioning) plus
HMRC
His Majesty’s Revenue and Customs
LGD
Loss Given Default
Exposure at default
HPI
House Price Index
LIBOR
London Interbank Offered Rate
European Banking Authority
HQLA
High Quality Liquid Asset
Employee benefit trust
IAS
International Accounting Standard
LSE
LTIP
LTV
London Stock Exchange
Long-term incentive plan
Loan to value
IASB
International Accounting Standards Board
IBOR
Interbank Offered Rate
MGC
Model Governance Committee
ICAAP
Internal Capital Adequacy
Assessment Process
MREL
Minimum Requirement for Own Funds
and Eligible Liabilities
IFRS
International Financial Reporting Standard
MRT
Material Risk Takers
Expected credit loss
Effective interest rate
Energy performance certificate
Earnings per share
Environmental, social and governance
Ernst & Young LLP
Financial Conduct Authority
Foundation internal ratings-based
ILAAP
Internal Liquidity Adequacy
Assessment Process
IPO
IRB
Initial Public Offering
Internal ratings-based
Financial Policy Committee
IRRBB
Interest rate risk in the banking book
Financial Reporting Council
ISA
International Standards on Auditing
Full time equivalent
FVOCI
Fair value through other
comprehensive income
ISAE
International Standard on
Assurance Engagements
NAB
National Australia Bank Limited
NII
NIM
NPS
Net interest income
Net interest margin
Net promoter score
NSFR
Net stable funding ratio
NZBA
Net Zero Banking Alliance
O-SII
Other Systemically Important Institution
PBT
Profit before tax
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Abbreviations
PCA
Personal current accounts
STIP
Short-term Incentive Plan
PCAF
Partnership for Carbon
Accounting Financials
TCFD
Task Force on Climate-related
Financial Disclosures
Probability of Default
TFS
Term Funding Scheme
PD
PIE
Pension Increase Exchange
Climate-related disclosures
POCI
Purchased or originated credit impaired
Financial statements
Additional information
Principles for Responsible
Banking report
ESG index
Measuring the Group’s performance
Underlying adjustments to the statutory
view of performance
Glossary
Abbreviations
Country by country reporting
Shareholder information
Basis of presentation
Forward-looking statements
338
366
372
381
382
386
388
389
391
391
PRA
Prudential Regulation Authority
RACE
Risk Analytics Centre of Excellence
RAF
RAS
RLS
Risk Appetite Framework
Risk Appetite Statement
Recovery Loan Scheme
RMBS
Residential mortgage-backed securities
RMF
Risk Management Framework
RoTE
Return on Tangible Equity
RPI
Retail Price Index
RWA
Risk-weighted asset
SASB
Sustainability Accounting Standards Board
SBC
Sustainable Business Coach
SBTi
Science-based targets initiative
SDG
Sustainable Development Goal
SICR
Significant increase in credit risk
SIP
Statement of Investment Principles
SMCR
Senior Managers and Certification Regime
SME
SMF
Small or medium-sized enterprise
Sterling Monetary Framework
SONIA
Sterling Overnight Index Average
SST
Solvency Stress Test
TFSME
Term Funding Scheme with additional
incentives for SMEs
TNAV
Tangible net asset value
TNFD
Taskforce on Nature-related
Financial Disclosures
TPT
Transition Plan Taskforce
UK SDS
Sustainability Disclosure Standards
UN PRB
United Nations’ Principles
for Responsible Banking
UNEPFI
United Nations Environment Programme
Finance Initiative
UTM
Virgin Money Unit Trust Managers Limited
VAA
Virgin Atlantic Airways Limited
VaR
VIU
WIP
YoY
Value at risk
Value-in-use
Work-in-progress
Year-on-year
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Country by country reporting
The Capital Requirements (Country by Country Reporting) Regulations 2013 came into effect
on 1 January 2014 and place certain reporting obligations on financial institutions that are within
the scope of the European Union’s CRD IV. The purpose of the Regulations is to provide clarity
on the source of the Group’s income and the locations of its operations.
The vast majority of entities that are consolidated within the Group’s financial statements are
UK registered entities. The activities of the Group are described in the Strategic report.
Average FTE employees (number)
Total operating income (£m)
Profit before tax (£m)
Corporation tax paid (£m)
Public subsidies received (£m)
2023
UK
7,166
1,827
345
45
–
The only other non-UK registered entity of the Group is a Trustee company that is part of the
Group’s securitisation vehicles (Lanark and Lannraig). Lannraig Trustees Limited is registered
in Jersey. This entity plays a part in the overall securitisation process by having the beneficial
interest in certain mortgage assets assigned to it. This entity has no assets or liabilities recognised
in its financial statements with the securitisation activity taking place in other UK registered
entities of the structures. This entity does not undertake any external economic activity and
has no employees. The results of this entity as well as those of the entire Lanark and Lannraig
securitisation structures are consolidated in the financial statements of the Group.
Strategic report
Governance
Risk report
Climate-related disclosures
Financial statements
Additional information
Principles for Responsible
Banking report
ESG index
Measuring the Group’s performance
Underlying adjustments to the statutory
view of performance
Glossary
Abbreviations
Country by country reporting
Shareholder information
Basis of presentation
Forward-looking statements
338
366
372
381
382
386
388
389
391
391
388
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Strategic report
Governance
Risk report
Climate-related disclosures
Financial statements
Additional information
Principles for Responsible
Banking report
ESG index
Measuring the Group’s performance
Underlying adjustments to the statutory
view of performance
Glossary
Abbreviations
Country by country reporting
Shareholder information
Basis of presentation
Forward-looking statements
338
366
372
381
382
386
388
389
391
391
Shareholder information
Annual General Meeting (AGM)
The Company’s 2024 AGM will be held on 1 March 2024. Full details of the arrangements for the
AGM and details of the resolutions to be proposed, together with explanatory notes, will be set
out in the Notice of AGM to be published on the Company’s website (www.virginmoneyukplc.com).
The AGM provides shareholders the opportunity to vote on each individual resolution either online,
by post or in-person by attending the AGM. Shareholders typically vote on the reappointment of
each individual Director on an annual basis and various share capital and remuneration matters.
Shareholder enquiries
The Company’s share register is maintained by the Company’s Registrar, Computershare.
Shareholders with queries relating to their shareholding should contact Computershare directly
using one of the methods below. Shareholders can visit the Investor Centre online by scanning
the QR code below with a compatible mobile device.
Registrar
Computershare UK
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol
United Kingdom BS99 6ZZ
Tel within UK – 0370 707 1172
Tel outside UK – +44 370 707 1172
Email: www.investorcentre.co.uk/contactus
Web: www.investorcentre.co.uk
Computershare Australia
Computershare Investor Services Pty Limited
Yarra Falls
452 Johnston Street
Abbotsford VIC 3067
Australia
Tel within Australia – 1800764308
Tel outside Australia – +61 3 9415 4142
Email: www.investorcentre.com/contact
Web: www.investorcentre.com/au
Duplicate shareholder accounts
If you receive more than one copy of Company mailings this may indicate that more than one
account is held in your name on the register. This happens when the registration details of separate
transactions differ slightly. If you believe more than one account exists in your name you may
contact Computershare to request that the accounts are combined. There is no charge for
this service.
Electronic communications
The Company uses its website (www.virginmoneyukplc.com) as its primary means of
communication with its shareholders provided that the shareholder has agreed or is deemed
to have agreed that communications may be sent or supplied in that manner. As a Purpose-led
business we focus on where we can make the biggest difference to the environment and society.
Electronic communications allow shareholders to access information instantly as well as helping
the Company reduce its costs and its impact on the planet. Shareholders who have consented or
are deemed to have consented to electronic communications can revoke their consent at any time
by contacting the Company’s Registrar, Computershare.
Shareholders can sign up for electronic communications online via the following links:
Holders of shares on the LSE: www.investorcentre.co.uk/ecomms
Holders of CDIs on the ASX: www.investorcentre.com/au
Dividend payments
Where possible, shareholders are encouraged to have their dividend payments paid directly into
their bank accounts.
Holders of ordinary shares listed on the LSE are encouraged to elect to receive dividend payments
direct to UK (GBP) accounts.
Holders of CDIs quoted on the ASX are encouraged to elect to receive dividend payments direct
to UK (GBP) accounts, Australian (AUD) accounts and New Zealand (NZD) accounts. Holders who
have not provided direct payment instruction will receive (by post) an Australian (AUD) cheque.
The Board recommends that you sign up to receive your dividends directly into your bank account
through the Investor Centre Portal provided by Computershare at www.investorcentre.co.uk, if you
are in the UK or, at www.investorcentre.com/au if you are in Australia.
389
Virgin Money Annual Report & Accounts 2023Additional information
Shareholder interests as at 30 September 2023
By size of holding:
Range
1–1,000
1,001–5,000
5,001–10,000
10,001–100,000
100,001–999,999,999
No of
shareholders
104,138
19,805
3,153
2,584
308
%
80.10
15.24
2.43
1.99
0.24
No of
shares
33,785,989
42,099,347
22,416,962
62,424,199
%
2.51
3.13
1.67
4.64
1,183,914,471
88.05
Financial calendar for FY24
2024 key financial reporting dates will be published on our website – www.virginmoneyukplc.com
Shareholder information
Strategic report
Governance
Risk report
ShareGift
Do you have a small holding of Virgin Money or other shares? Did you know that you can transfer
shares to charity, free of charge?
ShareGift is the share donation charity that uses small or unwanted shareholdings to generate
funds for good causes. The charity aggregates and sells donated shares, then uses the proceeds
to make donations to other registered charities.
Climate-related disclosures
Since it was set up, ShareGift has donated over £43m to more than 3,300 charities. Your small
or unwanted shares could make a real difference too.
Financial statements
Additional information
Principles for Responsible
Banking report
ESG index
Measuring the Group’s performance
Underlying adjustments to the statutory
view of performance
Glossary
Abbreviations
Country by country reporting
Shareholder information
Basis of presentation
Forward-looking statements
338
366
372
381
382
386
388
389
391
391
Ordinary shareholders – ShareGift
ShareGift (https://www.sharegift.org)
or call +44 (0)20 7930 3737.
CDI holders – ShareGift Australia
ShareGift (https://sharegiftaustralia.org.au)
or call +61 2 8328 9444.
Corporate website
Information on the Company is available on its website (www.virginmoneyukplc.com) including:
>
financial information – annual and half-yearly reports as well as trading updates;
> share price information – current trading details;
> shareholder information – investor presentations and share register profile; and
> news releases – current and historical.
Unsolicited telephone calls and communication
Shareholders are advised to be wary of any unsolicited advice, offers to buy shares at a discount,
or offers of free reports about the Company. These are typically from overseas based ‘brokers’ who
target shareholders, offering to sell them what often turns out to be worthless or high-risk shares.
These operations are commonly known as ‘boiler rooms’ and the ‘brokers’ can be very persistent
and extremely persuasive.
Shareholders are advised to deal with only financial services firms that are authorised by the
FCA. You can check a firm is properly authorised by the FCA before getting involved by visiting
www.fca.org.uk/register. If you do deal with an unauthorised firm, you will not be eligible to receive
payment under the Financial Services Compensation Scheme if anything goes wrong. For more
detailed information on how you can protect yourself from an investment scam, or to report a scam,
go to www.fca.org.uk/scamsmart
390
Virgin Money Annual Report & Accounts 2023Additional information
Strategic report
Governance
Risk report
Climate-related disclosures
Financial statements
Additional information
Principles for Responsible
Banking report
ESG index
Measuring the Group’s performance
Underlying adjustments to the statutory
view of performance
Glossary
Abbreviations
Country by country reporting
Shareholder information
Basis of presentation
Forward-looking statements
338
366
372
381
382
386
388
389
391
391
Basis of presentation
Forward-looking statements
Virgin Money UK PLC (‘Virgin Money’, ‘VMUK’
or ‘the Company’), together with its subsidiary
undertakings (which together comprise ‘the Group’),
operate under the Clydesdale Bank, Yorkshire Bank
and Virgin Money brands. This Annual Report and
Accounts covers the results of the Group for the
year ended 30 September 2023.
Statutory basis
Statutory information is set out on page 67 and
within the financial statements.
Underlying basis
Management exclude certain items from the
Group’s statutory position to arrive at an underlying
performance basis. A reconciliation from the underlying
results to the statutory basis is shown on page 67 and
rationale for the adjustments is shown on page 381.
Alternative performance measures (APMs)
The KPIs and performance metrics used in monitoring
the Group’s performance and reflected throughout
this report are determined on a combination of bases
(including statutory, regulatory and alternative
performance measures), as detailed at ‘Measuring the
Group’s performance’ on pages 372 to 380. APMs are
closely scrutinised to ensure that they provide genuine
insights into the Group’s progress; however statutory
measures are the key determinant of dividend
paying capability.
Certain figures contained in this document, including
financial information, may have been subject to rounding
adjustments and foreign exchange conversions.
Accordingly, in certain instances, the sum or percentage
change of the numbers contained in this document
may not conform exactly to the total figure given.
In light of these risks, uncertainties and assumptions,
the events in the forward-looking statements may not
occur. Forward-looking statements involve inherent
risks and uncertainties and should be viewed as
hypothetical. Other events not taken into account may
occur and may significantly affect the analysis of the
forward-looking statements. No member of the Group
or their respective directors, officers, employees,
agents, advisers or affiliates (each a ‘VMUK Party’)
gives any representation, warranty or assurance that
any such projections or estimates will be realised or
that actual returns or other results will not be materially
lower than those set out in the Information. All forward-
looking statements should be viewed as hypothetical.
No representation or warranty is made that any
forward-looking statement will come to pass. While
every effort has been made to ensure the accuracy of
the Information, no VMUK Party takes any responsibility
for the Information or to update or revise it. They will
not be liable for any loss or damages incurred through
the reliance on or use of it. The Information is subject
to change. No representation or warranty, express
or implied, as to the truth, fullness, fairness,
merchantability, accuracy, sufficiency or completeness
of the Information is given.
Certain industry, market and competitive position data
contained in the Information comes from official or
third-party sources. There is no guarantee of the
accuracy or completeness of such data. While the
Group reasonably believes that each of these
publications, studies and surveys has been prepared
by a reputable source, no member of the Group or
their respective directors, officers, employees, agents,
advisers or affiliates have independently verified
the data.
This document and any other written or oral material
discussed or distributed in connection with the results
(the ‘Information’) may include forward-looking
statements, which are based on assumptions,
expectations, valuations, targets, estimates, forecasts
and projections about future events. These can be
identified by the use of words such as ‘expects’, ‘aims’,
‘targets’, ‘seeks’, ‘anticipates’, ‘plans’, ‘intends’, ‘prospects’,
‘outlooks’, ‘projects’, ‘forecasts’, ‘believes’, ‘estimates’,
‘potential’, ‘possible’, and similar words or phrases.
These forward-looking statements are subject to risks,
uncertainties and assumptions about the Group and
its securities, investments and the environment
in which it operates, including, among other things,
the development of its business and strategy,
any acquisitions, combinations, disposals or other
corporate activity undertaken by the Group, trends in
its operating industry, changes to customer behaviours
and covenant, macroeconomic and/or geo-political
factors, the repercussions of the outbreak of
coronaviruses (including, but not limited to, the
COVID-19 outbreak), changes to its Board and/or
employee composition, exposures to terrorist activity,
IT system failures, cybercrime, fraud and pension
scheme liabilities, risks relating to environmental
matters such as climate change including the Group’s
ability along with the government and other
stakeholders to measure, manage and mitigate the
impacts of climate change effectively, changes to law
and/or the policies and practices of the Bank of
England (BoE), the Financial Conduct Authority (FCA)
and/or other regulatory and governmental bodies,
inflation, deflation, interest rates, exchange rates, tax
and national insurance rates, changes in the liquidity,
capital, funding and/or asset position and/or credit
ratings of the Group, future capital expenditures and
acquisitions, the repercussions of Russia’s invasion
of Ukraine, the repercussions of the UK’s exit from
the European Union (EU) (including any change to the
UK’s currency and the terms of any trade agreements
(or lack thereof) between the UK and the EU),
Eurozone instability, any referendum on Scottish
independence, and any UK or global cost of living
crisis or recession.
In addition, certain industry, market and competitive
position data contained in the Information comes from
the Group’s own internal research and estimates based
on the knowledge and experience of the Group’s
management in the markets in which the Group
operates. While the Group reasonably believes that
such research and estimates are reasonable and
reliable, they, and their underlying methodology and
assumptions, have not been verified by any independent
source for accuracy or completeness, and are subject
to change. Accordingly, undue reliance should not be
placed on any of the industry, market or competitive
position data contained in the Information.
The Information does not constitute or form part of,
and should not be construed as, any public offer
under any applicable legislation or an offer to sell
or solicitation of any offer to buy any securities or
financial instruments or any advice or recommendation
with respect to such securities or other financial
instruments. The distribution of the Information in
certain jurisdictions may be restricted by law.
Recipients are required to inform themselves about
and to observe any such restrictions. No liability to
any person is accepted in relation to the distribution
or possession of the Information in any jurisdiction.
391
Virgin Money Annual Report & Accounts 2023Additional information
Designed and produced by
Ensemble Studio
Part of FleishmanHillard
Visit us at fhensemblestudio.com
Head Office:
177 Bothwell Street, Glasgow, G2 7ER
London Office:
Floor 15, The Leadenhall Building,
122 Leadenhall Street, London, EC3V 4AB
Registered Office:
Jubilee House, Gosforth,
Newcastle upon Tyne, NE3 4PL
virginmoneyukplc.com
Virgin Money UK PLC
Registered number 09595911 (England and Wales)
ARBN 609 948 281 (Australia)