Funding Circle Holdings plc Annual Report and Accounts 2020
Summary
Annual Report and Accounts 2020 of Funding Circle Holdings plc, with the Strategic Report stated as approved by the Board on 25 March 2021 and signed with the name Samir Desai, Chief Executive Officer. Its contents list a Strategic report, Corporate governance and Financial statements. The highlights page states net assets of £218 million and UK originations of c.£1.5 billion for H2 2020, up 91% year-on-year. The report says Funding Circle has helped over 100,000 small businesses to access more than £11.5 billion, and its mission is to build the place where small businesses get the funding they need.
Summary drafted by a model from the document's text below and checked by script against that text before publication. It is a navigation aid, not a reading of what the document proves. Where AI is used
Archived web capture. Preserved source — captured from corporate.fundingcircle.com; archived 2026-09-26.
Cite this document
“Funding Circle Holdings plc Annual Report and Accounts 2020.”
Original at corporate.fundingcircle.com. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/annual-report-and-accounts-2020-bf61bb50ba/
, SHA-256 fb0e407fb7ad5e28fc8cb80c77f55d80b4f80af8fe00155888301fd98b8372d6.Full text
HELPING SMALL
BUSINESSES
WINFunding Circle Holdings plc
Annual Report and Accounts 2020
OUR MISSION
Build the place where small
businesses get the funding
they need to win.
HOW WE DO IT
We deliver an amazing
experience for small
businesses powered
by machine learning
and technology.
Strategic report
Highlights
A year of two halves Statutory financial
‐ H1 2020 responding to Covid-19 KPIs
‐ H2 2020 strong demand with H2 2020 UK originations Total income Loss before tax
c.£1.5 billion, up 91% year-on-year
£222.0m £108.1m
Our technology platform is transforming 2019: £177.3m 2019: £84.2m
the SME borrowing experience
‐ 50% of applications now getting instant decisions APM1
KPIs
Resilient funding and loan performance Adjusted EBITDA¹
through the recession
‐ All investor cohorts expected to deliver positive returns £(63.8)m
2019: £(27.5)m
Profitable in H2 2020
‐ Group: H2 2020 £20.3 million AEBITDA FY: £(63.8) million
Operational
and H2 2020 £7.2 million operating profit. FY: £(106.3) million
KPIs
‐ UK: H2 2020 £28.6 million AEBITDA. FY: £6.5 million and
Loans under management Originations
H2 2020 £21.3 million operating profit. FY: £(7.9) million
Robust net assets of £218 million £4.2bn £2.7bn
‐ Small increase in net assets since June 2020 2019: £3.7bn 2019: £2.4bn
Building a dynamic team 1. For reconciliation of alternative performance measures (“APM”) to
statutory measures refer to page 171.
‐ All Circlers are owners of the business through an
equity programme
‐ 83% would recommend Funding Circle as a place to work
‐ 41% gender diversity across the business
Contents
Strategic report Corporate governance Financial statements
01 Highlights 51 Chairman’s introduction 104 Independent auditors’ report
02 Funding Circle at a glance 53 Board of Directors 112 Consolidated statement of
03 Investment case 56 Corporate governance report comprehensive income
04 Our 2020 story 62 Division of responsibilities 113 Consolidated balance sheet
06 Chairman’s statement 63 Composition, succession and evaluation 114 Consolidated statement of changes
in equity
08 Chief Executive Officer’s statement 65 Audit, risk and internal control
10 Our market 66 Report of the Nomination Committee
115 Consolidated statement of cash flows
13 Technology and data 69 Report of the Audit Committee
116 Notes forming part of the consolidated
financial statements
14 Our model 75 Report of the Risk and
Compliance Committee
160 Company balance sheet
16 Borrower experience
78 Directors’ remuneration report 161 Company statement of changes in equity
17 Investor experience
89 Annual report on remuneration 162 Company statement of cash flows
18 Strategic priorities
99 Report of the Directors 163 Notes forming part of the Company
19 Our people
financial statements
22 Sustainability 102 S tatement of Directors’ responsibilities
in respect of the financial statements
171 Glossary
26 Engaging our stakeholders
172 Shareholder and Company information
28 Key performance indicators
30 Finance review
36 Risk management
40 Principal risks and uncertainties
48 Viability statement
The Strategic Report was approved by the Board on 25 March 2021.
Samir Desai
Chief Executive Officer
Annual Report and Accounts 2020 01
Strategic report
Funding Circle at a glance
About Funding Circle
At Funding Circle we deliver an amazing customer experience
for small businesses using machine learning and technology.
A great customer experience is built on exceptional
fundamentals and seamless technology.
Over the past ten years, we have built a technology
platform that is revolutionising SME lending. Small
businesses can complete a loan application and
More
receive a decision in a matter of minutes, enabling Larger
repeat
them to access funding quickly and at an ecosystem
customers
affordable rate.
Today, as a leading global platform for small
business loans we have helped over 100,000 small New More
products data
businesses to access more than £11.5 billion.
Our investment in technology has resulted in strong
customer satisfaction scores and high repeat rates, More
Better
helping us to grow alongside our small businesses. machine
operating
learning
leverage
We believe that as we get bigger and help more models
Better
small businesses access the finance they need borrower
to grow, we create a stronger platform that drives experience
significant competitive advantage. This creates
a virtuous circle that will enable us to continue
to help thousands of small businesses around
the world and drive market share.
135,000
jobs supported by
SME borrowers1
£10 billion
GDP contribution1
<2%
SME lending as a share
of bank balance sheets2
£305 billion
Total addressable market3
1. Source: Supporting SMEs through the crisis and recovery: Funding Circle’s 2020 impact, Oxford Economics, March 2021.
2. Source: Bank of England, US Federal Reserve, FDIC.
3. Source: OC&C analysis, 2019.
02 Funding Circle Holdings plc
Investment case
WHAT MAKES
FUNDING CIRCLE UNIQUE
Illicon
Unlimited Lending Potential
Ground breaking technology 50%
Instant Decision Lending is reinventing SME lending of loan applications
using machine learning and technology automated
Read more on page 13
Proven #1 UK platform 3rd
Leading SME loans platform with ten years’ experience Largest CBILS1 provider
Read more on page 04
Significant addressable market £305 billion
SMEs are underserved by traditional lenders and represent Total addressable market
a significant addressable market in the UK and US
Read more on page 10
Attractive financial profile £7 million
Profitable in H2 2020 and expect to be AEBITDA profitable Operating profit in H2 2020
going forward £
Read more on page 30
Strong future growth opportunities £1.3 trillion
Launch new funding products to solve more small SME payments annually
business problems in the UK
Read more on page 18
1. Coronavirus Business Interruption Loan Scheme, a UK government-guaranteed loan scheme.
Annual Report and Accounts 2020 03
Strategic report
Our 2020 story
Accelerating technological
innovation and navigating
Covid-19
Funding Circle was founded Laying strong Covid-19 response
in the aftermath of the global foundations
financial crisis, when small A seamless transition
to working remotely
businesses struggled to access Powerful machine learning
As the Covid-19 crisis started to unfold,
finance through traditional A decade of research, development
our first priority was to ensure the health
and technology has created an
channels. Ten years later, and safety of our people. The company
inflection point for Funding Circle.
our technology is helping switched to working remotely, with
Our Instant Decision Lending platform
minimal disruption and no down-time
businesses to get fast and is underpinned by eighth generation
in the UK and US.
affordable finance at a time machine learning risk models using
Open Banking data and ten years of
when they need it most. Strengthening our
proprietary data. This enables SME
customer service teams
owners to receive a decision in minutes.
and forbearance support
Starting the year strongly We moved quickly to significantly
bolster our customer support capacity,
2019 saw us lay strong foundations for
redeploying staff to frontline roles.
2020, with the roll-out of Instant Decision
Teams worked around the clock to provide
Lending. We started the year with a clear
support to small business customers.
focus on improving conversion across the
platform, providing attractive net returns to By the end of March, we had developed
investors, and delivering profitable growth. and introduced new payment plans for
businesses that were struggling with the
Following the UK General Election in
impact of Covid-19. These plans provided
Q4 2019 and Brexit in January 2020,
much-needed breathing space by
demand for small business loans was
allowing businesses to reduce or stop
high in the first two months of 2020
their monthly repayments, giving
as businesses started to plan for the
them time to get back on their feet.
year ahead.
Borrowers Investors Circlers
93% £2.5bn 700+
of UK and US businesses investor capital raised Circlers transitioned to
are making payments since the start of working remotely in a
Read more on page 16 Covid-19 to lend to UK matter of days
and US SMEs Read more on page 19
Read more on page 17
04 Funding Circle Holdings plc
Following an initial spike, the number of This market-leading functionality now Supporting Circlers
borrowers becoming late on their loan services 50% of all loan applications, To keep teams connected and engaged
repayments has fallen back to below and delivers a credit performance as while working remotely, we increased
pre-Covid-19 levels. accurate as non-instant decision our communications across all levels
lending loans, using the same credit risk of the business. We also adapted our
Launching government- models developed over the last decade. approach to learning and development
guaranteed loan schemes to ensure Circlers could continue to grow.
Getting an instant decision can improve
In order to help as many small businesses borrower conversion by up to a quarter. Recognising the impact of the pandemic on
as possible through the pandemic, It also lowers costs and has greater mental and physical well-being, we hosted
we shifted our focus from core loans to scalability. We reached record levels of events throughout the year to ensure
government SME guarantee programmes. origination in the second half of 2020 Circlers were well equipped to manage well-
We were proud to become one of the first without additional headcount and are being for themselves and their teams.
FinTech lending platforms to become well placed to capture this growing
accredited for the Paycheck Protection opportunity going forward. Clear strategy for
Programme (“PPP”) in the US and the
Coronavirus Business Interruption post-pandemic
Securing funding and
Loan Scheme (“CBILS”) in the UK. protecting investor returns In the UK, we will operate our core loan
In the UK, we completed our application We have seen strong investor demand product alongside the new government
for accreditation, created a new product to purchase UK and US SME loans. programme, the Recovery Loan
and launched under CBILS within six We have also made significant progress Scheme, which will replace CBILS.
weeks. To support our existing customers, in our goal of diversifying our investor We will also leverage our technology to
we later received accreditation to the base. More than half of our funding launch new solutions to help SMEs. This
Bounce Back Loan Scheme (“BBLS”). agreements were signed with new includes an Application Programming
institutional investors, including banks Interface (“API”) embedding Funding
Accelerating the roll-out of and asset managers. Circle natively into partners’ websites and
Instant Decision Lending platforms. A new payment finance product
As part of our measures to protect investor
With applications in six minutes, returns, we tightened our credit risk will enable small business owners to pay
automated decisions in nine seconds parameters and strengthened the invoices and spread costs over three
and 24–48 hours to pay-out, the criteria for businesses from vulnerable months, and a new card for Funding Circle
platform has been instrumental in areas of the economy. As we moved to borrowers will enable them to better
helping thousands of SME owners providing CBILS loans, we were able to manage their business spending habits.
access funding at speed during begin helping a wider range of businesses. In the US, once PPP ends, we will continue
the pandemic.
to expand our core loan product, as well as
originating government-guaranteed loans
through the Small Business Administration
(“SBA”) programme on behalf of banks.
We will also continue to operate our
referral model for other borrower needs.
Government and regulators Market
27% £1.7bn
share of the number CBILS loans originated
of CBILS loans and $500m PPP loans
approved since scheme originated in 2020
participation Read more on page 10
Read more on page 25
Annual Report and Accounts 2020 05
Strategic report
Chairman’s statement
An extraordinary year that has
strengthened the business
Funding Circle becoming one
of the UK’s largest lenders is an
extraordinary vindication of the
power of technology to solve
problems for small businesses.
A year ago, just days ahead of the first Funding Circle was ideally positioned to Our team and governance
national lockdown, I wrote that we had respond to a physical lockdown of bank Your Board’s strategic and tactical
started 2020 in good shape as a sharper, and office premises. Above all, our decisions also needed to be nimble.
leaner and more resilient business, but thanks must go to the wider team of I wrote last year about a balanced focus
we faced unknown social and economic Circlers, all my colleagues who rose on profit and growth. As Covid-19
consequences created by the virus. to the occasion and showed themselves escalated we refocused our sights and
to be passionate about their mission prioritised an acceleration to profitability.
This resilience was tested beyond
and nimble in their approach. We cut costs where it made sense, with
all expectations during the year. The
consequences of the virus for borrowers, It has been humbling to witness the a lighter touch strategy for European
for investors and for our employees could exceptional employee contribution at markets and reduced headcount in our
have created an existential crisis. It is a all levels of our company. The whole US business. As the governments’
credit to Funding Circle that a potential workforce was able to operate remotely in support initiatives took shape, we
crisis was turned into an opportunity to a matter of days with minimal disruption. decided where to focus our resources.
step up, to serve and to strengthen. By This is a testament to their planning and Together with an exceptional period of
stepping up to supply new government- use of technology across every aspect lending, we delivered Group profitability
guaranteed loans in the UK and the US, of our business. Teams worked around in the second half of the year – an
we served the needs of our customers the clock to be able to offer these new important milestone for the business.
and in the process we strengthened our government-guaranteed loan schemes Our governance structures proved
own business. and Circlers adapted their roles overnight themselves robust and fit for purpose
as we moved to support small business through the crisis. I thank the members
Credit must go to all those involved in
customers at a critical moment. The of all our Board Committees for their hard
making this happen: the UK and US
senior management team, together with work, always acting constructively and
Governments for understanding the role
the Board, faced critical decisions on an honestly during many hours of countless
FinTechs could play in supporting their
almost daily basis and I am extremely virtual meetings. During the year Oliver
economies, and the management team
grateful to all for their commitment and White joined as our new Chief Financial
for its commitment to building the
effort in the face of increased pressure. Officer and his calmness and experience
technology and processes which meant
06 Funding Circle Holdings plc
Teams worked around the clock to
be able to offer new government-
guaranteed loans and Circlers adapted
their roles overnight as we moved to
support small business customers at
a critical moment.
SUPPORTING OUR PEOPLE It has been humbling to witness the
exceptional employee contribution
CIRCLERS PROVED
at all levels of our company.
Andrew Learoyd
THEIR RESILIENCE
Chairman
have been invaluable during the crisis. I Since its formation in 2010, many With the roll-out of vaccinations and a
would also like to pay particular thanks to people have questioned the survival roadmap for the easing of lockdown,
Cath Keers, Bob Steel and Ed Wray, who of Funding Circle during an economic light is now at the end of the tunnel.
are stepping down this year. Each has downturn. During the worst economic Small businesses will begin to drive the
made a significant contribution to the downturn in decades our company has recovery in our economies and it is
Board and its Committees, and they have not only survived, it has thrived. In my more important than ever that they
played an important part in a Board which last report, I congratulated our tech have the ability to access finance.
continues to support and challenge in team for building a platform in 2019 that
With such an extraordinary year behind
equal measure. Above all, they have made reinvented SME lending, using machine
us, it is impossible to make accurate
it fun to be a part of too. I wish them well. learning to provide instant decisions for
predictions for the year ahead. But some
I also offer an equally warm welcome small business borrowers.
things are now certain. The crisis has
to Helen Beck, who will chair our
I said then that our customer research proven the fundamental strength of our
Remuneration Committee, and to Matthew
told us that small company owners business, the attractiveness of our
King, who will join the Board while
preferred to access financial products financial model and the competitiveness
continuing to chair the Board of Funding
online rather than “in-store”. Like online of our loan product; governments have
Circle Ltd, our UK regulated subsidiary.
retail, our platform was built for normal shown their commitment to supporting
Both Helen and Matthew bring a wealth
times but has more than proved its SMEs; our customers have proven that
of relevant experience for the next stage
value in a time of crisis. Funding Circle they like us – we have unprecedentedly
of Funding Circle’s development.
becoming one of the UK’s largest SME high Net Promoter Scores from borrowers
lenders, larger than banks which have – and want to do more with us; and we
Transforming the SME
been in business for centuries, is an have a team that has proven it can
borrowing experience
extraordinary vindication of the power deliver more volume, more products
I have always highlighted the of technology to solve problems for and more technology enhancements
extraordinary passion of our team small businesses. with speed and accuracy.
and, in part, this is driven by the strong
values inherent in our mission. This Furthermore, and particularly pleasing Whatever the new normal looks like,
passion and these values, so reflective for the future, the business has these certainties are a truly exciting
in our commercial endeavours, also continued to produce positive net vindication of our founders’ vision to
need to be harnessed in our impact on returns for investors through the cycle. make Funding Circle a dominant force
the environment and on society. To this in our FinTech future.
end, I am pleased that the Board has Looking forward
formed an ESG Committee dedicated For the last two years I have written at Andrew Learoyd
to proactively deciding on our goals and a pivotal time for the economy – first, Chairman
implementing steps to deliver them. Brexit uncertainty, then the pandemic. 25 March 2021
Annual Report and Accounts 2020 07
Strategic report
Chief Executive Officer’s statement
Here to make a difference
Our Instant Decision Lending
platform is transforming the
borrower experience and laying the
foundations for the launch of new,
exciting products that will solve
more problems for SMEs.
Funding Circle was founded in response Underpinned by our Instant Decision Through careful management of our
to the financial crisis that rocked the Lending technology, we were able to existing loan book, I am pleased that
global economy at the start of the last offer SMEs access to finance quickly 93% of UK and US customers are
decade. We knew there was a better at low rates when speed and certainty making payments and all loan cohorts
way for small businesses to get the were absolutely critical. are expected to deliver positive returns.
funding they need to win; one that
I’m incredibly proud of the support we We also made some difficult decisions,
leveraged technology and machine
have been able to provide to businesses including restructuring our German and
learning to make a real difference.
in a challenging year. This wouldn’t have Dutch businesses and making changes
Ten years later, over 100,000 small
been possible without the hard work to our US business. These choices were
businesses have borrowed over
and dedication of our people. Ensuring not taken lightly but were in the interests
£11.5 billion.
their health, safety and well-being was of the long-term success of Funding
In 2020, SMEs found themselves in a also a key priority. Circle and our customers. I want to
crisis again. This time round though thank everyone who has contributed to
– the strength of the platform and Financial and our journey in those countries.
position we have built over the last operational overview
The second half of the year saw strong
decade allowed us to play a key part 2020 was truly a year of two halves. borrower and investor demand, with UK
in helping SMEs to weather the storm. In the first half we focused on adapting originations up 91% year-on-year. Along
During extraordinary global events, to Covid-19, helping customers and with record originations of £2.7 billion
Funding Circle was one of the first supporting Circlers in the transition and loans under management of
FinTech platforms to become accredited to remote working. We increased the £4.2 billion, we ended the year with a 25%
to PPP in the US and CBILS in the UK. capacity of our frontline teams and increase in total income at £222 million.
We knew that small businesses were introduced a range of forbearance
having to make big decisions fast. measures to give businesses the
breathing space they needed.
08 Funding Circle Holdings plc
I am pleased that we have exceeded our SUPPORTING BUSINESSES
target of being AEBITDA profitable in
TAKING CUSTOM
H2 2020 by delivering £20 million of
AEBITDA and £7 million of operating
profit in H2 2020. This is a significant
CABINS GLOBAL
milestone for the business.
Overall AEBITDA was impacted by
a significant fair value adjustment
incurred on SME loans held for sale in
H1 2020, the majority of which was
caused by Covid-19. Plankbridge
Going into 2021, we are in a strong
position, with net assets of £218 million Plankbridge manufactures bespoke shepherd’s huts.
and £103 million in cash, of which The business was founded by Richard Lee and his
£39 million is held within the warehouse partner Jane Dennison in 2020.
and securitisation vehicles.
The shepherd’s hut manufacturer borrowed from Funding Circle in order
A year of huge to expand their product offering and their overseas market.
technological innovation
Over the past 12 months, as people have been forced to work from home,
We are reinventing SME lending using
there has been a surge in interest from customers looking to create an
machine learning and market-leading
office in their garden.
technology. Our technology platform is
transforming the borrower experience They now employ 24 staff who typically work on around ten hand-made
and laying the foundations for the launch huts at a time – with each hut taking at least six weeks to complete.
of new, exciting products that will solve
The company remains loyal to local suppliers within a ten-mile radius
more problems for small businesses.
for timber and fixings, keeping the value within the local economy.
It is proof that our relentless focus on
technology and machine learning is
helping businesses access finance faster.
We also met our IPO goal of automating
50% of loan applications by the end of
2020 and have set a long-term target to
automate 80% of all loan applications.
Looking ahead We are excited to build on the foundation
This technology is freeing thousands As we turn our attention to what the our technology platform and ten years
of SMEs from the hassle of outdated future holds, we are well positioned of R&D provides. As we launch more
loan application processes and will help to take advantage of the structural products to support businesses with
thousands more over the coming years too. changes that are currently reshaping their everyday needs and spending,
the SME lending market. We are seeing I feel confident in saying that you
Our people a significant acceleration in the move can expect more innovation in the
There is no escaping the fact that this year towards online borrowing among small next year than the entire last decade.
was a difficult one for many people. I have businesses, and our ten years of online I look forward to updating you on
been inspired by the way our team has experience means we can capture this our continued progress in 2022.
been able to meet the challenges head on enlarged opportunity going forward.
with creativity, passion and resilience. Samir Desai
We will operate core lending alongside
I thank them for their exceptionally hard Chief Executive Officer
government-guaranteed loan schemes.
work and results. 25 March 2021
SMEs are central to our economic
recovery, and we will do all we can
to support them.
Annual Report and Accounts 2020 09
Strategic report
Our market
Small businesses are underserved
by traditional lenders
SMEs are a fundamental part of the global economy, driving growth, employment
and innovation. They account for 70% of employment and 50–60% of the
economic value created across the OECD region. But they are underserved by
traditional lenders and typically represent less than 2% of banks’ balance sheets.
The events of 2020 and the support
provided by governments to SMEs
further demonstrates their strategic
importance to economies. Small
businesses have shown remarkable
adaptability and Covid-19 has led to a
rapid acceleration in the shift towards
online lending. We believe this change in
the SME finance market is permanent.
A challenging year for
small businesses
Covid-19 and the initial lockdown
restrictions that were put in place by
governments significantly impacted
the ability of small businesses to trade,
resulting in a sharp decline in economic
activity as many were forced to temporarily
close their doors. However, we saw large
numbers of small businesses quickly
pivot to offer goods and services online.
Restaurants began selling meal kits and
coffee companies adopted subscription
models. 2020 was the year that the
country fell in love with SMEs again, as
they adapted and showed their resilience,
creativity and passion in the face of
incredible difficulties. Their response to the
pandemic has been inspiring. While further
lockdown restrictions have continued to be
Small businesses are underserved by traditional lenders
necessary in the UK and parts of the US, the
ongoing roll-out of government vaccination
50–70%
£305bn
programmes offer hope of a return to some
sense of normality later this year.
Total addressable But we will not be returning to things
market in UK and US3 exactly as they were before. Covid-19 has
<2% driven a number of structural changes
that Funding Circle will benefit from.
SME loans as a SMEs as a %
% of banks’ of GDP and SMEs are strategically
balance sheets¹ employment² important to economic growth
The response of governments all over
1. Source: Bank of England, US Federal Reserve, FDIC. the world to Covid-19 has recognised the
2. Source: OECD SME and Entrepreneurship Outlook 2019. strategic importance of small businesses
3. OC&C analysis:, 2019. to economic growth and job protection.
10 Funding Circle Holdings plc
Significant acceleration in Greater choice and competition crisis when small businesses struggled
adoption of online borrowing Governments across the world rightly to access finance through traditional
Small businesses had to move fast in 2020, identified the crucial value of small channels, and ten years on, we are
and many found that lending platforms businesses and acted swiftly to introduce proud to have contributed to providing
offered them the speed and simplicity they a range of support measures in response businesses with a greater range of
needed. In a year where everything went to the crisis. While the CBILS programme options through the pandemic. The
online, small business borrowing was no in the UK initially focused on the banking agility of the FinTech sector means it can
different. Our ten years of experience in sector, the British Business Bank worked respond quickly to meet the funding
originating business loans online meant hard to get FinTech firms like Funding needs of SMEs in both crises and benign
we were well positioned to accommodate Circle accredited fast. With over 100 times, and is helping to make the funding
an increase in online loan applications. landscape for SMEs, as well as the
CBILS lenders accredited, small
In 2021 we will continue to leverage economy, more resilient. We are seeing a
businesses had more choice than ever
our technology and machine learning similar situation in the US market, where
before. Funding Circle was founded in
to offer small businesses more ways of large numbers of FinTech firms are driving
the aftermath of the global financial
accessing the finance they need to win. growth and innovation in the sector.
5x
increase in search
terms for online
business loans in the
UK
Strong demand from investors
Despite the pandemic, in 2020 our
platform attracted record levels of capital.
We are confident we will continue to attract
strong demand from institutional investors
to fund SME loans throughout 2021.
All UK and US loan cohorts are expected
to deliver positive annualised returns.
£2.5bn
investor capital raised
since the beginning
of Covid-19 to lend SUPPORTING BUSINESSES
to UK and US SMEs
SMEs expect to have
ongoing finance needs BUSINESS GROWTH:
JUST OUR CUP OF TEA
More SMEs experienced accessing
finance in 2020 and we believe they are
likely to continue to do so in the future.
For some, this was because they wanted a
cash-buffer or needed to mitigate against
the impact of Covid-19. Others used
funding to invest and grow their business Bird & Blend Tea Co.
to take advantage of new opportunities,
having successfully pivoted to trade Mike Turner and Krisi Smith, are the co-founders of
through the pandemic. Whether Bird & Blend Tea Co – an independent, award-winning
businesses needed funding to survive or
thrive, our platform ensured they got a fast
tea company based in Brighton which has shops across
decision with minimal work at their side. the UK as well as an online store.
When the pandemic hit, they had to adapt their operations to comply with
40% social distancing regulations. They made structural changes to their
workspaces, including the transformation of their office into a production
of SMEs expect to require facility and moving the office team to working remotely.
finance in the next
Mike and Krisi took out a Funding Circle CBILS loan to give themselves a
12 months, primarily for
cash flow buffer and continue to drive forward their growth plans. They
growth or investment
employed 80 members of staff when the pandemic hit and they’ve now
been able to grow that number to 100.
Annual Report and Accounts 2020 11
Strategic report
SUPPORTING BUSINESSES
TURNING A CHALLENGE
INTO AN OPPORTUNITY
Fashionizer
Debbie Leon set up Fashionizer in 1993 when she noticed a
gap in the market for luxury and bespoke uniform design.
The pandemic had a major impact on the business, after many clients in the
hospitality and spa industries closed during the first lockdown. Debbie needed
a cash injection to keep her business going at a time when production had
slowed. She initially applied for a CBILS loan through her bank, almost a full
two months later she’d had no response. By the time she did, Debbie had
already received a Funding Circle CBILS loan.
The business adapted quickly, and switched to making fabric face masks.
They spent the first three weeks researching best practice, sourcing the
correct filters and making the patterns and samples. They successfully set up
a manufacturing supply chain in London that operated throughout lockdown.
12 Funding Circle Holdings plc
Technology and data
Delivering an amazing
customer experience for small
businesses using machine
learning and technology
Our data accumulation and technology built over the last decade
has laid the foundations to solve more small business problems.
With an average application time of six
Long-term target of minutes and lending decisions provided in
80%
an average of nine seconds, the platform
has been instrumental in helping
thousands of SME owners access the
of loan applications funds they need without the rigmarole of
automated applying for a loan the old-fashioned way.
This market-leading functionality now
These exceptional risk capabilities services 50% of all loan applications.
are powered by leading technology.
Continuous deployment enables us Instant Decision Lending delivers credit
to scale quickly, efficiently and securely. performance as accurate as non-instant
The backbone of our technology includes decision lending loans, using the same
distributed data streaming and functional credit risk models developed over the last
programming which allow us to build decade. Getting an instant decision can
scalable applications at speed. Using these improve borrower conversion by up to
systems gives us the ability to handle large 25%. It also lowers costs and has
amounts of data and manage complexity greater scalability. We reached record
Small businesses need to be able to more easily than ever before. Our levels of origination in the second half of
make decisions fast. Our technology proprietary marketing data lake is called 2020 without additional headcount and
and machine learning capabilities Panoramic. It contains 2 billion data are well placed to capture this growing
enable them to do this. points on 26 million small businesses. opportunity going forward.
Finally, we have a dedicated cross-
By combining strong fundamentals such We are just getting started
functional team of over 300 engineers,
as credit risk management, with seamless
product managers and data scientists. There are significant opportunities to
technology, we create a great customer
support more customers by leveraging
experience. Over the past ten years,
Unleashing instant decisioning our technology platform. This includes
we have built a huge SME knowledge
By combining machine learning credit an API embedding Funding Circle
base and aggregated vast amounts
risk models with technology we have natively into partners’ websites and
of information including 700,000
been able to build our Instant Decision platforms. A new payment finance
applications and 750 million repayment
Lending platform, which is revolutionising product will enable small business
events. This enables our machine learning
SME lending. owners to pay invoices and spread
risk models to precision-credit assess
costs over three months, and a new
small businesses significantly better With our decision oriented platform, we are card for Funding Circle borrowers will
than traditional credit bureau scores. For able to customise every element of the enable them to better manage their
example, our eighth generation credit risk borrower experience. For example, at the business spending habits.
model is three times better at predicting application stage, questions can change
risk than bureau scores in the UK. depending on the answers borrowers give.
This allows us to customise our application
forms in real time to the size, risk and
channel a borrower comes to us from.
Annual Report and Accounts 2020 13
Strategic report
Our model
How we create value
Covid-19 is proving the resilience of our unique model and showing
that we are the preferred way for SMEs to access finance.
Borrowers Platform
Small businesses can access fast,
affordable finance
c.100,000
borrowers globally
Larger More
ecosystem repeat
customers
Borrowers
Our borrower base is highly diversified
across geographies and industries, which
helps ensure stable returns and mitigates
New More
the effects of adverse economic conditions.
products data
Typical businesses that borrow through
the platform have:
‐ 11 years’ trading history Better
‐ Eight employees More
machine
operating
‐ ~£1 million revenue learning
leverage
‐ ~£80,000 loan size models
Better
‐ 50 months average term
borrower
‐ Six-minute application and experience
24‑hour turnaround
Marketplace borrowers
By connecting borrowers with other
lenders in the market, we offer a range
of products beyond our core term loan
product such as larger loans, asset
finance and invoice finance. The Funding Circle flywheel drives competitive advantage
14 Funding Circle Holdings plc
Investors Value created
Investors can earn resilient returns
For borrowers
£2.5bn
investor capital raised in 2020
We provide SMEs with fast, flexible, affordable
finance, delivering an amazing customer experience
using machine learning and technology. This means
they are free to get on with what they do best,
growing their business while contributing to the
local community and economy.
Investors
Our original innovation ten years ago
opened up the SME asset class to
investors. The platform model enables
investors to make incremental
£11.5bn
lent to businesses
investments, and our investor base
is deep, diverse and stable, including
a wide range of institutions and
public bodies: For investors
Access to an attractive asset class, previously
‐ 36% asset managers
mostly held on bank balance sheets, that is of
‐ 35% banks strategic importance to economies.
‐ 12% bond programme
4.5–5.5%
‐ 11% retail funds
‐ 3% national entities
‐ 3% funds expected investor returns for loans
originated in 2020 in the UK
How we make money
As a company, Funding Circle makes money
in two principal ways:
For employees
The opportunity to build the incredible, to make a
Operating income positive lasting impact on a huge societal issue,
‐ Transaction fee income from the fees fast-tracking career experience in an accelerator
we charge borrowers environment and working in a way unlike any other
‐ Servicing fee income from the fees we public company. Our new HMRC-approved share
charge investors incentive plan, Equity for All, means Circlers will be
granted free shares each year. We have always
Investment income believed in the value of employee share ownership,
The interest income on loans invested and this new scheme will help more Circlers benefit.
within Funding Circle’s investment vehicles.
83%
would recommend Funding Circle
as a place to work
Annual Report and Accounts 2020 15
Strategic report
Borrower experience
Fast, simple
and affordable
In an extraordinary year, we introduced a range of measures that helped SMEs weather the
storm, from rolling out new forbearance measures to offering government-guaranteed
loans. We continued to make it simpler and faster for borrowers to get the finance they
need so they could adapt their business and prepare to drive the economic recovery.
Fast and affordable finance at plans within two weeks of the first
a time when SMEs need it most lockdown being announced in the UK.
For the last ten years, we have strived to These plans allowed businesses to reduce
provide an amazing borrower experience or stop monthly repayments, giving
by combining cutting-edge technology them time to get back on their feet.
with a human touch. In 2020, we wanted We also expanded our customer-facing
to go further and the accelerated roll-out teams to deal with the large rise in
of Instant Decision Lending was the next contacts, by assigning and retraining
step. This market-leading functionality Circlers. By investing in new technology,
has transformed the entire customer we were able to streamline our processes
experience, reducing the average and make them more efficient. This
application time to six minutes, with allowed customer-facing teams to
decisions being made in an average of spend more time supporting
nine seconds. It has never been simpler businesses, discussing their
or faster for small businesses to secure circumstances on the phone and
the funding they need to win. managing their cases more effectively.
As a result of the steps taken, we were
Helping borrowers pleased that the number of borrowers
through the pandemic becoming late on their loan fell back to
To help as many small businesses below pre‑Covid-19 levels as reported
80–90 NPS as possible through the pandemic,
we became one of the first FinTech
platforms to gain accreditation to
in our Half Year results in September.
Now 93% of UK and US businesses are
making full repayments, demonstrating
in UK and US in 2020
government SME programmes in their resilience and adaptability.
89%
both the UK and the US.
In the UK, we completed our application Our strategy for supporting
for accreditation, created a new product borrowers post-pandemic
of UK businesses return to and launched under CBILS within six In the UK, we will operate our core loan
Funding Circle first before weeks, all whilst working remotely. product alongside the new government
exploring other options Because of our unrivalled customer programme, the Recovery Loan Scheme,
experience, we were well placed to which will replace CBILS.
50% support the UK Government in delivering
CBILS loans, with £1.7 billion loans
originated in 2020. We are proud to have
We will also leverage our technology
to launch new solutions to help SMEs.
of all loan applications This includes an API embedding
become the third largest CBILS lender.
automated To support our existing customers, we Funding Circle natively into partners’
also received accreditation to BBLS, websites and platforms. A new payment
9 seconds with £27 million of loans originated
in 2020. In the US, Funding Circle was
approved by the SBA for PPP with
finance product will enable small
business owners to pay invoices and
spread costs over three months, and a
average wait for a decision new card for Funding Circle borrowers
$500 million loans originated in 2020.
will enable them to better manage
6 minutes
We significantly grew our marketplace
offering, enabling access to a diverse their business spending habits.
range of partner lenders to help expand In the US, once PPP ends, we will continue
average application time SME funding options, with originations to expand our core loan product, as well
tripling in the second half of the year. as originating government-guaranteed
To provide customers with breathing loans through the SBA programme on
space and give them time to adapt, we behalf of banks. We will also continue
developed and introduced new payment to operate our referral model for other
borrower needs.
16 Funding Circle Holdings plc
Investor experience
Mature, proven
and trusted
We continued to deepen and diversify our funding sources in
2020. By taking quick and prudent steps, investor returns remain
positive, further demonstrating the strength and viability of
our model.
Investor returns are positive Given the uncertain economic
We expect all UK and US loan cohorts environment, to protect investor
to deliver positive annualised returns. returns we also took the decision
to pause the secondary market for
Tightening our credit risk retail investors.
parameters and enhancing
risk monitoring Unlocking new investment
As part of our measures to protect
opportunities as an accredited
investor returns, we tightened our credit
CBILS and PPP lender
risk parameters and strengthened the There has been strong investor demand
criteria for businesses from vulnerable for SME loans and we made significant
areas of the economy. As we moved to progress in our goal of diversifying our
providing CBILS loans, we were able to investor base. More than half of our
begin helping a wider range of businesses. funding agreements were signed with
new institutional investors, including
We combine cutting-edge technology banks and asset managers. Since the
with the use of proprietary scoring beginning of Covid-19, more than
models to boost the precision and £2.5 billion of investor capital has been
Over the last decade we have opened efficiency of our credit risk and raised to lend to UK and US SMEs on
up the SME asset class to investors, performance predictions. Enhancing the Funding Circle platform. In 2020, the
providing investment opportunities that our risk monitoring using more frequent UK Private Fund was also given approval
were previously mostly not available and detailed data analysis helped us to expand its investment strategy to
before as SME loans were on the whole to spot potential signs of borrower include investing in CBILS loans. This
held on bank balance sheets. This has stress much faster, and our increased means more investors have been able
attracted a diverse range of investors customer support capacity allowed to support small businesses as they
including asset management companies, us to act on potential risks as soon as seek to recover from the impact of
government-backed entities, public and they emerged. Covid-19 and look toward future growth.
private funds and individuals. The ABS
Bonds and Private Funds launched in Retail lending There will continue to be new investment
2019 further widened the universe of opportunities in 2021. In the UK we will
To concentrate on supporting the
investors that can access the platform, operate our core loan product alongside
government’s SME stimulus programme,
providing them with more choice around the new government programme, the
we refocused all UK lending to go
how they access the asset class. This Recovery Loan Scheme, which will
through CBILS once accredited. As a
diversification has helped to ensure the replace CBILS. In the US, once PPP
result, we paused all non-CBILS lending
sustainability of our business. ends, we will continue to expand our
from retail and institutional investors.
core loan product as well as originate
As retail investors were not able to government-guaranteed loans through
participate in CBILS, they continued to the SBA programme on behalf of banks.
receive payments from existing borrowers
with funds returned on a monthly basis.
Annual Report and Accounts 2020 17
Strategic report
Strategic priorities
Shaping the future
of funding
Our mission is to help small businesses get the funding they need to win. As we look ahead
to 2021 and beyond, we are focused on growing the UK and US businesses and introducing
new solutions that will help even more small businesses with their financing needs.
2020 saw us come to the end of our medium-term plan; FC 2020. While 2020 turned out to be
a year far different than we expected, we were able to deliver against our strategic priorities:
1 2 3 4
The roll-out of our Instant Our investment in data, We were able to draw on We continued to build
Decision Lending platform technology and analytics our existing deep and our base of SMEs, while
is driving a better borrower has underpinned the build diverse investor base to introducing changes to
experience. This market- of this new technology. fund government- accelerate the Group’s
leading functionality has guaranteed loans and path to profitability.
reduced the application continued to attract new
time and wait for a decision investors to the platform.
to minutes.
Our new plan is based on two key pillars and will ensure we are well positioned to respond to
the needs of small businesses as they begin to drive the economic recovery:
Grow the UK and US businesses Launch new products
In the UK, we will operate our core loan product alongside the Over the next 12 months we will leverage our technology to
new government programme, the Recovery Loan Scheme, beta launch new funding solutions to help small business
which will replace CBILS. owners solve more problems.
In the US, once PPP ends, we will continue to expand our core This includes an API embedding Funding Circle natively into
loan product, as well as originating government-guaranteed partners’ websites and platforms. A new payment finance
loans through the SBA programme on behalf of banks. product will enable small business owners to pay invoices and
We will also continue to operate our referral model for spread costs over three months, and a new card for Funding
other borrower needs. Circle borrowers will enable them to better manage their
business spending habits.
Diversifying our funding base helps to ensure that small
businesses can access finance whatever the weather.
We will look to secure funding agreements with both new and
existing institutional investors for our core loans alongside the
government guarantee programmes in both the UK and US.
18 Funding Circle Holdings plc
Our people
Building the
incredible together
Just like the small businesses we support, Funding Circle also had to work
differently during 2020. The difference we were able to make to customers is the
result of the talent and dedication of our people. United by passion, purpose and a
commitment to our mission and values, we are building the incredible together.
We are a values-driven business with Supporting well-being Building the Incredible
a unique culture that helps us harness and keeping connected We launched our new people promise,
the abilities of our employees to fuel Recognising the impact of the pandemic Build the Incredible, at the start of
long-term success. But the true test of on mental and physical well-being, 2020. Our people promise sets out the
culture is how it adapts to challenges we hosted training and workshops, two-way deal and proposition between
and the solutions it creates. In 2020 our Mindfulness Mondays and panel Funding Circle and its people, and
people rose to the occasion and provided discussions to help ensure Circlers ensures we provide an attractive and
customers the support they needed were well equipped to manage compelling offering to Circlers who
while navigating some big changes well‑being for themselves and their choose to work at Funding Circle. More
themselves. The launch of our new Circler teams. FC bootcamp, a Circler-led than that however, Build the Incredible
Promise, Build the Incredible, is helping initiative, brought online workouts to the is a challenge to all Circlers, to create
us to challenge ourselves to create even company and raised money for a mental and build the place for small businesses
better careers, experiences and ways health charity. Among all the hard work, to get the funding they need to win.
for businesses to get the funding they the company stayed connected through It’s also a challenge to Funding Circle
need to win. quizzes, lockdown lunches and Zoom to create incredible careers and
parties. Teams showed creativity in their experiences at our company. In an
Moving to remote working virtual bonding, hosting everything from extraordinary year, every Circler was
As the Covid-19 crisis started to unfold, ‘Dragon’s Den’ projects to cocktail united by this challenge, building the
the company switched to remote master-classes and book clubs. incredible for customers under the most
working immediately, with minimal unique conditions and circumstances.
Maintaining frequent dialogue in the
disruption and no downtime. Every
remote working environment was crucial.
Circler lived our company values to the
We conducted regular surveys to help
fullest, with many temporarily moved
us understand how Circlers were feeling
to frontline teams, taking on new
during a period of sudden changes and
responsibilities to provide customers
uncertainty, and measure employee
with as much support as possible.
engagement and satisfaction. We were
To keep teams connected and engaged pleased that scores increased from 73%
while working remotely, we increased in 2019 to 75% in 2020, demonstrating
our communication across all levels of the value of increased communication
the business. Weekly Local Gatherings and other support measures we had
became twice weekly and managers put in place. Workforce engagement
maintained team interactions through will continue to be a key priority in
frequent catch-ups and check-ins. 2021, as we focus on rewarding
success, supporting well-being and
We adapted our approach to learning
nurturing development.
and development, to ensure Circlers
75%
could continue to grow during the
pandemic. This included the launch of
Summer Learning which made more
learning and development resources Employee
available online through our Circler Portal satisfaction scores
and introduced the LinkedIn Learning app
and resources. We also introduced new
management development training that
helped managers to support teams and
promote collaboration and creativity in
remote environments.
Annual Report and Accounts 2020 19
Strategic report
Our people continued
Our values
Our shared values, passion
Building the Incredible continued
As part of this promise, we introduced
a new benefits package for all Circlers
83%
would recommend
which includes the introduction of dental Funding Circle as
and purpose underpin
coverage, doubling paid maternity leave a place to work
everything we do at and increasing employer pension
Funding Circle. Together contributions. We have always believed in
we are providing small employee equity ownership, and want
every Circler to be an owner of Funding
businesses with the funding
Circle and share in our long-term success
they need to win. together. This remains part of our Circler
promise, under ‘Equity for All’, an
THINK SMART
HMRC-approved share plan launched
in 2020. As part of this, all Circlers will
Challenge assumptions, seek be granted free shares each year.
insights and make informed
The Circler Promise will continue to be
decisions. Everyone has a
implemented and embedded throughout
voice, so be ambitious.
2021, helping us to continue to acquire,
develop and retain the best and brightest
MAKE IT HAPPEN talent the industry has to offer.
Be courageous and take ownership.
Take small steps fast and commit
to seeing it through.
BE OPEN
Treat everybody with respect and be
honest with each other. Transparency
and integrity build trust.
STAND TOGETHER
Listen, understand and support
each other. Win or lose as one.
LIVE THE
ADVENTURE
Bring your passion with you
every morning and have fun.
Women @FC
Women@FC is our women’s network established in
2018 to generate an environment for women to succeed
professionally and personally across all levels at Funding
Circle. The group works across the business to deliver an
activity programme in support of this. Funding Circle also
drives building an active and supportive community within
the FinTech industry, through FinTech Women, where
women can connect, share and encourage one another
to reach their goals. In 2020, Women@FC went virtual,
hosting speed networking, industry thought leadership
and borrower spotlight events.
20 Funding Circle Holdings plc
Gender breakdown Diversity and inclusion In the past 18 months we have refocused
As of 31 December 2020 We know we can only Build the Incredible our efforts and placed greater emphasis
through an inclusive and diverse culture on the development and progression of
where Circlers of all backgrounds feel female talent through the organisation,
Overall1 confident in bringing their whole selves whilst also requiring a 50:50 split of
to work, where they can contribute candidates for most roles where we are
Female 318 / 41% hiring externally. As of December 2020,
their ideas, have opportunities to be
41+59L
Male 450 / 59% successful, and their talents nurtured. we are pleased to report overall female
Through empowering our people, representation at Funding Circle of 41%.
we are not only building something Our Global Leadership Team (“GLT”)
incredible for customers, but an is 38%. We are also committed to
incredible place to work too. In 2020, achieving 40% gender diversity across
with social movements boosting global our senior management population by
awareness of issues relating to inclusion, the end of 2025.
we continued to build a workplace that Our policy for the employment of
provides equal opportunities to everyone disabled persons is to provide equal
and ensures Circlers feel at home. opportunities to develop skills and
Senior Management2 2020 brought a renewed focus on secure roles relevant for them and their
Female 16 / 33% co-ordinating our efforts on promoting career ambitions. This includes making
diversity and inclusion and communicating reasonable adjustments to the workplace
33+67L
Male 33 / 67% to support this. Our recruitment process
this more effectively. With the support of
an external provider, we offered diversity ensures all applications, including those
and inclusion training as part of our from disabled persons, are treated
learning and development programme, equally and fairly.
helping Circlers to understand issues
such as unconscious bias. Equality, A values driven culture
diversity and inclusion are important At Funding Circle, we are dedicated
parts of our new ESG framework, which to implementing and maintaining the
has been approved by the Board and will highest standards of behaviour, ethics
be rolled out throughout 2021. As part and integrity, and to creating a culture
of this, we will continue to embed these where adherence to these standards
Group Board
values through our corporate governance is recognised and rewarded. Our new
Female 2 / 20% frameworks and further utilise our Code of Conduct, implemented this year,
20+80L
Male 8 / 80% global and Circler led groups such outlines these standards. It supports
as Women@FC, Circle of Pride and our mission and complements our
Let’s Talk About Race. We will also values against which each Circler’s
introduce a new diversity and inclusion performance is appraised, providing
engagement plan in 2021 to further guidance as to what conduct Circlers
build on our work in 2020. should expect of each other and how
they should interact with others. The
Funding Circle is committed to support
Code of Conduct incorporates the FCA’s
the progression of women in the financial
individual Conduct Rules, which set out
services and technology sectors.
the baseline level of conduct and good
We have launched a range of initiatives,
Global Leadership behaviour expected by our regulator
including the adoption of family-friendly
Team and will apply to all UK Circlers from
policies and benefits, and play an active
31 March 2021.
Female 3 / 38% role within the FinTech industry to
support female representation.
38+62L
Male 5 / 62%
However, we recognise the challenges
that exist in both these sectors with
regards to gender diversity, which we
have experienced first hand, particularly
in the engineering and capital markets
fields. This has made us even more
determined to bring about long-term
change to our industry.
1. There are a small number of Circlers who do not
identify as male or female, and those who prefer not
to disclose gender identity (<1%), and are not
included in the reported data.
2 Defined as those reporting directly into Global
Leadership Team).
Annual Report and Accounts 2020 21
Strategic report
Sustainability
Sustainable thinking and
sustainable results
We are here to build the incredible at Funding Circle. That means not only having a positive
impact on our customers, but on the environment and the communities we live and work in too.
We are proud to play our part in creating a sustainable economy for future generations.
Small businesses are at the heart of framework formalises our approach to but achievable goals to align our
our communities, and play a vital role in corporate social responsibility, including business to The Paris Agreement
our economies. That is why we take our integrating ESG factors within our goals to target carbon reduction and
role as the bridge between them and enterprise risk management framework offsetting strategies for our full value
investors so seriously – because and our day-to-day operations. We will chain in line with the science based
ensuring SMEs have the funding they begin implementing the new ESG target level of decarbonisation required
need to win creates wider benefits for framework throughout 2021. We intend to limit global warming to 1.5°C, and
us all. There is growing consensus to take an incremental and proportionate striving for net-zero emissions by 2050
that companies, investors and other approach to the implementation of — at the latest. This first, important goal
stakeholders must consider corporate industry practices related to ESG risk is the first objective step to provide clarity,
responsibility, the environment, social management. We believe it is important motivation and focus to our goals. We
impact and governance issues in to start to frame our position; to are engaging with industry experts to
their day-to-day business practices, incorporate these issues into our more accurately measure and validate
investment decisions and community governance framework; to understand our scope 1, 2 and 3 emissions and to
interactions. Our approach to resource and competence requirements; assist us in developing strategies to
Environmental, Social and Governance to set strategic goals; and to formulate reduce, replace or offset our scope 1
(“ESG”) is driven by our corporate culture a plan to achieve these goals and to and 2 emissions beginning in 2021.
and values, our corporate governance annually measure performance against We also intend to begin to measure and
practices and our enterprise risk these stated goals. validate our scope 3 emissions in 2021
management framework. In 2020, and devise a strategy for reduction,
We intend to align ourselves to the ten
we took a number of important steps replacement or offsetting of those
principles of the UN Global Compact
in this area to drive better stakeholder emissions as soon as practicable.
with respect to human rights, labour,
experiences as well as enhanced
environment and anti-corruption. In We are also committed to implementing
shareholder value.
addition, in March 2021 we became the recommendations of the Task Force
a signatory to the UN Principles of on Climate-related Financial Disclosures
Environmental, social and
Responsible Investment (“UN PRI”) (“TCFD”) to inform our stakeholders
governance framework
to support providing, developing and about our climate-related financial
Our goal is to build the place where promoting services that support asset risks and opportunities. The TCFD
businesses can get the funding they owners and investment managers’ recommendations are structured
need to win. To make this goal a reality implementation of the six principles around four core areas: governance,
that future generations can continue of the UN PRI, in particular as they strategy, risk management, and metrics
to benefit from, we also need to ensure relate to private debt. and targets. We intend to implement our
we are contributing positively to the approach to the TCFD recommendations
creation of a fairer, more sustainable Environment and during the course of 2021. The table
low-carbon economy. We began climate change on the next page shows our current
formalising our ESG strategy in 2019 progress against the recommendations.
Funding Circle is committed to addressing
to clearly set out how we are going to
the impact of climate change. Despite
do this by limiting our emissions and
the impact of Covid-19, we took a
creating a more diverse and inclusive
number of important steps in this area
working environment.
and there is more we want to do in the
The Board approved a new ESG coming years. As a first step, the Board
framework in 2020 and set up a new reviewed and approved a formal carbon
Board level ESG committee. The ESG strategy. Our strategy sets ambitious
22 Funding Circle Holdings plc
Governance Disclosure
Describe the board’s oversight of climate- The Board assumes overall responsibility and accountability for the management of climate-related
related risks and opportunities risks and opportunities. During the year, the Board reviewed and approved a new ESG Framework to
manage, among other things, the company’s approach to governance around climate-related risks and
opportunities. The Board also constituted a new ESG Committee to provide strategic focus, support
and oversight for the implementation of the Group’s environmental and carbon strategy. The GLT is
responsible for the ESG Framework, including the climate-related risks and opportunities, with
management responsibility sitting with the General Counsel. A working group of senior leaders
and Circlers from across the business are responsible for implementation of the environmental
and carbon strategy.
Describe management’s role in assessing and The principles of sound risk management are embodied in our values, operating principles and policies,
managing climate-related risks and which all employees are expected to follow. Our Enterprise Risk Management Framework (“ERMF”)
opportunities describes our risk management approach and provides for the clear ownership of and accountability for
managing risk well across the company. A core principle of the ERMF is that all employees are accountable
for identifying, escalating and debating risks facing the company. We have established a new ESG
Framework to provide additional clarity and transparency around how we approach environmental risks,
which may arise in many areas of our business. As part of our new ESG Framework we intend to review our
ERMF, risk appetite statement, and risk taxonomy with respect to environmental risks in 2021.
Strategy
Describe the climate-related risks and Our new carbon strategy formalises our approach to begin addressing climate-related risk and
opportunities the organisation has identified opportunities in our business, including clear and ambitious but achievable goals in the short and
over the short, medium, and long-term long-term, including:
‐ alignment with The Paris Agreement Goal of 1.5°C;
‐ a commitment to become carbon neutral by 2021–2023, and net carbon zero by 2030 – at the latest;
‐ a goal to offset difficult to reduce or replace Scope 1 & 2 Emissions starting in 2021;
‐ a goal to measure and verify Scope 3 Emissions starting in 2021; and
‐ a goal to offset difficult to reduce or replace Scope 3 emissions starting in 2023 at the latest.
Describe the impact of climate-related risks Climate-related risks and opportunities are to be further integrated into our business, strategic and
and opportunities on the organisation’s financial planning as part of our new ESG Framework in 2021.
businesses, strategy, and financial planning
Describe the resilience of the organisation’s As part of our new ESG Framework, we intend to review our risk assessment and risk appetite in
strategy, taking into consideration different respect of environmental and climate related risks in 2021, including climate-related scenario analysis
climate-related scenarios, including a 2°C or as part of this risk assessment.
lower scenario
Risk Management
Describe the organisation’s processes for We consider climate-related risks through the ERMF. As part of our new ESG Framework we intend
identifying, assessing and managing to review integration of climate-related risks into our ERMF in 2021.
climate‑related risks, and how the processes
are integrated into the organisations overall
risk management
Metrics and Targets
Disclose the metrics used by the organisation to Absolute and intensity-based energy and GHG emission metrics are disclosed in our Annual Report.
assess climate-related risks and opportunities in
line with its strategy and risk management
process
Disclose Scope 1, Scope 2, and if appropriate, 2020 Scope 1 and 2 GHG emissions are disclosed in our Annual Report. We intend to begin to more
Scope 3 greenhouse gas (GHG) emissions, accurately collect, measure and validate Scope 1, 2 & 3 emissions in 2021.
and the related risks
Describe the targets used by the organisation to As part of our new carbon strategy, we intend to set clear, science-based targets to support our
manage climate-related risks and opportunities strategic ambitions of net carbon zero by 2030 at the latest. We intend to explore further opportunities
and performance against targets during 2021.
Annual Report and Accounts 2020 23
Strategic report
Sustainability continued
Disclosing our impact
This section includes our mandatory reporting of greenhouse gas emissions pursuant to The Companies Act 2006 (Strategic
Report and Directors’ Report) Regulations 2013. We are required to show an intensity ratio and have determined that the most
appropriate for our growing business is tonnes of CO2 equivalent (“tCO2e”) per £m of total income.
2020 2019
Global GHG emissions data for period 1 January to 31 December 2020 tCO 2e tCO 2e
GHG emissions scope 1 (direct)¹ 123 147
GHG emissions scope 2 (indirect)² 372 493
Total gross emissions (scope 1 and 2) 495 640
Total income (£m) 222.0 177.3
Intensity ratio – tCO 2e per £m of total income³ 2.23 3.61
1. Scope 1 includes combustion of fuels and operations of facilities, principally oil and gas related to our leased office space.
2. Scope 2 includes electricity purchased for use in connection with our leased office space.
3. T he intensity ratio for this reporting period is calculated using total income. In 2019, the intensity ratio was calculated using total revenue, a financial item no longer reported in
our Consolidated Statement of Comprehensive Income. The 2019 intensity ratio presented as a comparative has therefore been restated to be calculated based on total income.
Scope 1² Scope 2³
Regional breakdown of energy consumption data
for period 1 January to 31 December 2020 (Kilowatt-hour equivalent – kWhe)¹ 2020 2019 2020 2019
Region
UK 370,846 380,719 927,189 954,078
US 295,981 421,159 686,193 855,662
CE (Germany and Netherlands)4 — — 72,132 132,506
Total 666,827 801,878 1,685,514 1,942,246
1. T he equivalencies for kWhe shown are derived from our various leased office space premises using information provided by the applicable building owner
or building management companies, which in some cases may apply different equivalency calculators to derive the applicable kWhe amounts.
2. Scope 1 includes combustion of fuels and operations of facilities; principally oil and gas related to our leased office space.
3. Scope 2 includes electricity, heat, steam and cooling purchased for use in connection with our leased office space.
4. No Scope 1 data was reasonably attainable in CE for these reporting periods.
The effects of the pandemic had a this data does not include all sources of Creating value for society
significant impact on the operation of emissions, for example waste, fugitive Covid-19 proved to be a major disruption
our offices and resulted in a significant refrigerants or other miscellaneous to our planned charitable activities in
reduction in our carbon emissions in and less material sources of emissions. 2020, with most events and initiatives
2020. To ensure the health and well-being Our emissions reporting data is from cancelled in order to protect the health
of our people, we switched to working our global operations, including the UK, of everyone involved. We are hopeful
remotely in line with government US, Germany and The Netherlands. that we will be able to begin returning to
guidance, resulting in a decrease of these activities in 2021, but the health
Our methodology underlying our
our Scope 1 and 2 emissions of and safety of our people will remain
disclosed emissions remains consistent
approximately 22%. While we have not our key focus. The pandemic couldn’t
with previous years. Emissions related
specifically measured our Scope 3 completely block the passion of Circlers
to our office space are estimated based
emissions, we also saw a significant and the FC Impact team though, as we
on an allocation of total emissions
reduction in business travel, particularly raised money for food banks and held
(generally based on square footage
air travel, in favour of online virtual workshops on zero-waste living
occupied) for the building as reported
communication platforms. among other activities.
by the building owner. We did not
Our GHG emissions reporting period is undertake any specific measures to
1 January to 31 December and is aligned reduce our emissions during the period;
with our financial reporting year. We report however, we did begin the process to
on certain material emission sources address our GHG emissions within our
that we are responsible for within our ESG framework, which are intended to
Group companies, primarily in relation include improvements to the collection,
to our leased office space and generally measurement, validation and reporting
limited to electricity and gas usage. of emissions data as well as tracking
We believe these encompass the most and reporting progress against targets
material emissions to our business, but for reduction or offsetting of emissions.
24 Funding Circle Holdings plc
Being a positive force Additional commitments
in our industry As part of our broader commitments
Our aim is for Funding Circle to continue as a progressive and responsible
to be a trusted and reputable company, company, we also take a stand on
working with government, regulators the following areas:
and industry to uphold the highest
Human rights
industry standards. We continue
to actively engage with local, national, ‐ We respect and promote human
federal and supra-national government rights through our employment
agencies, legislators, policymakers and policies and practices.
industry groups to provide insight and ‐ We apply these policies and
policy leadership in connection with commitments equally to everyone
policy and rulemaking related to issues who works at or is part of
affecting small businesses, investors Funding Circle.
and the wider FinTech industry.
Modern slavery
We submit position papers, and
‐ We have a zero-tolerance approach to
participate in expert hearings and
modern slavery and human trafficking.
consultations, forums and other
forms of policy engagement. ‐ We have published a Modern Slavery
Act Transparency Statement in
In 2020, we campaigned for SMEs by compliance with section 54 of the
working with the industry and Modern Slavery Act.
government to shape the support and
access to finance that was available. Code of Conduct
This included the government- ‐ We are dedicated to implementing
guaranteed loan schemes in both the and maintaining the highest standards
US and the UK, and BBLS forbearance of behaviour, ethics and integrity
measures in the UK. Funding Circle also among our workforce.
became a member of UK Finance, the ‐ We have created a culture where
trade association for the financial adherence to these standards is
services sector, and the Confederation recognised and rewarded.
of British Industry, a broader business
‐ We implemented a new Code of
advocacy group. Our membership of
Conduct in 2020 outlining these
FinTech industry body Innovate Finance
standards and addressing subjects
and lending platform 36H Group also
such as integrity and conflicts
helps to amplify the important role that
of interest.
FinTechs play in the UK. In the US, we
engaged with regulators and legislators Anti-corruption and anti-bribery
as founding members of the Innovative ‐ We recognise that our reputation
Lending Platform Association and for integrity and trustworthiness
member of the Responsible Business is critical to our success.
Lending Coalition, primarily focusing on
‐ We uphold all laws relevant to
SME access to capital, disclosure and
countering bribery and corruption
more recently access to government-
in each of our jurisdictions.
guaranteed loan schemes for SMEs.
This further boosted our ability to ‐ Our employees are trained and tested
influence, and play a key role in, creating annually on bribery and corruption
better results for SMEs. risks that may arise in the course of
their employment at Funding Circle.
Annual Report and Accounts 2020 25
Strategic report
Engaging our stakeholders
We actively engage with
all of our stakeholders
We are committed to building open and constructive relationships with all our stakeholders.
Our shared mission with business owners, investors, and our own people is to ensure that a vital,
and historically underserved, part of our economy has access to the funding it needs to win.
In 2020, we adapted the ways we engaged with our stakeholders to ensure they
continued to feel connected and supported throughout the pandemic.
Shareholders Circlers Borrowers
We maintain transparent and open Our people are our business and we SMEs are the growth engine of the
engagement with shareholders at are committed to creating a culture economy, and it is our mission to
all times. This enables the Board where Circlers thrive and share in our help them fulfil their ambitions.
to clearly communicate its strategy, mission, values and ambition.
How we engage
provide updates on our performance
How we engage ‐ Constant monitoring of customer
and receive regular feedback.
‐ Regular all-hands meetings for all feedback including customer
How we engage Circlers including the weekly Global and satisfaction surveys.
‐ Regular shareholder communications Local Gatherings and bi-annual Full and ‐ Regular focus groups with SME
such as full and half year results, and Half Circle events, provide an opportunity borrowers around product changes
ad-hoc trading statement updates. for Circlers to share information and and new marketing campaigns.
‐ Analyst and investor meetings and interact with senior management to
‐ The Board reviews strategy and monitors
presentations/investor roadshows, as well hear about the Company’s performance
performance in light of customer
as ad-hoc meetings and events with larger and response to Covid-19.
feedback, with the aim of meeting the
shareholders and prospective shareholders. ‐ Frequent meetings between Cath Keers, needs of borrowers more effectively.
‐ Due to Covid-19 restrictions, the 2020 our workforce engagement Non-Executive
‐ Throughout the Covid-19 pandemic, we
AGM was closed to shareholders, but the Director, and employee groups, with
provided regular email updates, including
Board is committed to enabling greater employee representatives providing an
on our accreditation to government
shareholder engagement at this year’s update on those meetings to the Board
SME guarantee programmes.
AGM, subject to Covid-19 guidance, and and, in turn, updating Circlers on the
looks forward to welcoming shareholders feedback from the Board.
to our AGM in person in future years. ‐ Circler group FC Impact co-ordinates our Outcomes of engagement
‐ The Chairman, Chief Executive Officer, internal volunteering and charity initiatives. Net Promoter Score (NPS) of 80–90 for
Chief Financial Officer and Director of ‐ Regular culture surveys, with results borrowers in the UK and US.
Investor Relations regularly communicate shared with the Board along with
with larger shareholders and analysts as diversity reports and updates on
required and provide regular reports to diversity and inclusion initiatives.
the Board on shareholder interactions.
‐ The Chair of the Remuneration Committee
Outcomes of engagement
engaged with our key shareholders
We launched a new Circler Promise, Build the
regarding our Remuneration Policy.
Incredible. Alongside this, we introduced a
new benefits package and a new Equity for
Outcomes of engagement All share incentive plan. Our average
Shareholders’ opinions were taken into employee satisfaction scores increased
account in the shaping of Company strategy from 73% in 2019 to 75% in 2020.
and our Remuneration Policy to be proposed
to shareholders at the 2021 AGM.
26 Funding Circle Holdings plc
Section 172(1) statement
The Directors recognise that they have a duty to promote the success of the Company in accordance with s.172(1) of the
Companies Act 2006. Further details on how the Board operates and the way in which it reaches decisions, including the
matters discussed and debated during the year, are set out in the Governance section on pages 51 to 65. Some examples of
how the Directors have had regard to the factors set out in section 172(1)(a)-(f) when discharging their duties are on page 61.
Investors Communities Government and regulators
Providing resilient returns to a wide The SMEs we serve are at the centre of Our goal is for Funding Circle to always
range of investors is a central part of our communities and we are passionate be known as a trusted and reputable
our strategy. advocates of charitable causes and company, and to work with regulators
issues related to social impact and and industry to ensure best practice.
How we engage
community engagement.
‐ We provide bi-annual reporting on loan How we engage
performance including on our website. How we engage ‐ Engagement with local, national, federal
These are updated in line with our full ‐ Continual development and and supra-national government agencies
and half year results. implementation of our ESG strategy, including regulators, legislators, policy
‐ We provide information and support to including developing our understanding makers and industry groups to provide
retail investors in a range of accessible and priorities in respect of engagement insight and leadership in connection with
formats. In response to Covid-19, the with our various stakeholders. policy and rulemaking related to issues
Chief Risk Officer provided regular updates ‐ Regular meetings with investors affecting SME borrowers, investors or
on our strategy to protect returns. regarding their ESG investment lending in the FinTech industry.
‐ Active investor engagement on their criteria as they apply to our loans and ‐ We contribute to the discourse and debate
direct lending, investment products as loan-backed investment products. on industry issues, including submitting
well as the wider investment community. ‐ Circler group FC Impact co-ordinates our position papers and participating in expert
internal volunteering and charity initiatives. hearings, consultations, forums and
other policy engagement initiatives.
Outcomes of engagement ‐ Covid-19 meant we had to adapt our
planned charitable and community ‐ The Board ensures it uses the results
We onboarded a number of new institutional of the above engagement as well as
activities in 2020 to ensure the health
investors, including banks and asset the key legal and regulatory changes
and well-being of everyone involved.
managers, which has further diversified affecting the business to inform its
our investor base and funding sources. strategy and decision making.
£2.5 billion investor capital raised since Outcomes of engagement
the start of Covid-19 to lend to UK and We launched our new ESG strategy, which
Outcomes of engagement
US SMEs. sets out a formal framework for operating
as a responsible business and will be We worked with the British Business
overseen by our newly formed ESG Bank in the UK and the Small Business
committee. We were also able to hold Administration in the US to become one of
virtual workshops with stakeholders the first UK FinTechs to be an accredited
from the charity sector and continue CBILS and PPP lender. We also worked
to raise money and awareness for local with industry to shape the Recovery Loan
foodbanks through campaigns from Scheme and forbearance measures under
the FC Impact team. BBLS in the UK.
Annual Report and Accounts 2020 27
Strategic report
Key performance indicators
Delivering our strategy
Financial
Statutory
Total income (£m) Loss before tax (£m) Loss per share (pence)
£222.0m £(108.1)m (31.2)p
2018 2019 2020 2018 2019 2020
222.0
177.3
(50.9)
141.9
(18.2)
(84.2) (24.4)
Links to strategy: Links to strategy: Links to strategy:
1 2 3 4 (108.1) 1 2 3 4 (31.2) 1 2 3 4
2018 2019 2020
Definition Definition Definition
The Group generates total income Loss before tax is defined as net income Loss per share is defined as the loss for
principally from: transaction fees earned after taking into account all operating the year attributable to ordinary equity
from originating loans with borrowers; expenses and finance income, costs holders of the Parent Company divided
servicing fees from servicing of loans and share of loss of associates. by the weighted average number of
under management; and investment ordinary shares in issue during the year.
income net of investment expense
from Funding Circle sponsored
(ABS) programmes.
Alternative performance measures (“APMs”)
Adjusted EBITDA (£m) Free cash flow (£m)
£(63.8)m £15.4m
2018 2019 2020 15.4
2018 2019
(23.4) 2020
(27.5)
Links to strategy: (40.9) Links to strategy:
(63.8) 1 2 3 4 (49.4) 1 2 3 4
Definition Definition
Adjusted EBITDA represents the Free cash flow represents the net
operating loss before depreciation and cash flows from operating activities
amortisation, share-based payments less the cost of purchasing intangible
and associated social security costs, assets, property, plant and equipment,
foreign exchange gains/ (losses) and lease payments and interest received.
exceptional items. This is the principal It excludes the warehouse and
profit measure used by the Directors in securitisation financing and funding cash
assessing financial performance in the flows. The Directors view this as a key
Group’s three geographical segments. liquidity measure and is the net amount of
cash used or generated to operate and
develop the Group’s platform each year.
28 Funding Circle Holdings plc
2020 saw us come to the end of our medium-term plan; Focus areas relevant to our KPIs
FC 2020 and we delivered against our 4 existing strategic
1 The roll-out of our Instant Decision Lending platform
priorities. Our new plan is based on two key pillars of grow
the UK and US business and launch new products and 2 Investment in data, technology and analytics
impacts all KPIs illustrated.
3 Draw on our diverse investor base and continue
to attract new investors to the platform
4 Build our base of SMEs and introduce changes
to accelerate the path to profitability
Operational
Loans under management (£m) Originations (£m) Marketing costs as a %
of operating income
£4,214m +13%
£2,742m +17%
30%
4,214 2,742 41 42
3,731
2,292 2,350
3,148
30
Links to strategy: Links to strategy: Links to strategy:
1 2 3 4 1 2 3 4 1 2 3 4
2018 2019 2020 2018 2019 2020 2018 2019 2020
Definition Definition Definition
This represents the total value of This represents the monetary value This represents the total cost of
outstanding principal and interest of loans originated through the Group’s third party marketing expenditure
to borrowers. It includes amounts platform or through marketplace in any particular year divided by
that are overdue but excludes loans referrals in any given year. This is a key the operating income earned in
that have defaulted. driver of both transaction fees and that year.
future expected servicing fees and
loans under management.
Andrew Birkby and William Harris launched
Wild Card Brewery after making their own beer
from a home brew kit. They took a shot in the
notoriously difficult industry, renting equipment
at an Essex brewery in 2012.
SUPPORTING BUSINESSES Eight years on, and with the help of one of the UK’s few female
master brewers, Jaega Wise, Wildcard is now an award-winning
BREWING UP
business turning over more than £1.2 million per year.
To help with working capital, the brewers used Funding Circle
on three occasions, including through the Coronavirus
GROWTH ONLINE
Business Interruption Loan scheme.
On the day of the first UK lockdown started they opened
an e-commerce store and started delivering to doorsteps
straight away. Their online shop has continued to grow ever
since and in 2020, the business t grew by 12% despite the
Wild Card Brewery challenges of lockdown.
Annual Report and Accounts 2020 29
Strategic report
Finance review
Our results
In 2020, the Group delivered total
income growth of 25% to £222.0 million.
Loans under management grew
13% to reach a record £4,214 million
with originations growing 17%
to £2,742 million.
Overview
Loans under Management
(as at 31 December)
2020 2019
£m £m Change
United Kingdom 3,271 2,583 27%
United States 759 882 (14%)
Developing Markets 184 266 (31%)
Total 4,214 3,731 13%
Originations Originations
(year ended 31 December) (half year ended)
2020 2019 H1 2020 H2 2020
£m £m Change £m £m
United Kingdom 2,111 1,556 36% 662 1,449
United States 581 619 (6%) 410 171
Developing Markets 50 175 (71%) 40 10
Total 2,742 2,350 17% 1,112 1,630
2020 was a year of two halves as shown in the originations table above. The year started strongly with originations at the high
end of expectations with strong demand for SME loans in the UK, following Brexit and the General Election in 2019, and in the
US where originations in January and February were the highest levels seen for 12 months.
With the emergence of the pandemic and associated impact on economic activity, originations were impacted significantly
during March and April as we waited for approval for the SME government guarantee programmes in the UK and the US. Total
originations rebounded strongly from May onwards, following accreditation to these programmes, and reached record levels.
Overall, loans under management were £4,214 million as at 31 December 2020, a 13% increase on 2019. Total originations
increased by 17% to £2,742 million.
30 Funding Circle Holdings plc
Geographic highlights By July 2020, the US business was granted access to the use
United Kingdom of the Federal Reserve’s PPP liquidity facility. This allows for
lending to be undertaken with funds coming directly from this
Following the impact of Covid-19 in March 2020, the
facility. The US originated £24 million of loans through this
Government introduced the Coronavirus Business Interruption
facility during 2020. When loans are forgiven by the SBA, the
Loan Scheme ("CBILS"), which provides an 80% government
debt associated with them from the facility is also extinguished.
guarantee to investors. Funding Circle received accreditation
to this scheme in late April 2020 and started lending in May As anticipated, borrower demand was suppressed from
2020. Under the scheme’s rules, retail investors are not August to December due to uncertainty over whether there
permitted to invest in CBILS loans. would be further PPP lending. We relaunched our core lending
product in December and continued to offer our referral model
As we started to operate under the scheme, we paused all
during the second half of the year. Overall for the year, loans
non-CBILS lending. From May 2020, and through the rest of
under management decreased by 14% to £759 million with
the year, the UK secured a number of funding agreements with
overall originations down 6% at £581 million.
institutional investors such that we were able to meet the high
demand from SME borrowers. The US Government approved a new round of stimulus
measures in December 2020 and, following the relaunch of
As at 31 December, we had originated c.£1,700 million of
the PPP programme in January 2021, the US business funded
CBILS loans. In addition to the CBILS accreditation, we
loans directly from the Federal Reserve PPP liquidity facility.
also received accreditation to originate loans under the
Once PPP finishes, we will continue to grow our Core lending
Government’s Bounce Back Loan scheme in July 2020 but
product, originate long term government guarantee loans
this was only made available to existing Funding Circle
through the SBA programme on behalf of banks and continue
borrowers and represented c.£27 million of loans.
to operate our referral model for other borrower needs.
In 2020, loans under management rose by 27% to £3,271 million
Total income for the US was £63 million (2019: £52 million)
whilst originations grew by 36% to £2,111 million. The UK
up 20% year on year, again benefiting significantly from
delivered total income growth of 37% to £153 million in 2020,
a full six months of investment income from the new
benefiting from a full year of investment income from the ABS
investment products. AEBITDA was negative £62.4 million
products first launched in June 2019, alongside increased
(2019: £22.0 million) largely driven by the significant fair value
transaction fees driven by the high demand for CBILS loans.
adjustment in H1 2020 of £61.3 million and the slowdown
Despite the fair value loss in H1 2020 Adjusted EBITDA for the in trading in the final quarter of the year whilst waiting for
UK business was positive at £6.5 million. Adjusted EBITDA government stimulus to restart. In H2 2020, the fair value
profit in H2 2020 was £28.6 million compared to Adjusted adjustment was negative £13.2 million.
EBITDA loss in H1 2020 of £22.1 million. The UK business
In July 2020, the Group announced the reorganisation of the
was also operating profitable in H2 2020.
US business centralising the US technology team in the UK
HM Treasury announced in November 2020 that CBILS will and moving sales and marketing to Denver to accelerate its
be extended to March 2021, with applications made prior path to profitability, with a net reduction of 85 roles. This
to 31 March 2021 being processed in April and May 2021. resulted in £1.5 million in relation to reorganisation costs
In March 2021, HM Treasury announced that CBILS and BBLS including right-of-use asset impairment and £12.0 million
would end on 31 March and be replaced by a new 80% SME in relation to the impairment of goodwill associated with the
guarantee loan scheme called the Recovery Loan Scheme. US business which were recognised as exceptional items in
the year.
United States
The US business had a strong beginning to the year with Developing Markets
January and February being our highest months for originations In March 2020, the Group announced the decision to
for 12 months. In April 2020, the US Government introduced restructure the Developing Markets business to a referral only
its Paycheck Protection Program (“PPP”) through the Small model where loans would be referred to lenders rather than
Business Administration (“SBA”) programme. Under this originating loans for institutional and retail investors. As part
scheme, the SBA will forgive the loans if the funds are used of the restructure, we centralised operations in London. The
to pay eligible expenses such as payroll costs of employees. restructure was completed successfully and the business was
The US business was approved by the SBA to originate PPP AEBITDA breakeven in H2 2020. Due to the impact of Covid-19,
loans during April 2020. the Group decided not to scale up the new model and
headcount numbers in London, which resulted in a limited
Following approval the US business originated $474 million
number of loans originated. Costs associated with the
from May 2020 through to August 2020 when the scheme
reorganisation of £5.2 million were recognised within
paused awaiting the next round of stimulus packages from
exceptional items in the year.
the Government. The US initially funded these loans under two
models; the core model and a referral model whereby it refers
borrowers that meet their eligibility criteria to other institutions.
PPP loans are 100% guaranteed and the average transaction
fee across the two models was 3.15%.
Annual Report and Accounts 2020 31
Strategic report
Finance review continued
Finance review The Group’s operating loss was £106.3 million for the full
Overview year (2019: £84.7 million loss). H1 2020 operating loss was
£113.5 million, compared with an operating profit in H2 2020
Group total income was £222.0 million (2019: £177.3 million),
of £7.2 million. Before exceptional items of £18.7 million in 2020
up 25%. Net income for the year was £103.7 million (2019:
for the restructuring of the European business (£5.2 million),
£167.4 million). Net income is less fair value movements
restructuring cost in the US business (£1.5 million) and US
on SME loans held for sale.
goodwill impairment (£12.0 million), the operating loss was
AEBITDA loss was £63.8 million (2019: loss £27.5 million). £87.6 million (2019: £50.4 million loss).
H1 AEBITDA loss was £84.1 million, which comprised of
negative £24.4 million operating AEBITDA¹ and negative
£59.7 million investment AEBITDA¹, driven by a large fair value 1. Adjusted EBITDA represents EBITDA (Earnings before Interest, Tax, Depreciation
and Amortisation) excluding share-based payments, exceptional items and foreign
adjustment on SME loans held for sale. This compared to exchange gains or losses. Investment AEBITDA refers to net investment income
a strong AEBITDA profit in H2 2020 of £20.3 million, which (being investment income, investment expense and fair value adjustments) as
previously reported and operating AEBITDA represents AEBITDA excluding
comprised of £12.6 million operating AEBITDA and £7.7 million
investment AEBITDA.
investment AEBITDA.
Profit and loss
31 December 2020 31 December 2019
Before Before
exceptional Exceptional exceptional Exceptional
items items Total items items Total
£m £m £m £m £m £m
Transaction fees 122.5 — 122.5 121.2 — 121.2
Servicing fees 30.2 — 30.2 30.4 — 30.4
Other fees 3.0 — 3.0 5.3 — 5.3
Fee income ("operating income") 155.7 — 155.7 156.9 — 156.9
Investment income 89.0 — 89.0 28.3 — 28.3
Investment expense (22.7) — (22.7) (7.9) — (7.9)
Total income 222.0 — 222.0 177.3 — 177.3
Fair value (losses)/gains (118.3) — (118.3) (9.9) — (9.9)
Net income 103.7 — 103.7 167.4 — 167.4
People costs (81.3) (4.0) (85.3) (90.3) — (90.3)
Marketing costs (46.8) — (46.8) (66.5) — (66.5)
Depreciation, amortisation and
impairment (17.2) (13.7) (30.9) (14.9) (34.3) (49.2)
Loan repurchase charge (6.2) — (6.2) (6.5) — (6.5)
Other costs (39.8) (1.0) (40.8) (39.6) — (39.6)
Operating expenses (191.3) (18.7) (210.0) (217.8) (34.3) (252.1)
Operating loss (87.6) (18.7) (106.3) (50.4) (34.3) (84.7)
Total income where the majority were generated through the marketplace
The Group delivered total income of £222.0 million (2019: (referral) model driving average yields in the US to 3.7% for the
£177.3 million) up 25%. Total income represents operating year (2019: 5.4%).
income and investment income, less investment expense. Servicing fees, representing fees for servicing loans under
Operating income includes transaction fees, servicing fees, management, remained flat at £30.2 million. With a large
and other fees and was £155.7 million (2019: £156.9 million). proportion of the UK originations occurring in the second half
of 2020, the impact on the UK’s servicing fees will be more
Transaction fees, representing fees earned on originations, pronounced in 2021. Servicing yield was 0.8% compared with
grew 1% to £122.5 million. This was driven by higher originations 0.9% in 2019 as servicing fees are not earned when Funding
in the UK, offset by lower yields on CBILS loans which are Circle is servicing its own loans in warehouses and
fixed at 4.75% together with the lower originations in the US, securitisation vehicles that are on balance sheet.
32 Funding Circle Holdings plc
Other fees arise principally from a fee premium we received Depreciation and amortisation costs of £30.9 million (2019:
from certain institutional investors in the year in respect of £49.2 million) largely represent the amortisation of the cost of
buying back certain defaulted loans under a loan purchase the Group’s capitalised technology development and
commitment. impairment of goodwill.
Net investment income² represents the investment income, A charge of £12.0 million was recorded in H1 2020 in respect
less investment expense, on loans invested within Funding of the goodwill of the US business (2019: £29.0 million in
Circle’s investment vehicles and was £66.3 million (2019: respect of the Developing Markets goodwill and £5.3 million
£20.4 million). This is significantly higher than 2019 as these with respect to other non-financial assets). The Group
programmes only commenced in June 2019. concluded that the future cash flow projections of these
businesses were insufficient to support the carrying value
Net income, defined as total income after fair value adjustments,
of the associated goodwill and assets.
was £103.7 million (2019: £167.4 million). The Group considers
a large proportion of this negative fair value movement of An exceptional impairment charge of £1.7 million was also
£118.3 million was attributable to the impact that Covid-19 recognised in relation to the impairment of right-of-use
economic stress had on SME borrowers. The fair value property related assets driven by the reorganisation of the
adjustment in H1 2020 was £96.1 million, compared with US and Developing Markets businesses.
H2 2020 of £22.2 million.
Loan repurchase charges relate to certain historical
2. We have redefined net investment income, first described in the 2019 financial circumstances when in new markets, predominantly Germany
results, to be investment income less investment expense. Investment AEBITDA is
net investment income less fair value (losses)/gains. and the Netherlands, Funding Circle entered into arrangements
to buyback certain defaulted loans from certain financial
Operating expenses institutions under a loan purchase commitment. In return the
Cost management initiatives led to a 12% decrease from H1 business has received a fee premium (reflected in Other fees).
2020 to H2 2020. Overall operating expenses for the full year Under IFRS 9 this commitment is accounted for under the
were £210.0 million (2019: £252.1 million). 2020 operating expected credit loss model.
expenses included certain exceptional items driven by goodwill Other costs principally includes cost of sales, data and
impairment and restructuring costs of the Developing Markets technology costs and property costs and remained broadly
and the US business. Excluding these items, operating expenses flat year on year.
were down £26.5 million to £191.3 million (2019: £217.8 million)
principally driven by salary related savings following the Operating loss was £113.5 million in H1 2020. In H2 2020, we
restructurings and reduced marketing spend. made an operating profit of £7.2 million. This led to an overall
operating loss for the full year of £106.3 million (2019: loss
People costs (including contractors) which represent the £84.7 million) due to the non-cash fair value adjustment on
Group’s largest ongoing operating cost decreased during investments primarily as a result of the impact of Covid-19 and
the year by 9% to £94.7 million, before the capitalisation of exceptional items related to the reorganisation of the US and
development spend. This was driven by a decrease in average Developing Markets businesses. Excluding exceptional items,
headcount of 14% and includes total exceptional costs related operating loss was £87.6 million (2019: £50.4 million).
to the reorganisation of the US and Developing Market
businesses of £4.0 million. The share-based payment charge
for the year, included in people costs, was lower at £5.6 million
(2019: £8.0 million) driven by credits from leavers as part of
the US and Developing Markets restructuring of which
£1.0 million is recognised in exceptional items.
31 December 31 December
2020 2019 Change
£m £m %
People costs 94.7 104.6 (9%)
Less capitalised development
spend (“CDS”) (9.4) (14.3) (34%)
People costs net of CDS 85.3 90.3 (6%)
Average headcount
(incl. contractors) 1,002 1,165 (14%)
Year-end headcount
(incl. contractors) 863 1,139 (24%)
Marketing costs decreased in the year from £66.5 million
in 2019 to £46.8 million in 2020 as the Group managed
discretionary marketing spend tightly. Marketing spend overall
was 30% of operating income during the year (2019: 42%).
Annual Report and Accounts 2020 33
Strategic report
Finance review continued
Segmental reporting
During the year ended 31 December 2020 organisational changes led to greater ownership of costs being managed within
geographies. As a result, the way the operating segment performance is reported to, and reviewed by, the Global Leadership
Team was modified to allocate product development, corporate costs, depreciation and amortisation, share-based payments
and exceptional items across the geographical segments.
The comparatives for the year ended 31 December 2019 have been restated to reflect the revised segmental presentation.
The Group also reviews the results of the Group using Adjusted EBITDA as an alternative performance measure. The table below
sets out a reconciliation between these measures and the statutory operating loss:
31 December 2020 31 December 2019 (restated)
United United Developing United United Developing
Kingdom States Markets Total Kingdom States Markets Total
£m £m £m £m £m £m £m £m
Total income 152.9 63.0 6.1 222.0 111.6 52.4 13.3 177.3
Fair value (losses)/gains (43.8) (74.5) — (118.3) (3.1) (6.8) — (9.9)
Net income/(loss) 109.1 (11.5) 6.1 103.7 108.5 45.6 13.3 167.4
Segment adjusted EBITDA 30.2 (52.8) (6.3) (28.9) 34.0 (10.3) (12.5) 11.2
Product development (14.7) (6.5) (1.1) (22.3) (15.1) (8.3) (3.0) (26.4)
Corporate costs (9.0) (3.1) (0.5) (12.6) (7.9) (3.4) (1.0) (12.3)
Adjusted EBITDA 6.5 (62.4) (7.9) (63.8) 11.0 (22.0) (16.5) (27.5)
Depreciation and amortisation (9.4) (6.5) (1.3) (17.2) (8.0) (5.2) (1.7) (14.9)
Share-based payments and social
security costs (5.0) (1.2) (0.4) (6.6) (5.0) (2.7) (0.3) (8.0)
Exceptional items — (13.5) (5.2) (18.7) — — (34.3) (34.3)
Operating loss (7.9) (83.6) (14.8) (106.3) (2.0) (29.9) (52.8) (84.7)
Balance sheet and investments
As previously reported, in 2019 the Group launched new funding products whereby it aggregates loans in warehouses for sale as
ABS bonds to widen the universe of investors that can access investment in Funding Circle loans.
The SME loans are held in bankruptcy remote warehouses and securitisation vehicles. The value of the investments are regularly
assessed and have been impacted due to the stress of Covid-19 on SMEs.
Whilst total loans consolidated on balance sheet for accounting purposes is c.£560 million, Funding Circle’s exposure is limited
to its investment of £118 million (2019: £145 million). The investments are valued by discounting future cash flows and the Group
may crystallise higher amounts in future periods as the discounting unwinds. The tables below breaks down the Group’s balance
sheet into its constituent parts:
2020 2019
Operating Warehouse Securitisation Other
business PPP Loans SPVs SPVs investments Total Total
£m £m £m £m £m £m £m
Investment in SME loans 0.7 24.3 221.8 279.8 32.2 558.8 723.5
Cash 64.4 — 18.9 20.0 — 103.3 164.5
Other assets — — — 11.1 — 11.1 8.4
Borrowing/bonds — (24.3) (171.2) (294.3) — (489.8) (614.5)
Cash & Investments 65.1 — 69.5 16.6 32.2 183.4 281.9
Other assets 109.0 — — — — 109.0 99.1
Other liabilities (74.8) — — — — (74.8) (62.0)
Equity 99.3 — 69.5 16.6 32.2 217.6 319.0
Funding Circle has various investment vehicles it uses to invest in SME loans. Given the different risk dynamics, each vehicle is
affected by Covid-19 economic stress in different ways.
34 Funding Circle Holdings plc
The Group had warehoused loans in the US and UK during Cash flow
2019 and securitised both of them in August 2019 and As at 31 December 2020, the Group held cash and cash
November 2019 respectively. In January 2020, the US equivalents of £103.3 million, down from £164.5 million at the
undertook a second securitisation. When lockdowns began in end of 2019. Of the balance, £38.9 million (2019: £14.2 million)
March 2020, the Group had one UK warehouse at 100% of was held within the warehouse and securitisation vehicles.
capacity and two US warehouses at a combined 30% Included within the £61.2 million decrease, £20.9 million has
capacity. Our invested capital increased following the 2019 been due to the co-investing in CBILS loans and £57.9 million
year end, prior to the reassessment of the investment portfolio invested into the ABS vehicles principally in the first quarter of
fair value in light of Covid-19. The fair value of each of these the year prior to Covid-19.
investments was assessed for the interim results in June
2020, with the resultant value determined to be £110 million As at 31 December 2020, the Group was due net £27 million,
collectively as shown below. of transaction fees which were subsequently received in
February 2021.
The Group values its investments using discounted cash flows
that take into account projected cash flows from the underlying Free cash flow, which is an alternative performance measure,
SME loans, which include principal repayment and prepayment represents the net cash flows from operating activities less
rates and expected levels of default. Since the 30 June 2020, the cost of purchasing intangible assets, property, plant and
there has not been a significant deterioration in the expected equipment, lease payments and interest received. It excludes
level of defaults when these investments were revalued at the warehouse and securitisation financing and funding
31 December 2020. cash flows.
The table below provides a further breakdown of Funding Free cash flow has principally improved due to operating cash
Circle’s investment in these vehicles: flows from transaction fee income and investment income
while controlling marketing and people costs year on year.
At At At
31 December 30 June 31 December The table below shows how the Group’s cash has been utilised:
2019 2020 2020
Investment type £m £m £m 2020 2019
£m £m
1. Securitisation SPVs
(vertical) 13 18 12 Adjusted EBITDA (63.8) (27.5)
2. Other Investments 13 16 32 Fair value adjustments 118.3 9.9
3. Warehouse SPVs 94 66 70 Purchase of tangible and intangible
assets (10.3) (17.2)
4. Securitisation SPVs 25 10 4
(horizontal) Payment of lease liabilities (7.8) (7.1)
Working capital/other (21.0) (7.5)
Total 145 110 118
Free cash flow 15.4 (49.4)
1) Securitisation SPVs (vertical): Funding Circle is required by Net investment in associates 2.3 (13.9)
regulation to retain a 5% equal participation in all classes Net investment in trusts (20.9) —
of bonds issued (vertical). The vertical investments are
Net investment in warehouses (234.0) (79.3)
measured at amortised cost.
Net investment in securitisations 176.1 (27.7)
2) Other Investments: There are a small amount of Other
Other 0.2 3.9
Investments, comprising seed investments in Private
Effect of foreign exchange (0.3) (2.1)
Funds and participation in investments in the UK CBILS
programme. The increase since 2019 is principally driven Movement in the year (61.2) (168.5)
by CBILS Investments. Cash and cash equivalents
3) Warehouse SPVs: In warehouses we deploy our equity and at the beginning of the year 164.5 333.0
third party bank debt to aggregate loans temporarily prior to Cash and cash equivalents
securitisation. The debt is senior which means the equity is at the end of the year 103.3 164.5
more exposed to changes in the valuation of loans. When
Covid-19 hit, the Group had one UK warehouse at 100% of
capacity and two US warehouses at a combined 30%
capacity. The intention was to securitise the SME loans in
the warehouses but this was not feasible due to Covid-19.
4) Securitisation SPVs (horizontal): Once loans are
securitised, we temporarily hold the residual horizontal
tranches with the intention to sell once seasoned. These
tranches have the potential to earn greatest returns, but
they also absorb losses first. As at December 2020, we
held horizontals in three securitisations which were
securitised in H2 2019 (UK and US) and H1 2020 (US).
The timing of the pandemic meant that it was not feasible
to dispose of all these horizontal tranches in 2020. Since
June 2020, the Group sold a tranche of the UK vehicle for
c.£4 million.
Annual Report and Accounts 2020 35
Strategic report
Risk management
Successfully
navigating the crisis
with focus and
determination
2020 has been a formidable test of our under such circumstances, we believe that Risk management overview
risk management capabilities given the we can re-start offering unsecured loans Risk management sits at the heart of
pandemic and the resulting credit stress. to low risk segments through the course our business. We recognise that
The magnitude and speed of the of 2021. effective management of all key risks is
pandemic, and the breadth of impacted critical to meet our strategic objectives
Despite the complexity involved in
regions and sectors, created significant and to achieve sustainable long-term
carefully managing our historical loan
challenges with an unprecedented rise in growth. Every business faces risks.
portfolio whilst pivoting our lending
SME borrowers seeking support. Funding These need to be identified, understood
processes to distribute government-
Circle reacted swiftly to the situation by and appropriately addressed to protect
guaranteed loans, we have also made
offering forbearance plans to customers the Company, our shareholders, our
good progress in strengthening our risk
in difficulty, augmenting capacity in the customers and fellow Circlers.
management framework. In 2020,
collections department and tightening
we have: At Funding Circle all employees,
credit parameters for new lending. We
were quickly accredited to offer CBILS ‐ reduced process risks through regardless of their position, play their
loans in the UK and PPP loans in the US increased automation and enhanced part in managing risk within the
to support our customers and the controls, leading to fewer instances of business. A strong risk culture enables
broader economy diligently, thanks to our loan repurchases related to us to manage the risks inherent to our
adaptable online lending capabilities. operational errors; business activities seamlessly, every
day, through the active participation of
We are pleased to see that the majority ‐ developed more sophisticated
all. Our Enterprise Risk Management
of customers who needed help have governance and controls to manage
Framework (“ERMF”) defines a
resumed repaying their loans, and as of our funding and balance sheet risks,
common approach to risk management,
December 2020, 93% of UK and US recognising the growing materiality of
with clear roles and responsibilities, and
businesses are making payments. This our balance sheet positions as we
provides the foundations for a strong
turnaround is the result of active efforts diversify our funding sources into
control environment. Our approach to
to engage with our borrowers and securitisation;
risk management consists of:
investors to provide loan-curing ‐ refined our model risk governance
solutions, and speaks to the intrinsic and controls including more granular ‐ putting our culture at the heart of
credit quality of the portfolio of loans we performance monitoring and data everything we do;
had originated before the crisis. quality controls; ‐ investing in robust risk capabilities,
‐ strengthened our data governance including advanced data and risk
The credit environment remains uncertain
and security controls including rolling analytics; and
in all our markets and highly dependent on
the development of the pandemic and the out a new data governance tool; and ‐ doing the right thing for our customers,
efficacy of vaccines and government ‐ continued to enhance our financial shareholders and employees.
measures. Our central stress scenario crime and fraud prevention tools to As part of the second line of defence, the
outlook for now is a prolonged economic ensure strong controls and Risk team oversees risk management
crisis with gradual credit de-stressing over compliance with regulation. across the Company, in conjunction with
2021–2022. Under such a scenario, we the Legal and Compliance teams. We
Overall, we are proud of the good work
have simulated that all historical annual also support our first line of defence
accomplished in 2020 across the
cohorts of unsecured loans originated colleagues in their risk management
organisation to keep our employees,
in the UK and the US should still deliver activities – for example by providing
borrowers and investors safe at a time of
positive lifetime returns to investors. training and expert support for
high disruption. The future is highly
We are also confident that government- centralised risk information management
uncertain and we will remain very vigilant.
guaranteed loans issued during the crisis or complex credit analysis.
We have demonstrated we can be resilient
will deliver satisfactory returns to investors,
and adapt well to exceptional conditions,
due to adapted credit criteria and the loss
and we will continue to navigate this crisis
protection through the guarantee. Finally,
with focus and determination.
36 Funding Circle Holdings plc
Board role and has a direct reporting line to the Risk appetite
The Board is responsible for setting the Board. He is responsible for developing, Our risk appetite is defined as the level
strategy, corporate objectives and risk maintaining and implementing the of risk that we, as a company, are
appetite. The Board has delegated ERMF. He is also responsible for prepared to accept whilst pursuing our
responsibility for reviewing the providing assurance to the Board that core business strategy, recognising a
effectiveness of the risk management the principal risks are appropriately range of possible outcomes as business
framework to the Board Risk and managed and that Funding Circle is plans are implemented. The Board sets
Compliance Committee (‘RCC’). On the operating within risk appetite. the risk appetite and reviews the
advice of the RCC, the Board approves Company risk profile against risk
the level of risk acceptable under each Risk management policies appetite. Risk appetite provides a
principal risk category, whilst providing We have formalised and implemented guideline for shaping business
oversight to ensure there is an adequate risk management policies defining strategies and defining the level of
framework in place for reporting and mandatory requirements to mitigate the controls needed. It also provides a basis
managing those risks. principal risks that we face, with clear for ongoing dialogue between
risk limits and requirements to monitor management and the Board with
Chief Risk Officer risks and adherence to limits. The Risk respect to Funding Circle’s current and
and the Risk function and Compliance teams regularly review evolving risk profile, allowing strategic
Our Global Chief Risk Officer (‘CRO’), these policies and controls to verify and financial decisions to be made on
Jerome Le Luel, leads the Risk function, compliance and to adapt to changes in an informed basis.
which is independent from the business the business environment.
Principal risks
Our principal risks represent defined groupings that we use to help consistently identify, assess, manage, monitor and report
risks. Using consistent risk categories enables clear risks aggregation to determine their overall impact to the organisation.
We have identified five principal risks:
1 2 3 4 5
Strategic risk Funding and balance Credit risk Regulatory, reputation Operational risk
sheet risk and conduct risk
Risk governance
Funding Circle has a risk governance framework that is documented in the ERMF. Responsibility for defining and approving the ERMF lies
with the Board. The risk governance framework includes delegations of authority from the Group Board, the UK Board and Principal Risk
Committees as appropriate.
We operate a Three Lines of Defence model across all markets in which we operate. Funding Circle’s Three Lines of Defence model and
risk governance structure have been designed to manage our principal risks in a consistent manner across the Group, as set out below.
Three Lines of Defence
FC CEO FC Board
Direct access to FC Board and Audit Committee
Global General
First line Europe MD US MD CFO Global CRO
Counsel
Credit Data and
Second line Europe CRO US CRO ERM
quality analytics
Compliance
European US
monitoring
compliance compliance
and testing
Third line Internal Audit
Annual Report and Accounts 2020 37
Strategic report
Risk management continued
Risk governance structure
Board Committees
Funding Circle Holdings Board
Funding Circle Holdings Board Funding Circle Holdings Board
Funding Circle Ltd Board
Audit Committee Risk and Compliance Committee
Group Committees
Balance Sheet Management Disclosure
Executive Risk Committee
Committee Committee
Technology Security Risk
Sub Committee
Business Unit
Committees
Regulatory, Reputation &
Operational Risk Committee Credit Risk Committee
Conduct Risk Committee
The Board Risk and Compliance Committee (“RCC”) is supported by the Executive Risk Committee (“ERC”), comprising the
members of the Global Leadership Team. The ERC has sub-committees focused on each principal risk, as set out below.
Executive Risk Committee Regulatory, Reputation and Conduct Risk Committee
The ERC reviews all principal risks across the Group. Strategic The Reputation and Conduct Risk Committee, focuses on the
risks are directly supervised and managed by the leadership management of regulatory, reputation and conduct risks, and
team of each Business Unit and reviewed at the ERC. oversees new product approvals.
Balance Sheet Management Committee Operational Risk Committee
The Balance Sheet Management Committee is responsible for The Operational Risk Committee focuses to ensure that
oversight of funding risk and Group balance sheet risk. operational controls are effective and that operational and
financial crime risks are adequately managed in each
Credit Risk Management Committee
Business Unit.
The Credit Risk Management Committees focus is on
ensuring that the credit risk of each Business Unit’s loan Disclosure Committee
portfolio is adequately managed. The Board has delegated to the Disclosure Committee
responsibility for overseeing the disclosure of information by
Funding Circle to meet its obligations under the Financial
Conduct Authority (“FCA”) Market Abuse Regulations, Listing
Rules and Disclosure and Transparency Rules.
Risk culture
At Funding Circle, we believe that an open and strong risk culture encourages ethical behaviour and professional conduct. We
promote our risk culture as part of our ongoing effort to reinforce our Company values and have a global programme of “Doing
the Right Thing” every day for our customers, employees and other stakeholders.
38 Funding Circle Holdings plc
Risk assessment framework
1. Evaluate
1 ‐ Identify key risks
‐ Set risk appetite
‐ Assess adequacy
of existing controls
‐ Estimate residual risk
2. Respond
‐ Design control improvement plans
‐ Prioritise remediation work
Enterprise risk and assign responsibilities
management
3. Monitor
‐ Track business performance
vs risk appetite
‐ Report, analyse and escalate
risk incidents
3 2 ‐ Identify new or emerging risks
‐ Track delivery of agreed
control improvements
A standard risk assessment framework is used to evaluate Respond
risks at both the Business Unit and Group levels, enabling The appropriate risk response ensures that risks are within
consistent measurement. Risk assessments are carried appetite. At Funding Circle we have four types of possible
out by those individuals, teams and departments that are risk responses:
best placed to identify and assess potential risks. They are
supported in this process by our Risk and Compliance teams. ‐ accept the risk;
‐ take mitigation actions (such as additional risk controls)
We typically follow the evaluate/respond/monitor
to reduce the risk;
methodology:
‐ stop the existing activity/do not start the proposed
Evaluate activity to remove the risk; or
As part of its responsibilities under the ERMF the ‐ continue the activity and lay off the risk to another party
Board has formally recognised a series of risks that are (e.g. insurance).
continuously present at Funding Circle and can materially
affect the achievement of Funding Circle’s objectives. Monitor
These risks have been organised under a consistent Monitoring and reporting on Funding Circle’s risk exposures
and simple taxonomy with a hierarchy of risk categories, are undertaken through risk governance structures. The
which facilitates risk management and oversight. The RCC receives a consolidated risk report no less than three
management of these risks is assigned to designated times a year detailing the risks facing the Group and
business owners who formally assess on a regular basis mitigation plans, as well as risk outlook. The RCC is also
the level of these risks, the adequacy of controls and the provided with metrics and regular reports about the
need for further mitigations. activities of the Risk and Compliance functions.
Risk assurance
Assurance on the management of risk is provided by the Three Lines of Defence model including the Internal Audit function. We
also execute an external annual controls assurance report in the UK (ISAE3402) certified by auditors.
Annual Report and Accounts 2020 39
Strategic report
Principal risks and uncertainties
The Board confirms that throughout 2020 a robust assessment of the principal risks facing Funding Circle was completed.
A comprehensive list of Group-wide risks and emerging risks was reviewed and monitored throughout the year. The most
significant risks and uncertainties faced by Funding Circle are listed in the table below, categorised by principal risk:
Strategic risk
Strategic risk is defined as the failure to build a sustainable, diversified and profitable business that can successfully adapt
to environment changes due to the inefficient use of Funding Circle’s available resources.
RISK APPETITE Funding Circle will make efficient use of its available resources to build a sustainable, diversified and
profitable business that can successfully adapt to environment changes.
KEY RISKS MANAGEMENT OF RISK CHANGE IN RISK IN YEAR
Economic environment
Financial risk that is We continually monitor the health of our loan
associated with portfolios and perform stress test simulations to
macroeconomic or help ensure that investor returns remain resilient in The Covid crisis has severely impacted
political factors that may the context of risk volatility. Key mitigating actions the economies where we operate (UK,
affect Funding Circle’s include (but are not limited to): US, Germany and the Netherlands),
financial and/or credit resulting in elevated credit stress across
‐ annual stress testing of loan portfolios in
performance. our SME markets.
each market;
‐ resilient credit strategy and continuous tuning of In this context, Funding Circle reviewed its
risk and pricing parameters to correct for possible credit strategy and decided to focus from
deviations in returns; April 2020 on government guaranteed
‐ independent validation and continuous monitoring loans, with tight underwriting parameters.
of the performance of credit risk models; Concerning the assets originated prior
‐ monthly monitoring of internal and external to Covid, the priority has been to offer
signals as part of the Credit Risk Management forbearance programs to borrowers in
Committees; difficulty whilst ensuring high performing
‐ agile capability to rapidly deploy pricing and credit collections through upsized capacity and
strategy adjustments deemed necessary; increased productivity with technology.
‐ experienced in-house collections and recoveries We have reflected this deteriorated
capabilities with built-in scalability; and credit environment in our forecasts and
‐ with regards to government-backed programs, recorded an adverse fair value adjustment
controls and audits of all guarantee eligibility in respect of Funding Circle’s own
criteria. investment exposures.
The Brexit deal with the EU and the
conclusion of US elections remove some
uncertainty in the short term, but new
issues can arise. We are carefully
monitoring the environment, and as
the Covid situation normalises, we will
update our credit outlook.
As the environment improves, Funding
Circle aims to resume lending in the
course of 2021 outside of the government
guaranteed programs, with appropriate
credit parameters.
40 Funding Circle Holdings plc
Funding and balance sheet risk
Funding and Balance Sheet Risk is defined as the risks associated with platform funding (matching borrower demand
and investor cash supply), capital commitments and corporate liquidity through normal and stress scenarios.
RISK APPETITE Funding Circle will make efficient use of its balance sheet and optimise and diversify funding and liquidity
sources to enable a balanced funding strategy whilst limiting downside risk.
KEY RISKS MANAGEMENT OF RISK CHANGE IN RISK IN YEAR
Funding risk
The risk that borrower Funding Circle’s business model is to be a lending
loan demands cannot be platform that efficiently matches the supply of
Given the launch of government
met when and where they capital to the demand of SME borrowers.
guarantee loan programmes and lower
fall due or can only be
We carefully manage this matching by: investor demand, we stopped unsecured
met at an uneconomic
lending in the Covid environment;
price. This risk varies ‐ building long term relationships with investors
Funding Circle focused on government
with the economic and developing a forward-looking pipeline of
guaranteed lending.
attractiveness of FC loans new investors;
as an investment, the ‐ actively managing concentration risk and With government-backed loans, we
level of diversification of diversifying sources of funding; on-boarded a range of new investor
funding sources and the relationships – from banks through to
‐ managing Funding Circle’s lending activities
level of resilience of these asset managers.
whether through direct lending capacity,
funding sources through
securitisation capacity or investment fund As CBILS lending is not available to retail
economic cycles.
lending vehicles; investors, the retail platform in the UK
‐ monitoring a broad range of management was paused from March 2020.
information and key performance indicators at Overall, funding supply has been
the Balance Sheet Management Committee, RCC sufficient in 2020.
and Board;
There is some uncertainty about the
‐ leveraging a seasoned team for Capital Markets
securitisation market and investor
sales and transactions structuring; and
appetite for government-guaranteed
‐ managing potential conflicts of interest between loans versus unsecured lending. We
investors and Funding Circle. continue to work closely with investors
on various loan product and transaction
structure options and indications received
so far suggest that investors would be
keen to keep funding Funding Circle
beyond current government-backed
programs – subject to adequate terms.
Annual Report and Accounts 2020 41
Strategic report
Principal risks and uncertainties continued
Credit risk
Credit risk is the risk of financial loss to an investor should any borrower fail to fulfil their contractual repayment obligations.
Credit risk management is the sum of activities necessary to deliver a risk profile at portfolio level in line with Funding Circle
managements’ expectations, in terms of net loss rate, risk-adjusted rate of return and its volatility through economic cycles.
RISK APPETITE Whether or not Funding Circle owns any credit risk, credit risk of loans will be managed with the utmost care
and attention to deliver credit performance and returns in line with expectations.
KEY RISKS MANAGEMENT OF RISK CHANGE IN RISK IN YEAR
Balance sheet risk
The risk that Funding We carefully manage this risk by:
Circle investment
‐ setting clear guardrails for FC balance sheet;
positions reduce in value Our overall approach to having a robust
or cannot be exited at an ‐ maintaining a prudent level of liquidity to cover
balance sheet and prudent management
economically viable price. unexpected outflows to ensure that we are
of liquidity remains unchanged.
able to meet financial commitments for an
The risk that Funding extended period; The pandemic resulted in a material fair
Circle liabilities cannot be value impact on some investment
‐ considering a broad range of management
met when and where they positions held by Funding Circle held
information and key performance indicators at
fall due or can only be with the intention to sell and temporarily
the Balance Sheet Management Committee and
met at an uneconomic disrupted the market for such
RCC; and
price. investments. The liquidity and appetite
‐ developing a dedicated and effective Balance
for these investments is expected to
Sheet Management function.
improve in 2021.
We have sufficient disposable cash to
cover our liquidity needs, including when
tested against stressed liquidity scenarios.
42 Funding Circle Holdings plc
Regulatory, reputation and conduct risk
Regulatory, reputation and conduct risk is defined as engaging in activities that detract from Funding Circle’s goal of being
a trusted and reputable company with products, services and processes designed for customer success and delivered in
a way that will not cause customer detriment or regulatory censure.
RISK APPETITE Funding Circle will not engage in activities that detract from its goal of being a trusted and reputable
financial services company with products, services and processes designed for customer success and delivered in a way that
will not cause customer detriment or regulatory censure.
KEY RISKS MANAGEMENT OF RISK CHANGE IN RISK IN YEAR
Portfolio risk management
Borrower acquisition Funding Circle’s aim is for well-balanced loan
Credit performance and portfolios that generate positive returns for
returns of new loans can investors through the economic cycle. There is an increased credit risk of
deviate from expectations borrowers not meeting their repayment
We are actively managing credit risk by:
due to several factors: obligations due to the impact of
changes in credit quality ‐ formulating credit risk policies (covering credit lockdowns and continuing economic
of incoming applications, assessment and risk grading, portfolio monitoring slowdown. This can lead to an increase
calibration of risk models and reporting, collections and recoveries) and in credit defaults and a decrease in
or strategy parameters, ensuring adherence to these policies; investor net returns.
control gaps in ‐ recruiting, training and managing expert risk Investor net returns are also contingent
processing loan professionals with the adequate skills, objectives on the continuous effectiveness of
applications. and capacity; collections and recoveries activities
Portfolio Risk ‐ establishing the formal mandates and during the crisis.
Management authorisation structure for setting risk
To account for these risks, we have
Credit performance parameters and approving loans;
paused unsecured lending and
and returns of existing ‐ performing independent quality control of intensively managed the historical book
portfolio can deviate credit decisions; through customer service and
from expectations due ‐ limiting concentration risk to counterparties collections. For this purpose, we have
to several factors: and industries; increased staffing and adapted our
deterioration of credit collections capabilities and tools to help
‐ actively monitoring the performance of the loan
environment, increased borrowers in difficulty.
portfolios and the market trends that could
competition driving higher
affect performance; In the case of government-backed loans,
prepayment rates,
effectiveness of portfolio ‐ implementing adequate procedures to control credit risk significantly reduces for new
monitoring, collections model risk (including the independent validation borrowers acquisitions, thanks to the
and recoveries. and monitoring of credit scoring models); credit loss reduction guarantee offered
‐ performing annual stress tests with high quality by these programs, and those loans have
standards; and formed the majority of our lending in 2020.
‐ with regards to government programs, tightly
controlling adherence to eligibility criteria.
Annual Report and Accounts 2020 43
Strategic report
Principal risks and uncertainties continued
Regulatory, reputation and conduct risk continued
KEY RISKS MANAGEMENT OF RISK CHANGE IN RISK IN YEAR
Regulatory risk
The risk that Funding ‐ We remain vigilant to proposed changes
Circle’s ability to affecting our business and we engage with
effectively manage its policy makers where relevant. We have There is increased regulatory scrutiny as
regulatory relationships continued to invest time and resources in a result of the economic uncertainty and
is compromised or external relations, including educating policy the perceived increased risk to viability
diminished, that the makers, regulators and other influencers of firms.
Group’s governance and on the features, benefits and impact of
The volume of collections activity also
controls framework is not platform lending.
poses an increased regulatory risk
satisfactory given business ‐ We continue to implement and maintain business regarding the adequate management
growth or that there is practices and controls focused on regulatory risk, of borrowers in difficulty.
business interruption by including controls designed to comply with the
reason of non-compliance Senior Managers & Certification Regime. Proactive engagement with the
with regulation or the regulators continues.
‐ We have expanded our teams focusing on
introduction of business-
governance and controls, and continue to train
impacting regulation.
all employees in such matters as are relevant
to their role.
Reputation risk
Operational or We continue to implement and maintain business
performance failures practices and controls focused on reputation
could lead to negative management, including: There is heightened reputational risk
publicity that could from pursuing collections from
‐ ensuring RCC consideration of new or iterated
adversely affect our borrowers, who have missed payments.
products and initiatives;
brand, business, results,
‐ engaging fully with regulators in relation to any Forbearance measures have been
operations, financial
such new or iterated products and initiatives that offered to help borrowers in difficulty in
condition or prospects.
might impact on customer outcomes; an empathetic way and processes for
dealing with vulnerable customers have
‐ undertaking specific projects to address
been reviewed and enhanced.
identified risk topics and issues; and
‐ updating and refining our approach to issue and Quality monitoring and training have also
risk identification and management. been enhanced in our collections and
recoveries department.
Conduct Risk/Treating Customers Fairly
Funding Circle’s activities ‐ Improvements have been made to the way in
(or the failure to which loan performance is reported and Complying with applicable laws and
satisfactorily perform its additional oversight and controls have been regulations and ensuring positive
activities) could impact implemented. customer outcomes continues to be a
the delivery of fair
‐ Code of Conduct launched in US and UK and fundamental priority for Funding Circle.
customer outcomes.
conduct rules training developed and rolled out
Despite the challenges of oversight and
across the UK business.
monitoring of employees and controls in
‐ Further investments have been made in our a remote environment, we do not
Compliance Monitoring and Testing and the consider this risk to have increased.
Internal Audit function has been enhanced with
the hire of a Head of Internal Audit with an
internal team.
‐ There has also been an overhaul of complaints
handling and reviews of other customer-
impacting topics such as collections, recoveries
and litigation and vulnerable customers.
44 Funding Circle Holdings plc
Operational risk
Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or from
external events.
RISK APPETITE Funding Circle will operate well managed processes with reliable performance and effective controls
preventing significant and non-anticipated operational risk losses.
KEY RISKS MANAGEMENT OF RISK CHANGE IN RISK IN YEAR
Process risk
Failure to originate and We actively manage process risk by:
service loans in line with
‐ continuing to automate key controls; Funding Circle implemented new
Funding Circle internal
processes to support government-
policies, investor ‐ performing robust first line quality assurance
backed lending schemes.
guidelines and third party and secondary checks on manual processes;
loan guarantees (e.g. ‐ reviewing Key Risk Indicators as part of the There is a risk of operational errors
British Business Bank, Business Unit Operational Risk Committee; leading to loans becoming ineligible for
Small Business government guarantees and that may
‐ performing independent quality control checks;
Administration) may result in repurchasing loans from
and
result in Funding Circle investors, with a potential impact on
repurchasing loans from ‐ implementing adequate policies and procedures. Funding Circle’s financials.
investors.
We have implemented robust controls,
as well as independent quality checks to
ensure that all loans originated under
government schemes are fully compliant
with eligibility requirements.
We also have external 3rd Party audits
to ensure full compliance with
government schemes.
Monitoring and oversight of government-
backed loan programs is also in place to
ensure ongoing program compliance.
Information security
Failure to protect the ‐ Our Head of Information Security is responsible
confidential information for managing information security risk by
of Funding Circle’s formulating security and technology policies and There is heightened risk driven by staff
borrowers, investors and performing security penetration tests and other working remotely and using electronic
IT systems may lead to assurance activities to protect Funding Circle communication channels that may be
financial loss, reputational client information and other assets. susceptible to cyber attacks.
damage and regulatory
‐ We have a robust, multi-layered security During the Covid crisis, our monitoring
censure.
infrastructure that includes prevention and controls were enhanced to protect
detective controls. Funding Circle from the changing threat
‐ In addition, we have robust risk governance landscape, enabling secure remote
structures with direct oversight for information working and data protection controls.
security risk to ensure that they are within risk As cyber security threats continue to
appetite – Board Risk and Compliance evolve and affect the financial industry,
Committee, Executive Risk Committee, we continue to actively monitor and
Operational Risk Committee and Technology manage this risk within our risk appetite.
Security and Risk Sub-Committee.
We continue to develop our security
tooling to identify new and emerging
cyber risks. In 2020, we focused on
vulnerability management and increased
visibility, alerting, and response to stay
ahead of cyber attackers.
Annual Report and Accounts 2020 45
Strategic report
Principal risks and uncertainties continued
Operational risk continued
KEY RISKS MANAGEMENT OF RISK CHANGE IN RISK IN YEAR
Financial crime
Risk of regulatory breach, ‐ Complying with the laws and regulations
financial loss or designed to counter money laundering, terrorist Due to the speed and nature of the
reputational damage financing, corruption and bribery is fundamental government-backed loan schemes roll
arising from a failure to to Funding Circle’s operations. out there is heightened industry risk that
adequately manage or
‐ The Board has adopted policies to address fraudsters as well as other organised
prevent money
financial crimes that have been implemented crime groups could attempt to exploit
laundering, terrorist
by Business Units through formal standards these schemes.
financing, bribery and
and procedures.
corruption, or to comply As an accredited lender, we have
with sanctions ‐ We have a dedicated Financial Crime Operations continued to undertake rigorous Fraud,
regulations. team within the first line of defence that is Anti-Money Laundering (AML) and Know
advised, challenged and monitored by the Your Customer (KYC) checks as part of
second line Financial Crime Compliance team. the schemes’ application process.
We have also chosen not to participate
to sections of programs that could
present elevated fraud risks (e.g. British
Business Bank loans to new customers).
Technology risk
Failure of the technology ‐ We have robust risk governance structures in
platform could have a place with direct oversight for technology risk to In response to Covid restrictions,
material adverse impact ensure that they are within risk appetite – Board technology risks did not materially
on Funding Circle’s Risk and Compliance Committee, Executive Risk increase as a result of moving to a remote
business, results of Committee, Operational Risk Committee and workforce, since the capability to do so
operations, financial Technology Security and Risk Sub-Committee. was already largely in place. There is
condition or prospects.
‐ We invest significantly in the Group’s technology however increased reliance on technology
infrastructure to ensure that the platform is resilient with remote working arrangements.
and scalable to support business growth.
We continued to progress our automation
roadmap during 2020, and at the same
time adapted systems to enable Funding
Circle participation in government-
backed lending schemes. To meet these
needs, we made extra investments in the
reliability and maintainability of our
technology platform.
Also in 2020, we consolidated our
engineering and technology operations
into our London technology centre
without affecting overall technology risk.
46 Funding Circle Holdings plc
Operational risk continued
KEY RISKS MANAGEMENT OF RISK CHANGE IN RISK IN YEAR
Client money risk
Failure of Funding Circle Funding Circle holds funds for retail and
to adequately protect and institutional investors in segregated client money
segregate client money bank accounts in line with the Financial Conduct In 2020 we have maintained a robust
may lead to financial loss, Authority’s CASS regulations. We continue to control environment in relation to
reputational damage and manage the risk through: payment creation, payment
regulatory censure. authorisation, reconciliation review
‐ a monthly CASS governance sub-committee and monthly reporting.
solely focused on making decisions in relation to
client money, as well as reviewing management Additional complexity arose in 2020 and
information and regulatory returns; new controls have been created for the
money flows related to the new trust
‐ oversight from the Funding Circle Ltd Board
structures needed to participate in the
including an annual report, prepared for and
UK government schemes. To assist
approved by the Senior Manager with
borrowers through the pandemic, we
responsibility for the firm’s compliance with
have also increased our range of
CASS, that highlights client money risks and
forbearance options, which meant that
steps to mitigate;
we revised our policy to accept partial
‐ annual CASS external audit providing opinion; payments, requiring enhancement to our
and payment systems. Additional controls
‐ internal audit focusing on regulatory returns and and monitoring have been deployed to
governance, as well as specific compliance mitigate risks whilst these changes
monitoring activity. were built.
The FCA have increased focus on client
assets, publishing two ‘Dear CEO’ letters,
addressing the increased client money
balances and adequate client asset
arrangements, which the UK Board
have considered.
Annual Report and Accounts 2020 47
Strategic report
Viability statement
In accordance with the UK Corporate Governance Code Key assumptions
(the “Code”), the Directors have assessed the future prospects The key assumptions underpinning the strategic plan (before
and viability of the Group for a period significantly longer than severe but plausible scenarios) include:
12 months from the approval of the financial statements.
‐ levels of marketing spend, conversion rates, average loan
Assessment of prospects sizes and mix of product channels which drive originations
and Loans under Management (“LuM”);
The Directors have determined that a three-year period to
31 December 2023 constitutes an appropriate period over ‐ expected yields on loans originated and service fee charges
which to perform the assessment as: which drive fee income;
‐ Interest income receipts and interest expenses which drive
‐ it is consistent with the Group’s medium-term planning process;
net investment income;
‐ it represents a period over which there is a reasonable
‐ costs across geographies are controlled which specific
degree of confidence in the reliability and accuracy of
focus on fixed costs and those that fluctuate with income
forecasts notwithstanding the shorter term considerations
such as marketing costs;
of the impact of Covid-19 described below; and
‐ an assumption of continued investment in the Group’s IT
‐ periods beyond this point in a high growth business like
infrastructure to meet the needs of the business and its
Funding Circle are significantly harder to predict accurately.
product set but with the expectation of no fundamental
The Group’s overall strategy and business model, as set out breakdown in the IT infrastructure or major data loss;
on pages 14, 15 and 18, are fundamental in driving the growth ‐ an orderly transition from the current government stimulus
of the business and therefore its future prospects. The key factors packages with the reintroduction and growth of the Group’s
that are likely to affect the future prospects of the Group, aside core lending product;
from macroeconomic factors, include the ability to:
‐ a longer-term tail of Covid-19 economic stress into 2022
‐ transition away from the current government stimulus and therefore we have assumed tighter credit boxes through
packages currently operating in the UK and US which will to mid 2022.
move the Group back to its more traditional lending products
Since the outbreak of Covid-19 the governments in the UK and
together with the new, post CBILS, government backed
the US have provided financial stimulus packages to SMEs.
scheme in the UK;
We expect that the economy and SMEs will recover from the
‐ diversify and increase funding from a variety of investors current Covid-19 market conditions and that Brexit does not
in order to meet future borrower demand; result in long lasting negative implications on SMEs in the UK.
‐ develop and introduce new lending products; and
We have therefore not assumed further stimulus packages
‐ continue to invest in data analytics and technology leading over the medium term if there were longer lasting negative
to expanded datasets, enhanced credit models and a better implications from Covid-19, although longer-term stimulus
customer experience. packages would likely improve the Group’s financial prospects
Funding Circle’s future prospects are assessed through the further given the move to online that the Covid pandemic
Group’s strategic planning process. The strategic planning has driven.
process involves a detailed review of the medium-term plan by
the CEO and CFO. This is done in conjunction with the Global Assessment of viability
Leadership Team, consisting of regional and functional leaders, The output of the process above reflects the Directors’ best
together with a presentation and discussion at the Board. assessment of the future prospects of the Group over the next
three years. As part of this assessment, the Directors have
The first year of this strategic plan consists of the Group’s
considered and carried out a robust assessment of the
2021 annual budget and is subject to reforecasting during the
principal risks as set out on pages 40 to 47. They have also
course of each year. The budget is extended into the second
considered the potential impact of the risks on the viability
and third year of the plan using the Group’s various drivers and
of the Group with specific focus on shorter-term liquidity
expected growth rates experienced across the Group.
needs and its availability, including liquidity currently tied
Progress against the financial budget and forecasts is then up in investment products and the Group’s ability to crystallise
reviewed each month by the Global Leadership Team and this should the need arise.
reported to, and challenged by, the Board.
48 Funding Circle Holdings plc
The financial plan was then subject to differing scenarios to Going concern and Viability
assess those risks and quantify their financial impact on the The stress testing confirmed that the Group’s forecast
Group. The Group also operates liquidity guardrails that it net cash position remained positive and that none of the
monitors which are of particular importance in the short term scenarios would threaten the viability of the Group over the
during the Covid pandemic. assessment period or the Group’s financial covenants.
The scenario that represented the most severe but plausible In all cases including the severe but plausible scenario above,
scenario was modelled as described below. This sensitivity with appropriate management actions, the scenarios were
took into account the likely mitigating actions to the operations. controllable to mitigate the impact on the Group’s liquidity for
Scenarios the broader assessment of the Group’s viability.
Severe global downturn impacting originations in each of The shorter-term projections within the Group’s strategic plan
our geographies together with an initial dislocation between are also used to assess the Group’s ability to operate as a
existing government stimulus schemes and moving to the going concern. As at 31 December 2020, the Group had net
Group’s core product offerings. assets of £218 million, together with total cash of £103 million
of which £38.9 million was held within the warehouse and
Under this scenario we have assumed that there would not
securitisation vehicles. In February 2021 the Group received
be additional government intervention as this would likely
net £27 million in cash relation to fees owed to the Group at 31
improve the Group’s performance as in that instance we
December 2020. Additionally, within the net assets the Group
would expect to be originating loans under government
holds £118.3 million of invested capital some of which is
stimulus schemes.
capable of being monetised if liquidity needs arise. At all times
Link to principal risks and uncertainties during the assessment, and after stress scenarios are
‐ Strategic risk modelled, the Group retains sufficient financial resources.
‐ Credit risk The Group has financial covenants with institutional investors
‐ Liquidity risk for servicing agreements and related to debt facilities associated
with borrowings used to fund SME loan originations in
Impact on the business model
warehouses, for which there are unrestricted cash, tangible
Under a severe but plausible downturn scenario it is net worth and debt to tangible net worth ratios. At all times
expected that: through the forecast period, and after stress scenarios, the
‐ there would be a short-term period in year 1 where there Group remains within the required levels.
would be limited transaction fees earned as the Group restarts Based on this assessment, the Directors have a reasonable
its core lending products following the cessation of expectation that the Group will be able to continue in operation
government stimulus packages; and meet its liabilities and obligations as they fall due over the
‐ following a further severe global downturn there again be a period to 31 December 2023 as well as for at least the next
significant increase in the number of borrowers defaulting; 12-month period from the date of this Annual Report.
‐ the returns for investors would be negatively affected
resulting in a withdrawal of funding; and
‐ this in turn would reduce the level of originations unless
much higher incentives were offered to investors to
continue funding.
A further subset of risks including the reduction in trust from
both borrowers and investors has also been considered within
this scenario.
The mitigating actions that would be taken by management
include a reduction in the overall marketing spend, a tightening
of the credit models to improve the levels of return for
investors and increased costs of borrowing for SMEs.
The above scenario is hypothetical and severe but designed
to stress the business model and the viability of the Group.
Annual Report and Accounts 2020 49
Corporate governance
CORPORATE
GOVERNANCE
51 Chairman’s introduction
53 Board of Directors
56 Corporate governance report
62 Division of responsibilities
63 Composition, succession and evaluation
65 Audit, risk and internal control
66 Report of the Nomination Committee
69 Report of the Audit Committee
75 Report of the Risk and Compliance Committee
78 Directors’ remuneration report
89 Annual report on remuneration
99 Report of the Directors
102 S tatement of Directors’ responsibilities in respect of the financial statements
50 Funding Circle Holdings plc
Chairman’s introduction
Promoting long-term sustainable
success while maintaining an
open and inclusive culture
In times of crisis, good governance and
effective decision making are more
important than ever, and the Board
remains committed to the highest
standards of corporate governance.
Dear shareholders As previously announced, Cath Keers,
This Corporate Governance Report
Bob Steel and Ed Wray will be stepping
I am pleased to present Funding Circle’s down from the Board, and will not be explains key features of the
Corporate Governance Report which standing for re-election at the Company’s governance framework
incorporates reports from the Chairs Company’s AGM in May. and sets out how the Company has
of each of our Board Committees. applied the main principles of the
Cath will be succeeded by Helen Beck, UK Corporate Governance Code
UK Corporate Governance Code who has extensive remuneration and 2018 (the “Code”). The Code can
broader human resources experience be found on the FRC website,
In times of crisis, such as we have seen
(including serving on remuneration www.frc.org.uk. The Board
this year with the Covid-19 pandemic,
committees), and I look forward to considers that the Company has
good governance and effective decision
welcoming Helen to the Board when she complied with all provisions set out
making are more important than ever,
joins on 1 June 2021. I have taken on in the Code during the year.
and the Board remains committed to
Cath’s role as designated workforce
the highest standards of corporate We discuss our focus for the
Non-Executive Director in the meantime.
governance. The Corporate Governance coming year with reference to the
section of the Annual Report sets out Matthew King, who currently chairs the Code. This report is set out under
further details on how we have FCL Board and has a deep understanding the following headings of the Code:
complied with the principles of the Code of the Group and its sector, will also be
during the year, highlighting key areas of joining the Board and Audit Committee Governance
focus and challenge for the Board and as a new independent Non-Executive 53 Board leadership and
its Committees. Director later this year, and Geeta Gopalan Company purpose
will be replacing Bob as Senior 62 Division of responsibilities
Board changes Independent Director and on the 63 Composition, succession
In January 2020, we announced that Nomination Committee. and evaluation
Oliver White would be replacing Sean 65 Audit, risk and internal control
More details on these changes, and the
Glithero as Chief Financial Officer, and 65 Remuneration
Nomination Committee’s approach to
Oliver joined the Company and the succession planning generally, is set out
Board in June 2020. Oliver brings a in the Nomination Committee Report on
wealth of financial services experience pages 66 to 68.
to the Board, and has made a significant
impact since joining. I would like to thank Cath, Bob and Ed
for the significant contribution they have
made to the Board; their insight and
support will be missed.
Annual Report and Accounts 2020 51
Corporate governance
Chairman’s introduction continued
Governance activity To this end, we have established a
The primary focus of the Board this standalone ESG Committee to ensure
year has been on the operational and appropriate focus is given to the
economic impact of the Covid-19 implementation of our ESG framework
pandemic, and supporting our business and objectives to be rolled out in 2021
and wider stakeholders, including our (as set out in more detail on page 22)
borrowers and our people, through and to workforce engagement. I chair
these uncertain times. We have focused this Committee, with Neil Rimer and
on strategic decision making and the Matthew King joining me as members.
management of risk, enabling the Further details on the ESG Committee
business to adapt quickly to the are set out on page 58 of the Corporate
changing environment while retaining Governance Report.
effective controls. Frequent Board
meetings and the regular provision of up Values and culture
to date management information and Our culture is fundamental to the
stakeholder engagement results enabled success of our business; our ability to
the Board to oversee the changes adapt to the changing environment and
implemented, and to monitor the risks remain resilient in a challenging year is
and control environment effectively. in large part down to our strong and
inclusive culture. The Board leads by
Our Corporate Governance Report
example, focusing on our purpose and
provides more details on the Board’s key
values in decision making, and has
decisions and areas of review during the
overseen several initiatives this year
year, as well as the steps we have taken
with the aim of promoting our culture
to continue to develop and improve our
and values, including our new Code of
governance structure. I would like to
Conduct, our Circler Promise "Build the
thank the Directors for their continued
Incredible", the roll-out of Company wide
support in ensuring timely, robust and
(including the Board) diversity, equity
constructive challenge around the
and inclusion training and the approval
Board table and for their significant
of our ESG framework. More details of
additional time commitment in
these initiatives are set out on page 56
response to the pandemic.
of our Corporate Governance Report
and in Our people on pages 19 to 21.
Our stakeholders
We consider a sound governance The Board and I look forward to an
framework key in the creation of value exciting year ahead in the evolution of
for our shareholders and for the benefit the business and I would like to thank all
of our wider stakeholders. In this of our colleagues for their contribution
environment, particularly with remote during 2020.
working, maintaining a two-way dialogue
with our stakeholders remains a key
area of focus for the Board, with the Andrew Learoyd
well-being of our people and communities Chairman
25 March 2021
our highest priority. Further information
on how we considered the interests of
our key stakeholders, as well as the
matters set out in section 172 of the
Companies Act 2006, are set out in
Engaging our stakeholders on pages 26
and 27 and on page 61 of the Corporate
Governance Report and this will be a
continued area of focus in 2021.
52 Funding Circle Holdings plc
Board of Directors
An experienced and effective
leadership team
Andrew Learoyd Samir Desai CBE
Chairman of the Board Founder, Chief Executive Officer
N R E D D
Term of office: Appointed to the Board as a Non-Executive Director in Term of office: Samir founded Funding Circle in 2010, and was appointed
February 2010 and became Chairman of the Board in May 2016. to the Board as Chief Executive Officer in January 2010.
Committee membership: Andrew has chaired the Nomination Committee Committee membership: Samir is a member of the Market Disclosure
since September 2018 and is a member of the Remuneration Committee Committee and attends meetings of the Risk and Compliance,
and the Market Disclosure Committee. He also chairs the ESG Committee, Remuneration, Audit and Nomination Committees by invitation.
and attends meetings of the Risk and Compliance Committee and Audit Independent: Not applicable.
Committee by invitation. Andrew also took on the role of designated
Non-Executive Director for workforce engagement with effect from Skills and experience: Prior to founding Funding Circle, Samir was a
1 January 2021. Management Consultant at the Boston Consulting Group and an Investment
Executive at Olivant, a private equity firm that invests in financial services
Independent: On appointment. businesses in Europe, the Middle East and Asia. In 2015, Samir was
Skills and experience: Andrew spent 23 years working in investment awarded a CBE for services to financial services.
banking as a research analyst, in corporate finance, equity capital markets External appointments: None.
and finally as Chief Operating Officer of the Equities Division in Europe of
Goldman Sachs. He retired as a Managing Director of Goldman Sachs in
2006. Andrew has been involved as an angel investor, Non-Executive
Director and consultant to several start-up businesses.
External appointments: Andrew is also a director of Funding Circle Ltd.
He is currently a non-executive director of Schwanhäußer Industrie Holding,
a consumer products manufacturer based in Germany, and Threshold
Sports Limited which creates and delivers outdoor events for the public,
corporate and charity sectors.
Oliver White Hendrik Nelis
Chief Financial Officer Non-Executive Director
D RC
Term of office: Oliver was appointed to the Board as Chief Financial Officer Term of office: Hendrik was appointed to the Board as a Non-Executive
on 15 June 2020. Director in September 2013.
Committee membership: Oliver is a member of the Market Disclosure Committee membership: Hendrik is a member of the Risk and
Committee and attends meetings of the Risk and Compliance, Compliance Committee.
Remuneration and Audit Committees by invitation. Independent: No.
Independent: Not applicable. Skills and experience: Hendrik joined Accel in 2004 and focuses on
Skills and experience: Oliver has spent the majority of his 30 years’ software, FinTech and consumer internet companies. He led Accel’s
experience working in financial services, payments and lending. He joined investments in KAYAK (NASDAQ: KYAK, acquired by Priceline),
from Vanquis Bank where he served as Chief Financial Officer. He was Showroomprive (EPA: SRP), Funding Circle (LON: FCH), Callsign,
formerly the Chief Financial Officer at Barclaycard, where he managed a Celonis, CHECK24, Instana, Miro and WorldRemit.
global business with combined assets of £40 billion, £5 billion of revenues Hendrik started his career in Silicon Valley as an engineer at Hewlett‑Packard
and £1.6 billion of profits. Oliver is a chartered management accountant before founding a venture-backed software company. He is from the
and holds an MBA from Warwick Business School. Netherlands and graduated from Harvard Business School and Delft
External appointments: None. University of Technology.
External appointments: Hendrik serves as Manager, Partner Director and/
or Member at a number of Accel entities, as well as a director or
supervisory board member of several other companies.
Annual Report and Accounts 2020 53
Corporate governance
Board of Directors continued
Neil Rimer Bob Steel
Non-Executive Director Senior Non-Executive Director
E N
Term of office: Neil was appointed to the Board as a Non-Executive Term of office: Bob was appointed to the Board as a Non-Executive
Director in March 2011. Director in July 2014 and became Senior Independent Director in
Committee membership: Neil is a member of the ESG Committee. September 2018. As announced, Bob will be stepping down from the Board
with effect from the AGM, and Geeta Gopalan will take on the role of Senior
Independent: No. Independent Director.
Skills and experience: Neil is a Co-Founder and Partner of Index Ventures. Committee membership: Bob is a member of the Nomination Committee.
Neil was previously a Director of Photobox Holdco Limited, Supercell Oy
and The Climate Corporation. Independent: Yes.
External appointments: Neil is currently a Director or observer on various Skills and experience: Bob was New York City’s Deputy Mayor for
boards of companies based in the UK, Europe and the US, including Prodigy Economic Development, where he was responsible for the Bloomberg
Investments Limited, Raisin GmbH, Nexthink SA and Pitch Software GmbH. Administration’s economic development strategy and job creation efforts.
He is also the Co-Chair of Human Rights Watch. As CEO of Wachovia Corporation in 2008, Bob oversaw the sale of the bank
to Wells Fargo & Co. and served on the Wells Fargo board of directors. Bob
has also served as the Undersecretary for Domestic Finance of the United
States Treasury, the Vice Chairman of Goldman Sachs and a board
member of Barclays.
External appointments: Bob is a Partner and the Chair at Perella Weinberg
Partners and a Director of Union Square Hospitality Group. He has served
as Chairman of Duke’s Board of Trustees, Senior Fellow at the Harvard
Kennedy School of Government, member of the FDIC Advisory Committee
on Economic Inclusion, Chairman of The After-School Corporation and
Co-Founder of SeaChange Capital Partners. Bob holds directorships at
Union Square Hospitality Group, Regional Plan Association (for New York
tri-state) and several arts institutions in New York City. He is also a trustee
of the Economic Club of New York, Hospital for Special Surgery and the
Aspen Institute.
Eric Daniels Geeta Gopalan
Non-Executive Director Non-Executive Director
RC A A RC D
Term of office: Eric was appointed to the Board as a Non-Executive Term of office: Geeta was appointed to the Board as a Non-Executive
Director in September 2016. He became Chair of the Risk and Compliance Director in November 2018. She became Chair of the Audit Committee in
Committee in September 2018. November 2018.
Committee membership: Eric chairs the Risk and Compliance Committee Committee membership: Geeta chairs the Audit Committee and is a
and is a member of the Audit Committee. member of the Risk and Compliance Committee and the Market Disclosure
Independent: Yes. Committee. Geeta will also join the Nomination Committee and take on the
role of Senior Independent Director to succeed Bob Steel later this year.
Skills and experience: Eric was previously Group Chief Executive Officer
of the Lloyds Banking Group, the FTSE 100 listed banking group, retiring in Independent: Yes.
2011. Prior to joining Lloyds in 2001, he spent 25 years with Citigroup in a Skills and experience: Geeta has over 25 years of experience of financial
range of management positions. services and retail banking, particularly payments and digital innovation.
Eric holds a Master of Science in Management from the Massachusetts Geeta was formerly Executive Chair of Monitise Europe. Among the many
Institute of Technology and a Bachelor of Arts in History from roles in her career, Geeta was Director of Payment Services with HBOS plc
Cornell University. and previously Managing Director, UK Retail Bank and Business
Development Head EME at Citigroup. She is a chartered accountant.
External appointments: Eric currently holds a range of business appointments
which include as a partner at Abako Partners, an adviser, a mentor, a External appointments: Geeta serves as Non-Executive Director of
non-executive director of Russell Reynolds Associates and a board Virgin Money UK PLC (formerly CYBG plc) (where she is Chair of the risk
member of Smithsonian Tropical Research Institute. He also advises committee and a member of the audit, governance and nomination, and
several innovative technology companies. remuneration committees), Wizink Bank S.A. (where she is Chair of the risk
committee and a member of the audit committee) and Ultra Electronic
Holdings plc (where she is a member of the audit, nomination and
remuneration committees).
54 Funding Circle Holdings plc
Cath Keers Ed Wray
Non-Executive Director Non-Executive Director
R N A R
Term of office: Cath was appointed to the Board as a Non-Executive Term of office: Ed was appointed to the Board as a Non-Executive Director
Director in May 2018 and became Chair of the Remuneration Committee in August 2011. Ed will be stepping down from the Board with effect
in September 2018. Cath will be stepping down from the Board with effect from the AGM, and Matthew King will be appointed as an additional
from the AGM and will be succeeded by Helen Beck as Chair of the Non‑Executive Director and a member of the Audit Committee.
Remuneration Committee. Committee membership: Ed is a member of the Audit and Remuneration
Committee membership: Cath chairs the Remuneration Committee Committees.
and is a member of the Nomination Committee. Cath also served as Independent: Yes.
the designated Non-Executive Director for workforce engagement until
she was succeeded by Andrew Learoyd with effect from 1 January 2021. Skills and experience: Ed co-founded Betfair in 1999 with Andrew Black
and was Chief Executive until 2003, when he moved to Australia to set up
Independent: Yes. the company’s joint venture. He became Chairman in 2006. Betfair floated
Skills and experience: Cath has recently held non-executive roles at the in 2010, valued at £1.4 billion. Prior to setting up Betfair, Ed spent eight
Royal Mail, Home Retail Group, LV= and Telefonica Europe. She previously years at J.P. Morgan & Co. as a Vice President in the debt, capital markets
held a number of commercial roles including in marketing and business and derivatives area.
development at Sky TV, Avon and Next, latterly Marketing Director and External appointments: Ed also serves as a Director for a number of
Customer Director at O2, the mobile network, and Chairman of Tesco companies in the UK including the Prodigy group of companies, the
Mobile, O2’s joint venture with Tesco. LMAX group of companies and London House Exchange Limited. He is
External appointments: Cath was appointed as Chief Marketing Officer of also Chairman of Coach Core Foundation and Mental Health Innovations.
Sage in June 2020. She also currently serves as Chair of Ustwo Fampany
Limited, an independent digital product, games and venture business,
as Non-Executive Director and Chair of the remuneration committee
at The British United Provident Association Limited (parent company
of the Bupa group of companies) and as Non-Executive Director and Chair
at Trustedhousesitters Group Ltd. She is also an adviser to a number of
small businesses predominantly in the technology sector.
Lucy Vernall
Company Secretary, General Counsel
and Chief People Officer
D
Term of office: Lucy was appointed Company Secretary in July 2014.
Committee membership: Lucy chairs the Market Disclosure Committee
and attends all other Board Committee meetings by invitation.
Independent: Not applicable.
Skills and experience: Lucy is responsible for the Legal, Compliance and Board Committees
People functions of the business, in addition to being Company Secretary.
Prior to joining Funding Circle, Lucy was one of the founder members of
Kemp Little LLP, a technology focused City law firm. She was managing A Audit Committee
partner of the firm from 2009 until 2011, when she became Wonga’s first
General Counsel. R Remuneration Committee
External appointments: Lucy serves on the Board of the charities Bardhan
N Nomination Committee
Research and Education Trust of Rotherham and The Emerson Trust.
RC Risk and Compliance Committee
E ESG and Workforce
Engagement Committee
D Market Disclosure Committee
Committee Chair
Annual Report and Accounts 2020 55
Corporate governance
Corporate governance report
The Board has a collective objective of promoting the Through our employee share plans, all Circlers have the
long‑term success of the Company for its shareholders and opportunity to become shareholders in the Company, which
wider stakeholders and provides dedicated leadership in the helps to ensure they are aligned with our mission, vision and
development and promotion of the Group’s strategy, and objectives, and in 2020 the Board approved the launch of
monitoring its implementation. A key part of the Board’s role "Equity for All", which operates as a share incentive plan in the
is ensuring the Group has the appropriate people, financial and UK. The Board regularly receives reports on people-related
other resources available to achieve its aims. Along with the matters, including results from our culture surveys, which
Committees, we are responsible for ensuring an appropriate have enabled the Board to monitor employee engagement and
system of governance operates throughout the Group. This satisfaction, as well as how Circlers have adapted to remote
includes a robust system of internal controls and a sound risk working. The Directors also spend time with employees, for
management framework. example by participating from time to time in our local and
global gatherings or as part of the workforce engagement
Details of the current composition of the Board (including gender
programme run by Cath Keers in 2020 in her role as the
diversity) are set out below. There has been no change from
designated Non-Executive Director for workforce engagement
2019, but female representation on the Board will increase in
(which Andrew Learoyd took on with effect from 1 January 2021).
2021 as a result of the Board changes previously announced.
For more details on the Board’s engagement with the workforce,
please see Engaging our stakeholders on pages 26 and 27.
Board gender diversity Board composition
Female 2 / 20% Executive 2 /20% Matters reserved for the Board and role
of the Committees
20+80L 20+80L
Male 8 / 80% Non-Executive 8 / 80%
The Board has adopted a formal schedule of matters reserved
for its approval and delegated other specific responsibilities to
the Committees. The matters reserved for the Board and its
Committees include:
‐ Group strategy, which is reviewed by the Board
and management regularly during the year;
‐ the Group’s annual operating budget;
‐ major investments, acquisitions and capital projects;
‐ internal controls and risk management;
Purpose, values and culture ‐ material contracts and expenditure;
We consider our employees and culture fundamental to the
‐ certain shareholder communications;
success of our business, and in 2020 this has been more
important than ever as we have adapted to the challenges ‐ Board membership and other appointments;
created by the pandemic. Our team consists of a talented ‐ corporate governance matters;
group of individuals who have a strong alignment with our ‐ remuneration of Directors and the Global Leadership Team; and
mission and share the same drive and passion as our
‐ the Group’s environmental, social and governance policy,
customers. We believe that creating the right culture is crucial
framework and reporting.
for both attracting and retaining talent. We have developed
a strong and engaging company culture, as well as a set of
five core values that represent who we are and how our team
behaves (as described in Our people on page 20). In 2020, this
has been enhanced by our new Circler Promise "Build the
Incredible" and our new Code of Conduct, which was rolled
out globally in late 2020, together with conduct rules training
for all UK employees, to further embed our values and respond
to the needs of remote working.
The Board approved a new ESG framework in December 2020,
to be rolled out in 2021 and overseen by the newly formed ESG
Committee. Equality, diversity and inclusion are important parts
of this new framework and the Directors have participated in
training, along with other Circlers, which covers issues such
as unconscious bias.
56 Funding Circle Holdings plc
Each Board Committee has written Terms of Reference defining its role and responsibilities as summarised in the table below, which are
reviewed and updated as necessary as part of an annual review. Further details regarding the role and activities of each of the Board Committees
can be found in the Committee reports. The schedule of matters reserved for the Board and Board Committees’ Terms of Reference are
also available on the Group’s corporate website: corporate.fundingcircle.com/investors/governance.
Nomination Committee
Key objectives Principal responsibilities
Reviewing the structure, size and composition ‐ Leads the process for Board appointments and makes recommendations
of the Board, reviewing succession planning and to the Board
making recommendations on appointments ‐ Reviews the structure, size and composition of the Board and makes
to the Board. recommendations to the Board about any changes
Membership ‐ Considers plans and makes recommendations to the Board for orderly
Andrew Learoyd (Chair) succession for appointments to the Board and the Global Leadership Team
Bob Steel ‐ Keeps the Executive and Non-Executive leadership needs of the Group
Cath Keers under review
Nomination Committee Report – page 66 ‐ Evaluates the combination of skills, knowledge, experience,
independence and diversity on the Board
‐ Reviews the results of the Board performance evaluation process, where
they relate to the composition of the Board
‐ Makes recommendations to the Board about the re-election of Directors
Audit Committee
Key objectives Principal responsibilities
Overseeing the financial and corporate reporting ‐ Monitors the integrity of the Company’s financial statements
and internal financial controls of the Group, ‐ Reviews and reports to the Board on significant financial reporting issues
managing internal and external audit processes and judgements
and reviewing and overseeing the Group’s
‐ Assesses the effectiveness of the Group’s financial reporting procedures
procedures in relation to whistleblowing, bribery,
fraud, money laundering and other financial crime. ‐ Monitors and keeps under review the adequacy and effectiveness of the
Group’s internal financial controls and (in conjunction with the Risk and
Membership Compliance Committee) internal control and risk management systems
Geeta Gopalan (Chair) ‐ Reviews and approves the role and mandate of the Group’s Internal Audit
Ed Wray function and monitors and reviews the effectiveness of its work
Eric Daniels
‐ Oversees the relationship of the Company with the external auditors,
Audit Committee Report – page 69 recommends their appointment and reviews their effectiveness, fees,
terms of engagement, independence and approves the provision of
non-audit services by the external auditors
Risk and Compliance Committee
Key objectives Principal responsibilities
Reviewing and making recommendations to the ‐ Assesses the emerging and current principal risk exposure of the Group
Board in relation to the Group’s internal control and advises the Board on those risk exposures and future risk strategy
and risk management systems and compliance ‐ Advises the Board on the Group’s overall risk appetite, tolerance and
with the Group’s Enterprise Risk Management strategy for the purpose of achieving its long-term strategic objectives
Framework, the Group’s compliance with legal
‐ Reviews the Group’s capability to identify and manage new risk types
and regulatory requirements and policies and the
effectiveness and appropriateness of the Group’s ‐ Monitors and keeps under review the adequacy and effectiveness of the
corporate governance framework. Group’s internal control and risk management systems, in conjunction
with the Audit Committee
Membership
‐ Considers and approves the remit and effectiveness of the Risk
Eric Daniels (Chair) Management and Compliance functions
Hendrik Nelis
‐ Provides advice and challenge necessary to embed and maintain a
Geeta Gopalan
supportive risk and compliance culture throughout the Group
Risk and Compliance Committee Report – page 75
‐ Monitors and keeps under review the policies and overall process for
identifying and assessing strategic, platform funding and liquidity,
operational, credit and regulatory, reputation and conduct risks and
managing their impact on the Group
‐ Considers and approves the annual compliance monitoring and testing plan
Annual Report and Accounts 2020 57
Corporate governance
Corporate governance report continued
Matters reserved for the Board and role of the Committees continued
Remuneration Committee
Key objectives Principal responsibilities
Determining the remuneration of the Directors ‐ Determines the remuneration of the Chairman, the Executive Directors
and the Global Leadership Team and determining and the Global Leadership Team (the “Executive Group”)
the policy for the Executive Directors as well as ‐ Considers, monitors and reviews the ongoing appropriateness and relevance
monitoring and reviewing its ongoing of the remuneration policy (including its level and structure) and consults
appropriateness and relevance. with significant shareholders and other stakeholders as appropriate
Membership ‐ Promotes long-term shareholdings by Executive Directors that support
Cath Keers (Chair) alignment with long-term shareholder interests and develops a formal
Andrew Learoyd policy for post-employment shareholding requirements encompassing
Ed Wray both unvested and vested shares
Directors’ Remuneration Report – page 78 ‐ Considers, determines and approves the provisions of the service
agreements of the Executive Group and ensures that any payments that
may be made under such provisions are fair to the individual and the
Company, or the relevant member of the Group (as appropriate)
‐ Reviews workforce remuneration and related policies and the alignment
of incentives and rewards with culture and takes these into account when
determining the remuneration of the Executive Group
‐ Reviews and approves the policy for authorising claims for expenses
from the Directors
‐ Reviews the design of any new share incentive schemes for approval by
the Board and, as required, the Company’s shareholders
Market Disclosure Committee
The Board has delegated to the Market Disclosure Committee responsibility for overseeing the disclosure of information by
the Company to meet its obligations under the Market Abuse Regulation, the Financial Conduct Authority’s Listing Rules and
the Disclosure and Transparency Rules. The Market Disclosure Committee is chaired by the Company Secretary and comprises
the Chairman of the Board, the Chair of the Audit Committee, the CEO, the CFO and the CRO. The Committee has at least
three scheduled meetings a year and meets more frequently on an as needed basis. In 2020, the Committee met nine times.
ESG Committee
The Board has delegated to the newly formed ESG Committee responsibility for overseeing and monitoring the implementation
of the Company’s environmental, social and governance policy and framework, as approved by the Board. The Committee also
oversees the Board’s workforce engagement in conjunction with the designated workforce engagement Non-Executive Director.
The Committee is chaired by the Chairman of the Board, who is joined by Neil Rimer and Matthew King.
Global Leadership Team
Day-to-day management of the Group, including the implementation of the Group’s business plan and strategy, is delegated by
the Board to the Global Leadership Team, chaired by the CEO, Samir Desai. The Global Leadership Team is responsible for
managing the business, delivering the strategy, managing risk, ensuring regulatory compliance, establishing financial and
operational targets and monitoring performance against those targets.
58 Funding Circle Holdings plc
Board activity The table below sets out attendance at Board and Committee
Board meetings are planned around the key events in the meetings in 2020, including the strategy meeting held virtually
corporate calendar, including the half-yearly and final results in October 2020.
and the Annual General Meeting (“AGM”), and a strategy The Company Secretary or her nominated deputy attended all
meeting is held each year. The Board also receives a monthly of the Board and Committee meetings in 2020. Matthew King
management report and a weekly portfolio risk update. During (Chair of the Funding Circle Ltd Board) attended six Board
the initial months of the Covid-19 crisis in 2020, the Board held meetings in 2020 as an observer to ensure his awareness of key
biweekly meetings, as well as receiving weekly management areas impacting the UK business. Matthew will continue to
and portfolio risk reports, to ensure the Board remained attend Board meetings as an observer until his appointment to
informed and to enable timely decision making as the situation the Board later in the year. In addition, Andrew Learoyd and
unfolded. The Chairman and Non-Executive Directors have Matthew King attended all Audit Committee and Risk and
had regular discussions without Executive Directors present, Compliance Committee meetings as observers.
including by way of informal discussions between the Chairman
and other Non-Executive Directors outside formal Board meetings.
Risk and
Board ¹,4 Audit Compliance ² Remuneration ³ Nomination
No. of meetings 15 3 5 5 1
Andrew Learoyd 15 5 1
Samir Desai 15
Oliver White5 7
Eric Daniels 15 3 5
Geeta Gopalan4 14 3 5
Cath Keers4 13 5 1
Hendrik Nelis 15 5
Neil Rimer4 11
Bob Steel4 13 1
Ed Wray 15 3 5
Former Director who served during 2020
Risk and
Board ¹ Audit Compliance Remuneration Nomination
Sean Glithero6 6
1. The Board held biweekly meetings from March until July 2020 in response to the Covid-19 pandemic. The Board therefore held nine additional meetings in 2020, as well as the
six originally scheduled.
2. The Risk and Compliance Committee held two ad-hoc meetings due to the Covid-19 crisis, in addition to the three originally scheduled.
3. The Remuneration Committee held two ad-hoc meetings, in addition to the three originally scheduled, primarily to approve Oliver White’s remuneration on his joining the Company.
4. Geeta Gopalan, Neil Rimer, Bob Steel and Cath Keers were unable to attend certain meetings (particularly those called on relatively short notice and as indicated in the table)
due to prior commitments.
5. Oliver White was appointed to the Board on 15 June 2020 and has attended all Board meetings since his appointment.
6. Sean Glithero retired from the Board at the Company’s AGM on 20 May 2020. In addition to the six meetings he attended as a Director, he also attended two meetings following
his resignation as an invited attendee.
The Board and Board Committee meeting schedule for 2021 The Board’s activities throughout the year are underpinned by
has been approved by the Board and the Committees and the our external reporting calendar and our internal business
Board will meet formally at least six times during the year, planning processes. A rolling annual agenda ensures that all
including a Board strategy meeting. Ad-hoc meetings may important topics receive sufficient attention. Standing items
be called as and when appropriate, as was the case in 2020. provide an anchor to the strategy and provide the Board with a
The Audit Committee will hold an additional meeting from consistent view of progress during the year, whilst sessions on
2021 (being four meetings in total), as an action arising priority topics allow deeper insight. A summary of the Board’s
from the Committee evaluation process, to ensure the key activities during 2020 is set out on the next page. In addition,
Committee continues to provide appropriate oversight some examples of key decisions taken by the Board in 2020,
of the Group’s control environment and evolving business in the context of its section 172 duties, are set out on page 61.
with additional products.
Annual Report and Accounts 2020 59
Corporate governance
Corporate governance report continued
2020 Board activities
Q1 2020 Q2 2020
‐ Full-year results announcement ‐ Covid-19 response:
‐ Annual Report and Accounts • Financial stability, cash
‐ Securitisation deep dive preservation, cash forecasting
and scenario planning
‐ Bringing the employee voice into
the Boardroom • Update to 2020 budget and plan
‐ Reorganisation of German and • Review of credit, funding
Dutch businesses to centralise and liquidity risks
operations in UK ‐ Approval of CBILS and PPP loan
‐ Long-term succession planning products and funding transactions
‐ Marketing deep dive ‐ High level strategy review
‐ Investor relations
Q4 2020 Q3 2020
‐ Strategy meeting ‐ Continued Covid-19 response:
‐ 2021 budget and plan • Financial stability, cost
‐ Investor relations reductions and profit and cash
generation
‐ Product strategy review
• Review of 2020 budget and plan
‐ ESG framework and objectives
• Review of credit, funding and
‐ Bringing the employee voice into
liquidity risks
the boardroom
‐ Restructuring of the US business
‐ Approval of BBLS loan product
and funding transactions
‐ Half-year results and Government
Schemes announcements
In addition, at each Board meeting the standing agenda includes:
‐ approval of minutes (circulated to all Directors in advance for comment) and review of outstanding actions;
‐ corporate governance and Committee reports;
‐ report from the CEO, including key developments in the Group’s business; and
‐ financial and operational review.
Agendas and accompanying papers are distributed to the Board and Committee members well in advance of each Board or
Committee meeting. These include reports from Executive Directors, other members of senior management and external
advisers, as appropriate. All Directors have direct access to senior management should they require additional information
on any of the items to be discussed.
The Audit Committee and the Risk and Compliance Committee receive further regular and specific reports to allow the
monitoring of the adequacy of the Group’s systems of internal controls (described in more detail in the Audit Committee Report
on page 69 and the Risk and Compliance Committee Report on page 75).
60 Funding Circle Holdings plc
Board decision making and section 172 duties
As set out in the Section 172(1) Statement on page 27, the Directors are fully aware of their section 172 duties (and receive
training on their duties on an annual basis). In discharging these duties, the Directors have regard to the factors set out in section
172(1)(a)-(f) of the Companies Act 2006, as well as to other factors which they consider relevant to the decision being made (for
example, the views of regulators). While the Board accepts that not every decision it makes will result in a positive outcome for all
of the Company’s stakeholders, by considering the Company’s purpose, mission and values together with its strategic priorities
and having a process in place for decision making, the Directors aim to make sure the Board’s decisions are consistent and
predictable. Some examples of how the Directors have had regard to the matters set out in section 172(1)(a)-(f) when
discharging their duties during the year are set out below.
Key stakeholders
Principal decision considered Board’s decision-making process
Becoming an accredited Borrowers The Board’s primary focus was to ensure Funding Circle was able to use its unique
lender under Investors position to support as many small businesses as possible through the pandemic.
government guaranteed Communities A key part of this was helping government to distribute much needed finance to
programmes, including Government SMEs, in line with the Group’s long-term strategy. The Board responded rapidly,
CBILS in the UK and approving the shift to offering government guaranteed loans, the temporary pause
PPP in the US of core lending (and retail investment due to retail investors being unable to
participate in government loan schemes), together with several new funding
arrangements with institutional investors.
The Board (in conjunction with the Risk Committee) also oversaw the implementation
of new processes to support the government guarantee programmes, including to
ensure the implementation of robust controls and continued monitoring and
oversight of the programmes.
In response to the deteriorating economic outlook, the Board also carefully
considered the need to protect investor returns, moving quickly to tighten credit
criteria and reduce origination levels in the first months of the crisis.
Introducing new Borrowers The Board approved a number of measures to ensure small business customers
forbearance and other Investors struggling with the impact of Covid-19 had sufficient breathing space, which in turn
measures to support Communities helped to protect investor returns. These included the implementation of payment
borrowers Regulators plans and holidays, as well as the expansion of the support capacity of frontline
teams to deal with an increase in queries, redeploying and retraining Circlers from other
teams. The Board oversaw and monitored the implementation of these changes,
including by monitoring customer complaints and employee feedback and ensuring
regular engagement with our regulators.
Supporting Circlers Our people The health and well-being of Circlers was central to the Board’s response to Covid-19.
Communities The Board received regular updates on the transition to remote working, the reallocation
of staff to different teams and the overall welfare of our people. This included the results
of regular surveys and direct feedback from workforce engagement sessions (led by
Cath Keers in her role as the designated Non-Executive Director for workforce
engagement) to measure employee engagement and satisfaction and ensure
Circlers continue to feel supported while remote working.
Restructuring in Our people The Board approved the reorganisation of the model in Germany and Netherlands and
Germany, Netherlands Our shareholders the introduction of changes to streamline the US business (including centralising the
and the US Borrowers technology team in the UK and moving the sales and marketing teams to Denver from
Investors San Francisco), both of which included some workforce reductions. In reaching
Regulators these decisions the Board considered a wide range of operational and financial
scenarios, and the interests of multiple stakeholder groups, and ultimately determined
that the restructurings would promote the Group’s long-term success by
accelerating its pathway to profitability.
Following the implementation of these restructurings, the Board has carefully monitored
the progress of the relevant businesses against agreed milestones, along with the
satisfaction and engagement of Circlers in those geographies through regular
employee surveys and direct feedback from workforce engagement sessions.
Approving the new Communities In approving the new ESG framework, the Board took into account the views and
ESG framework Our people ever increasing focus of the Company’s key stakeholders (including our shareholders,
Our shareholders investors, borrowers and our people) on ESG performance, coupled with the Board’s
Investors desire that Funding Circle be a force for good in our communities. The Board also
established a new ESG Committee to oversee the implementation of the ESG
framework and provide regular reports to the Board to ensure ESG considerations
remain at the heart of the Company’s strategic objectives.
Annual Report and Accounts 2020 61
Corporate governance
Division of responsibilities
There is a clear division of responsibilities between the Chairman and the CEO (which has been set out in writing and approved
by the Board) and these responsibilities, as well as the role of the Senior Independent Director and other members of the Board,
are set out below:
The Board
Chairman Chief Executive Officer Senior Independent Director
Responsible for: Responsible for: Responsible for:
‐ the leadership and overall ‐ leadership of the Global ‐ being available to shareholders
effectiveness of the Board and Leadership Team in the executive if they have concerns, which
for upholding high standards of management of the Group; contact through the normal
corporate governance throughout ‐ the development of the Group’s channels of the Chairman, CEO
the Group and particularly at strategy, annual budget and or other Executive Directors has
Board level; business plans and commercial failed to resolve;
‐ setting the Board agendas with objectives with the Board; ‐ attending meetings with and
the Company Secretary and CEO ‐ setting an example and listening to the views of major
and the recommendation of an communicating to the Group’s shareholders as required;
annual Board and Committee employees the expectations of ‐ providing a sounding board for
meeting schedule; the Board in relation to the the Chairman and acting as an
‐ promoting a culture of openness Group’s culture, values and intermediary for shareholders
and debate, in particular by behaviour; when necessary; and
facilitating the effective contribution ‐ ensuring appropriate, timely and ‐ meeting other Non-Executive
of Non-Executive Directors, and accurate information is disclosed Directors without the Chairman
ensuring constructive relations to the market; and present once a year to appraise
between Executive and Non- the Chairman’s performance.
‐ managing the Group’s risk profile
Executive Directors; and
in line with the extent of risk
‐ ensuring effective communication identified as acceptable by the
with shareholders, including in Board and ensuring appropriate
relation to governance, internal controls are in place.
remuneration and strategy.
Chief Financial Officer Non-Executive Directors Company Secretary
Responsible for: Responsible for: Responsible for:
‐ all aspects of finance including ‐ providing objective and constructive ‐ being available to all Directors to
financial planning, tax, treasury challenge to management; provide advice and assistance;
and procurement; ‐ assisting with the development ‐ providing governance advice; and
‐ investor relations; of strategic proposals; and ‐ ensuring compliance with the
‐ working with the CEO to develop ‐ scrutinising and monitoring Board’s procedures and with
and implement the Group’s financial and operational applicable laws and regulations.
strategic objectives, annual performance and the Group’s risk
budget and business plan; and management framework.
‐ ensuring effective financial
compliance and control.
62 Funding Circle Holdings plc
Composition, succession and evaluation
Board Composition in line with the recommendation of the See further details in the Nomination
The Board comprises the Chairman, Nomination Committee, the Board does Committee Report on page 68.
the Executive Directors and the not consider that their tenure in any way
In line with the recommendation of the
Non-Executive Directors, including the impairs their independence. In the case
Nomination Committee, the Board
Senior Independent Director. There was of the Chairman, this is further
considers all Directors to be effective,
one change to the Board during the year supported by the results of his annual
able to devote sufficient time to
as previously noted, with Oliver White appraisal by the Non-Executive
discharge their duties and committed
succeeding Sean Glithero as CFO in Directors, led by Bob Steel as Senior
to their roles. All members of the Board,
June 2020. All other current Directors Independent Director. Furthermore,
with the exception of Cath Keers, Bob
served throughout 2020. Cath Keers, detailed succession plans are in place
Steel and Ed Wray who will be stepping
Bob Steel and Ed Wray will be stepping for each Board member, which will be
down from the Board with effect from
down in 2021, with Helen Beck and implemented when Ed steps down from
the AGM, will be offering themselves for
Matthew King joining the Board as new the Board later in 2021 to be succeeded
re-election at the Company’s AGM in
independent Non-Executive Directors by Matthew King. Further details of the
May 2021, in compliance with the Code.
later this year. More details on these Nomination Committee’s consideration
changes are set out in the Nomination of the Directors’ independence, the
Board induction and training
Committee Report on page 67. Chairman’s performance review and
succession planning are set out in the All new Directors receive a
The Code recommends that at least half Nomination Committee’s Report on comprehensive induction plan on
of the Board, excluding the Chairman, page 68. joining the Board (and a tailored
should comprise Non-Executive Directors induction was provided to Oliver White
who the Board considers to be independent. Accordingly, the Board considers that all when he joined the Company in June
Circumstances likely to impair, or which Non-Executive Directors, other than 2020), which is reviewed and enhanced
could appear to impair, a Director’s Hendrik Nelis and Neil Rimer, are as necessary by the Nomination
independence include whether a Director independent in character and judgement Committee. This includes the following:
participates in the Company’s share and are free from any business or other
relationships which could materially ‐ overview of Funding Circle, including
option plan or has served on the Board
affect the exercise of their judgement. its structure and strategy, through
for a period of more than nine years.
meetings with members of the Global
As an early stage private company, Additionally, as reviewed and confirmed Leadership Team;
which did not pay Directors’ fees, the by the Nomination Committee, the Board
‐ overview by the Chairman on the
Company has historically granted is satisfied that the Directors, both
Board structure and procedures,
options to certain Non-Executive individually and collectively, have the
Committees and roles and
Directors under the Company’s share range of skills, knowledge, diversity of
responsibilities and an overview of
option plan. Although the options experience and dedication necessary to
the Board calendar, key dates and
granted continue to be held by those lead the Group and have the requisite
Board documentation and corporate
Non-Executive Directors, no further strategic and commercial experience to
policies by the Company Secretary;
options have been or will be granted contribute to the leadership of Funding
Circle. Further detail on the Nomination ‐ overview of key stakeholders,
to Non-Executive Directors under
Committee’s consideration of the including borrowers, investors, our
any of the Company’s share plans
composition of the Board is set out in people and shareholders;
and the options held by the relevant
Non-Executive Directors are all vested. the Nomination Committee’s Report on ‐ training on public company and
Further details are set out on page 93. pages 67 and 68. Directors’ duties, in addition to our
The Board does not consider that standard new joiner training (which
the historical granting of options Appointment and election covers, for example, whistleblowing,
to Non-Executive Directors impairs The Non-Executive Directors are information security and anti-bribery
the independence of those expected to devote sufficient time to the and corruption); and
Directors concerned. Company’s affairs to fulfil their duties as ‐ meeting with internal and external
Directors. Their letter of appointment auditors, key advisers and key
In addition, Ed Wray and Andrew Learoyd
states that the nature of the role makes stakeholders (e.g. major
have served on the Board for more than
it impossible to be specific about the shareholders) as appropriate.
nine years (Ed Wray was appointed in 2011
maximum time commitment.
and Andrew Learoyd was appointed to The Board is committed to the training
the Board in 2010, becoming Chairman The Nomination Committee reviewed and professional development of Directors
in 2016). However, the Company the other directorships and commitments and employees. The Nomination
understands that a Director’s tenure for held by the Non‑Executive Directors. Committee also considered, with the
the purposes of the Code resets at the In particular, the Committee noted assistance of the Company Secretary,
time of IPO (October 2018) when they Cath Keers’ executive role with The any development needs or training
take on new roles and responsibilities as Sage Group plc, but confirmed that it requirements of the Directors, including
a Director of a listed company. Taking was comfortable with the position, those arising out of the Board and
this into account, together with the fact given that it was temporary pending Committee evaluation process.
that both Ed and Andrew consistently Cath stepping down from the Board and
demonstrate objective judgement and that Cath had remained fully dedicated
challenge in their decision making, and to her role with the Company.
Annual Report and Accounts 2020 63
Corporate governance
Composition, succession and evaluation continued
Board induction and training as part of the Company’s diversity key legislative and regulatory changes
continued initiatives. In addition, those Directors by the Company Secretary.
The Company Secretary is responsible who sit on the Board of Funding Circle
for helping the Chairman regularly Ltd also complete annual training on Board effectiveness
review and organise appropriate training "CASS" and the Senior Managers The review of Board effectiveness for
for the Directors to ensure they are fully Certification Regime (including the 2020 was run internally in the final
comfortable with their role within the Company’s new Code of Conduct). quarter of the year. The Chairman
Board and to enable them to contribute The Board was also given various considered the benefits of an externally
to the operation of the Board and the presentations during the year by the facilitated Board evaluation but
long-term success of the Company in Company’s advisers, brokers and senior determined that the internal evaluation
the fullest manner possible. For example, management (including a "teach-in" process was sufficiently formal and
the Directors undertake annual refresher session by the CFO on some of the rigorous and therefore, on balance, was
training on their duties and responsibilities Group’s more complex accounting appropriate for this year. This will be
as a director of a listed company, and, estimates and judgements as an action reviewed again in 2021. The evaluation
along with other Circlers, have taken arising from the Audit Committee’s was led by the Chairman and managed
part in diversity and inclusion training effectiveness review), and updated on by the Company Secretarial team
following the process set out below:
Tailored questionnaire prepared
covering all aspects of Board Questionnaire Results of the
effectiveness including: provided to questionnaire Assessment
‐ the Board’s response ‐ All Directors The results of the The results of the evaluation were
to Covid-19; ‐ Company evaluation were considered and discussed in detail by the
‐ the Board’s performance Secretary collated by the Board and it was agreed that the results
when compared to 2019; Company Secretarial highlighted that the Board is operating
team and presented effectively, offering good challenge and
‐ the effectiveness of the
to the Board in adding value, with improved performance
Board’s internal
January 2021. from 2019. Examples of areas positively
relationships and with
evaluated included:
the management team;
‐ the effectiveness of the ‐ the Chairman’s leadership;
Board’s engagement ‐ the Board’s oversight of key risks
with stakeholders; and controls;
‐ the composition, ‐ the response to the Covid-19 crisis, with
experience and dynamics the Board taking decisive action and
of the Board; providing appropriate challenge and
‐ the Chairman’s leadership; support to management; and
and ‐ the effective management of remote
‐ the extent to which the meetings to maintain constructive
Board fulfils its role and Board relations and facilitate openness
responsibilities with and debate.
particular regard to The key areas identified as possible
strategy, oversight of risk opportunities to develop the Board’s
and succession planning. effectiveness further include:
‐ more focused executive summaries to
be included in Board papers to enable
more effective pre-reading and facilitate
discussion;
‐ a more structured and proactive focus
on ESG matters, following the Board’s
approval of the ESG policy framework
and establishment of the ESG
Committee; and
‐ increased diversity on the Board,
with diversity remaining a key focus for
the Nomination Committee.
The Chairman, CEO and Company
Secretary are putting in place appropriate
action plans in response to the review
findings and will review progress
during 2021.
64 Funding Circle Holdings plc
Audit, risk and internal control
The Board’s Audit, Risk and Compliance, from the Directors about their risks associated with the Group’s
Remuneration and Nomination responsibility for preparing the financial operations to the Risk and Compliance
Committees also conducted reviews statements is on page 102 in the and Audit Committees. The Risk and
of their own effectiveness during 2020. Statement of Directors’ Responsibilities. Compliance Committee also monitors
Each Committee Chair agreed a tailored The Company’s external auditors explain compliance with the Enterprise Risk
questionnaire which was circulated to their responsibilities on page 110. Management Framework ("ERMF").
Committee members and other individuals More information on the ERMF
who regularly attend Committee meetings Risk management and internal is provided on page 36.
by invitation. The results were analysed control systems
Members of the Global Leadership
by the Company Secretarial team and The Board is responsible for promoting Team are responsible for the application
discussed in detail by the Committees the long-term success of the Company of the ERMF, for implementing and
where actions were agreed for the coming for the benefit of shareholders, while monitoring the operation of the systems
year. The results of the reviews concluded taking into account the interests of our of internal control and for providing
that the Committees are working well other key stakeholders including our assurance to the Risk and Compliance
and that there are no significant concerns people, borrowers, investors in our loans and Audit Committees and the Board.
among the Directors about their and the communities in which we Risk management and compliance
effectiveness. More information on operate. This includes ensuring that an constitute the second line of defence
each Committee’s effectiveness review appropriate system of risk governance in the “Three Lines of Defence” model.
can be found in their reports. is in place throughout the Group. To The Risk Management function is
The Board has delegated to the Audit discharge this responsibility, the Board accountable for the quantitative and
Committee responsibility for overseeing has established frameworks for risk qualitative oversight and challenge of
the financial and corporate reporting management and internal control using the identification, measurement,
and internal financial controls of the a “Three Lines of Defence” model and monitoring and reporting of principal
Company and its subsidiaries. This reserves for itself the setting of the risks and for developing the ERMF.
includes reviewing the content of the Group’s risk appetite. The Compliance function supports
Annual Report and Accounts and The Board oversees the Group’s risk and advises the business on the
advising the Board on whether, taken management and internal control system identification, measurement and
as a whole, it is fair, balanced and and is responsible for reviewing its management of its regulatory and
understandable. Details of this process effectiveness. During the year, the Board conduct risks. It is accountable for
and the focus of the review and of the carried out a robust assessment of the maintaining the compliance standards
Audit Committee’s role, activities and principal risks and uncertainties facing and framework within which the Group
relationship with the external auditors the Group, which are described in more operates, and monitoring and reporting
are on pages 70 to 74 of the Report of detail on pages 40 to 47 of the Strategic on its compliance risk profile. The third
the Audit Committee. Report and the Reports of the Risk and line of defence is Internal Audit, which
Compliance and Audit Committees. is provided by an in-house team led by
Responsibility for preparing an experienced Head of Internal Audit,
the Annual Report and Accounts The Board retains ultimate responsibility with co-source specialist support from
for the Group’s systems of internal control Deloitte as required. The Internal Audit
The Board is responsible for maintaining
and risk management but has delegated function provides independent and
adequate accounting records and seeks
in-depth monitoring of the establishment objective assessment on the robustness
to ensure compliance with statutory and
and operation of prudent and effective of the ERMF and the appropriateness
regulatory obligations. An explanation
controls in order to assess and manage and effectiveness of internal controls to
the Risk and Compliance and Audit
Committees and the Board. More
information on the Internal Audit
function is set out in the Audit
The Board oversees the Group’s Committee Report on page 73.
risk management and internal
Remuneration
control system and is responsible The Board has delegated responsibility
for reviewing its effectiveness. to the Remuneration Committee for the
remuneration arrangements of the
During the year the Board carried Group’s Chairman and Executive Group.
Details about this can be found in the
out a robust assessment of the Directors’ Remuneration Report starting
principal risks and uncertainties on page 78.
facing the Group.
Annual Report and Accounts 2020 65
Corporate governance
Report of the Nomination Committee
The Committee is focused on improving
diversity at all levels of the business and
believes organisations perform best when
diverse voices are heard and individuals
feel they belong.
and responsibilities can be found in our
Members and attendance Terms of Reference on our website at:
Member Meetings Attendance
corporate.fundingcircle.com/investors/
governance.
Andrew Learoyd (Chair) 1/1 100%
Operating rhythm of
Bob Steel (Senior Independent Director) 1/1 100%
the Committee
Cath Keers (Independent Non-Executive Director) 1/1 100% The Committee meets at least once a
year, with additional meetings scheduled
as required. The Committee met once
in 2020 and also met in January 2021,
when it reviewed the results of the
Dear shareholders 2021 priorities
Board and Committee evaluation
‐ Renewing the Board and senior process and discussed (among other
On behalf of the Board, I am pleased to
management succession plans in things) succession planning and the
present our Nomination Committee Report
light of the recent and upcoming overall composition of the Board. In
for the year ended 31 December 2020.
changes and continuing work on the addition, a number of matters falling
long-term succession planning project within the Nomination Committee’s
Key highlights include: with a leadership advisory firm.
‐ Overseeing the implementation of remit (such as changes to the Global
‐ Overseeing the appointment of Leadership Team) were discussed at a
succession plans in respect of
Matthew King and Helen Beck to the Board level during the biweekly Board
changes to the Board and Global
Board, and ensuring they receive a meetings that were held in the initial
Leadership Team, including the
comprehensive and tailored induction months of the pandemic.
nominations of Oliver White as Chief
process on joining.
Financial Officer and Matthew King
and Helen Beck as new Non-Executive ‐ Working in conjunction with the newly Board induction and training
Directors to succeed Bob Steel, formed ESG Committee to oversee All new Directors receive a comprehensive
Ed Wray and Cath Keers. the implementation of the Company’s induction plan on joining the Board, and
diversity, equity and inclusion initiatives. a tailored induction was provided to
‐ Continuing work on succession
Oliver White when he joined the Company
planning for both the Board and the
Role of the Committee in June 2020. A full induction process,
Global Leadership Team, including
The Committee assists the Board tailored to their experience and roles,
reviewing and updating the plan to
in reviewing the structure, size and will also be provided to Helen and
ensure emergency interim cover in
composition of the Board. It is also Matthew when they join the Board this
the event of illness or incapacitation
responsible for ensuring plans are in year. Further details of the induction
during the Covid-19 pandemic and
place for orderly succession to both plan are set out on pages 63 and 64 of
the launch of a long-term succession
Board and Global Leadership Team the Corporate Governance Report.
planning project working with a
leadership advisory firm. positions, and making appropriate The Committee is also mindful of the need
recommendations to the Board for to ensure that the Directors have the
‐ Approving the Group’s diversity
appointments to the Board. skills, knowledge and experience
and inclusion initiatives for 2020,
as well as monitoring the impact The key responsibilities of the Committee necessary to meet the evolving needs
of those initiatives. are summarised on page 57 of the of the business, and therefore ensures,
Corporate Governance Report and with assistance from the Company
further details on the Committee’s roles Secretary, that the Board completes
66 Funding Circle Holdings plc
regular training on key and developing include an increased focus on gender In addition, I have taken on the role of
areas. Recent training has included diversity in tech hiring, the launch of our designated Non-Executive Director for
refresher training on the duties and DEI statement and Code of Conduct and workforce engagement with effect from
responsibilities of a director of a listed the roll-out of diversity and inclusion 1 January 2021, and will work in conjunction
company and diversity and inclusion training, which members of the Board with the newly formed ESG Committee
training taken along with other Circlers and FCL Board have undertaken along to ensure the Board continues to fully
as part of the Company’s diversity initiatives. with other Circlers. The Committee engage with Circlers at all levels. It is
Directors of Funding Circle Ltd ("FCL"), receives reports on gender pay gap expected that Helen will take on this role
which is regulated by the Financial data, overall gender diversity, culture once she is fully established on the Board.
Conduct Authority, also undertake survey scores and completed diversity
The Committee engaged Egon Zehnder in
annual training on the protection of and inclusion training to enable it to
the search for suitable female candidates
client assets and money ("CASS") and monitor the impact of these initiatives.
for the role of Remuneration Committee
the Senior Managers Certification
Equality, diversity and inclusion are Chair, and these candidates were
Regime (including on our new Code of
also important parts of the new ESG considered against those already
Conduct). The new Directors will also be
framework approved by the Board in identified by the Committee as part of
required to take part in all applicable
December 2020, which will be rolled its succession planning. The selection
training on joining the Company.
out through 2021, together with a new process included Helen meeting with
diversity and inclusion engagement plan members of the Global Leadership Team
Diversity and inclusion
to help ensure delivery of our objectives. and the Board and took into account
The Company is committed to creating This will be monitored by the newly Helen’s extensive remuneration and
a diverse and inclusive culture, free from formed ESG Committee (which I chair), broader human resources experience
discrimination of any kind, as evidenced with regular reports provided to the (including serving on remuneration
by both our diversity policy and our Board to ensure ESG considerations committees). The Company has
Company diversity, equity and inclusion remain at the heart of the Company’s engaged Egon Zehnder on previous
("DEI") statement, and this extends to strategic objectives. The Nomination leadership searches and succession
Board appointments. While there have Committee will work in conjunction planning projects, but Egon Zehnder
been improvements in gender and with the ESG Committee to provide a does not otherwise have any other
ethnic diversity at both a Board and governance structure to support and connection with the Company or
Global Leadership Team level over the oversee the implementation of our individual Directors.
last few years, with the appointment of diversity goals.
Cath Keers and Geeta Gopalan to the The Committee was of the view that,
Board in 2018, Lisa Jacobs as UK given his wealth of financial services
Changes to the Board
Managing Director in 2019 and Swati experience and deep understanding of
As referred to in our 2019 report, the Group (being Chair of the FCL Board
Lay as Chief Technology Officer and
following a formal and rigorous and FCL Risk and Audit Committees
Vipul Chhabra as US Managing Director
selection process, the Committee and a member of the ESG Committee),
in 2020, the Committee recognises that
recommended that Oliver White be Matthew was the natural choice to join
there is more work to do.
appointed as a Director, and Oliver the Board, in line with the Committee’s
A breakdown by gender of the Board, joined the Board in June this year. succession plan. Accordingly, the Committee
Global Leadership Team and their direct determined that it was not necessary to
As previously announced, Bob Steel,
reports is provided on page 21. In advertise the role or engage an external
Ed Wray and Cath Keers will step down
addition, the UK’s gender pay gap search consultancy for this appointment.
from the Board with effect from the
update for 2019 is available on our UK
AGM, and will not therefore be standing
website, which shows successive Board composition
for re-election.
improvements over the past two years.
The Committee assessed the Board’s
In line with our succession plan, the
The Committee is focused on improving current balance of skills, knowledge and
Committee recommended the following
diversity at all levels of the business, diversity, taking into account the recent
to the Board:
including the Board, Global Leadership and proposed changes to the Board and
Team and their direct reports, and ‐ the appointment of Helen Beck as a the results of the Board evaluation
believes that organisations perform new independent Non-Executive process, and how this aligns with the
best when diverse voices are heard and Director and Chair of the Remuneration Company’s strategic priorities. The
individuals feel they belong. To this end, Committee, and as a member of the Committee concluded that the mix of
the Committee resolved that a female Nomination and ESG Committees; the Directors’ skills, experience and
Board member should be appointed to ‐ the appointment of Matthew King as knowledge is appropriate to enable the
succeed Cath Keers. a new independent Non-Executive Board to effectively discharge its
Director and a member of the Audit responsibilities and support the
The Committee has also approved and
Committee; and Company’s future development.
overseen the implementation of a number
of diversity and inclusion initiatives in ‐ the appointment of Geeta Gopalan as
2020 to drive positive change, including Senior Independent Director, to
to achieve our target of 40% female succeed Bob Steel.
representation across senior levels by
2025. Further details of these initiatives
are set out on pages 20 and 21, and
Annual Report and Accounts 2020 67
Corporate governance
Report of the Nomination Committee continued
Board composition continued Commitment and interests This will continue to be a focus in 2021,
The Committee also considered the The Committee considered the with the Committee looking to update
Directors’ independence, including in commitment of all Directors both in and enhance the existing succession plan,
light of the fact that certain of the terms of dedication to the role and their including to reflect the recent changes
Non-Executive Directors hold vested time availability, including a review of and ensure diversity remains a key focus.
options granted under the Company’s the Directors’ current directorships. It The Committee has also engaged
pre-IPO share option plan and that concluded that all Directors are fully a specialist consultant to work on a
Ed Wray has served on the Board for dedicated and commit an appropriate long-term succession planning project
more than nine years. Taking into account amount of time to their roles, which was to ensure the development of a diverse
the factors set out on page 63 (Board especially demonstrated during 2020 pipeline of emerging talent within the
Composition), the Committee concluded with the significant increase in Board Global Leadership Team (including by
that these factors did not impair the and Committee meetings, as well as the identifying their key strengths and
relevant Directors’ independence. management information provided to development needs), as well as
the Directors, as a result of the pandemic. maintaining an awareness of proven
See also the statement from Bob Steel business leaders externally, which
below for further detail on the The Committee also monitors additional will continue to be a priority for the
Chairman’s performance and tenure. external appointments of the Directors Committee in 2021.
from both an availability and conflict
Chairman’s performance of interest perspective, which are not Committee effectiveness
and tenure undertaken without the prior approval of
As introduced on page 65, the
the Board. As part of this process, the
Committee undertook an effectiveness
Committee noted the time commitment
review during 2020 whereby each
required by Cath Keers’ executive role
Committee member completed a
In my role as Senior Independent with The Sage Group plc in particular.
tailored self-assessment questionnaire.
Director, I have met with the other Following consideration, the Committee
The question set covered topics such as
Non-Executive Directors without the confirmed that it was comfortable with
the composition of the Committee,
Chairman present to appraise his the position, given that it was temporary
succession plans for the Board and
performance and to discuss his pending Cath stepping down from the
senior management and the process in
tenure and succession. Although Board and that Cath had remained fully
respect of Board appointments made or
Andrew was appointed to the Board dedicated to her role with the Company.
proposed, and the Committee’s
The Committee was of the view that
in 2010, he was only appointed as involvement in such process. The
no other Director had taken on any
Chairman in May 2016 and the feedback from the review was positive
additional significant commitments in
Board understands that the Chair’s and was discussed in detail at the
2020. Accordingly, the Committee
tenure is reset at IPO (October 2018) Committee meeting in January 2021,
agreed that the external commitments
including the appropriate frequency of
for the purposes of the Code, due of the Directors standing for re-election
Committee meetings and succession
to the new responsibilities that are would not prevent them from
planning in particular. The review
taken on as a director and Chairman committing an appropriate amount of
process was also instrumental in
of a listed company. The Directors time to their roles with the Company.
directing the Committee’s focus for
are of the firmly held opinion, taking 2021 (which is detailed above).
into account the unanimously Succession planning
positive feedback on Andrew’s The Committee has developed and Re-election
leadership, that it is in the best maintains a succession plan for the
The position of each Board member
interests of the Company and its Board and the Global Leadership Team,
was closely reviewed during the year as
which covers both interim and longer-
shareholders that Andrew remains at part of the consideration of succession
term solutions and has due regard for
the helm at this pivotal time for the arrangements and the Board and
the importance of a diverse pipeline. This
business. Stability of leadership was Committee evaluation processes. While
was reviewed and updated in early 2020
particularly beneficial following the the Committee will continue to assess
to ensure emergency interim cover was
this in 2021, we are satisfied that we
Company’s IPO in 2018 and remains in place in the event of illness or incapacitation
have a good balance of skills and
even more so in the current climate. during the Covid-19 pandemic.
experience on the Board to support the
Nevertheless, the Committee has Company’s future development and,
The Company’s succession plan was
developed a clear succession plan to successfully implemented on several accordingly, recommended to the Board
cover both interim and longer-term occasions in 2020, including on the that each Director (other than Cath
solutions for the whole of the appointment of Oliver White as Chief Keers, Bob Steel and Ed Wray, who will
Board, including the Chairman. Financial Officer, Swati Lay as Chief be stepping down with effect from the
Technology Officer and Vipul Chhabra AGM) stand for election at the
Bob Steel as US Managing Director. It has also forthcoming AGM.
Senior Independent Director
been implemented in 2021 as a result
of the upcoming Board changes
(see further details under Changes Andrew Learoyd
to the Board above). Chair of the Nomination Committee
25 March 2021
68 Funding Circle Holdings plc
Report of the Audit Committee
The Committee’s focus this year was on
ensuring appropriate oversight over the
evolving business and new loan products
as well as continuing to maintain
oversight over the Company’s control
environment under some very
exceptional circumstances.
‐ Reviewing the adequacy and security
Members and attendance of the Group’s whistleblowing
Member Meetings Attendance
arrangements, receiving whistleblowing
updates and providing reports to the
Geeta Gopalan (Chair) 3/3 100% Board where appropriate.
Eric Daniels (Independent Non-Executive Director) 3/3 100% ‐ Reviewing and overseeing (in
conjunction with the Risk and
Ed Wray (Independent Non-Executive Director) 3/3 100% Compliance Committee) the Group’s
procedures and policies for detecting
and preventing fraud and its systems
Dear shareholders Covid-19 on the valuation of loan
and controls for preventing bribery
assets and bond liabilities, expected
On behalf of the Board, I am pleased to credit losses, liquidity, financial and money laundering.
present our Audit Committee Report for covenants and the Group’s ability to
the year ended 31 December 2020. The continue as a going concern, together 2021 priorities
exceptional and unprecedented challenges with its viability disclosures. In this ‐ Continue the assessment of
posed by the Covid-19 pandemic has context, the Committee also reviewed accounting judgements and
clearly tested the Group’s business and guidance published by regulators in estimates, particularly in relation to
the strength and robustness of the response to Covid-19 to ensure the valuations of loans and expected
financial processes and controls. The disclosure was detailed and credit loss provisions associated with
Group’s control environment has been transparent and the guidance SMEs which are heavily impacted by
resilient and adapted well to remote appropriately applied. the prevailing macroeconomic
working and new product launches in environment and the accounting
‐ Reviewing the effectiveness of the
the UK and US. The Committee would treatment in respect of the new loan
Group’s internal controls and the
like to thank all colleagues for the products which will evolve as new
internal audit function, including
continued focus and support of lending schemes are rolled out and
monitoring the development of the
customers at this time, all the while core lending restarts.
in-house internal audit team.
maintaining a strong control environment. ‐ Continue to review the Group’s
‐ Reviewing and approving revisions to
The Committee’s focus this year was on the 2020 internal audit plan and the internal financial controls and control
ensuring appropriate oversight over the internal audit plan for 2021 (including systems to ensure these are
evolving business and new loan products changes made as a result of Covid-19), developed to reflect the Group’s
as well as continuing to maintain in each case providing challenge to evolving business, including
oversight over the Company’s control priorities, processes and reporting. government guaranteed loans and
environment under some very the relaunch of term loan products, as
‐ Reviewing and approving the external
exceptional circumstances. well as controls on balance sheet and
audit plan and fees for the 2020
funding management.
financial year and carrying out a
Key highlights during the formal evaluation to assess the ‐ Oversee, in conjunction with the Risk
year include: independence, objectivity and and Compliance Committee and
‐ Focusing on the integrity of financial effectiveness of the external auditors. internal audit function, enhancements
statement reporting for both the to the Group’s collections and
‐ Reviewing and approving the Group’s
Half Year Report and Annual Report recoveries processes, controls and
non-audit services fees in line with
and Accounts, the significant systems to ensure the delivery of
the Group’s policy.
accounting judgements, estimates consistent and effective borrower
and disclosures, with careful ‐ Recommending the reappointment of outcomes as part of a robust credit
consideration of the impact of the external auditors. cycle management process.
Annual Report and Accounts 2020 69
Corporate governance
Report of the Audit Committee continued
2021 priorities continued and internal financial controls of the the Committee received information on
‐ Oversee the ongoing development of Group, for reviewing the Group’s internal a timely basis and meetings were
the in-house internal audit function, control systems, for reviewing and scheduled adequately to allow
along with the requisite formal overseeing the Group’s procedures and members to have an informed debate.
evaluation of its effectiveness. systems for detecting and preventing
As Funding Circle Ltd (“FCL”) is
bribery, fraud, money laundering and
authorised and regulated by the Financial
Committee composition, other financial crime, for managing both
Conduct Authority, it has its own Audit
skills and experience internal and external audit procedures
Committee, chaired by one of FCL’s
and for maintaining an appropriate
We confirm that we have complied with independent directors, Matthew King.
relationship with the external auditors
the Code provision that the Committee The FCL Audit Committee meets at the
of the Group.
comprises Independent Non-Executive same time as the Committee and
Directors and between us we have The key responsibilities of the Matthew King has therefore attended
extensive experience in banking and Committee are summarised on page 57 all Committee meetings.
financial services as well as in of the Corporate Governance Report
The external auditors and Head of
technology and high growth companies. and further details on the Committee’s
Internal Audit attended all Committee
Further detail on the Committee roles and responsibilities can be found
meetings, and the Committee also
members’ skills and experience is in our Terms of Reference on our
met with them separately without
documented in their biographies on website at: corporate.fundingcircle.
management present. In addition,
pages 53 to 55. Furthermore, the com/investors/governance.
I maintain an open and regular dialogue
Committee undertakes appropriate
The Committee reports regularly to the with the Company’s external audit
training, including presentations from
Board on its activities and makes partner and the Head of Internal Audit,
senior management and the external
recommendations, all of which have as well as the CFO.
auditors, to ensure the Committee is
been accepted during the year.
kept fully appraised of the Group’s A summary of the Committee’s 2020
evolving business, key accounting highlights and 2021 priorities is set out
policies and principles, as well as key
Operating rhythm of
on page 69, with further detail on certain
legislative and regulatory changes. The
the Committee
key matters which warrant further
Board is satisfied that the Committee The Committee met three times during consideration set out below, including
meets the Code provision to have recent 2020. All members of the Committee the key considerations and conclusions
and relevant financial experience. attended all meetings, together with (by of the Committee.
invitation) representatives of the
external auditors, the Head of Internal From 2021, the Committee will meet
Role of the Committee
Audit, the CEO, the Chairman, the CFO four times a year to ensure we continue
The Board has delegated to the to provide appropriate oversight of the
and, where it was deemed appropriate,
Committee responsibility for overseeing Group’s control environment and evolving
other members of the senior
the financial and corporate reporting business with additional products.
management team. I am satisfied that
Significant issues considered in relation to the financial statements
The Committee assessed the quality and appropriateness of, and adherence to, the Group’s accounting policies and principles.
It reviewed whether the accounting estimates and judgements made by management were appropriate. The significant issues
and accounting judgements considered by the Committee in respect of the half year ended 30 June 2020 and year ended
31 December 2020 are set out below.
Reporting issue Audit Committee action
Principal risks and viability The Committee reviewed reports from management that set out its
As a listed company, the Directors must satisfy view on the shorter-term going concern and longer-term viability of the
themselves, and make a statement in the Annual Group. These included:
Report, on the going concern and viability of the Group. ‐ reviewing the Group’s principal risks as set out on pages 40 to 47;
The period over which the Directors have determined
‐ assessing and reviewing the guardrails established by the Risk and
the viability assessment is three years.
Compliance Committee to track the Group’s capital, liquidity and
The onset of Covid-19 and uncertainty it has created exposures following the evolution of its funding products;
has led to increased importance of clear disclosure ‐ reviewing the Group’s short and medium-term plan, its cash and liquidity;
and transparency with respect to risks, going concern
‐ reviewing the outcomes of stress testing after applying severe but
and viability.
plausible scenarios aligned to the principal risks; and
‐ reviewing the risk, going concern and viability disclosures with regard
to the clarity surrounding scenarios, uncertainties, sensitivities and
management actions with regards to Covid-19 in particular.
Having challenged and considered the outcomes of management’s
assessment, the Committee concluded to recommend the Viability
Statement to the Board for approval and that related disclosures are
sufficiently clear and transparent.
70 Funding Circle Holdings plc
Reporting issue Audit Committee action
Goodwill, non-financial assets and carrying value of As members of the Board, all Committee members received updates on
investments in the Parent Company the financial performance of the Group and its medium-term plan as
The Group is required to annually assess any goodwill part of the 2021 budget process.
and non-financial assets for impairment. The Group The Committee also reviewed papers from management during the
holds goodwill in respect of the previous acquisition of year which set out the key assumptions underpinning the impairment
Endurance Lending Network in the US (referred to as assessment and the level of headroom and sensitivity to those
FC USA in the financial statements goodwill note). assumptions, the financial projections of which were based on the
Additionally the Group considered the carrying values medium-term plan.
of the investments in subsidiaries held in the Parent
Company. There remained sufficient headroom in the The Group’s external auditors provided their view of the assessment
Parent Company accounts in respect of the to the Committee, including their challenge of the discount rates and
UK investments. management’s medium-term plan assumptions.
However, following a strategic re-set of the US business, After due challenge and discussion, the Committee concluded that the
along with an update to the Group’s income and cost goodwill associated with the businesses in the US was impaired and
forecasts, the underlying projected cash flows of the should be written down. The Committee also concluded that there was
US business cash-generating unit were insufficient to insufficient headroom in the Parent Company investment in the US
cover the carrying value of goodwill and the Parent Company business and this should be partially impaired.
investment in the US was also significantly impaired. However, the Committee was comfortable that there remained
Accordingly, the Group has taken an impairment sufficient levels of headroom over the carrying values of the assets
charge of £13.7 million consisting of goodwill of associated with the other cash-generating units and that the remaining
£12.0 million taken in June 2020 and other tangible investments in the Parent Company accounts were supportable.
and intangible assets of £1.7 million (of which
£0.6 million is in relation to assets associated with the
developing markets business). Additionally the Parent
Company investment of in the US has been written
down by £155.9 million.
Exceptional items The Committee received papers from management setting out the
The Group has a defined accounting policy for the analysis of the exceptional items, linked to the goodwill impairment
treatment of non-recurring and material items above. It also considered the restructuring costs incurred in the year.
as exceptional. The Committee received the views of the external auditors on the items
The impairment of goodwill and right-of-use assets that management had included within these costs.
totalling £13.7 million has been disclosed as an The Committee considered and challenged the appropriateness
exceptional item. In 2019, the impairment of assets of presenting the impairment separately from other costs.
totalling £34.3 million had been disclosed as an
exceptional item. It noted that the disclosure as exceptional was consistent with the
Group’s accounting policy, and concluded that the amounts and this
The Group also incurred restructuring costs during presentation were appropriate.
the year of £5.0 million for the US and European
businesses which have been treated as exceptional.
The Group additionally presented exceptional items
in a columnar fashion on the consolidated statement
of comprehensive income in order to increase
transparency and understanding for readers.
Valuation of financial instruments The Committee received and reviewed papers from management that
Following the introduction of the warehouses and ABS included the assumptions and methodologies used to value the financial
programme in 2019 and continued investment in these instruments together with the level of sensitivity to those assumptions.
products, as well as the launch of CBILS, in 2020, the The Committee also considered the views of the external auditors on
Group holds significant levels of financial instruments the valuation approach and the assumptions, including benchmarking
at fair value on its balance sheet. the assumptions with the external auditors’ internal valuations team.
These instruments are valued using valuation The Committee considered the disclosures within the Annual Report
estimation techniques including discounting cash flow and after due challenge concluded that the valuations were reasonable
analysis and valuation models. and the disclosures were appropriate.
The onset of Covid-19 has significantly impacted
the fair value of some of these investments during
the year and led to increased estimation uncertainty.
Annual Report and Accounts 2020 71
Corporate governance
Report of the Audit Committee continued
Significant issues considered in relation to the financial statements continued
Reporting issue Audit Committee action
Loan repurchase liability (also known as expected The Committee received and reviewed information from management
credit losses) during the year on the levels of loan repurchases and the associated
With certain institutional investors, the Group has repurchase liability also referred to as expected credit loss provisions.
entered into agreements to assume the credit risk on The Committee also received the views of the external auditors,
loan investments funded by institutional investors, as including the use of their own internal specialist to challenge
detailed in note 16 of the financial statements on management’s assumptions.
pages 139 to 141, in return for a fee premium.
Taking each of these into account, the Committee concluded that the
The Group is therefore required to make its best approach and the quantum of provision and the associated disclosures
estimate for the expected credit losses on these loan for loan repurchase costs were reasonable.
investments and therefore the level of loan
repurchases it must make.
This requires estimation on the expected level of
defaults using both historical trends and forward-
looking information including the significant impact
of Covid-19.
Alternative performance measures (“APMs”) The members of the Committee, also being Board members, received
The Group uses APMs in its reporting of segment management and operational information about the Group’s underlying
adjusted EBITDA and adjusted EBITDA for the Group. performance which included these key measures.
These measures are defined within the segmental The Committee also considered the other measures used by the Group,
information note on page 130 and in the glossary on including loans under management and originations, and agreed that
page 171. these were significant drivers of fees earned by the Group and, in turn,
The Group uses these measures as they provide its financial performance and as such required sufficient disclosure to
an alternative interpretation of the underlying explain the revenue performance.
performance of the business and how it is managed. The Group also obtained the view of the use of these APMs from the
They also provide a closer approximation to cash external auditors.
generation which is key in a fast-growing business.
The Committee considered the appropriateness of these APMs in
providing meaningful information about the underlying performance
of the business and concluded that these APMs should continue to be
used in the Group’s external reporting, although noting that these
should not be given undue prominence.
The Committee considered separately disclosing the impact that
Covid-19 had had on the Group’s investment portfolio during 2020.
However, in light of the level of estimation and judgement involved,
and following the FRC’s published guidance, the Committee concluded
that the Group should not seek to quantify or present the impact as a
specific one-off or non-recurring exceptional item or treat it as an
alternative performance measure.
The Committee reviewed the Annual Report as a whole and concluded
that the use of these measures was not excessive relative to statutory
measures and that appropriate reconciliation to statutory measures
was provided.
Fair, balanced and understandable reporting At the request of the Board, the Committee has assessed the information
The Board is required to report as to whether the contained within the Annual Report.
contents of the 2020 Annual Report and Accounts, This assessment included discussions with management on the
when taken as a whole, is fair, balanced and underlying financial processes, and confirmation from the CFO and his
understandable. team and the Group’s Head of Investor Relations that the information
contained within the Annual Report is fair, balanced and understandable.
The Committee also discussed the contents of the Annual Report with the
external auditors.
Having considered all of the available information including previously
published information about the business and press releases through the
year, it has concluded that, in its judgement, the 2020 Annual Report and
Accounts, when taken as a whole, is fair, balanced and understandable.
72 Funding Circle Holdings plc
Internal controls and All proposed audit plan adjustments Whistleblowing
risk management were reviewed, challenged and approved The Board adopted a revised
The Committee, in conjunction with by the Audit Committee. Areas reviewed whistleblowing policy in March 2020,
the Risk and Compliance Committee, by the Internal Audit team during incorporating the Committee’s
is responsible for reviewing the risk 2020 included: recommendations. The Group provides
management systems and internal ‐ development, deployment and employees with access to a telephone
controls to ensure that they remain operation of the Coronavirus Business service run by an independent
effective and that any identified Interruption Loan Scheme product; organisation to enable employees to
weaknesses are appropriately report on an anonymous basis. The
‐ credit decisioning strategy updates;
dealt with. Committee is responsible for reviewing
‐ collections, recoveries and litigation the whistleblowing arrangements and
The Committee is pleased with the activities and arrangements in the UK, receives whistleblowing updates at each
improvements made to the Group’s US, Germany and the Netherlands; meeting (which include updates on steps
internal financial controls over the year,
‐ AML & sanctions framework taken to ensure employees’ awareness
and this will remain an area of continued
in the US; and of the whistleblowing policy), as well as
focus to ensure controls are developed
‐ procurement and third party reports on any concerns raised. Where
and improved to reflect the Group’s
management. it considers appropriate, the Committee
evolving business, including the new
raises such concerns to the Board.
government guaranteed loan products The Internal Audit plan for 2021 was After due challenge, along with some
and the relaunch of our term loan products. approved by the Audit Committee in suggestions for further improvement,
In particular, the Committee will December 2020 and aligns to areas the Committee concluded that the
oversee, in conjunction with the Risk of highest inherent risk and continued policy and procedures remain effective.
and Compliance Committee and Internal strategic, operational and regulatory
Audit function, enhancements to the focus, including: External auditors
Group’s collections and recoveries ‐ strategic change portfolio The Committee is responsible for
processes, controls and systems to management; overseeing the Group’s relationship with
ensure the delivery of consistent and its external auditors, PwC. This includes
‐ product governance and operational
effective borrower outcomes. the ongoing assessment of the auditors’
management;
independence and the effectiveness of
Internal audit ‐ credit portfolio monitoring and
the external audit process, the results
stress testing;
The Group has established an in-house of which inform the Committee’s
Internal Audit team led by an experienced ‐ electronic payments; recommendation to the Board as to
Head of Internal Audit, with co-source ‐ interest and repayment calculations; the auditors’ appointment (subject to
specialist support provided by Deloitte ‐ operational resilience; and shareholder approval) or otherwise.
as required. The Internal Audit work
‐ balance sheet management. PwC were first appointed as the
focuses on areas of key business risks
external auditors of the Company in
and priorities, significant processes and Actions arising from the audits are
2015, and Nick Morrison was appointed
current areas of concern to define the monitored through to completion and
as the Company’s lead audit partner
audit plan. reported to the Committee to ensure
in respect of the year ended
they are appropriately addressed.
Appropriate adjustments were made to 31 December 2019.
the Internal Audit plan throughout 2020 The Audit Committee has reviewed
in response to the heightened levels of the effectiveness of the Internal Audit
uncertainty and risk caused by Covid-19. function throughout the year, including
as part of the Committee effectiveness
review, and has been pleased with the
improvements to the function following
the introduction of the in-house team
and co-source support. A formal review
process of the effectiveness of the
Internal Audit function will take place
in 2021.
Annual Report and Accounts 2020 73
Corporate governance
Report of the Audit Committee continued
External auditors continued
The Committee undertook a formal assessment of PwC’s effectiveness during 2020 by following the process below:
Tailored questionnaire Questionnaire Results of the
Assessment
prepared covering provided to questionnaire
‐ Handover to new lead audit ‐ Committee members The results of the The Committee considered the results
partner and improvement evaluation were collated by of the evaluation, together with a
‐ Chair of FCL Audit
following 2019 effectiveness the Company Secretarial detailed review of PwC’s audit plan,
Committee
review team and presented to the reports, conclusions and their
‐ CFO assessment of management’s
‐ External audit partner Committee.
‐ Director of Finance judgements during the year. Following
accessibility and time
detailed discussion, together with
commitment
some suggestions for improvement
‐ Quality of the team (which have been discussed with PwC),
‐ Quality and cost of the the Committee concluded that the
service provided audit process was effective (and that
‐ Accounting, technical and this was not impacted by remote
governance insight working) and that PwC remain
independent and objective and
‐ Independence and
possess the skills and experience
professional scepticism
required to fulfil the external auditor’s
‐ Quality of communication duties effectively and efficiently.
and interaction
Following the above evaluation, the a summary of all non-audit services is Committee effectiveness
Committee has recommended to the provided at Committee meetings. As introduced on page 65, the
Board that PwC be reappointed as the Committee undertook an effectiveness
During the year ended 31 December
Company’s external auditors. A resolution review during 2020 whereby each
2020, PwC were engaged to provide
recommending the appointment of PwC Committee member, and by invitation
non-audit services relating to the following:
as external auditors of the Company will the CFO and the Chair of the FCL Audit
be put to shareholders at the Company’s Description £000 Committee, completed a tailored
AGM in May 2021. questionnaire. The question set covered
Interim review of Half Year 118
In accordance with the Competition results announcement topics such as the:
and Markets Authority order and EU ‐ composition of the Committee;
CASS reporting 80
legislation, the Committee intends to
‐ quality and timeliness of
put the external audit out to tender Other assurance 119
related work
information provided;
at least every ten years post-IPO.
‐ Committee’s oversight of, and
The Committee confirms that the Group Total 317 ongoing engagement with, the
is in compliance with The Statutory internal and external auditors; and
Audit Services for Large Companies The Audit Committee concluded that it
‐ Committee’s understanding of the
Market Investigation (Mandatory Use of was in the best interests of the Group to
financial reporting and key financial
Competitive Tender Processes and Audit purchase these services from PwC on
issues facing the Group as a result of
Committee Responsibilities) Order 2014. the basis that they were able to provide
the prevailing economic climate and
them more efficiently than an alternative
Group’s evolving business.
Non-audit services provider (or, in some cases, they were
The engagement of the external audit required to be performed by the external The output from this review was
firm to provide non-audit services to the auditors). PwC are prohibited from positive and, following an open and
Group can impact on the independence providing certain non-audit services productive discussion, the Committee
assessment, and the Company has, to safeguard auditor objectivity and agreed a number of actions to be
therefore, adopted a policy which requires independence, including but not limited implemented during 2021, including for
Committee approval for non-audit to internal audit work, valuations work an additional Committee meeting to
services. This policy is in line with PwC’s and tax-related work. be held each year in recognition of the
internal policies and the FRC’s revised Group’s evolving and increasingly complex
The audit fees payable to PwC for the
ethical standard, and gives me, as Chair business and for management to provide
year ended 31 December 2020 were
of the Committee, delegated authority a "teach-in" session to the Board on
£700,000 and the non-audit service
from the Committee to approve individual some of the more complex accounting
fees were £317,000. Further details on
non-audit services items of up to estimates and judgements.
audit and non-audit fees are shown in
£50,000 per service.
note 4 to the financial statements.
All fees paid to PwC for non-audit Geeta Gopalan
PwC have confirmed to the Committee
services have been approved by the Chair of the Audit Committee
that they remained independent during
Committee or the Chair (in accordance 25 March 2021
the year.
with the non-audit services policy), and
74 Funding Circle Holdings plc
Report of the Risk and Compliance Committee
The Committee has monitored
the Group’s risk management and
governance framework in a year which
has seen unprecedented change and
challenges due to the pandemic.
The Committee also reviewed the
Members and attendance Group’s employee survey results,
Member Meetings Attendance
with a particular focus on these
issues, as well as the importance
Eric Daniels (Chair) 5/5 100% of diversity and inclusion.
Geeta Gopalan (Independent Non-Executive Director) 5/5 100% ‐ Received regular reports on the
information security and technology
Hendrik Nelis (Non-Executive Director) 5/5 100% risks, especially in the context of the
move to remote working and the
increased risk of cyberattacks in light
of the pandemic, and challenged the
priorities on outstanding internal audit
Dear shareholders The Committee’s highlights from 2020 items to ensure high risk
are set out below. vulnerabilities were addressed.
On behalf of the Board, I am pleased
to present the report of the Risk and ‐ Continued focus on funding ‐ Oversaw steps to improve borrower
Compliance Committee for the year and liquidity risk, both to ensure outcomes and protect vulnerable
ended 31 December 2020. diversification of funding sources customers, while also protecting
(including for the government investor returns. This included
The Company’s approach to risk and guaranteed loan products) and to tightening new lending criteria,
risk management, together with the maintain a prudent level of balance augmenting capacity and enhancing
principal risks that face the Group, is set sheet liquidity. The Committee quality monitoring in the collections
out on pages 36 to 47 of this report. The recognised funding and liquidity and recoveries team and offering
Committee has monitored the Group’s risk as an additional principal risk forbearance and curing plans to
risk management and governance and developed and implemented customers in difficulty. As part of
framework in a year which has seen a specific funding and liquidity this process, the Committee also
unprecedented change and challenges risk management framework in monitored complaints to ensure
due to the pandemic. I am pleased early 2020, which was reviewed they were appropriately addressed.
with the response of the Group’s risk and enhanced throughout the ‐ Reviewed and challenged risk
management capabilities in the face year. As part of this process, the assessments of the new government
of these challenges, which enabled Committee approved the establishment guaranteed loan products and oversaw
Funding Circle to respond quickly, of a new executive level Balance the implementation of new processes
pivoting to government-guaranteed Sheet Management Committee to to support those schemes, including
loans to support our customers and the oversee balance sheet strategy and robust controls, independent quality
broader economy, while also ensuring risk and to review capital, funding checks and continued monitoring
appropriate processes and controls and liquidity strategies. and oversight of the programmes
were adopted to protect investors’ returns.
‐ Conducted a detailed review of (including to manage the risks of
the Group’s people risk (excluding financial crime).
the Board and Global Leadership ‐ Reviewed and challenged the Group’s
Team, which falls within the remit of portfolio loss forecast, including its
the Nomination Committee), including methodology and assumptions, for
monitoring the transition to home use to assess the fair market value
working and reallocation of staff of the Company’s loan assets and
to different teams in the face of the bond liabilities (in conjunction with
pandemic, and ensuring the provision the Audit Committee).
of appropriate support to Circlers.
Annual Report and Accounts 2020 75
Corporate governance
Report of the Risk and Compliance Committee continued
‐ Oversaw the Company’s engagement ‐ Oversee, in conjunction with The Committee reports regularly to
with the Financial Conduct Authority the Audit Committee and internal the Board on its activities and makes
("FCA"), given the increased scrutiny audit function, enhancements to the recommendations, all of which have
of the regulator (particularly with Group’s collections and recoveries been accepted during the year.
regards to ensuring viability) in the controls and systems to ensure
The Committee members have a
light of the pandemic, including in the appropriate management of
wealth of risk management experience,
relation to liquidity, partial repayments borrowers in difficulty (including
including strong representation in
(which were approved by the Committee vulnerable customers), while also
financial services. Further details of
to enhance borrower and investor maximising investor returns, including
their experience are set out on pages
outcomes) and forbearance plans. in the event of an increased volume of
53 to 55 of this report.
‐ Reviewed and challenged risk collections activity.
assessments (including, in particular, ‐ Continue to focus on information Operating rhythm
people risk) in relation to the Company’s security and technology risks to of the Committee
restructuring in Europe and the US. ensure high risk outstanding internal
The Committee met five times during
audit items and vulnerabilities are
2020, including two off cycle meetings
2021 priorities appropriately prioritised.
held in March and September in response
‐ Continue to review of the Group’s ‐ Continue to monitor and oversee to risk matters arising as a result of the
risk strategy, risk management controls relating to loan products pandemic. All members of the Committee
capabilities and risk tools to reflect under the existing, and any new, attended all meetings, together with (by
the Company’s evolving business, government guaranteed loan invitation) the CRO, CEO, CFO, Chairman
new loan products and any emerging programmes (including to manage of the Board, Company Secretary, Head
risks by, among other things, reviewing the risks of financial crime) and on of Internal Audit and other members of
and revising the Enterprise Risk the restart of the Company’s core the senior management team where it
Management Framework ("ERMF") term loan products. was deemed appropriate. I am satisfied
as necessary and improving risk ‐ Continue to monitor model that the Committee received information
management controls, including performance and the adequacy on a timely basis and that the meetings
through the increased use of centralised of model governance and control were scheduled adequately to allow
recordkeeping in a governance risk framework to ensure ongoing viability members to have an informed
and compliance tool to enable clear of significant models in use. discussion and debate.
visibility of control ownership and
risk mitigation relationships. As Funding Circle Ltd ("FCL") is
Role and composition authorised and regulated by the FCA,
‐ Continue to monitor the economic of the Committee it has its own Risk and Compliance
and political environment, including The main purpose of the Committee is Committee, chaired by FCL’s
in relation to the pandemic and the to review and make recommendations independent director, Matthew King
UK’s exit from the European Union, to the Board in connection with the (who will also be joining the Board later
and contingency planning to respond Group’s risk strategy (in light of the this year). The FCL Risk and Compliance
and mitigate the impact of any adverse Committee’s assessment of the emerging Committee meets at the same time
macroeconomic conditions. The and current principal risks to the Group) as the Committee, and Matthew King
Committee will also continue to and its attitude to and appetite for risk has attended all Committee meetings.
monitor the health of the loan portfolio and to monitor and review the Group’s
and stress/loss forecast simulations compliance with the ERMF. In addition, In addition, I maintain an open and
in the context of risk volatility. the Board has delegated responsibility to regular dialogue with the CRO, and am
‐ Continue to expand the Group’s the Committee for reviewing and satisfied that matters were escalated
balance sheet management monitoring the Group’s compliance to the Committee or me, as necessary,
capabilities, providing close oversight with legal and regulatory requirements in line with the escalation protocols in
of the newly created Balance Sheet and policies and the effectiveness and place, and as reviewed by the
Management Committee to track the appropriateness of the Group’s Committee on a regular basis.
embeddedness of new balance sheet corporate governance framework. During 2020, the Committee considered
stress testing, capital and liquidity a wide range of risks facing the Group,
The key responsibilities of the Committee
risk appetite metrics and deepened both existing and emerging, across all
are summarised on page 57 of the
balance sheet investment oversight. key areas of risk management. A summary
Corporate Governance Report and
‐ Continue to review the Group’s further details on the Committee’s roles of the Committee’s 2020 highlights and
people risk, particularly in the light and responsibilities can be found in 2021 priorities is set out on page 75,
of any continuing restrictions due our Terms of Reference on our website including the key considerations and
to the pandemic. at: corporate.fundingcircle.com/ conclusions of the Committee. In
investors/governance. addition, a number of risk management
issues were discussed and decisions
made at the biweekly Board meetings
held during the initial months of
the pandemic. This included the
decision to temporarily suspend our
non-government backed lending and
76 Funding Circle Holdings plc
retail investment in the UK, the Following a productive discussion,
onboarding of a range of new investor the Committee agreed a number
relationships and the renegotiation of of actions to be implemented,
the terms of certain of the Group’s including that the Committee
investment positions. The CRO also include model risk as an additional
provided a weekly risk update to the focus for 2021 and continue to monitor
Board (and continues to do so). people and information security and
technology risks. The Committee also
Other matters discussed environmental, social and
Other key matters considered at the governance ("ESG") related risks, and
meetings of the Committee during it was subsequently agreed that the
the year included: newly formed ESG Committee would
have primary responsibility for the
‐ review of the ERMF and relevant oversight of such risks in line with the
Group policies; enhanced ESG framework approved
‐ review of results of risk control self by the Board in December 2020,
assessments ("RCSA") and ongoing with the support of the Committee
risk reports including risk appetite; where appropriate.
‐ review of internal risk controls
(further details of which are
covered on page 65 of the Eric Daniels
Corporate Governance Report); Chair of the Risk and Compliance
Committee
‐ review of the compliance programme 25 March 2021
and the compliance and risk
monitoring and testing plan;
‐ approval of funding and liquidity risk
management framework; and
‐ approval of annual risk
assessment summary.
In respect of the Group’s approach to
risk and compliance management, the
Committee also reviewed the capability,
resources, remit and authority levels of
the Risk Management and Compliance
functions and is satisfied that they are
adequately resourced and sufficiently
independent with appropriate authority
and standing within the Group.
Committee effectiveness
As introduced on page 65, the Committee
undertook an effectiveness review
during 2020 whereby all Committee
members, and by invitation the CRO and
Chair of the FCL Risk and Compliance
Committee, completed a tailored
self-assessment questionnaire. The
question set covered topics such as
the composition of the Committee,
the quality and timeliness of information
provided, the Committee’s oversight of
the Group’s risk management systems
and its understanding of the key and
emerging risks facing the Group.
Annual Report and Accounts 2020 77
Corporate governance
Directors’ remuneration report
The revised policy proposals achieve a more
market aligned and balanced package with
appropriate focus on short and long term
performance, underpinned by our core
reward proposals.
Dear shareholders ‐ Implement the Remuneration Policy salaries and fees over the period from
subject to shareholder approval at March to May 2020, there were no salary
On behalf of the Board, I am pleased to the AGM. reductions for the wider employee base
present the Directors’ Remuneration and the Company did not claim any
‐ Continue to monitor remuneration
Report for the year ended 31 December furlough or other government support
practice across the Company as a
2020. In addition to my annual statement for payment of salaries.
whole, keeping abreast of market
as Chair of the Remuneration Committee,
practice.
this report contains: Board changes
‐ our proposed Directors’ Remuneration Review of 2020 Sean Glithero resigned as CFO on
Policy (the “Remuneration Policy”), The Covid-19 pandemic has caused 20 May 2020 and Oliver White was
which will be put to a binding uncertainty for many people and subsequently appointed as CFO on
shareholder vote at the 2021 AGM especially for our small business 15 June 2020. Sean did not receive any
and will apply for three years from customers over the course of 2020 and payments linked to his resignation.
the date of approval; and remains a very real challenge at the time Unvested Growth Shares and unvested
of writing this annual statement. I would LTIP awards held by him lapsed in
‐ the Annual Report on Remuneration,
like to start by recognising and thanking full on cessation of his employment.
which sets out payments made to
all our Circlers who have responded so Oliver White’s remuneration
the Directors for the year ended
well, demonstrating the Funding Circle arrangements were determined in
31 December 2020 and how our
values as they quickly adapted to new accordance with the Remuneration
proposed Remuneration Policy is
ways of working. This enabled Funding Policy as follows:
intended to be implemented in 2021.
The Annual Report on Remuneration Circle to become part of the solution in ‐ A salary of £400,000 per annum.
is subject to an advisory shareholder getting much needed government
‐ A 2020 performance based LTIP
vote at the 2021 AGM. guaranteed funds to borrowers in both
award equal to 200% of salary subject
the UK and the US and to support our
to EPS and Fee Income performance
2020 Committee highlights existing borrowers, many of whom
over a three year performance period
‐ Consulted with shareholders to guide experienced unprecedented difficulties
ending 31 December 2022. The
our review of our Remuneration Policy. when the pandemic hit. As well as a
maximum opportunity was set circa
strong second half in terms of investor
‐ Considered the appropriate 30% less than the maximum
and borrower demand, with record
remuneration package for our opportunity under the Remuneration
originations of £2.7 billion and Loans
new CFO. Policy. See page 92 for further details.
under Management (LuM) of £4.2 billion,
‐ Oversaw the development of a new the team has carefully managed the ‐ A buy-out award in compensation for
approach to reward members of existing loan book, expects positive the forfeiture of his 2019 and 2020
the Global Leadership Team and all investor returns in each cohort and bonus from his previous employment.
other Circlers. has managed the Group’s cost base Further details of the buy-out awards
‐ Introduced an all-employee Share effectively. I am proud of how we are set out on page 92.
Incentive Plan (“SIP”) to further align have performed this year and of the The Committee considered the
all Circlers with shareholder interests. leadership shown by our CEO, CFO and remuneration arrangements to be
Global Leadership Team through this appropriate in the context of recruiting a
2021 Committee priorities
difficult time. high calibre and experienced individual
‐ Continue to engage with shareholders
I am also pleased to say that, while the given the scale and complexity of the
in order to receive support for our
Global Leadership Team and the Board business as well as the requirement for
proposed Remuneration Policy.
volunteered 20% reductions to their specific financial services skills.
78 Funding Circle Holdings plc
Review of the Executive • Key terms: Restricted Share CEO salary review
Directors’ Remuneration Policy awards will vest after three years As part of the Remuneration
As I noted in my annual statement last following the date of grant, and will Policy review and consultation with
year, the Committee conducted a then be subject to a two-year shareholders, the Committee took the
comprehensive review of the existing holding period, ensuring that the opportunity to review the CEO’s salary
Remuneration Policy in 2020 which overall time horizon of awards is positioning. The CEO’s salary has
included consultation with our major five years from the date of grant. remained unchanged since 2017 and
shareholders and proxy agencies. Vesting of awards for the Executive is significantly below market, being
We have rebalanced the package from Directors will be subject to robust amongst the lowest in the FTSE Main
a highly leveraged one (with a low financial and non-financial Market. The Committee strongly
salary and high long-term only variable underpins. See page 98. believes that an increase to the CEO’s
component) to a more market aligned ‐ Introducing an annual bonus enables annual base salary is needed to address
and balanced package with appropriate us to incentivise and reward Executive some of the gap to market, bring the
focus on short and long term performance, Directors for the achievement of ratio of salary to other compensation
including an annual bonus and Restricted stretching annual financial and more into line with market practice and
Shares. More details on the proposed strategic objectives and deliver a link to begin to reflect the size and complexity
changes are set out below: between pay and performance. It also of Funding Circle’s operations. We believe
brings the Remuneration Policy more that a salary of £400,000, which still
‐ Replacing the current performance
in line with other FTSE Main Market remains below the lower quartile of
based LTIP with Restricted Shares.
listed companies and helps to align FTSE SmallCap Top Half companies,
The rationale driving this change
the Executive Directors’ incentive is appropriate at this current time.
includes:
structure with the wider Group (as an While the Committee recommends that
• Better alignment with our annual cash bonus was introduced in this new salary level is established for
remuneration philosophy and with 2020 for the leadership team and for the CEO, Samir Desai has expressed a
shareholders: The Committee those in manager and specialist roles). preference for no change to his current
considered at length introducing 40% of any bonus earned would be salary of £210,000 in the current
Restricted Shares following its IPO deferred into shares for three years economic and societal climate and has
in 2018 given our remuneration therefore providing additional therefore notified the Committee of his
philosophy and that Restricted longer-term shareholder alignment. intention to waive the increase for 2021.
Shares were (and continue to be)
‐ Ensuring total target remuneration Incentives will be determined based on
operated below Board level.
does not increase. The quantum the reference salary of £400,000.
However it was felt at the time that,
of Restricted Shares and annual
as the use of Restricted Shares Taking into account the repositioning
bonus awards has been calibrated to
within the UK environment was very of the CEO’s salary (as noted above)
ensure that the target remuneration
uncommon, a more conventional his total maximum remuneration
opportunity is unchanged from the
performance based LTIP for opportunity has decreased by circa
previous Remuneration Policy.
Executive Directors was more 33%. Once the waiver by the CEO of any
The total maximum remuneration
appropriate. As part of the Policy increase to his 2021 base salary is also
opportunity is however significantly
review, the Committee reconsidered taken into account, his total maximum
lower than under the previous
Restricted Shares for Executive remuneration opportunity has
Remuneration Policy. The CEO’s total
Directors and, on reflection, we decreased by circa 42%.
incentive opportunity (which currently
strongly believe it is the right
includes a performance based LTIP
approach for Funding Circle.
only) has decreased by circa 46%,
Restricted Shares fully align with
reflecting that the performance based
our remuneration philosophy of
LTIP has been replaced with a
ensuring that senior management
performance based annual bonus
are significant share owners,
and Restricted Shares. If the
promoting good stewardship and
performance based LTIP had been
incentivising Executive Directors
replaced purely with Restricted
to create long term value as the
Shares, the overall reduction in
business continues to mature.
incentive opportunity would have
• Simplification: Operating Restricted been in excess of 50%.
Shares provides a much simpler
long-term incentive framework than
the current LTIP which is measured
against a performance matrix. In
addition, the move to Restricted
Shares removes the significant
challenges of setting stretching
yet realistic long-term targets for
a maturing business.
Annual Report and Accounts 2020 79
Corporate governance
Directors’ remuneration report continued
CEO salary review continued
Illustration of calibration of the proposed total remuneration for the CEO.
£2,500k
2,190
£2,000k
1,467
£1,500k
1,277
1,200 1,200
1,980 533
1,010
£1,000k 533
533
990 533
533
£500k 267 533
267
400 400
210 210 210 210
0
2020 opportunity 2020 opportunity 2021 opportunity 2021 opportunity 2021 opportunity 2021 opportunity
at maximum at target/LTIP at target at target at maximum at maximum
reduced by 50% (pre waiver) (post waiver) (post waiver)
Salary Bonus PSP Restricted shares
Remuneration arrangement for 2021
The CFO and Non-Executive Directors will not receive a salary/fee increase in 2021.
The maximum annual bonus entitlement for the CEO and CFO will be equal to 133% of reference salary and 100% of salary
respectively. The annual bonus measures will be AEBITDA, Fee Income and strategic objectives (each weighted one-third),
with the intention that the targets to achieve the maximum bonus are appropriately calibrated to reflect the growth aspirations
for the Group. 40% of any bonus earned will be deferred into shares for three years.
The CEO will be awarded a grant of Restricted Shares with a value equal to 133% of reference salary and the CFO an award with a
value equal to 100% of salary. Vesting of the Restricted Shares will be subject to a financial underpin based on operating income
as well as qualitative underpins to ensure that Executive Directors are not rewarded where the Committee considers there to
have been a failure in performance, including serious breach of regulation, material reputational damage and gross misconduct.
The financial underpin has been set such that annual operating income must be on average £150 million over the period of three
years from 2021 to 2023. Prior to the vesting of the Restricted Shares the Committee will assess whether actual performance of
the Company and Executives is reflected to guard against payment for failure or against windfall gains. The Committee retains
the discretion to make any adjustment to vesting if it deems necessary.
Remuneration arrangements for Circlers
All Circlers contribute to the achievement of the Group’s long-term success and the Board believes that extending share
ownership throughout the Group fosters stewardship and enhances loyalty and engagement.
Funding Circle is a founder-led business. From inception, the remuneration philosophy has been to support share ownership
across the business and every employee that has joined Funding Circle has been entitled to an equity award. Equity incentives
encourage all Circlers to behave as owners – taking decisions that balance long-term value creation with achieving shorter-term
strategic priorities. See page 89 for the key elements of the incentive arrangements.
CEO v employee pay ratio
All FTSE Main Market listed companies with more than 250 UK employees are required to publish the pay ratio of the total
remuneration of the CEO compared to other UK employees. Our median ratio was 3.8:1 for 2020, which is amongst the lowest
across the FTSE Main Market. Further information can be found on page 97.
Conclusion
I look forward to receiving your support at our 2021 AGM, where I will be available to respond to any questions shareholders may
have on this report, our proposed Remuneration Policy or in relation to any of the Committee’s activities.
Cath Keers
Chair of the Remuneration Committee
25 March 2021
80 Funding Circle Holdings plc
Remuneration Policy
The Remuneration Policy, as set out in this section, applies to the roles of Chair, Executive Director and Non-Executive Director. If
approved by the shareholders in a binding vote at the 2021 AGM in May, the Remuneration Policy will apply for a maximum of three
years from the AGM.
Changes to the Remuneration Policy and summary of decision making process
The Committee has conducted a comprehensive review of the Remuneration Policy to ensure that it continues to align with our
remuneration philosophy of share ownership and core reward principles. In determining the changes to the Remuneration Policy
the Committee followed a robust process which included discussions on the executive remuneration structure at several meetings.
The Committee considered input from management and our independent advisers, consulted with major shareholders and
took into account views raised by Circlers during workforce engagement sessions. As set out on page 79, the key changes to
the Remuneration Policy are the replacement of our current performance based LTIP with Restricted Shares and the introduction
of an annual bonus. Other minor changes have been made to the wording of the Remuneration Policy to simplify and aid its
operation and to increase clarity.
Executive Directors’ remuneration
Element of Purpose and
remuneration Key features link to strategy Maximum opportunity Performance measures
Salary Reviewed annually in March. Supports the attraction No prescribed maximum n/a
and retention of the salary level or salary
Salaries take account of the
best talent. increases.
external market and the overall
employee context. Account will be taken of
increases applied to
employees as a whole when
determining salary increases.
Committee retains the
discretion to award higher
increases where it considers it
appropriate, such as, but not
limited to:
‐ where an Executive Director
has had a change in scope
or responsibility;
‐ where an Executive
Director’s development or
performance in role has
changed (e.g. to align a
newly appointed Executive
Director’s salary with the
market over time);
‐ where there is a significant
change in the size and/or
complexity of the Company;
and
‐ where salary has previously
been positioned behind
market, and there is a
re-basing of the overall
remuneration package.
Allowances Executive Directors’ benefits Market competitive The value of benefits is not n/a
and benefits currently include, but are not (and cost effective) capped as it is determined by
limited to, life assurance and benefits provide the cost to the Company,
private medical insurance. reassurance and which may vary. Benefits
risk mitigation and offered to Executive Directors
The Committee may determine
support retention are in line with those available
that Executive Directors should
of talent. to other employees in the Group.
receive additional reasonable
benefits if appropriate, taking
into account typical market
practice and practice
throughout the Group.
Annual Report and Accounts 2020 81
Corporate governance
Directors’ remuneration report continued
Executive Directors’ remuneration continued
Element of Purpose and
remuneration Key features link to strategy Maximum opportunity Performance measures
Pension Executive Directors are To provide retirement Maximum contribution in line n/a
entitled to receive employer benefits for Executive with contribution to other
contributions to the Funding Directors. employees in the Group,
Circle Ltd defined contribution which is currently 5%
pension plan. of salary.
Individuals are entitled to
receive some or all of their
pension allowance as cash in
lieu of pension contribution.
All-employee Executive Directors are eligible To encourage share Participation levels are in line n/a
plans to participate in HMRC ownership and with HMRC limits.
tax-efficient plans that are alignment with
available to all employees. shareholders.
Funding Circle currently operates
a Share Incentive Plan.
Annual Bonus Awards are based on To motivate and A maximum opportunity Measures and targets will
performance (typically reward the in respect of any financial normally be set annually by the
measured over a financial achievement of year of: Committee and will be in line
year) against key financial and the Group’s annual with Funding Circle’s strategy.
CEO: 133% of salary.
non-financial measures. financial and
A mix of both financial and
strategic targets. Other Executive Directors:
40% of any bonus earned will non-financial measures will be
100% of salary.
normally be deferred into used, with at least 60% of the
shares for three years. annual bonus normally based
on financial measures.
The Executive Directors
may, at the discretion of the The target annual bonus is 50%
Committee, receive dividend of maximum opportunity, with
equivalents on the deferred 100% of maximum payable for
shares. maximum performance. Details
of pay-outs between these
Malus and clawback provisions
levels will be disclosed in the
apply.
relevant Directors’
The Committee has discretion Remuneration Report.
to amend the pay-out should
any formulaic outcome not
reflect the Committee’s
assessment of overall
business performance, the
performance of the individual,
or the experience of
shareholders or other
stakeholders over the
performance period.
82 Funding Circle Holdings plc
Element of Purpose and
remuneration Key features link to strategy Maximum opportunity Performance measures
Restricted Executive Directors are granted Align Executive A Restricted Share award may Performance underpins may be
Share awards Restricted Share awards with a Directors with be granted to an Executive based around key financial and/
three-year vesting period, shareholders’ Director in respect of each or strategic measures.
subject to performance interests and promote financial year over a fixed
In addition, the Committee has
underpins. stewardship and good number of shares.
discretion to reduce the vesting
governance over a
Following the end of the The maximum number of outcome should it not reflect
long time horizon.
vesting period, the awards will shares that can be awarded in the Committee’s assessment of
be subject to a two-year respect of each financial year overall business performance,
holding period. will be calculated based on the performance of the
such number of shares as individual, or the experience of
Awards may be granted in the
have a market value at the shareholders or other stakeholders
form of conditional share
grant date of the awards in over the vesting period.
awards or nil-cost options.
respect of the 2021 financial
The Executive Directors may, year equal to 133% of salary
at the discretion of the for the CEO and 100% of
Committee, receive dividend salary for the CFO.
equivalents on vested shares.
For these purposes, the
The awards are subject to market value of a share will be
malus and clawback determined by the Committee
provisions. using an average share price.
Granting as a fixed number of
shares further aligns Executive
Directors to shareholders,
rewarding share price
appreciation whilst
depreciation is penalised.
Prior to each grant, the
Committee will review the
number of shares to be
granted to ensure the fixed
number of shares remains
appropriate, taking into account
factors including the share
price at the time of grant and
the target total compensation
for companies of a similar
size and complexity.
In-post Executive Directors are Supports our Minimum shareholding
shareholding expected to build and ownership mentality requirement, to be satisfied
requirement maintain a holding of focus, promotes within five years of appointment,
shares in the Company. stewardship and helps of no less than 200% of salary
align management for all Executive Directors. If
with shareholders. any Executive Director does
not meet the requirement,
subject to consideration by
the Committee of the factors
at the time, they will be
expected to retain all of the
net of tax number of shares
vesting under any of the
Company’s discretionary
share incentive arrangements
until the requirement is met.
Post-exit Executive Directors are To reinforce long-term Minimum post-exit shareholding n/a
shareholding expected to retain a proportion alignment of requirement of “guideline
requirement of their shareholding for a two Executive Directors’ shares” equal to 200% of salary
year period after they have left interests with those for all Executive Directors or
Funding Circle. of shareholders post the actual shareholding on
cessation of departure, if lower. “Guideline
employment. shares” do not include shares
which the Executive Director
held at IPO, purchased in the
market directly or acquired
pursuant to the exercise of
pre-IPO awards.
Annual Report and Accounts 2020 83
Corporate governance
Directors’ remuneration report continued
Performance measure selection
The measures used under the annual bonus plan will be selected annually to reflect the Group’s key financial and strategic
objectives for the year. In setting performance targets, the Committee takes into account a range of factors including business
forecasts, prior year performance, degree of stretch against the performance targets in the business plan, market conditions
and expectations.
Restricted Share awards will be subject to performance underpins which will be determined prior to the grant of an award taking
into account the Committee’s assessment of the measures which will best reflect overall business health over the vesting period.
Malus and clawback policy
Malus and clawback provisions apply to annual bonus awards, deferred bonus awards and Restricted Share awards over the
following time periods:
Malus Clawback
Annual bonus To such time as payment is made. Up to two years following payment.
Deferred bonus awards To such time as the award vests. No clawback provisions apply (as malus provisions apply
for three years from the grant date).
Restricted share awards To such time as the award vests. Up to two years following vesting.
Malus and clawback may apply in the following circumstances:
‐ a material misstatement of the audited accounts of a member of the Group;
‐ an error in assessing a performance measure or underpin, or an error in the information or assumptions on which awards
were granted, vest or released;
‐ a material failure of risk management in any member of the Group or a relevant business unit;
‐ material corporate failure;
‐ serious reputational damage to any member of the Group or a relevant business unit; or
‐ serious misconduct or material error on the part of the participant.
Discretions reserved in administering incentive awards
The Committee will administer the annual bonus, deferred bonus awards, Restricted Share awards and Share Incentive Plan
awards in accordance with the relevant plan rules and the above Remuneration Policy table. The Committee retains certain
discretions, consistent with market practice, in relation to the administration of the awards including:
‐ the determination of performance measures, underpins and targets and resultant vesting and pay-out levels;
‐ adjusting the number of shares vesting up or down where:
• the vesting outcome does not reflect the underlying financial or non-financial performance of the Company;
• the vesting level is not appropriate in the context of circumstances that were unexpected or unforeseen at the start of the
year; and/or
• there exists any other reason why an adjustment to the level of vesting of the award is appropriate;
‐ the ability to amend or substitute a performance measure or underpin if one or more events occur which cause the Committee
to reasonably consider that an amended or substituted performance measure or underpin would be more appropriate and
would not be materially less difficult to satisfy than originally intended;
‐ the determination of the treatment of individuals who leave employment, based on the relevant plan rules, and the treatment
of the awards on exceptional events, such as a change of control of the Company; and
‐ the ability to make adjustments to existing deferred bonus awards, Restricted Share awards and Share Incentive Plan awards
in certain circumstances (e.g. rights issues or corporate restructurings).
Remuneration Policy for Circlers
The approach to annual salary reviews is consistent across the Group, with consideration given to the level of experience,
responsibility, individual performance and salary levels in comparable companies.
The majority of Circlers are eligible for either the annual bonus plan or other bonus arrangements. Opportunities vary by
organisational level.
Funding Circle is a founder-led business. From inception, a key element of the remuneration philosophy has been to support
share ownership across the business. This has been achieved through making equity incentives available to all Circlers to
encourage them to behave as owners – taking decisions that balance long-term value creation with achieving shorter-term
strategic priorities.
Further details of remuneration arrangements for Circlers are set out on page 89.
84 Funding Circle Holdings plc
Illustrations of the application of the Remuneration Policy
£2,000k CEO £2,000k CFO
1,544
£1,500k £1,500k 1,421
1,278
1,221
1,011 52% 1,021 42%
£1,000k 42% £1,000k 33%
39%
53%
33% 28%
421 20%
£500k 42% 35% £500k
211 26%
100% 41% 34% 30%
100% 21% 17% 14%
0 0
Minimum Target Maximum Maximum + Minimum Target Maximum Maximum +
50% share price 50% share price
increase increase
Fixed Bonus Restricted shares
Illustration assumptions
Maximum + 50% share
Element of pay Minimum Target Maximum price appreciation
Fixed remuneration:
‐ Base salary – Effective 1 March 2021
‐ Benefits – in line with 2020 benefits disclosed in the single figure table
‐ Pension – 5% of salary (the CEO has opted not to take up his right to a pension contribution)
Annual bonus No payout 50% of maximum Maximum payout
(target payout)
Restricted shares No vesting. Assumes the Grant value vests Grant value multiplied by 1.5
underpin is not met
Legacy Arrangements
The Committee reserves the right to make remuneration payments and payments for loss of office, to exercise any discretion
available in relation to any such payment, notwithstanding that they are not in line with the Remuneration Policy set out above
where the terms of the payment were agreed:
‐ before 5 June 2019 (the date the first shareholder-approved Remuneration Policy came into effect);
‐ at a time when the first shareholder-approved Remuneration Policy was in place provided the payment is in line with the terms
of that Remuneration Policy; or
‐ at a time when the relevant individual was not a Director of the Company and, in the opinion of the Committee, the payment
was not in consideration of the individual becoming a Director of the Company.
For these purposes, ‘payments’ includes the satisfaction of variable remuneration and, in relation to an award over shares, the
terms of the payment are ‘agreed’ no later than the time the award is granted.
The Executive Directors legacy arrangements include:
‐ 2020 performance based LTIP awards granted to the CFO. See page 92 for details;
‐ unvested Growth Shares granted to the CEO prior to IPO, which, subject to continued employment, will be fully vested by
August 2021; and
‐ vested but unexercised and unvested nominal cost options granted to the CEO prior to IPO. Subject to continued employment,
the unvested options will continue to vest on a quarterly basis, until they are fully vested in June 2023.
Executive Directors’ service contracts
The Executive Directors’ service contracts are on a rolling basis and are terminable by either the Company or the individual on
12 months’ notice for the CEO and six months’ notice for the CFO.
Date of service agreement
Samir Desai, CEO 18 September 2018
Oliver White, CFO 10 June 2020
Annual Report and Accounts 2020 85
Corporate governance
Directors’ remuneration report continued
Payments for loss of office
The principles on which the determination of payments for loss of office will be approached are set out below.
Policy
Payment in lieu of notice The Committee has discretion to make a payment in lieu of notice based on salary for the unexpired period of
notice. The payment would be made in monthly instalments and subject to mitigation.
Per the CEO’s service agreement, the CEO will not receive a payment in lieu of notice where the Committee
determines that unvested share awards may remain capable of vesting (which otherwise would ordinarily lapse
on cessation of employment).
Annual bonus This will be at the discretion of the Committee on an individual basis and the decision as to whether or not to
pay a bonus in full or in part will be dependent on a number of factors, including the circumstances of the
Executive Director’s departure and their contribution to the business during the performance period in question.
Any bonus earned will normally be pro-rated for time in service during the performance period and will, subject
to performance, be paid at the usual time (although the Committee retains discretion to pay the bonus earlier in
appropriate circumstances) and in the normal manner. Any bonus earned for the year of departure and, if
relevant, for the prior year may be paid wholly in cash at the discretion of the Committee.
Deferred bonus award If an Executive Director leaves for any reason (other than being dismissed for cause) during the deferral
period then unvested awards will continue and vest at the normal vesting date. In exceptional circumstances
(including if a participant dies), the Committee may decide that the Executive Director’s unvested award
will vest and be released early at the date of cessation of employment, in which case the Committee has
discretion to apply time pro rating in limited circumstances.
Restricted Share awards The extent to which any unvested awards will vest will be determined in accordance with the LTIP rules.
Unvested awards will normally lapse on cessation of employment. However, unless a participant is
dismissed for cause, the Committee has discretion to determine that the unvested awards will continue
and remain capable of vesting at the normal vesting date. To the extent that the awards vest, a two-year
holding period would then normally apply. In exceptional circumstances (including if a participant dies), the
Committee may decide that the Executive Director’s awards will vest and be released early at the date of
cessation of employment or at some other time (e.g. at the vesting date).
In either case, vesting will depend on the extent to which the performance underpins have been satisfied
and will be subject to a pro rata reduction for time served during the vesting period (although the Committee
has discretion to disapply time pro rating if the circumstances warrant it).
If an Executive Director leaves for any reason (other than being dismissed for cause) after an award has vested
but before it has been released (i.e. during a holding period), their award will ordinarily continue to be released at
the normal release date. In exceptional circumstances (including if a participant dies), the Committee may
decide that the Executive Director’s award will be released early at the date of cessation of employment.
Change of control Deferred bonus awards and Restricted Share awards will vest early in the event of a takeover, merger or
other relevant corporate event.
Deferred bonus awards will typically vest in full.
As regards Restricted Share awards, vesting will depend on the extent to which the performance underpins
have been satisfied, with the Committee taking into account relevant factors at the time, and will be
subject to a pro rata reduction for time served during the vesting period (although the Committee has
discretion to disapply time pro rating if the circumstances warrant it).
Alternatively, the Committee may permit deferred bonus awards and Restricted Share awards to be
exchanged for equivalent awards of shares in a different company (including the acquiring company).
Other payments Executive Directors will be entitled to payment for accrued holiday.
Awards under the Share Incentive Plan may be released in the event of cessation of employment or change of
control in accordance with the plan rules.
The Committee reserves the right to make payments by way of settlement of any claim arising in connection
with cessation of employment.
Legacy awards The extent to which the 2020 performance based LTIP awards vest will be determined in accordance with the
LTIP rules and the Remuneration Policy at the time they were granted.
The extent to which unvested Growth Shares and pre-IPO options vest will be determined in accordance with the
terms of the awards agreed prior to IPO. In particular, additional protection will apply in the event of a termination
of employment or engagement in anticipation of, upon or within 12 months following a change of control of the
Company, where such termination is deemed to be connected with the change of control. In those
circumstances, the participant will be entitled to receive a cash payment or other form of award
(the “replacement award”) which vests upon the termination of their employment. The value of the replacement
award will be determined by reference to the portion of the participant’s unvested pre-IPO awards that would
have vested (but for the change of control) over the period of 24 months following the change of control or, if
later, the 24 months following their termination. The agreed provisions are subject to the Company’s discretion to
determine that a greater number of shares subject to a pre-IPO award should vest upon a change of control.
86 Funding Circle Holdings plc
Recruitment policy
The Company’s recruitment remuneration policy aims to give the Committee sufficient flexibility to secure the appointment of
high calibre executives to strengthen the management team and secure the skill sets necessary to deliver the Group’s strategic aims.
When hiring a new Executive Director, the Committee will typically align the remuneration package with the Remuneration Policy
as set out above. The Committee may include other elements of pay which it considers appropriate, however, this discretion is
capped and is subject to the principles and the limits referred to below. The key terms and rationale for any such element would
be disclosed in the Directors’ Remuneration Report for the relevant year.
Policy
Salary Salary will be set at a level appropriate to the role and the experience of the Executive Director being appointed.
This may include agreement on future increases up to a market rate, in line with increased experience and/or
responsibilities, subject to good performance, where it is considered appropriate.
Buy-out awards It may be necessary to make additional awards in connection with the recruitment to buy-out
remuneration terms forfeited by the individual on leaving a previous employer if it considers the cost can
be justified and it is in the best interests of the Company. Buy-out awards are not subject to a formal cap.
The Committee will seek to make buy-outs subject to what are, in its opinion, comparable requirements in
terms of service and performance.
Where considered appropriate, buy-out awards will be liable to forfeiture or recovery provisions on early departure.
Maximum level of variable The Committee will not offer non-performance-related variable remuneration. The maximum level of
remuneration variable remuneration which may be granted (excluding buy-out awards) will be in line with the limits for
the CEO as set out in the Remuneration Policy above.
Other elements of Other elements may be included in the following circumstances:
remuneration
‐ An interim appointment being made to fill an Executive Director role on a short-term basis.
‐ If exceptional circumstances require that the Chair or a Non-Executive Director takes on an
executive function on a short-term basis.
‐ If an Executive Director is recruited at a time in the year when it would be inappropriate to provide
an annual bonus or Restricted Share award for that year. Subject to the limit on variable remuneration
set out above, the quantum in respect of the period employed during the year may be transferred
to the subsequent year.
‐ If the Executive Director is required to relocate, reasonable relocation, travel and subsistence
payments may be provided (either via one‑off or ongoing payments or benefits for up to two years).
For an internal appointment, any legacy arrangements will either continue on their original terms or be adjusted to reflect the new
appointment, as appropriate.
Any share awards referred to in this section will be granted as far as possible under the Company’s existing share plans.
If necessary, and subject to the variable remuneration limits referred to above, awards may be granted outside of these plans
as permitted under the Listing Rules which allow for the grant of awards to facilitate, in unusual circumstances, the recruitment
of an Executive Director.
Fees payable to a newly appointed Chair or Non-Executive Director will be in line with the fee policy in place at the time of appointment.
Policy on external appointments
Executive Directors may hold external directorships and retain any fees for such directorships if the Board determines that such
appointments do not cause any conflict of interest.
Annual Report and Accounts 2020 87
Corporate governance
Directors’ remuneration report continued
Non-Executive Directors’ remuneration
Element of
remuneration Key features Purpose and link to strategy
Fees The fees paid to the Non-Executive Directors are determined by the Fees are set at a level to reflect the amount of time
Board as a whole. The Chair and the Non-Executive Directors are paid and level of involvement required in order to carry
annual fees and do not participate in any of the Company’s incentive out their duties as members of the Board and its
arrangements or receive any pension provision or other benefits. Committees and to attract and retain Non-Executive
Directors of the highest calibre with relevant
Additional fees are payable for additional Board duties, including
commercial and other experience.
acting as Senior Independent Director and for chairing the Audit
Committee, Risk and Compliance Committee and Remuneration
Committee. Additional fees may be paid in the exceptional event that
Non-Executive Directors are required to commit substantial
additional time above that normally expected for the role.
The Non-Executive Directors are not entitled to any compensation on
termination of their appointment.
The Non-Executive Directors are entitled to reimbursement of
reasonable expenses. Additional fees or benefits may be provided at
the discretion of the Committee in the case of the Chair, and the
Board in the case of the other Non-Executive Directors.
Overall fees paid to the Chair and Non-Executive Directors will remain
within the limits set by the Company’s Articles of Association.
As an early stage private company, which did not pay Directors’ fees, the Company has historically granted options to certain
Non-Executive Directors under the Company’s pre-IPO share option plan. Although the options granted will continue to be held
by those Non-Executive Directors going forwards, no further options have or will be granted to Non-Executive Directors post-IPO
under any of the Company’s share option plans. The options held by the relevant Non-Executive Directors are all fully vested.
Letters of appointment
All Non-Executive Directors have letters of appointment with the Company. The appointments of each of the Non-Executive
Directors are for an initial term of three years (which thereafter may be extended) and are terminable by either the Company or
the individual on one month’s notice. The appointment of each Non-Executive Director is subject to re-election at the AGM.
Date of original appointment1 Expiry of current term
Andrew Learoyd 10 September 2018 10 September 2021
Eric Daniels 18 September 2018 18 September 2021
Geeta Gopalan 1 November 2018 1 November 2021
Cath Keers 20 March 2018 20 March 20212
Harry Nelis 5 September 2018 5 September 2021
Neil Rimer 5 September 2018 5 September 2021
Bob Steel 6 September 2018 6 September 2021
Ed Wray 18 September 2018 18 September 2021
1. The date of appointment reflects the commencement date of the initial term as set out in the letter of appointment entered into prior to the IPO.
2. Cath Keers’ term will not be extended as she is not standing for re-election at our 2021 AGM.
Consideration of pay and employment conditions
Pay and employment conditions generally in the Group are taken into account when setting Executive Directors’ remuneration.
The Committee receives regular updates on overall pay and conditions in the Group.
In 2020 we launched our Circler Promise – our employee value proposition. As part of this we have a new all-Circler approach to
reward (other than the Executive Directors). This approach reflects the share price of the Company to date, as well as taking into
account the feedback received from Circlers as part of engagement with them during 2019.
88 Funding Circle Holdings plc
The key elements to the incentive arrangements are:
‐ The Global Leadership Team and other senior management and senior specialist roles participate in a discretionary share-based
LTIP with grant size increasing with seniority. The grants for Circlers in leadership roles include a multiplier for achieving
significant share price growth.
‐ The leadership team, managers and specialists participate in an annual bonus plan (and the majority of Circlers participate in
either the annual bonus plan or another form of bonus). Whilst it remains an important principle that all Circlers are focused on
the long-term sustainable growth of the Company, introducing a short-term annual bonus enables us to incentivise behaviours
that will allow us to take steps to achieving those goals. It is also common practice in the industry to offer short-term incentives
and, in doing so, it enhances our proposition to the talent market.
‐ All Circlers participate in an equity grant that operates in the UK as a Share Incentive Plan.
‐ Equity to Circlers, including the existing Global Leadership Team (other than the Executive Directors), is subject to continued
employment for the two years following the grant date but is not otherwise normally subject to performance conditions.
Workforce engagement
As set out on page 26, our workforce engagement director, Cath Keers, has held workforce engagement sessions with Circlers
during the course of the year. Feedback from those sessions in relation to employee remuneration was taken into account when
considering the new Remuneration Policy and how it would be viewed by Circlers generally. This feedback was also taken into
account when determining the new employee value proposition and reward for all Circlers referred to above.
Shareholder engagement
The Committee understands the importance of listening to the views of the Company’s shareholders and takes account of the
guidelines of investor bodies and shareholder views in determining the remuneration arrangements in operation within the Group.
The Committee consulted with the Company’s major shareholders on changes to the Remuneration Policy. The Committee is very
appreciative of the feedback provided by shareholders which was taken into account when developing the Remuneration Policy.
Annual report on remuneration
This part of the report sets out how the Remuneration Policy has been applied in 2020 and how the Committee intends to apply
the new Remuneration Policy in 2021. An advisory shareholder resolution to approve this report will be proposed at the 2021 AGM.
Role of the Committee
The Committee’s primary role is to determine the remuneration of the Directors and Global Leadership Team and to determine
the Remuneration Policy for the Executive Directors as well as monitoring and reviewing its ongoing appropriateness and
relevance. In doing so, the Committee ensures that the Remuneration Policy is aligned with the Company’s key remuneration
principles as well as taking into account the principles of clarity, simplicity, risk, predictability, proportionality and alignment to
culture set out in the 2018 UK Corporate Governance Code.
Alignment to strategy The design of remuneration at Funding Circle is aligned to our values, culture and strategy.
and culture
The annual bonus is based on Group financial and strategic performance, promoting collective accountability
and helping to align the Executive Directors’ incentive structure with the wider Group (as an annual cash bonus
was introduced in 2020 for the leadership team and for those in manager and specialist roles).
Restricted Share awards fully align with our remuneration philosophy of ensuring that senior management are
significant share owners, promoting good stewardship and incentivising Executive Directors to create long term
value as the business continues to mature.
Clarity and Simplicity Our 2021 Remuneration Policy aligns the Executive Directors’ pay with pay for other Circlers.
The new remuneration policy is simple to understand for participants and shareholders and promotes
long term stewardship.
Risk The proposed Remuneration Policy reduces the amount of leverage from the current policy by rebalancing fixed
and variable pay as well as short- and long-term incentives.
Opportunities are set at a level which rewards performance at the same time as not unduly encouraging
excessive risk taking.
The annual bonus and Restricted Shares are subject to malus and clawback provisions and the Committee has
the discretion to adjust pay outcomes.
The Restricted Shares are granted as a fixed number of shares rather than a fixed % of salary. This means that
share price appreciation is rewarded and depreciation is penalised.
Proportionality A significant portion of the total remuneration opportunity for Executive Directors is variable pay. This variable
pay is aligned to Company strategy through the choice of performance measures and the link to share price.
Predictability The Remuneration Policy is clear on the threshold, target and maximum levels of pay that Executives can earn.
Notwithstanding that actual outcomes will vary based on the level of achievement and share price performance.
The key responsibilities of the Committee are summarised on page 58 and further details on the Committee’s roles and
responsibilities can be found in our Terms of Reference on our corporate website.
Annual Report and Accounts 2020 89
Corporate governance
Annual report on remuneration continued
Committee composition
None of the members who have served on the Committee during the year had any personal interest in the matters decided by
the Committee and are all considered to be independent. The Company Secretary acted as Secretary to the Committee.
Committee members Number of meetings attended
Cath Keers, Chair 5/5
Andrew Learoyd 5/5
Ed Wray 5/5
The Committee’s composition, responsibilities and operation comply with the principles of good governance.
The Executive Directors, Chief People Officer, other members of the senior management team and our external remuneration
consultants, Deloitte LLP, were invited to Committee meetings where it was deemed appropriate. No individuals were involved
in decisions relating to their own remuneration.
Committee effectiveness
As noted on page 65, the Committee undertook an effectiveness review during 2020, whereby each Committee member and, by
invitation, the Chief People Officer, completed a tailored questionnaire. The question set covered topics such as the quality of the
remuneration support provided to the Committee and the appropriateness of the remuneration policies and practices implemented
in 2020. Following a productive discussion, the Committee confirmed that the support provided to the Committee had improved
over the course of the year and also agreed a number of actions to be implemented to further enhance the Committee’s effectiveness.
External advisers
The Committee is satisfied that the advice it has received from Deloitte LLP as remuneration consultants is independent and
that the engagement partner and team that have provided remuneration advice do not have connections with the Company that
might impair their independence. Deloitte is a founder member of the Remuneration Consultants Group and, as such, voluntarily
operates under its Code of Conduct in relation to executive remuneration matters in the UK.
The fee paid to Deloitte LLP in 2020 in relation to advice provided to the Committee was agreed by the Company in advance for
specific projects and was £37,350. Deloitte also provided advice to the Group during 2020 in relation to risk advisory and share
plan advisory services.
Shareholder voting
The Committee’s resolutions at the Company’s 2019 AGM in respect of the Remuneration Policy and the Annual Report on Remuneration
and the 2020 AGM in respect of the Annual Report on Remuneration received the following votes from shareholders:
2019 AGM 2019 AGM 2020 AGM
Remuneration Policy Remuneration Policy Annual Report on Remuneration
Votes cast in favour 256,886,226 99.6% 256,867,652 99.6% 250,701,355 99.99%
Votes cast against 769,531 0.3% 783,726 0.3% 34,346 0.01%
Votes withheld 317,854 0.1% 322,233 0.1% 2,272 0.0009%
Total votes cast (including withheld) 257,973,611 100% 257,973,611 100% 250,737,973 100%
90 Funding Circle Holdings plc
Single total figure of remuneration (audited)
The following tables set out the aggregate emoluments earned by the Directors in the year ended 31 December 2020 and
2019 respectively.
Salary Taxable Long-term Total Total
and fees 1 benefits 2 Bonus Pensions 3 incentives 4 Total fixed variable
2020 £000 £000 £000 £000 £000 £000 Other £000 £000
Executive Directors
Samir Desai 200 1 — — — 201 — 201 —
Oliver White 215 1 — 7 — 223 2885 223 —
(appointed 15 June 2020)
Sean Glithero 137 1 — 4 — 142 — 142 —
(resigned 20 May 2020)6
Non-Executive Directors
Andrew Learoyd 190 — — — — 190 — 190 —
Ed Wray7 55 — — — — 55 — 55 —
Eric Daniels 62 — — — — 62 — 62 —
Bob Steel 62 — — — — 62 — 62 —
Cath Keers 62 — — — — 62 — 62 —
Geeta Gopalan 62 — — — — 62 — 62 —
Hendrik Nelis 8
— — — — — — — — —
Neil Rimer8 — — — — — — — — —
2019
Executive Directors
Samir Desai 210 1 — — — 211 — 211 —
Sean Glithero6 300 1 — 8 — 309 — 309 —
Non-Executive Directors
Andrew Learoyd 200 — — — — 200 — 200 —
Ed Wray7 65 — — — — 65 — 65 —
Eric Daniels 65 29 — — — 94 — 94 —
Bob Steel 65 — — — — 65 — 65 —
Cath Keers 65 3 — — — 68 — 68 —
Geeta Gopalan 65 — — — — 65 — 65 —
Hendrik Nelis 8
— — — — — — — — —
Neil Rimer8 — — — — — — — — —
1. The Board and the Global Leadership Team voluntarily reduced their salaries and fees by 20% over the period March to May 2020 in response to the Covid-19 pandemic.
The figures disclosed above are after the 20% voluntary reduction.
2. Taxable benefits for Executive Directors principally include private medical cover and life assurance cover. Taxable benefits for Non-Executive Directors relate to reimbursement
of travel to the workplace. The Company ensures that the Non-Executive Directors are kept whole by settling the expense and any related tax. The figures shown include the
cost of the taxable benefit plus the related tax charge.
3. Executive Directors were eligible for a 5% of base salary pension contribution with effect from October 2020 (previously 3% of base salary). The CEO has opted not to take up his
right to the pension contribution.
4. No long-term incentives vested in respect of 2019 or 2020.
5. The buy-out of Oliver White’s Vanquis 2019 and 2020 bonus awards forfeit on cessation of employment. See page 92 for details.
6. Salary includes nine days of accrued annual leave.
7. Ed Wray stepped down as Chairman of Funding Circle Ltd in April 2020, at which point his Non-Executive Director fee became £55,000 in line with the Non-Executive Director
base fee.
8. Hendrik Nelis and Neil Rimer, who are not independent Non-Executive Directors, have waived their entitlement to a fee.
Annual Report and Accounts 2020 91
Corporate governance
Annual report on remuneration continued
LTIP award granted during 2020
As disclosed in the RNS announcement dated 23 June 2020, a performance based LTIP award was granted to Oliver White on
19 June 2020 equal to 200% of salary. Samir Desai decided not to take up his LTIP award for 2020. Details of the award are set out below:
Number of Face value % if award vesting
Type of award shares at grant 1 at threshold Performance period
Nil-cost share option 925,390 £800,000 25% 3 years to 31 December 2022
1. Based on a grant date share price of £0.8645.
Given the uncertain outlook presented by the Covid-19 pandemic and in line with guidance published by the Investment
Association, the Committee deferred the approval of performance metrics and targets. Following careful consideration,
the performance metrics and targets were subsequently approved in December 2020. The LTIP award is subject to EPS
performance (as regards 50% of the award) and Fee Income performance (as regards 50% of the awards). The Board
considers the actual targets to be commercially sensitive at this time, however, we will provide retrospective disclosure
of these targets at the time of vesting.
The Committee may apply its discretion to amend the vesting outcome should any formulaic assessment of performance
not reflect the Committee’s assessment of overall business performance, the performance of the individual, or the
experience of shareholders or other stakeholders over the performance period. This includes consideration of ‘windfall
gains’ over the performance period.
To the extent that the award vests, a holding period will apply from the date of vesting to the fifth anniversary of the grant
date (19 June 2025).
Buy-out awards for Oliver White
As set out in the letter from the Remuneration Committee Chair, on joining Funding Circle, Oliver White forfeited his 2019
and 2020 bonus at his previous employer.
With regards to the 2019 bonus buy-out, the value of the award (£208,000) was determined based on the 2019 bonus
that Oliver would have received had he not ceased employment. The award will vest and become capable of exercise
on 19 June 2021 subject to continued employment. Details of the award are set out below:
Number of Face value
Type of award shares at grant 1
Nil-cost share option 240,602 £208,000
1. Based on a grant date share price of £0.8645.
With regards to the 2020 bonus buy-out, Oliver White’s 2020 Vanquis bonus had a maximum of £285,000 and a target of £178,500.
It was originally agreed to replace this bonus with a Funding Circle “buy out bonus” on comparable terms. In May 2020 (before
he joined the Company), the Committee reconsidered the 2020 bonus buy-out award in light of advice from its remuneration
advisers on the likely impact of the pandemic on the banking sector and agreed a safeguard equal to the threshold bonus amount.
Following the commencement of Oliver White’s employment with Funding Circle, it was agreed that for any bonus to be paid, the
award would be subject to two metrics based on Funding Circle’s performance in the period as follows:
‐ AEBITDA (70%): achievement of the H2 forecast.
‐ Strategic: (30%): Utilise financial services expertise to initiate and begin development of core capability in respect of balance
sheet management (ALM). Create and build strong relationships among internal, external, regulatory (FCA) and investor
stakeholder groups, enhancing the reputation of both the Finance function and the wider company in day to day interactions.
Both of these performance metrics were met in full. In March 2021 the Committee reconsidered the safeguard in light of performance,
the external environment and the approach being taken within the banking sector on bonus awards. Reflecting on these factors,
the Committee agreed that a 2020 bonus buy-out award at just under target performance of £80,000 (once pro-rated for time)
was appropriate. This bonus buy-out will be paid 100% in nil-cost options which will be granted on 26 March 2021 and will vest
on 26 March 2022, subject to continued employment.
92 Funding Circle Holdings plc
Directors’ shareholding and share interests (audited)
Table of Directors’ share interests as at 31 December 20201
Unvested Unvested
awards awards
Vested but (not subject to (subject to
Beneficially unexercised performance performance
owned shares 2,3 awards conditions) conditions) Total
Executive Directors
Samir Desai 15,867,386 806,250 1,746,875 — 18,420,511
Oliver White (appointed 15 June 2020) 5,336 — 240,602 925,390 1,171,328
Sean Glithero (resigned 20 May 2020) 541,908 107,692 323,888 4
584,246 4
1,557,734
Non-Executive Directors
Andrew Learoyd 1,689,991 100,000 — — 1,789,991
Ed Wray 1,543,538 671,400 — — 2,214,938
Eric Daniels — 383,204 — — 383,204
Bob Steel 614,754 350,000 — — 964,754
Cath Keers 12,045 — — — 12,045
Geeta Gopalan 33,216 — — — 33,216
Hendrik Nelis — — — — —
Neil Rimer — — — — —
1. Or date of leaving employment from the Company if earlier. Sean Glithero resigned from the Board on 20 May 2020 and left employment on 2 July 2020.
2. Includes shares owned by connected persons.
3. Vested Growth and ESS Shares are treated as legally owned shares.
4. Unvested Growth Shares and unvested LTIP awards held by Sean Glithero lapsed in full following his cessation of employment.
The Company’s share ownership requirements are that Executive Directors shall (subject to personal circumstance) build and
maintain a shareholding equivalent to at least 200% of salary over five years. At the end of the 2020 financial year, the CEO
complied with this requirement. The CFO was appointed to the Board on 15 June 2020 and currently holds unvested options
subject to continued employment only (which count towards the shareholding guideline) equal to 54% of salary, calculated on
31 December 2020 when the share price was £0.90. Unvested awards subject to performance conditions are not taken
into account.
As an early stage private company, which did not pay Directors’ fees, the Company has historically granted options to certain
Non-Executive Directors under the Company’s pre-IPO share option plan. Although the options granted will continue to be held
by those Non-Executive Directors going forward, no further options have or will be granted to Non-Executive Directors post-IPO
under any of the Company’s share option plans. The options held by the relevant Non-Executive Directors are all vested.
Annual Report and Accounts 2020 93
Corporate governance
Annual report on remuneration continued
Table of Directors’ vested and unvested share awards (audited)
No. of
awards at Awards Awards
1 January granted lapsed
Award type 1
2020 in the year in the year
Executive Directors
Samir Desai
Vested Growth 600,000 — —
ESS 625,032 — —
Growth 1,209,375 — —
Unapproved — — —
Unvested SIP — 4,991 —
Growth — — —
ESS — — —
Growth 940,625 — —
Unapproved 2,150,000 — —
Oliver White
Unvested 2018 Long Term Incentive Plan — 925,390 —
2018 LTIP Bonus — 240,602 —
SIP — 4,991 —
Sean Glithero
Vested Growth 379,336 — —
Unvested Growth 433,527 — (270,955)
2018 Long Term Incentive Plan 584,246 — (584,246)
Unapproved 431,850 — (323,888)
Non-Executive Directors
Andrew Learoyd
Vested Unapproved 100,000 — —
Ed Wray — —
Vested Unapproved 571,400 — —
Unapproved 100,000 — —
Eric Daniels
Vested Unapproved 195,704 — —
Unapproved 175,781 — —
Unvested Unapproved 11,719 — —
Bob Steel
Vested Unapproved 250,000 — —
Unapproved 100,000 — —
1. Historically there have been two different types of awards granted to Executive Directors: conditional shares (referred to in the table above as “ESS” and “Growth”) and unapproved
options (referred to in the table above as “Unapproved”). Other than in certain circumstances as set out on page 86 (e.g. on termination of employment or change of control),
vested unapproved options can be exercised during a period of ten years from the date of grant.
Payments for loss of office
Sean Glithero resigned as CFO and from the Board on 20 May 2020. He did not receive any payments linked to his resignation.
Unvested Growth Shares and unvested LTIP awards held by Sean lapsed in full on cessation of his employment.
Payments to former Directors
There were no payments made to former Directors during the year.
94 Funding Circle Holdings plc
No. of
Awards Awards awards at Date of
vested exercised 31 December grant/vesting Exercise price/ Market price
in the year in the year 2020 commenced subscription price on exercise
— — 600,000 10/03/2014 £0.00 n/a
— — 625,032 18/06/2015 £0.00 n/a
537,500 — 1,746,875 01/08/2017 £0.02 n/a
806,250 — 806,250 13/06/2018 £0.001 n/a
— — 4,991 03/11/2020 £0.00 n/a
— — — 10/03/2014 £0.00 n/a
— — — 18/06/2015 £0.00 n/a
(537,500) — 403,125 01/08/2017 £0.02 n/a
(806,250) — 1,343,750 13/06/2018 £0.001 n/a
— — 925,390 19/06/2020 £0.00 n/a
— — 240,602 19/06/2020 £0.00 n/a
— — 4,991 03/11/2020 £0.00 n/a
162,572 — 541,908 01/10/2017 £0.02 n/a
(162,572) — — 01/10/2017 £0.02 n/a
— — — 28/06/2019 £0.00 n/a
— (107,962) — 13/06/2018 £0.861 n/a
— — 100,000 18/06/2015 £0.32 n/a
— —
— — 571,400 19/08/2011 £0.03 n/a
— — 100,000 18/06/2015 £0.32 n/a
— — 195,704 22/04/2013 £0.03 n/a
11,719 — 187,500 01/03/2016 £0.39 n/a
(11,719) — — 01/03/2016 £0.39 n/a
— — 250,000 15/07/2014 £0.21 n/a
— — 100,000 18/06/2015 £0.35 n/a
Annual Report and Accounts 2020 95
Corporate governance
Annual report on remuneration continued
Performance graph
The chart below illustrates the Company’s TSR performance compared with that of the FTSE AllShare Index. This index has
been chosen as the Company is a constituent and it is considered the most appropriate benchmark against which to assess the
relative performance of the Company. The chart shows the value of £100 invested in Funding Circle at the IPO offer price of
£4.40 per share on 28 September 2018 compared with the value of £100 invested in the FTSE AllShare Index.
£
120
100
80
60
40
20
0
Sep 2018 Dec 2018 Dec 2019 Dec 2020
Funding Circle plc FTSE AllShare Index
CEO remuneration table
The table below sets out the CEO’s single figure of total remuneration.
£000 2020 2019 2018 2017 2016
CEO total remuneration1,2 201 211 4,081 204 160
1. The 2018 figure includes share options that were granted prior to IPO which were subject to continued employment only.
2. The CEO received no bonus during the five-year period.
Relative importance of spend on pay
The table below sets out our relative importance of spend on pay. There have been no dividends paid to date.
Total income and adjusted EBITDA have been presented as these are two key performance measures used by the Directors in
assessing performance.
%
2020 2019 Change
Total income £222.0m £177.3m 25%
Adjusted EBITDA £(63.8)m £(27.5)m 132%
Employee costs £89.5m £96.9m (8)%
Average number of employees 911 1,055 (14)%
96 Funding Circle Holdings plc
Percentage change in Directors’ remuneration compared with employees
The table below sets out the annual percentage change in remuneration from 2019 to 2020 for each of the Directors compared
to that for an average employee.
2019 to 2020
Salary/fees 1 Benefits Annual bonus
Executive Directors
Samir Desai -5% 0% n/a
Oliver White2 n/a n/a n/a
Non-Executive Directors
Andrew Learoyd -5% — —
Ed Wray 3
-15% — —
Eric Daniels -5% -100% —
Bob Steel -5% — —
Cath Keers -5% -100% —
Geeta Gopalan -5% — —
Hendrik Nelis4 n/a — —
Neil Rimer4 n/a — —
Average employee5 -1.7% +1.8% +61.2%
1. The Board and the Global Leadership Team voluntarily reduced their salaries and fees by 20% over the period March to May 2020 in response to the Covid-19 pandemic. There
has therefore been a reduction in salaries and fees received by Directors during 2020 compared to 2019.
2. Oliver White was appointed to the Board on 15 June 2020.
3. Ed Wray stepped down as Chairman of Funding Circle Ltd in April 2020, at which point his Non-Executive Director fee became £55,000 in line with the Non-Executive Director
base fee.
4. Hendrik Nelis and Neil Rimer, who are not independent Non-Executive Directors, have waived their entitlement to a fee.
5. The annual percentage change of the average remuneration of the Company’s employees, calculated on a full-time equivalent basis.
CEO pay ratio
Funding Circle is committed to remunerating its employees fairly and competitively. We calculated our CEO pay ratio using the
prescribed Methodology A, as shown in the table below. Methodology A was selected as this is considered the most accurate
approach and is generally the preferred approach by shareholders and proxy agencies.
Year Method 25th percentile pay ratio Median pay ratio 75th percentile pay ratio
2020 Option A 5.8:1 3.8:1 2.3:1
2019 Option A 6.8:1 3.9:1 2.5:1
There has been no significant change to the employee pay quartile figures, however as the CEO voluntarily reduced his salary by
20% over the period March to May 2020 in response to the Covid-19 pandemic our CEO pay ratio has slightly reduced.
The Board has confirmed that the ratio is consistent with the Company’s wider policies on employee pay, reward and progression.
Total pay and benefits used to calculate the ratios
The table below sets out the UK employee percentile pay and benefits used to determine the above pay ratios and the salary
component for each figure.
CEO 25th percentile Median 75th percentile
2020
Salary component £199,500 £29,379 £44,083 £77,667
Total pay and benefits £200,695 £34,669 £53,195 £88,401
2019
Salary component £210,000 £27,576 £45,818 £78,798
Total pay and benefits £211,000 £30,921 £54,035 £83,298
The CEO remuneration is the total single figure remuneration for 2019 and 2020 as disclosed on page 91. The UK employee total
remuneration has been calculated based on the amount paid or receivable for 2019 and 2020. The calculations for the UK
employees were performed as at the final day of the relevant financial year.
Annual Report and Accounts 2020 97
Corporate governance
Annual report on remuneration continued
Fees for the Chairman and Non-Executive Directors
The fees payable to the Non-Executive Directors in 2020 and for 2021 are as set out below:
Chairman £200,000
Non-Executive Director base fee £55,000
Committee Chairman fees (other than the Nomination Committee) £10,000
Senior Independent Director fee £10,000
Implementation of the Remuneration Policy for the year ended 31 December 2021
Salary
As per the Chair’s statement, we believe that the CEO’s annual base salary should be more closely aligned to the market. The
CEO’s salary remains unchanged since before IPO and is some way behind the market. We believe that a salary of £400,000,
which still remains below the lower quartile of FTSE SmallCap Top Half companies, is appropriate at this current time.
Due to the pandemic and the impact on key stakeholders (Circlers, customers and the wider society) Samir feels strongly that
now is not the right time to receive his salary increase. Therefore for 2021, he has chosen to waive his salary increase and will
therefore only receive £210,000. His incentives will be based on his reference salary of £400,000.
The table below shows the salaries for the Executive Directors as at 1 January 2021 in comparison to base salary as at
1 January 2020.
1 January 1 January
2021 2020 1 % change
Samir Desai £210,000 £210,000 —
Oliver White £400,000 £400,000 —
1. Oliver White’s salary was set at £400,000 on his appointment to the Board (15 June 2020).
Annual bonus
The maximum opportunity for the CEO is 133% of reference salary and for the CFO is 100% of salary. The target opportunity for
both is 50% of maximum opportunity. The annual bonus measures will be AEBITDA, Operating Income and strategic objectives
(each weighted one-third). 40% of any bonus earned will be deferred into shares for three years.
The Board considers the actual targets for 2021 to be commercially sensitive at this time, however, we will provide retrospective
disclosure of these targets in next year’s report.
The Committee may apply its discretion to amend the bonus pay-out should any formulaic assessment of performance not
reflect the Committee’s assessment of overall business performance, the performance of the individual, or the experience of
shareholders or other stakeholders over the performance period.
Restricted Share awards
Restricted Share awards will be granted in 2021 under the new Remuneration Policy, if approved. The CEO will be awarded
Restricted Shares with a value equal to 133% of reference salary and the CFO an award with a value equal to 100% of salary.
For these purposes, the market value of a share will be determined by the Committee using an average share price. The number
of shares will be disclosed at the date of grant.
Vesting of the Restricted Shares will be subject to a financial underpin based on operating income as well as qualitative
underpins to ensure that Executive Directors are not rewarded where the Committee considers there to have been a failure in
performance, including serious breach of regulation, material reputational damage and gross misconduct. The financial underpin
has been set such that annual operating income must be on average £150 million over the period of three years from 2021 to
2023. Prior to the vesting of the Restricted Shares, the Committee will assess whether actual performance of the Company and
Executive Directors is reflected to guard against payment for failure or against windfall gains. The Committee retains the
discretion to make any adjustment to vesting it deems necessary.
2021 Non-Executive Director remuneration
It has been determined that the Non-Executive Director fees will remain as set out in the table above.
This report has been prepared in accordance with the Companies Act 2006, Schedule 8 of the Large and Medium-sized
Companies and Groups (Accounts and Reports) Regulations 2008 (as amended), the 2018 UK Corporate Governance Code
and the UK Listing Authority’s Listing Rules.
98 Funding Circle Holdings plc
Report of the Directors
for the year ended 31 December 2020
The Directors present their report (the “Directors’ Report”) and the Annual Report and Accounts for the year ended 31 December 2020.
Information required to be part of the Directors’ Report either by statute, by Listing Rule 9.8 or by the DTRs can be found either in
this section or elsewhere in this document, as indicated in the table below. All information located elsewhere in this document is
incorporated into this Directors’ Report by reference:
Section of Annual Report Page reference
Information required by LR9.8/DTRs
Corporate governance statement Corporate Governance Statement (page 51)
Going concern and viability statement Viability statement (pages 48 and 49)
Directors’ interests Remuneration Report (page 93) and Directors’ Report (page 100)
Long-term incentive schemes Remuneration Report (page 92)
Waiver of emoluments Remuneration Report (pages 79 and 91)
Powers for the Company to buy back its shares Directors’ Report (page 100)
Allotment of shares during the year Note 18 to the financial statements
Significant shareholders Directors’ Report (page 101)
Related party agreements Note 26 to the financial statements
Diversity Policy Nomination Committee Report (page 67)
Statutory information
Stakeholder engagement Stakeholder engagement (pages 26 and 27). See also Board decision making
and section 172 duties on page 61 of the Corporate Governance Report
Employee engagement Stakeholder engagement (pages 26 and 27) and Our people (page 19). See also
Board decision making and section 172 duties on page 61 of the Corporate
Governance Report
Policy concerning the employment of disabled persons Our people (page 21)
Financial instruments Note 17 to the financial statements
Future developments of the business Strategic Report (pages 4 to 18)
Greenhouse gas emissions, energy consumption and
energy efficiency action Sustainability (page 24)
Significant agreements Directors’ Report (page 101)
Non-financial reporting Strategic Report – see below
Management Report
This Directors’ Report, together with the Strategic Report on pages 1 to 49, forms the Management Report for the purposes of DTR 4.1.5R.
Strategic Report
Section 414A of the Companies Act 2006 (the “Act”) requires the Directors to present a Strategic Report in the Annual Report and
Accounts. The information can be found on pages 1 to 49.
The Company has chosen, in accordance with section 414C (11) of the Act and as noted in this Directors’ Report, to include
certain matters in its Strategic Report that would otherwise be disclosed in this Directors’ Report.
Section 414C of the Act requires the Company to include within its Strategic Report a non-financial statement setting out such
information as is required by section 414CB of the Act. Such information is set out in Our people on pages 19 to 21, Sustainability
on pages 22 to 25, Our model on pages 14 and 15, Strategic priorities on page 18, Key performance indicators on pages 28 and 29
and the Risk management, Principal risks and uncertainties and Viability statement sections on pages 36 to 49.
Directors
The Directors of the Company during the year and for the period up to the date of this report were:
Andrew Learoyd (Chairman) Cath Keers (Independent Non-Executive Director)
Samir Desai CBE (co-founder, Chief Executive Officer) Bob Steel (Senior Independent Director)
Oliver White – appointed on 15 June 2020 Ed Wray (Independent Non-Executive Director)
(Chief Financial Officer) Hendrik Nelis (Non-Executive Director)
Eric Daniels (Independent Non-Executive Director) Neil Rimer (Non-Executive Director)
Geeta Gopalan (Independent Non-Executive Director)
Sean Glithero was a Director (and Chief Financial Officer) during 2020 up until his resignation on 20 May 2020.
Insurance and indemnities
The Company maintains appropriate insurance to cover Directors’ and Officers’ liability for itself and its subsidiaries. In addition the
Company indemnifies each Director under a separate deed of indemnity. The Company also indemnifies each Director under its
Articles of Association. Such indemnities are qualifying indemnities for the purposes of, and permitted under, section 234 of the Act.
Annual Report and Accounts 2020 99
Corporate governance
Report of the Directors continued
for the year ended 31 December 2020
Directors’ interests Amendment of the Articles Voting rights
The number of ordinary shares in The Company’s Articles of Association All members who hold ordinary shares
which the Directors were beneficially may only be amended by a special are entitled to attend and vote at the
interested as at 31 December 2020 is resolution at a general meeting of AGM. On a show of hands at a general
set out in the Directors’ Remuneration shareholders. No amendments are meeting, every member present in
Report on page 93. In the period proposed to be made to the existing person shall have one vote and on a poll,
between 31 December 2020 and Articles of Association at the every member present in person or by
19 March 2021 (being the latest forthcoming AGM. proxy shall have one vote for every
practicable date prior to the date of this share of which he or she is the holder.
report), the following additional ordinary Authority to allot or purchase No shareholder holds ordinary shares
shares were allotted to Samir Desai the Company’s shares carrying special rights relating to the
and Oliver White under the Company’s The Articles permit the Directors to control of the Company and the
Share Incentive Plan (and as announced issue or approve the purchase by the Directors are not aware of any
via RNS): Company of its own shares, subject to agreements between holders of the
obtaining shareholders’ prior approval. Company’s shares that may result in
Number of Number of
Partnership Matching The authority to issue or buy back restrictions on voting rights.
Name of Director Shares Shares shares will expire at the 2021 AGM, and Shares held by the Company’s
Samir Desai 410 410 it will be proposed at the meeting that Employee Benefit Trusts rank pari passu
Oliver White 410 410 the Directors be granted new authorities with the shares in issue and have no
to issue and buy back shares. The special rights. Voting rights and rights of
Directors currently have authority to acceptance of any offer relating to
There were no other changes during
approve the Company’s purchase of shares held in trust rest with the
that period to the number of ordinary
up to 34,905,603 of the Company’s Trustees and are not exercisable by
shares in which the Directors were
ordinary shares. However, the Company employees, although the Trustees will
beneficially interested.
did not repurchase any of its ordinary exercise such rights arising from
In line with the requirements of the Act, shares during the year. allocated shares in accordance with
each Director has notified the Company the relevant participant’s directions.
of any situation in which he or she has, Share capital
or could have, a direct or indirect The Company’s issued share capital Restrictions on transfer
interest that conflicts, or possibly may comprises ordinary shares of £0.001, each of securities
conflict, with the interests of the of which are listed on the London Stock The Articles do not contain any
Company (a situational conflict). The Exchange. The issued share capital of restrictions on the transfer of ordinary
Board has formal procedures to deal the Company as at 31 December 2020 shares in the Company other than the
with Directors’ conflicts of interest. comprises 352,943,975 ordinary shares usual restrictions applicable where any
None of the Directors has a material of £0.001 each. Further information amount is unpaid on a share. All issued
interest in any significant contract regarding the Company’s issued share share capital of the Company at the
with the Company or any member of capital can be found on page 149 of the date of this report is fully paid. Certain
its Group. financial statements. restrictions are also imposed by laws
Details of the shares held by the Group’s and regulations (such as insider dealing
Results and dividends Employee Benefit Trusts are disclosed and market requirements relating to
The Group’s and the Company’s audited in note 18 to the financial statements. closed periods) and requirements of the
financial statements for the year are set Disclosure Guidance and Transparency
out on pages 112 to 170. Rights attaching to shares Rules, as well as the Company’s own
All shares have the same rights dealing codes, whereby Directors,
The Directors do not recommend persons connected to the Directors
payment of a final dividend for 2020 (including voting and dividend rights
and rights on a return of capital) and and certain employees of the Company
(2019: £nil). require approval to deal in the
restrictions as set out in the Articles,
described below. Except in relation to Company’s securities.
Appointment and replacement
of Directors dividends and rights on a liquidation
of the Company, the shareholders have Change of control
The rules governing the appointment The details of the protections that apply
no rights to share in the profits of the
and replacement of Directors are set out in the event of termination of employment
Company. The Company’s shares are
in the Company’s Articles and are due to a takeover bid in respect of certain
not redeemable. However, following any
governed by the Code, the Act and of the CEO’s pre-IPO awards are set
grant of authority from shareholders,
related legislation. All Directors will offer out on page 86 under “Legacy awards”.
the Company may purchase or contract
themselves for re-election to the These additional protections also apply
to purchase any of the shares on or
Company’s Board at the AGM, with the to LTIP awards held by the GLT (excluding
off market, subject to the Act and the
exception of Cath Keers, Bob Steel and the Executive Directors). Save in respect
requirements of the Listing Rules.
Ed Wray who, as mentioned previously, of these awards, there are no agreements
will be stepping down from the Board between the Company and its Directors
with effect from the date of the AGM. or employees providing for compensation
for loss of office or employment (whether
100 Funding Circle Holdings plc
through resignation, purported redundancy of those arrangements, generally government-backed guarantee and it is
or otherwise) because of a takeover bid. resulting in the discontinuation of expected that, in the event of a change
further loan origination and termination of control of the Company, the consent
The Group is party to a limited number
of servicing by the Group under the of the relevant loan guarantor would be
of funding agreements that include
affected arrangement. In addition, the required to enable the Group’s continued
change of control provisions which, in
Group participates in one or more lending participation in those schemes.
the event of a change of control of the
schemes that benefit from a form of
Company, could result in the termination
Significant shareholdings
As at 31 December 2020 and 28 February 2021, the Company has been notified pursuant to DTR5.1, or is otherwise aware, of the
following significant interests in the issued ordinary share capital of the Company:
Number Percentage Number Percentage
of ordinary issued share of ordinary issued share
shares as at capital as at shares as at capital as at
31 December 31 December 28 February 28 February Nature of
Name of shareholder 2020 2020 2021 2021 holding
Index Ventures 58,618,351 16.61 58,618,351 16.61 Indirect
Aktieselskabet CBH 46,507,936 13.18 46,507,936 13.18 Indirect
Accel London Management 26,906,743 7.62 26,906,743 7.62 Indirect
T Rowe Price Global Investments 24,092,587 6.83 24,097,998 6.83 Indirect
Jupiter Asset Management 17,329,661 4.91 18,617,864 5.27 Indirect
DST Managers 16,505,378 4.68 16,505,378 4.68 Indirect
Mr Samir Desai 15,867,386 4.50 16,002,369 4.53 Indirect
Capital Group 14,196,606 4.02 14,713,073 4.17 Indirect
Union Square Ventures 12,269,474 3.48 11,339,637 3.21 Indirect
Ninety One 8,960,382 2.54 11,336,226 3.21 Indirect
In the period between 28 February and 19 March 2021 (the latest practicable date prior to the date of this report), the Company
received no further notification pursuant to DTR5.1.
Research and development Statement of disclosure of corporate.fundingcircle.com/investors/
The Group invests in the research and information to auditors shareholder-meetings and, where
development of technology and software Each of the persons who is a Director appropriate, by an announcement via a
products that enable it to achieve its key at the date of approval of this report Regulatory Information Service, if any
performance objective of growing confirms that: changes are required to the AGM
lending to small businesses whilst arrangements.
‐ so far as the Director is aware, there
delivering resilient returns to investors. Given the uncertainty around whether
is no relevant audit information of
which the Company’s external shareholders will be able to attend the
Political donations AGM, we strongly recommend that all
auditors are unaware; and
There were no political donations made shareholders appoint the chair of the
‐ the Director has taken all the steps
during the year or the previous year. meeting as their proxy. Shareholders
that he/she ought to have taken as a
can do this by completing and returning
Director in order to make himself/
External branches their proxy form or by submitting their
herself aware of any relevant audit
The Company has subsidiaries in the proxy form electronically through the
information and to establish that the
United Kingdom, the United States of Company registrars’ website, the CREST
Company’s auditors are aware of
America, Germany, Spain and the service or via the Proxymity platform.
that information.
Netherlands but the Group had no Shareholders who have already
registered external branches during the This confirmation is given and should registered with our registrar’s online
reporting period or prior year. be interpreted in accordance with the portfolio service, Shareview, can submit
provisions of section 418 of the Act. their proxy by logging on to their
External auditors portfolio at www.shareview.co.uk.
PwC have confirmed their willingness 2021 AGM
Voting at the AGM will be conducted by
to continue as external auditors and a The Company’s AGM will take place on way of a poll. The results will be posted
resolution to reappoint them as the 19 May 2021 at its offices at 71 Queen on the Company’s corporate website
Company’s external auditors, and to Victoria Street, London EC4V 4AY. (corporate.fundingcircle.com/investors/
authorise the Directors to fix the auditors’ shareholder-meetings) after the meeting
The Board is closely monitoring the
remuneration, will be proposed at the and notified to the UK Listing Authority.
applicable Covid-19 restrictions, and will
2021 AGM.
provide an update on our website at
Annual Report and Accounts 2020 101
Corporate governance
Statement of Directors’ responsibilities in respect of the financial statements
The Directors are responsible for The Directors are responsible for the
preparing the Annual Report and the maintenance and integrity of the
financial statements in accordance with Company’s website. Legislation in the
applicable law and regulation. United Kingdom governing the
preparation and dissemination of
Company law requires the Directors to
financial statements may differ from
prepare financial statements for each
legislation in other jurisdictions.
financial year. Under that law the Directors
have prepared the Group and Company
Directors’ confirmations
financial statements in accordance with
international accounting standards in The Directors consider that the annual
conformity with the requirements of the report and accounts, taken as a whole, is
Companies Act 2006 and international fair, balanced and understandable and
financial reporting standards adopted provides the information necessary for
pursuant to Regulation (EC) No 1606/2002 shareholders to assess the Group’s and
as it applies in the European Union. Company’s position and performance,
business model and strategy.
Under company law, Directors must not
approve the financial statements unless Each of the Directors, whose names and
they are satisfied that they give a true functions are listed in the Report of the
and fair view of the state of affairs of the Directors confirm that, to the best of
Group and Company and of the profit or their knowledge:
loss of the Group for that period. In ‐ the Group and Company financial
preparing the financial statements, the statements, which have been
Directors are required to: prepared in accordance with
‐ select suitable accounting policies international accounting standards in
and then apply them consistently; conformity with the requirements of
the Companies Act 2006 and
‐ state whether applicable international
international financial reporting
accounting standards in conformity
standards adopted pursuant to
with the requirements of the
Regulation (EC) No 1606/2002 as it
Companies Act 2006 and
applies in the European Union, give a
international financial reporting
true and fair view of the assets,
standards adopted pursuant to
liabilities, financial position and loss
Regulation (EC) No 1606/2002 as it
of the Group and profit of the
applies in the European Union have
Company; and
been followed, subject to any material
departures disclosed and explained in ‐ the Strategic Report includes a fair
the financial statements; review of the development and
performance of the business and the
‐ make judgements and accounting
position of the Group and Company,
estimates that are reasonable and
together with a description of the
prudent; and
principal risks and uncertainties that
‐ prepare the financial statements on it faces.
the going concern basis unless it is
inappropriate to presume that the Approved by the Board and signed
Group and Company will continue on its behalf.
in business.
The Directors are also responsible for Samir Desai
safeguarding the assets of the Group Chief Executive Officer
and Company and hence for taking 25 March 2021
reasonable steps for the prevention and
detection of fraud and other irregularities.
The Directors are responsible for keeping
adequate accounting records that are
sufficient to show and explain the
Group’s 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 and the
Directors’ Remuneration Report comply
with the Companies Act 2006.
102 Funding Circle Holdings plc
Financial statements
FINANCIAL
STATEMENTS
104 Independent auditors’ report
112 Consolidated statement of comprehensive income
113 Consolidated balance sheet
114 Consolidated statement of changes in equity
115 Consolidated statement of cash flows
116 Notes forming part of the consolidated financial statements
160 Company balance sheet
161 Company statement of changes in equity
162 Company statement of cash flows
163 Notes forming part of the Company financial statements
171 Glossary
172 Shareholder and Company information
Annual Report and Accounts 2020 103
Financial statements
Independent auditors’ report
to the members of Funding Circle Holdings plc
Report on the audit of the financial statements
Opinion
In our opinion, Funding Circle Holdings plc’s Group financial statements and Company financial statements (the “financial statements”):
‐ give a true and fair view of the state of the Group’s and of the Company’s affairs as at 31 December 2020 and of the Group’s loss and
the Group’s and Company’s cash flows for the year then ended;
‐ have been properly prepared in accordance with international accounting standards in conformity with the requirements of the
Companies Act 2006; and
‐ have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements, included within the Annual Report and Accounts (the “Annual Report”), which comprise:
the consolidated and Company balance sheets as at 31 December 2020; the consolidated statement of comprehensive income, the
consolidated and Company statements of changes in equity and the consolidated and Company statements of cash flows for the year
then ended; and the notes to the financial statements, which include a description of the significant accounting policies.
Our opinion is consistent with our reporting to the Audit Committee.
Separate opinion in relation to international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002
as it applies in the European Union
As explained in note 1 to the Group financial statements, the Group, in addition to applying international accounting standards in
conformity with the requirements of the Companies Act 2006, has also applied international financial reporting standards adopted
pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union.
In our opinion, the Group financial statements have been properly prepared in accordance with international financial reporting
standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities
under ISAs (UK) are further described in the Auditors’ 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 remained independent of the Group in accordance with the ethical requirements that are relevant to our audit of the financial
statements in the UK, which includes the FRC’s Ethical Standard, as applicable to listed public interest entities, and we have fulfilled
our other ethical responsibilities in accordance with these requirements.
To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC’s Ethical Standard were not provided
to the Group.
Other than those disclosed in note 4 to the financial statements, we have provided no non-audit services to the Group in the period
under audit.
Our audit approach
Overview
Audit scope
‐ Our audit included full scope audits of the UK and US components which accounted for approximately 97% of the Group’s total
income and 85% of the Group’s loss before taxation.
‐ We performed audit procedures over specific balances in respect of the Funding Circle Central Europe (“FCCE”) component at a
Group level which together with the full scope audits accounted for 98% of the Group’s total income and 93% of the Group’s loss before
taxation.
Key audit matters
‐ Impact of Covid-19 on the audit (Group and Company)
‐ Valuation of SME loans and related liabilities recorded at fair value (Group)
‐ Valuation of loan repurchase liability (Group)
‐ Carrying value of investment in the US subsidiary and valuation of the non-financial assets in the US CGU (parent and Group respectively)
Materiality
‐ Overall Group materiality: £1,890,000 (2019: £2,500,000) based on 5% of the average of loss before taxation for the previous three
years, adjusted for exceptional items and fair value gains and losses.
‐ Overall Company materiality: £3,400,000 (2019: £5,000,000) based on 1% of total assets.
‐ Performance materiality: £1,400,000 (Group) and £2,500,000 (Company).
The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements.
104 Funding Circle Holdings plc
Report on the audit of the financial statements continued
Our audit approach continued
Capability of the audit in 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 in the Auditors’ responsibilities for the audit of the financial statements section, to detect material misstatements
in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud,
is detailed below.
Based on our understanding of the Group and industry, we identified that the principal risks of non-compliance with laws and regulations
related to the Group’s provision of regulated products and services under its Financial Conduct Authority (“FCA”) licence, and we considered
the extent to which non-compliance might have a material effect on the financial statements. We also considered those laws and regulations
that have a direct impact on the preparation of the financial statements such as the Companies Act 2006. We evaluated management’s
incentives and opportunities for fraudulent manipulation of the financial statements (including the risk of override of controls), and
determined that the principal risks were related to the posting of inappropriate journals to increase income or reduce costs and the
application of management bias in key areas of estimation or judgement. The Group engagement team shared this risk assessment
with the component auditors so that they could include appropriate audit procedures in response to such risks in their work. Audit
procedures performed by the Group engagement team and/or component auditors included:
‐ review of correspondence with, and reports to, the FCA;
‐ review of customer complaints to identify any indicators of breaches in laws and regulations;
‐ enquiries of management, the Directors, the Chair of the Audit Committee, the Head of Internal Audit, the Group’s general counsel
and the Group’s head of legal and regulatory, including consideration of known or suspected instances of non-compliance with laws
and regulation and fraud;
‐ review of all internal audit reports issued in the period to identify any indicators of breaches in laws and regulations;
‐ identifying and testing journal entries and period end adjustments, including those with unusual account combinations, posted
with certain descriptions, posted by unexpected users or posted at unusual times;
‐ incorporating unpredictability into our testing, including sample testing of senior employee expenses, validity of supplier listings
and initial checks on loans originated in the period, including BBLS and PPP loans; and
‐ challenging significant assumptions and judgements made by management in its accounting estimates, in particular in relation to
the valuation of SME loans and related liabilities recorded at fair value, the loan repurchase liability and impairment assessments.
There are inherent limitations in the audit procedures described above. We are less likely to become aware of instances of non-compliance
with laws and regulations that are not closely related to events and transactions reflected in the financial statements. Also, 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.
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the 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)
identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the
audit; and directing the efforts of the engagement team. These matters, and any comments we make on the results of our procedures
thereon, were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we
do not provide a separate opinion on these matters.
This is not a complete list of all risks identified by our audit.
The valuation of the loan repurchase liability, the valuation of the non-financial assets in the US CGU and the impact of Covid-19 are new
key audit matters this year. The accounting for the Asset Backed Securities (‘ABS’) bond programmes and the capitalisation of development
costs, which were key audit matters last year, are no longer included because this is the second year of the ABS programmes and the
accounting has not changed, and improvements in internal procedures over the capitalisation of development costs has reduced the
level of audit effort associated with this area. Otherwise, the key audit matters below are consistent with last year.
Annual Report and Accounts 2020 105
Financial statements
Independent auditors’ report continued
to the members of Funding Circle Holdings plc
Report on the audit of the financial statements continued
Our audit approach continued
Key audit matters continued
Key audit matter How our audit addressed the key audit matter
Impact of Covid-19 on the audit (Group and Company) We engaged with the Audit Committee and management at Funding Circle in
Refer to Report of the Audit Committee – Significant issues a manner consistent with our previous audits, albeit remotely using video and
considered in relation to the financial statements (page 70) and telephone calls.
note 1 (accounting policies). All of the information and audit evidence we need for the audit is provided
The impact of the Covid-19 pandemic has resulted in in electronic format. We shared information, including the audit evidence
unprecedented economic conditions and resulting government provided to us by Funding Circle, using share-screen functionality in video
support programmes and regulatory interventions to support calls and our secure encrypted information sharing software.
businesses and people. The Covid-19 pandemic has also We understood and assessed the transition of the Group’s employees to
changed the way that companies operate their businesses, with working remotely on the control environment relevant to financial reporting,
one of the most substantial impacts being the transition to and reflected this in our audit approach for new or changed processes
remote working. and controls.
All of Funding Circle’s employees have been working remotely Where the Group has undertaken new business activities as a result of
during 2020, with some consequential changes on their Covid-19, for example, the government sponsored lending programmes
processes and the control environment, some of which were in the UK and US, we assessed the audit risks and designed appropriate
relevant for financial reporting purposes. Our audit team has audit procedures to address these.
also been working remotely for all of 2020 including during the
period when we performed the audit. We were not able to visit the US audit during our 2020 audit. However,
we engaged with and directed this team in a manner consistent with our
The impact of the Covid-19 pandemic and resulting uncertainty previous audits using video conferencing and telephone calls. This included
has impacted a number of the estimates in the Group and a ‘virtual visit’ to the US where we met with both the audit team and local
Company financial statements. The impact on the most management. To ensure we were satisfied with the audit work performed by
significant accounting estimates and the related audit work is the US team we evaluated and reviewed audit evidence by remotely reviewing
set out in the following other key audit matters in this opinion: electronic audit files or using share-screen functionality in video conferencing.
valuation of SME loans and related liabilities recorded at fair
value; valuation of loan repurchase liability; and carrying value
of investment in the US subsidiary and valuation of the
non-financial assets in the US CGU.
Valuation of SME loans and related liabilities recorded at Our audit procedures comprised the following:
fair value (Group) ‐ We understood and evaluated the design and implementation of controls
Refer to Report of the Audit Committee – Significant issues relating to the valuation of the Group’s portfolio of SME loans.
considered in relation to the financial statements (page 71);
note 1 (accounting policies); note 2 (critical accounting ‐ We engaged our valuation experts to assess the appropriateness of the
estimates and key sources of estimation uncertainty); methodology used by management in determining the valuation of the
note 13 (investments in SME loans); and note 17 (financial risk investments in SME loan assets and bond liabilities held at fair value.
management) of the Consolidated financial statements. This included assessing the appropriateness, in the context of Covid-19,
of the key assumptions within the valuation model which we considered
As at the balance sheet date, the Group had not sold its residual to be the discount rate, default rate, recovery rate and prepayment rate.
holding in three securitisation vehicles and these were consolidated.
As a result, the underlying SME loans held in the securitisation ‐ We derived our own independent estimate of the discount rate and
vehicles remain on the balance sheet along with the bond compared this to that used by management. We concluded that the
liabilities to third parties. In the initial “warehousing phase” of discount rate utilised by management was within a reasonable range.
the programmes the Group invests in SME loans and these are ‐ We built our own independent model to re-calculate the fair value using
recorded on the balance sheet at fair value with resultant gains management’s assumptions.
and losses recognised in the income statement.
‐ We performed sensitivity analyses over each of the key assumptions in
As at the balance sheet date, the Group holds investments in light of market rates, comparables and underlying performance of the loans.
SME loans amounting to £501.6 million and unrated bond
liabilities of £7.8 million which are recorded at fair value with ‐ We performed testing over the historical loan performance data that is a
gains and losses reported in profit and loss. The estimation of starting point for the forward looking assumptions.
the fair value of the SME loans and the bond liabilities requires
‐ We performed testing over a sample of the underlying loans, including
complex models which utilise both observable and unobservable
obtaining loan confirmations, agreeing to original loan contracts and
inputs, with reasonable movements in each key assumption
agreeing the initial funding of SME loans to cash payments.
resulting in material changes to the fair value. The level of
estimation uncertainty has increased as a consequence of Based on the above procedures performed, and the evidence obtained, we
Covid-19 and judgement is required to determine an appropriate concluded that the estimated fair value of the SME loans and bond liabilities
discount rate and the other key assumptions. As a result the was reasonable.
valuation of the SME loans has been a focus in our audit.
We evaluated the appropriateness of the critical accounting estimates and
key sources of estimation uncertainty in note 2 to the Consolidated financial
statements and the disclosures on financial instruments in note 17 and
considered these to be reasonable.
106 Funding Circle Holdings plc
Report on the audit of the financial statements continued
Our audit approach continued
Key audit matters continued
Key audit matter How our audit addressed the key audit matter
Valuation of loan repurchase liability (Group) Our audit procedures comprised the following:
Refer to the Report of the Audit Committee – Significant issues ‐ We understood and evaluated the design and implementation of controls
considered in relation to the financial statements (page 72); relating to the estimation of the loan repurchase liability.
note 1 (accounting policies); note 2 (critical accounting estimates
and key sources of estimation uncertainty); and note 16 (provisions ‐ We engaged our risk modelling specialists to assess the appropriateness of the
and other liabilities) of the Consolidated financial statements. ECL methodology used by management in determining the valuation of the loan
repurchase liability.
The Group takes the credit risk on two portfolios of SME loans
through financial guarantees. As at the balance sheet date the ‐ We assessed the appropriateness of the key assumption within the model,
total value of the SME loans subject to guarantees amounted to which we consider to be the expected default rate, and how management had
£24.3 million (2019: £41.5 million). These fall within the scope of incorporated forward looking economic information.
IFRS 9 and require the Group to estimate the value of the
‐ We performed testing over a sample of the historical default and recovery
guarantees using the expected credit loss (‘ECL’) model.
performance data as well as over other model assumptions including the
The loan repurchase liability has increased from £2.9 million staging and exposure at default.
(2019) to £5.2 million (2020) with an increase in the estimated
‐ We performed testing over the mathematical accuracy and integrity of the ECL
loss ratio from 7% to 21%. This is a result of the increase in actual
model, including independently fitting the default curve data to assess whether
and expected defaults given the current and future economic
the curve being used in the model was appropriate.
environment. The estimation of the value of the loan repurchase
liability requires complex modelling which utilises both ‐ We challenged management to consider forward looking information in their staging
observable and unobservable inputs, with the most sensitive allocation resulting in additional analysis showing a stepped increase in stage for
input being the expected default rate. As a result the valuation of all the higher risk sectors did not result in a material change in the liability.
the loan repurchase liability and specifically the expected default
‐ We performed sensitivity analyses on the assumptions used in the model to
rate has been a focus in our audit.
assess whether reasonable alternatives would present the possibility of a
materially different liability.
Based on the above procedures performed, and evidence obtained, we concluded
that the valuation of the loan repurchase liability estimated by management
was reasonable.
We evaluated the appropriateness of the critical accounting estimates and key
sources of estimation uncertainty in note 2 and the disclosures in note 16 to the
Consolidated financial statements and considered these to be reasonable.
Carrying value of investment in the US subsidiary and Our audit procedures comprised the following:
valuation of the non-financial assets in the US CGU (Group ‐ We understood and evaluated the design and implementation of controls
and parent) relating to the Group’s impairment assessments.
Significant issues considered in relation to the financial
statements (page 71); note 2 (critical accounting judgements and ‐ We assessed the methodology used by management against the requirements
key sources of estimation uncertainty); and note 10 (goodwill) of of the financial reporting framework and tested the mathematical accuracy of
the Consolidated financial statements and note 1 (accounting the model.
policies); and note 5 (investments in subsidiary undertakings) ‐ We agreed the forecast financial information to budgets and forecasts approved
of the Company financial statements. by senior management and the Board, including the Medium Term Plan.
The Company holds an investment in the US subsidiary with a ‐ We evaluated the reliability of management’s forecasting by comparing actual
carrying value pre-impairment of £244.1 million. IAS 36 results with previous years’ forecasts.
‘Impairment of Assets’ requires that investments are subject to
an impairment review when there is an indication that an asset ‐ We compared the forecast growth rates with those achieved by the UK business
may be impaired. The indications that the carrying value of the when it was at a similar stage in its life cycle, those achieved by the US business
investment in the US subsidiary may be impaired are: in the past, as well as those of similar businesses in the US market.
‐ the carrying amount of investments in the Company is higher than ‐ We identified the key drivers in management’s forecasts and assessed their
the market capitalisation of the Group at 31 December 2020; and reasonableness by comparing them to historical results. Where significant
improvements were forecast in key assumptions underpinning the forecast
‐ the impact of Covid-19 has had a negative impact on the cash flow growth, we challenged management on whether the forecast
performance of the US business. improvements were reasonable and supportable and obtained corroborating
Management performed an impairment assessment and estimated evidence to support these assumptions.
the recoverable amount using a value-in-use model. As a result of ‐ We assessed the appropriateness of the discount rate assumption by using our
this assessment, an impairment of £155.9 million has been valuation experts to derive an independent view on the rate.
recognised in order to reduce the investment value to its value in
use of £88.2 million. The significant assumptions in this assessment ‐ We assessed the appropriateness of the long term growth rate by agreeing it to
included the revenue growth rate and the discount rate. independent external evidence including OECD publications and analyst reports,
as well as using our valuation experts to derive an independent view.
Additionally, the carrying value of non-financial assets in the US
CGU as at 31 December 2020 is £19.9 million. Management ‐ We performed sensitivity on the significant assumptions in the model.
identified indicators of impairment given the poor financial Based on the above procedures performed, and evidence obtained, we considered
performance of the business in 2020 due to Covid-19. the Directors’ conclusion that the carrying value of the US subsidiary is impaired by
Management estimated the recoverable amount using a £155.9 million to be reasonable. We also considered the conclusion that the remaining
value-in-use model and concluded there was no impairment of non-financial assets within the US CGU are not impaired to be reasonable.
the non-financial assets in the CGU. The significant assumptions We evaluated the appropriateness of the related disclosures in note 2 (the critical
in this assessment included the revenue growth rate and the accounting estimates and key sources of estimation uncertainty) to the Consolidated
discount rate. We have focused on this area as the calculation financial statements and note 1 (accounting policies) and note 5 (Investments in
of value-in-use involves a significant degree of judgement and subsidiary undertakings) to the Company financial statements and considered
the estimation uncertainty is high. these to be reasonable.
Annual Report and Accounts 2020 107
Financial statements
Independent auditors’ report continued
to the members of Funding Circle Holdings plc
Report on the audit of the financial statements continued
Our audit approach continued
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole,
taking into account the structure of the Group and the Company, the accounting processes and controls, and the industry in which they operate.
1) Audit approach to Funding Circle’s operations: We designed our audit approach for the products and services that substantially make up
Funding Circle’s businesses in the UK, US and CE, such as platform lending, marketplace referrals and the origination of, and investment in,
SME loan portfolios. The audit approach was designed by a partner and team members who are specialists in the relevant areas. The
approach was provided to the US audit team who contributed to the Group audit.
2) Audit work for in scope components: Through our risk assessment and scoping we identified the US and UK as full scope components due
to being financially significant. We considered the FCCE component as a limited scope entity for specific balances including exceptional
items, the loan repurchase liability, other fee income and cash. We instructed our network firm in the US to perform a full scope audit of
the US component. The Group audit team performed the audit work for the UK component and the specific work over FCCE balances.
We assigned materiality levels to components reflecting the size of their operations. The performance materiality levels ranged from
£1.125 million to £1.35 million. We determined the level of involvement we needed to have in their audit work to be able to conclude whether
sufficient appropriate audit evidence had been obtained as a basis for our opinion on the Group financial statements as a whole. This
included active and regular dialogue with the partner and team responsible for the audit of the US component, the issuance of instructions,
reviewing their audit strategy and a review of the results of their work on significant risk and other areas and formal clearance meetings.
Analytical review procedures were performed over FCCE, a non-significant component with material balances, to mitigate the risk of
material misstatement.
3) Audit procedures undertaken at a Group level and on the Company: We ensured that appropriate further work was undertaken for the Group
and Company. Certain account balances were audited centrally by the Group engagement team, including the impairment assessment of
non-financial assets, and the Company’s investment in subsidiary undertakings, the investments in associates, the valuation of SME loans,
the consolidation of the Group’s results, the preparation of the financial statements, certain disclosures within the Directors’ remuneration
report and taxation.
4) Using the work of others: We used the evidence provided by our valuation experts and specialists for our work on the significant
assumptions used in the impairment assessment over non-financial assets and the Company’s investment in the US subsidiary, the
valuation of the SME loans and related liabilities recorded at fair value and the loan repurchase liability.
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together
with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the
individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the
financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Financial statements – Group Financial statements – Company
Overall materiality £1,890,000 (2019: £2,500,000). £3,400,000 (2019: £5,000,000).
How we determined it 5% of the average of loss before taxation for the previous 1% of total assets.
three years, adjusted for exceptional items and fair value
gains and losses.
Rationale for We determined materiality by applying 5% to the average We consider total assets to be the most
benchmark applied consolidated loss before taxation for the previous three years appropriate benchmark to apply on the
after adjusting for exceptional items and fair value gains and basis that the Company is a non-trading
losses. We consider loss before taxation to be the most investment Company that holds
appropriate benchmark used in assessing the performance investment in the Group’s subsidiaries.
of the Group as the business is listed and profit orientated.
Given the volatility in the underlying performance caused by
challenging economic conditions resulting from Covid-19
through the course of 2020, we consider it appropriate to take
an average of the results of the preceding three years. We
believe that loss before taxation adjusted for exceptional items
and fair value losses is an appropriate measure as it eliminates
the impact of one-off non-recurring charges or those which
significantly impact comparability.
For each component in the scope of our Group audit, we allocated a materiality that is less than our overall Group materiality. The range
of materiality allocated across components was between £1,500,000 and £1,800,000.
We use performance materiality to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected
misstatements exceeds overall materiality. Specifically, we use performance materiality in determining the scope of our audit and the
nature and extent of our testing of account balances, classes of transactions and disclosures, for example in determining sample sizes.
Our performance materiality was 75% of overall materiality, amounting to £1,400,000 for the Group financial statements and £2,500,000
for the Company financial statements.
108 Funding Circle Holdings plc
Report on the audit of the financial statements continued
In determining the performance materiality, we considered a number of factors – the history of misstatements, risk assessment and
aggregation risk and the effectiveness of controls – and concluded that an amount at the upper end of our normal range was appropriate.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £95,000 (Group audit)
(2019: £125,000) and £95,000 (Company audit) (2019: £250,000) as well as misstatements below those amounts that, in our view,
warranted reporting for qualitative reasons.
Conclusions relating to going concern
Our evaluation of the directors’ assessment of the Group’s and the Company’s ability to continue to adopt the going concern basis
of accounting included:
‐ evaluation of management’s going concern assessment;
‐ understanding and evaluating management’s financial forecasts and liquidity position over the going concern period including
an evaluation of the continued impact of Covid-19 on the financial outlook of the Group;
‐ evaluation of the stress testing performed by management including their severe but plausible downside scenario;
‐ review of management’s covenant compliance monitoring and the impact of the stress scenarios on the covenants;
‐ substantiation of financial resources available to the Group as at the balance sheet date including the unrestricted cash; and
‐ reading and evaluating the adequacy of the disclosures made in the financial statements in relation to going concern.
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’s and the Company’s ability to continue as a going concern for a period of at
least twelve months from when the financial statements are authorised for issue.
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.
However, because not all future events or conditions can be predicted, this conclusion is not a guarantee as to the Group’s and the
Company’s ability to continue as a going concern.
In relation to the directors’ 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.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of
this report.
Reporting on other information
The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’ report
thereon. The directors are responsible for the other information. Our opinion on the financial statements does not cover the other
information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any
form of assurance thereon.
In connection with our audit of the financial statements, 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 audit, or
otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are
required to perform procedures to conclude whether there is a material misstatement of the financial statements or a material
misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement
of this other information, we are required to report that fact. We have nothing to report based on these responsibilities.
With respect to the Strategic report and Report of the Directors, we also considered whether the disclosures required by the UK
Companies Act 2006 have been included.
Based on our work undertaken in the course of the audit, the Companies Act 2006 requires us also to report certain opinions and
matters as described below.
Strategic report and Report of the Directors
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic report and Report of the
Directors for the year ended 31 December 2020 is consistent with the financial statements and has been prepared in accordance with
applicable legal requirements.
In light of the knowledge and understanding of the Group and Company and their environment obtained in the course of the audit,
we did not identify any material misstatements in the Strategic report and Report of the Directors.
Directors’ Remuneration
In our opinion, the part of the Directors’ remuneration report to be audited has been properly prepared in accordance with the
Companies Act 2006.
Annual Report and Accounts 2020 109
Financial statements
Independent auditors’ report continued
to the members of Funding Circle Holdings plc
Report on the audit of the financial statements continued
Corporate governance statement
The Listing Rules require us to review the directors’ statements in relation to going concern, longer-term viability and that part of the
corporate governance statement relating to the Company’s compliance with the provisions of the UK Corporate Governance Code
specified for our review. Our additional responsibilities with respect to the corporate governance statement as other information are
described in the Reporting on other information section of this report.
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 and our knowledge obtained during the audit, and we have nothing
material to add or draw attention to in relation to:
‐ the directors’ confirmation that they have carried out a robust assessment of the emerging and principal risks;
‐ the disclosures in the Annual Report that describe those principal risks, what procedures are in place to identify emerging risks and an
explanation of how these are being managed or mitigated;
‐ the directors’ statement in the financial statements about whether they considered it appropriate to adopt the going concern basis of
accounting in preparing them, and their identification of any material uncertainties to the Group’s and Company’s ability to continue to
do so over a period of at least twelve months from the date of approval of the financial statements;
‐ the directors’ explanation as to their assessment of the Group’s and Company’s prospects, the period this assessment covers and
why the period is appropriate; and
‐ the directors’ statement as to whether they have a reasonable expectation that the Company will be able to continue in operation
and meet its liabilities as they fall due over the period of its assessment, including any related disclosures drawing attention to any
necessary qualifications or assumptions.
Our review of the directors’ statement regarding the longer-term viability of the Group was substantially less in scope than an audit and
only consisted of making inquiries and considering the directors’ process supporting their statement; checking that the statement is in
alignment with the relevant provisions of the UK Corporate Governance Code; and considering whether the statement is consistent with
the financial statements and our knowledge and understanding of the Group and Company and their environment obtained in the course
of the audit.
In addition, 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 and our knowledge obtained during the audit:
‐ the directors’ statement that they consider the Annual Report, taken as a whole, is fair, balanced and understandable, and provides the
information necessary for the members to assess the Group’s and Company’s position, performance, business model and strategy;
‐ the section of the Annual Report that describes the review of effectiveness of risk management and internal control systems; and
‐ the section of the Annual Report describing the work of the Audit Committee.
We have nothing to report in respect of our responsibility to report when the directors’ statement relating to the Company’s compliance
with the Code does not properly disclose a departure from a relevant provision of the Code specified under the Listing Rules for review
by the auditors.
Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial statements
As explained more fully in the Statement of Directors’ responsibilities in respect of the financial statements, the directors are responsible
for the preparation of the financial statements in accordance with the applicable framework and for being satisfied that they give a true
and fair view. The directors are also responsible for such internal control as they determine is necessary to enable the preparation of
financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the Group’s and the 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 Company or to cease operations, or have no realistic alternative but to do so.
Auditors’ 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 auditors’ 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.
Our audit testing might include testing complete populations of certain transactions and balances, possibly using data auditing
techniques. However, it typically involves selecting a limited number of items for testing, rather than testing complete populations.
We will often seek to target particular items for testing based on their size or risk characteristics. In other cases, we will use audit
sampling to enable us to draw a conclusion about the population from which the sample is selected.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditors responsibilities. This description forms part of our auditors’ report.
Use of this report
This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with Chapter 3
of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for
any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed
by our prior consent in writing.
110 Funding Circle Holdings plc
Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion:
‐ we have not obtained all the information and explanations we require for our audit; or
‐ adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received from
branches not visited by us; or
‐ certain disclosures of directors’ remuneration specified by law are not made; or
‐ the Company financial statements and the part of the Directors’ remuneration report to be audited are not in agreement with the
accounting records and returns.
We have no exceptions to report arising from this responsibility.
Appointment
Following the recommendation of the Audit Committee, we were appointed by the directors on 4 August 2015 to audit the financial
statements for the year ended 31 December 2015 and subsequent financial periods. The period of total uninterrupted engagement is
six years, covering the years ended 31 December 2015 to 31 December 2020.
Nick Morrison (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
25 March 2021
Annual Report and Accounts 2020 111
Financial statements
Consolidated statement of comprehensive income
for the year ended 31 December 2020
31 December 31 December
2020 2019
Before Before
exceptional Exceptional 31 December exceptional Exceptional 31 December
items items 1 2020 items items 1 2019
Note £m £m £m £m £m £m
Transaction fees 122.5 — 122.5 121.2 — 121.2
Servicing fees 30.2 — 30.2 30.4 — 30.4
Other fees 3.0 — 3.0 5.3 — 5.3
Fee income 155.7 — 155.7 156.9 — 156.9
Investment income 89.0 — 89.0 28.3 — 28.3
Investment expense (22.7) — (22.7) (7.9) — (7.9)
Total income 222.0 — 222.0 177.3 — 177.3
Fair value (losses)/gains (118.3) — (118.3) (9.9) — (9.9)
Net income 3 103.7 — 103.7 167.4 — 167.4
People costs 4, 6 (81.3) (4.0) (85.3) (90.3) — (90.3)
Marketing costs 4 (46.8) — (46.8) (66.5) — (66.5)
Depreciation, amortisation and
impairment 4 (17.2) (13.7) (30.9) (14.9) (34.3) (49.2)
Loan repurchase charge 4 (6.2) — (6.2) (6.5) — (6.5)
Other costs 4 (39.8) (1.0) (40.8) (39.6) — (39.6)
Operating expenses 4 (191.3) (18.7) (210.0) (217.8) (34.3) (252.1)
Operating loss (87.6) (18.7) (106.3) (50.4) (34.3) (84.7)
Finance income 7 0.4 — 0.4 1.8 — 1.8
Finance costs 7 (1.4) — (1.4) (1.2) — (1.2)
Share of net loss of associates 30 (0.8) — (0.8) (0.1) — (0.1)
Loss before taxation (89.4) (18.7) (108.1) (49.9) (34.3) (84.2)
Income tax 8 (0.2) — (0.2) (0.5) — (0.5)
Loss for the year (89.6) (18.7) (108.3) (50.4) (34.3) (84.7)
Other comprehensive
income/(loss)
Items that may be reclassified
subsequently to profit and loss:
Exchange differences on
translation of foreign operations 20 1.7 — 1.7 (7.7) — (7.7)
Total comprehensive loss for (87.9) (18.7) (106.6) (58.1) (34.3) (92.4)
the year
Total comprehensive loss
attributable to:
Owners of the Parent (87.9) (18.7) (106.6) (58.1) (34.3) (92.4)
Loss per share
Basic and diluted loss per share 9 (25.8)p (5.4)p (31.2)p (14.5)p (9.9)p (24.4)p
1. Exceptional items are detailed within note 5. During the year ended 31 December 2020 the presentation of exceptional items on the face of the consolidated statement of
comprehensive income was amended to illustrate them in columnar fashion to aid users of the accounts’ understanding of the impact of such items. The comparative year
ended 31 December 2019 was re-presented accordingly for comparability.
All amounts relate to continuing activities.
The notes on pages 116 to 159 form part of these financial statements.
112 Funding Circle Holdings plc
Consolidated balance sheet
as at 31 December 2020
31 December 31 December
2020 2019
Note £m £m
Non-current assets
Goodwill 10 — 11.3
Intangible assets 11 24.4 23.6
Property, plant and equipment 12 28.7 39.0
Investment in associates 30 11.0 13.2
Investment in trusts 13 21.2 —
Investment in SME loans (other) 13 0.7 1.7
86.0 88.8
Current assets
Investment in SME loans (warehouse) 13 221.8 342.0
Investment in SME loans (securitised) 13 279.8 366.6
Investment in SME loans (other) 13 24.3 —
Trade and other receivables 14 67.0 33.6
Cash and cash equivalents 23 103.3 164.5
696.2 906.7
Total assets 782.2 995.5
Current liabilities
Trade and other payables 15 34.1 19.7
Bank borrowings 17 195.5 265.8
Bonds 17 294.3 348.7
Short-term provisions and other liabilities 16 8.7 3.1
Lease liabilities 12 7.3 8.5
539.9 645.8
Non-current liabilities
Long-term provisions and other liabilities 16 1.2 0.9
Lease liabilities 12 23.5 29.8
Total liabilities 564.6 676.5
Equity
Share capital 18 0.3 0.3
Share premium account 19 292.6 292.3
Foreign exchange reserve 20 9.7 8.0
Share options reserve 13.6 11.9
(Accumulated losses)/retained earnings 21 (98.6) 6.5
Total equity 217.6 319.0
Total equity and liabilities 782.2 995.5
The financial statements on pages 112 to 159 were approved by the Board and authorised for issue on 25 March 2021. They
were signed on behalf of the Board by:
Oliver White
Director
Company registration number 07123934
The notes on pages 116 to 159 form part of these financial statements.
Annual Report and Accounts 2020 113
Financial statements
Consolidated statement of changes in equity
for the year ended 31 December 2020
Retained
Share Foreign Share earnings/
Share premium exchange options (accumulated Total
capital account reserve reserve losses) equity
Note £m £m £m £m £m £m
Balance at 1 January 2019 0.3 291.8 15.7 6.0 87.2 401.0
Loss for the year 21 — — — — (84.7) (84.7)
Other comprehensive loss
Exchange differences on translation
of foreign operations 20 — — (7.7) — — (7.7)
Transactions with owners
Transfer of share option costs 21 — — — (4.0) 4.0 —
Issue of share capital 18, 19 — 0.5 — — — 0.5
Employee share schemes – value of employee services — — — 9.9 — 9.9
Balance at 31 December 2019 0.3 292.3 8.0 11.9 6.5 319.0
Loss for the year 21 — — — — (108.3) (108.3)
Other comprehensive income
Exchange differences on translation
of foreign operations 20 — — 1.7 — — 1.7
Transactions with owners
Transfer of share option costs 21 — — — (3.2) 3.2 —
Issue of share capital 18, 19 — 0.3 — — — 0.3
Employee share schemes – value of employee services — — — 4.9 — 4.9
Balance at 31 December 2020 0.3 292.6 9.7 13.6 (98.6) 217.6
The notes on pages 116 to 159 form part of these financial statements.
114 Funding Circle Holdings plc
Consolidated statement of cash flows
for the year ended 31 December 2020
31 December 31 December
2020 2019
Note £m £m
Net cash inflow/(outflow) from operating activities 23 33.1 (27.0)
Investing activities
Purchase of intangible assets 11 (9.5) (14.5)
Purchase of property, plant and equipment 12 (0.8) (2.7)
Cash receipts from SME loans (curing) — 4.7
Purchase of SME loans (other) 17 (25.0) (1.5)
Purchase of SME loans (warehouse phase) 17 (286.9) (381.2)
Purchase of SME loans (securitised) 17 — (414.5)
Cash receipts from SME loans (warehouse phase) 17 146.9 32.5
Cash receipts from SME loans (securitised) 17 211.7 37.4
Proceeds from sale of investment bonds 17 4.0 —
Investment in trusts 17 (20.9) —
Redemption/(investment) in associates 26, 30 1.9 (13.9)
Dividends from associates 26, 30 0.4 0.1
Interest received 7 0.4 1.8
Net cash inflow/(outflow) from investing activities 22.2 (751.8)
Financing activities
Proceeds from bank borrowings 23 230.1 462.1
Repayment of bank borrowings 23 (299.1) (192.7)
Proceeds from issuance of bonds 23 186.5 379.5
Proceeds from sale of bonds 23 — —
Payment of bond liabilities 23 (226.1) (30.1)
Proceeds from the exercise of share options 0.2 0.7
Payment of lease liabilities 23 (7.8) (7.1)
Net cash (outflow)/inflow from financing activities (116.2) 612.4
Net decrease in cash and cash equivalents (60.9) (166.4)
Cash and cash equivalents at the beginning of the year 164.5 333.0
Effect of foreign exchange rate changes (0.3) (2.1)
Cash and cash equivalents at the end of the year 23 103.3 164.5
The impact of exceptional items on the consolidated statement of cash flows is detailed in note 5.
The notes on pages 116 to 159 form part of these financial statements.
Annual Report and Accounts 2020 115
Financial statements
Notes forming part of the consolidated financial statements
for the year ended 31 December 2020
1. Accounting policies
General information
Funding Circle Holdings plc (the “Company”) is a public company limited by shares, which is listed on the London Stock Exchange
and is domiciled and incorporated in the United Kingdom under the Companies Act 2006 and registered in England and Wales.
The address of its registered office is given on page 172. The consolidated financial statements of the Group for the year ended
31 December 2020 comprise the Company and its subsidiaries (together referred to as the “Group” and individually as “Group entities”).
The principal activities of the Group and the nature of the Group’s operations are as a global SME loan platform.
The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have
been consistently applied to all the years presented, unless otherwise stated.
Going concern
The Group’s business activities together with the factors likely to affect its future development and position are set out in the
Strategic Report.
The financial statements are prepared on a going concern basis as the Directors are satisfied that the Group has the resources
to continue in business for the foreseeable future (which has been taken as at least 12 months from the date of approval of the
financial statements).
The Group made a total comprehensive loss of £106.6 million during the year ended 31 December 2020 (2019: loss of £92.4 million).
As at 31 December 2020, the Group had net assets of £217.6 million (2019: £319.0 million). This includes £103.3 million of cash and
cash equivalents (2019: £164.5 million) of which £38.9 million (2019: £14.2 million) is held within the warehouse and securitisation
vehicles. In February 2021 the Group received a net £27.0 million of cash in relation to fees owed to the Group at 31 December 2020.
Additionally, within the net assets the Group holds £118.3 million of invested capital some of which is capable of being monetised
if liquidity needs arise.
The Group has prepared detailed cash flow forecasts for the next 15 months and has updated the going concern assessment
to factor in the potential impact of Covid-19 and related economic stress.
The base case scenario assumes:
‐ non-government scheme lending and the new government guarantee scheme in the UK resume in Q2 2021;
‐ there is no further extension to the PPP government programme in the US beyond March 2021; and
‐ costs and headcount remain relatively flat with marketing at c.30% of operating income.
Management prepared a severe but plausible downside scenario in which:
‐ there is a further deterioration in the global economy and there is a dislocation period of two months between current
government schemes ending and non-government schemes/new schemes commencing; and
‐ a downside loss scenario is applied to Funding Circle’s on-balance sheet investment in SME loans resulting in higher fair value
losses and lower cash flows to the subordinate tranches of investments it owns.
In this downside scenario sufficient cash is forecast to be available to meet liabilities as they fall due without the requirement
to take significant mitigating actions, restructuring or monetising investments.
The Group does not currently rely on committed or uncommitted borrowing facilities with the exception of borrowings, which
are held in bankruptcy remote SPVs, to fund warehouse SME loan purchases, and does not have undrawn committed borrowing
facilities available to the wider Group.
Management has reviewed financial covenants the Group must adhere to in relation to its servicing agreements. These are with
institutional investors and debt facilities associated with borrowings used to fund SME loan originations in warehouses, for which there
are unrestricted cash, tangible net worth and debt to tangible net worth ratios. In the downside scenario the risk of covenant
breach is considered remote.
The Directors have made enquiries of management and considered budgets and cash flow forecasts for the Group and have, at the
time of approving these financial statements, a reasonable expectation that the Company and the Group have adequate resources to
continue in operational existence for the foreseeable future. Further detail is contained in the Strategic Report on pages 48 and 49.
Basis of preparation
The Group presents its annual financial statements in conformity with United Kingdom laws and regulations.
The financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) and IFRS
Interpretations Committee (“IFRS IC”) interpretations adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the
European Union and the Companies Act 2006 applicable to companies reporting under IFRS.
The financial statements have been prepared on the historical cost basis except for certain financial instruments that are carried
at fair value through profit and loss (“FVTPL”).
116 Funding Circle Holdings plc
1. Accounting policies continued
Basis of preparation continued
The preparation of financial statements in conformity with IFRS requires the use of certain accounting estimates. It also requires
management to exercise its judgement in the process of applying the Group’s accounting policies. Changes in assumptions may
have a significant impact on the financial statements in the year the assumptions changed. Management believes that the underlying
assumptions are appropriate. The areas involving a higher degree of judgement or complexity, or areas where assumptions and
estimates are significant to the financial statements, are disclosed in note 2.
Significant changes in the current reporting year
The financial position and performance of the Group were affected by the following events and transactions during the year
ended 31 December 2020:
i) Covid-19
As a result of the global Covid-19 pandemic and the related uncertainty and restrictions required in the geographies that Funding
Circle operates within, lending was proactively brought down in the latter half of March 2020 and continued to be low into April.
SME government guarantee programmes were introduced by the UK and US Governments, and Funding Circle’s subsequent
accreditations, resulted in originations restarting with new borrower products as detailed below and the temporary cessation of
non-government-guaranteed lending. The Group’s exposure to ABS products resulted in significant fair value losses as detailed
below. Additionally, forbearance measures were introduced to support small business borrowers.
ii) The UK Government’s Coronavirus Business Interruption Loan Scheme (“CBILS”) and Bounce Back Loan Scheme
(“BBLS”) funding
During the year, due to the Covid-19 crisis, Funding Circle became an accredited lender under CBILS and BBLS. Funding Circle
is required by the BBB to co-invest in loans originated under CBILS. The loans are beneficially owned by investors under trust
structures in which Funding Circle retains a small stake in CBILS trusts.
The Group does not consolidate the trusts or the loans held within the trusts, recognising its interest in the loans instead as an
investment in trust assets on the balance sheet. This investment is held at FVTPL. The Group earns transaction and service fee
income from originating and servicing CBILS and service fee income for servicing BBLS loans.
iii) The US Government’s Paycheck Protection Programme (“PPP”) loan funding
During the year, due to the Covid-19 crisis, the US business was approved to originate loans under the US Government’s PPP scheme.
Funding Circle funded PPP loans via its lending platform by partnering with financial institutions and institutional investors, for
which it earns a referral fee or origination fee. Additionally Funding Circle was accredited to draw down on the US Government’s
Federal PPP lending facility. As a result the Group holds £24.3 million of PPP loans on balance sheet included within Investment
in SME loans (other) with corresponding draw down on the SBA facility of £24.3 million included within Bank borrowings. These
loans are recognised initially at fair value and are subsequently held at amortised cost as the business model under which the
assets are held is to collect contractual cash flows. Once a loan is forgiven, the loan and related borrowing are extinguished.
iv) Asset-backed securities (“ABS”)
The Group continued its bond programmes which commenced in the prior year in the UK and US, investing in SME loans during
the “warehousing phase” of the programme using both its own cash and amounts borrowed under credit facilities with lending
institutions. An additional credit facility was utilised and warehouse vehicle created in the US in the year to 31 December 2020.
The loans are held within bankruptcy remote special purpose warehouse vehicles which are consolidated on the Group’s balance
sheet. Once the warehouse vehicle reaches sufficient scale, the SME loans are sold into another bankruptcy remote special
purpose vehicle (“SPV”) financed through the issuance of bonds to third party investors and the amounts borrowed under the
credit facility are repaid. During the year to 31 December 2020 a further £214.2 million of SME loans have been sold to SPVs
(31 December 2019: £292.2 million).
The bonds are split into senior rated bonds (referred to as “rated”) and junior unrated bonds (referred to as “unrated”) and
Funding Circle is required by regulation to retain a 5% equal participation in all classes of bonds issued.
Additionally, once loans are securitised, Funding Circle has temporarily held the residual horizontal tranches with the intention
to sell once seasoned. These tranches have the potential to earn greatest returns, but they also absorb losses first. As at
31 December 2020, Funding Circle held horizontals in three securitisations which were securitised in H2 2019 (UK and US)
and H1 2020 (US). The timing of the pandemic meant that it was not feasible to dispose of all horizontal tranches in 2020.
In July 2020 the Group sold 95% of its investment in one of the subordinated unrated tranches in the UK securitisation vehicle,
for £4.0 million. The sale price was considered to represent the fair value of the bond at the time of sale. The sale did not result in
deconsolidation of the securitisation vehicle, as the variability in cash flows continues to be concentrated in the Group’s remaining
holding of unrated tranches of the vehicle. The portion of the bonds sold were subsequently held by a third party and no longer
eliminated on consolidation resulting in the recognition of an additional bond liability at FVTPL on the Group’s balance sheet.
Annual Report and Accounts 2020 117
Financial statements
Notes forming part of the consolidated financial statements continued
for the year ended 31 December 2020
1. Accounting policies continued
Changes in accounting policy and disclosures
The Group has adopted the following new and amended IFRSs and interpretations from 1 January 2020 on a full retrospective basis.
Applicable for financial
Standard/interpretation Content years beginning on/after
Amendments to IAS 1 Presentation of Financial Definition of material 1 January 2020
Statements and IAS 8 Accounting Policies, Changes in
Accounting Estimates and Errors, definition of material
Amendments to IFRS 3 Business Combinations, Business combinations 1 January 2020
definition of a business
Revised Conceptual Framework for Financial Reporting Associates and joint ventures 1 January 2020
and Sale or Contribution of Assets Between an Investor
and its Associate or Joint Venture – amendments to IFRS
10 and IAS 28
Amendments to IFRS 7, IFRS 9 and IAS 39 – Reliefs relating to interest rate 1 January 2020
interest rate benchmark reform – Phase 1 benchmark reforms
The amendments and interpretations listed above did not significantly affect the current year and are not expected to
significantly affect future years.
Certain new accounting standards and interpretations have been published that are not mandatory for 31 December 2020
reporting years, have not yet been endorsed pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union
and have not been early adopted by the Group as follows:
Applicable for financial
Standard/interpretation Content years beginning on/after
Amendments to IFRS 7, IFRS 9 and IAS 39 – Reliefs relating to interest rate 1 January 2021
interest rate benchmark reform – Phase 2 benchmark reforms
Amendments to IFRS 16 – Covid-19 related rent concessions Leases 1 June 2020
These standards are not expected to have a material impact on the Group in the current or future reporting years and on
foreseeable future transactions.
Summary of new and amended accounting policies
Investment in trusts
The Group holds a small beneficial ownership in trusts set up to fund CBILS loans with the remaining majority of the beneficial
ownership held by institutional investors. Whilst SME loans are originated by a Group subsidiary, Funding Circle Focal Point
Lending Ltd, which retains legal title to the loans, it holds this legal title of trust on behalf of the majority investors who substantially
retain the economic benefits the CBILS loans generate and therefore the trusts and the assets held within, including the SME loans,
are not consolidated.
The Group assesses whether it controls the trust structure under the criteria of IFRS 10. Control is determined to exist if the
Group has the power to direct the activities of entities and structures and uses this control to obtain a variable return. As the
Group’s holding is pari passu, the Group is not exposed to the majority of the variability in the cash flows of the trust, and it is
not considered to control the trust structures, so they are not consolidated by the Group.
Investments in trusts are classified at fair value through profit and loss. They are initially recognised at fair value on the balance
sheet with the subsequent measurement at fair value with all gains and losses being recognised in the consolidated statement
of comprehensive income.
The Group recognises transaction fee income on origination of loans within the trust and service fee income on the assets within
the trust, eliminating its proportional ownership share of the service fees. A scheme lender fee is charged in relation to the
origination of CBILS loans and investment income is recognised in relation to returns on the investment.
118 Funding Circle Holdings plc
1. Accounting policies continued
Summary of existing accounting policies
Basis of consolidation
Where the Group has control over an investee, it is classified as a subsidiary. The Group controls an investee if all three of the
following elements are present: power over the investee, exposure to variable returns from the investee, and the ability of the
investor to use its power to affect those variable returns. Control is reassessed whenever facts and circumstances indicate that
there may be a change in any of these elements of control.
Structured entities are entities that are designed so that their activities are not governed by voting rights. In assessing whether
the Group has power over such entities, the Group considers factors such as the purpose and design of the entity; its practical
ability to direct the relevant activities of the entity; the nature of the relationship with the entity; and the size of its exposure to the
variability of returns of the entity.
The consolidated financial statements present the results of the Company and its subsidiaries as if they formed a single entity.
Intercompany transactions and balances between Group companies are therefore eliminated in full.
The Group applies the acquisition method to account for business combinations. In the consolidated balance sheet, the
acquiree’s identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at the acquisition
date. Acquisition-related costs are recognised in profit or loss as incurred. The results of acquired operations are included
in the consolidated statement of comprehensive income from the date on which control is obtained. They are deconsolidated
from the date on which control ceases.
Foreign currency translation
Transactions entered into by Group entities in a currency other than the currency of the primary economic environment in which
they operate (their “functional currency”) are recorded at the rates ruling when the transactions occur. Foreign currency monetary
assets and liabilities are translated at the prevailing rate at the reporting date. Exchange differences arising on the retranslation
of unsettled monetary assets and liabilities are recognised immediately in profit or loss.
On disposal of a foreign operation, the cumulative exchange differences recognised in the foreign exchange reserve relating to
that operation up to the date of disposal are transferred to the consolidated statement of comprehensive income as part of the
profit or loss on disposal.
Presentation currency
These consolidated financial statements are presented in GBP sterling, which is the Group’s presentation currency.
All assets and liabilities of overseas operations, including goodwill arising on the acquisition of those operations, are translated
at the prevailing rate at the reporting date. Income and expense items are translated at the average exchange rates for the year,
unless exchange rates fluctuate significantly during that year, in which case the exchange rates at the date of transactions are
used. Exchange differences arising are recognised in other comprehensive income and accumulated in equity.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign
entity and translated at the prevailing rate at the reporting date.
Segment reporting
Operating segments are reported in the manner consistent with the internal reporting provided to the chief operating decision maker.
The chief operating decision maker, which is the function responsible for allocating resources and assessing performance of
the operating segments, has been identified as the Global Leadership Team that makes strategic decisions. For each identified
operating segment, the Group has disclosed information for the key performance indicators that are assessed internally to
review and steer performance in the Strategic Report.
Transactions between segments are on an arm’s length basis in a manner similar to transactions with third parties.
Exceptional items
Exceptional items are the items of income or expense that the Group considers are material, one-off in nature and of such
significance that they merit separate presentation in order to aid the reader’s understanding of the Group’s financial performance.
Such items would include profits or losses on disposal of businesses; transaction costs; acquisitions and disposals; major
restructuring programmes; significant goodwill or other asset impairments; and other particularly significant or unusual items
(see note 5).
Annual Report and Accounts 2020 119
Financial statements
Notes forming part of the consolidated financial statements continued
for the year ended 31 December 2020
1. Accounting policies continued
Income recognition
Fee income is recognised in line with IFRS 15 which provides a single, principles-based five-step model to be applied to all
contracts with customers:
1) identify the contract with the customer;
2) identify the performance obligations in the contract, introducing the new concept of “distinct”;
3) determine the transaction price;
4) allocate the transaction price to the performance obligations in the contracts, on a relative stand-alone selling price basis; and
5) recognise income when (or as) the entity satisfies its performance obligation.
Fee income earned for the arrangement of loans is classified as transaction fees and is a cost of the borrower except for
government-guaranteed loans which are a cost to the government. The contract signed by the borrower and related terms are
clearly identifiable. The performance obligation in the contract is considered to be the funding of the loan through the
marketplace platform and the transaction price is clearly stated in the borrower’s contract. Fees are recognised immediately
once loans are fully funded on the marketplace and after the loans are accepted by the borrowers. At this point the performance
obligation has been met and there are no clawback provisions. Such fees are automatically deducted from the amount borrowed
(or subsequently invoiced in the case of government-guaranteed loans) and recognised at that point as the Group has the right to
consideration and the performance obligation has been satisfied.
Fee income earned from referrals to partner institutions is classified as transaction fees and is a cost to the partner institution.
There are contracts in place with partner institutions with clearly identifiable terms. The performance obligation in the contract is
considered to be the referral by the Group and subsequent funding of the referred loan by the partner institution and the transaction
price is clearly stated in the referral agreement. Fees are recognised once the referred loan has been funded by the partner
institution and accepted by the referred borrower. At this point the performance obligation has been met and there are no
significant clawback provisions.
Fee income earned from servicing third party loans is classified as servicing fees and is a cost of the investor, except in the case
of government schemes that permit a service fee such as CBILS, where the government bears the cost in the first year. It comprises
an annualised fee representing a percentage of outstanding principal. The contractual basis for the servicing fee and transaction
price is based on the terms and conditions agreed by investors to the lending platform. The performance obligation is servicing
the loans and allocating repayments of the loan parts to the respective lenders. The transaction price is allocated as a percentage
of the outstanding principal balance, representing the outstanding performance obligation. Fees are recognised on a monthly
basis upon repayment of loan parts. Due to the conditions of the loans, there are no partially completed contracts at the balance
sheet date and no advance payments from customers.
Other fees include excess premium earned from arrangements to buy back defaulted loans from certain institutional investors
and income earned on bought back loans. These are recognised as services are performed on an accruals basis.
Net income includes the following elements under which the recognition criteria of IFRS 9 and not IFRS 15 are applied:
Investment income includes:
‐ interest income from SME loans and investments in trusts that the Group holds on balance sheet.
Investment expense includes:
‐ interest payable on funds borrowed to finance the acquisition of underlying loan investments;
‐ interest payable on bond liabilities held on balance sheet;
‐ amortisation of costs associated with the issuing of bonds and the credit facility; and
‐ gains/losses from changes in fair value of interest hedging instruments.
Fair value gains/losses includes:
‐ gains/losses from changes in the fair value of financial assets and liabilities held on balance sheet.
Net income recorded in the financial statements is generated in the UK, the US, Germany and the Netherlands. All fees are
calculated based on the above income recognition policy.
Administrative expenses
Administrative expenses are recognised as an expense in the statement of comprehensive income in the period in which they are
incurred on an accruals basis.
120 Funding Circle Holdings plc
1. Accounting policies continued
Share-based payments
The Group operates a number of equity-settled, share-based compensation plans, under which the Group receives services from
employees as consideration for equity instruments (options and shares) of the Company. The fair value of the employee services
received in exchange for the grant of the options and shares is recognised as an expense. The total amount to be expensed is
determined by reference to the fair value of the options and shares granted:
‐ including any market performance conditions (for example, an entity’s share price);
‐ excluding the impact of any service and non-market performance vesting conditions (for example, net income, earnings per
share and remaining an employee of the Group over a specified time period); and
‐ including the impact of any non-vesting conditions (for example, the requirement for employees to save).
Non-market vesting conditions are included in assumptions about the number of options and shares that are expected to vest.
The total expense is recognised over the vesting period, which is the period over which all of the specified vesting conditions are
to be satisfied. At the end of each reporting period, the Group revises its estimate of the number of options and shares that are
expected to vest based on the non-market vesting conditions. It recognises the impact of the revision to original estimates, if any,
in the income statement, with a corresponding adjustment to equity.
When the options are exercised, the Company issues new shares. The proceeds received net of any directly attributable
transaction costs are credited to share capital (nominal value) and share premium when the options are exercised.
The grant by the Company of options and shares over its equity instruments to the employees of subsidiary undertakings in the
Group is treated as a capital contribution. The fair value of employee services received, measured by reference to the grant date
fair value, is recognised over the vesting period as an increase in investment in subsidiary undertakings, with a corresponding
credit to equity in the Parent entity (the “Company”) accounts.
Pension obligations
The Group operates a defined contribution pension scheme for employees in the UK, US and Netherlands. The schemes are
pension plans under which the Group pays fixed contributions into a separate entity. The Group has no legal or constructive
obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating
to employee service in the current and prior years. Contributions payable to the Group’s pension scheme are charged to the
statement of comprehensive income in the year to which they relate. The Group has no further payment obligations once the
contributions have been paid.
Current and deferred tax
The tax expense for the year comprises current and deferred tax. Current tax is provided at amounts expected to be paid
(or recovered) using the tax rates and laws that have been enacted or substantively enacted by the balance sheet date in
the countries where the Company and its subsidiaries operate and generate taxable income. Management periodically
evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation.
It establishes provisions, where appropriate, based on amounts expected to be paid to the tax authorities.
Deferred tax assets for unused tax losses, tax credits and deductible temporary differences are recognised to the extent that it is
probable that future taxable profit will be available against which the temporary differences can be utilised.
Deferred tax assets are recognised on deductible temporary differences arising from investments in subsidiaries, associates and
joint arrangements only to the extent that it is probable the temporary difference will reverse in the future and there is sufficient
taxable profit available against which the temporary difference can be utilised.
Deferred tax liabilities are provided on taxable temporary differences arising from investments in subsidiaries, associates and
joint arrangements, except for any deferred tax liability where the timing of the reversal of the temporary difference is controlled
by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current
tax liabilities and when the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on
either the same taxable entity or different taxable entities and there is an intention to settle the balances on a net basis.
Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of
assets and liabilities and their carrying amounts in the financial statements. However, deferred tax is not accounted for if it arises
from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the
transaction affects neither accounting nor taxable profit or loss.
Deferred tax is determined using tax rates and laws that have been enacted or substantively enacted at the year-end date and are
expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled. Deferred tax balances are
not discounted.
Dividends
Dividends are recognised when they become legally payable, in accordance with the Companies Act 2006.
Annual Report and Accounts 2020 121
Financial statements
Notes forming part of the consolidated financial statements continued
for the year ended 31 December 2020
1. Accounting policies continued
Goodwill
Goodwill arising in a business combination is recognised as an asset at the date that control is acquired (the “acquisition date”).
Goodwill is measured as the excess of the sum of the fair value of consideration transferred, the amount of any non-controlling
interest in the acquiree and the fair value of the acquirer’s previously held equity interest (if any) in the entity over the net of the
acquisition-date amounts of the identifiable assets acquired and the liabilities assumed.
Goodwill is not amortised but is reviewed for impairment at least annually. For the purpose of impairment testing, goodwill is
allocated to each of the Group’s cash-generating units (“CGUs”) expected to benefit from the synergies of the combination. CGUs
to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the
unit may be impaired. If the recoverable amount of the CGU is less than the carrying amount of the unit, the impairment loss is
allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata
on the basis of the carrying amount of each non-financial asset in the unit. An impairment loss recognised for goodwill is not
reversed in a subsequent period.
On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.
Intangible assets
Intangible assets with finite useful lives are amortised on a straight-line basis over their estimated useful lives. Useful lives and
amortisation methods are reviewed at the end of each annual reporting period, or more frequently when there is an indication
that the intangible asset may be impaired, with the effect of any changes accounted for on a prospective basis. Amortisation
commences when the intangible asset is available for use. The residual value of intangible assets is assumed to be zero.
Computer software licences
Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific
software. These costs are amortised over the licence period, which is up to five years as at 31 December 2020.
Capitalised development costs
Costs associated with maintaining computer software programs are recognised as an expense as incurred. Development costs
that are directly attributable to the design, build and testing of identifiable and unique software products controlled by the Group
are recognised as intangible assets when the following criteria are met:
‐ it is technically feasible to complete the build of the platform products so that they will be available for use;
‐ management intends to complete the build of the platform products for use within the Group;
‐ there is an ability to use the platform products;
‐ it can be demonstrated how the platform products will generate probable future economic benefits;
‐ adequate technical, financial and other resources to complete the development and to use the platform products are available; and
‐ the expenditure attributable to the platform products during its development can be reliably measured.
Directly attributable costs that are capitalised as part of the software product include the software development employee costs.
The capitalisation of employee costs is based on the amount of time spent on specific projects which meet the criteria as a
proportion of their total time, and this proportion of their salary-related costs is attributed to the applicable projects.
Other development expenditure that does not meet these criteria is recognised as an expense as incurred. Development costs
previously recognised as an expense are not recognised as an asset in a subsequent period.
Capitalised development costs are recorded as intangible assets and amortised from the point at which the asset is ready for
use over their estimated useful lives, ranging from three to five years.
Other intangibles
Other intangibles relate to the technology platform and customer relationship (representing fees due on contracted loans
expected to be realised in the foreseeable future) acquired on a business combination. These costs are amortised over their
estimated useful lives, which do not exceed three years.
Tangible fixed assets
Tangible fixed assets are stated at cost less depreciation and any provision for impairment. Depreciation is provided on all
tangible fixed assets, at rates calculated to write off the cost less estimated residual value of each asset on a straight-line basis
over its expected useful life, as follows:
Computer equipment 1–3 years
Furniture and fixtures 3–5 years
Leasehold improvements that qualify for recognition as an asset are measured at cost and are presented as part of property,
plant and equipment in the non-current assets section on the balance sheet. Depreciation on leasehold improvements is
calculated using the straight-line method over the lease term.
122 Funding Circle Holdings plc
1. Accounting policies continued
Impairment of tangible and intangible assets
Intangible assets that have an indefinite useful life or intangible assets not ready to use are not subject to amortisation and are
tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by
which the asset’s carrying amount exceeds its recoverable amount.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future
cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the
time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or CGU) is estimated to be less than its carrying amount, the carrying amount of the asset
(or CGU) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss.
A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s
recoverable amount since the last impairment loss was recognised. If this was the case, the carrying amount of the asset (or CGU)
is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the
carrying amount that would have been determined had no impairment loss been recognised for the asset (or CGU) in prior years.
A reversal of an impairment loss is recognised immediately in profit or loss.
Leases
At inception of a contract, the Group assesses whether or not a contract is, or contains, a lease. A contract is, or contains, a lease
if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. When
a lease is recognised in a contract the Group recognises a right-of-use asset and a lease liability at the lease commencement date.
Right-of-use assets are initially measured at cost, comprising the initial measurement of the lease liability, less any lease
incentives. Subsequently, right-of-use assets are measured at cost, less any accumulated depreciation and any accumulated
impairment losses, and are adjusted for certain remeasurements of the lease liability. Depreciation is calculated on a straight-line
basis over the length of the lease.
Liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the
following lease payments:
‐ fixed payments less any lease incentives receivable;
‐ variable lease payments based on an index or a rate, initially measured using the index or rate at the commencement date; and
‐ amounts expected to be payable by the Group under residual value guarantee.
The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, the Group’s
incremental borrowing rate is used, which is the rate that the Group would have to pay to borrow the funds necessary to obtain
an asset of similar value to the right-of-use asset in a similar economic environment with similar terms, security and conditions.
To determine the incremental borrowing rate, the Group:
‐ where possible, uses recent third party financing received by the individual lessee as a starting point, adjusted to reflect
changes in financing conditions since third party financing was received;
‐ uses an approach taking the risk-free interest rate adjusted for credit risk for leases held by Funding Circle Holdings plc; and
‐ makes adjustments specific to the lease for term, country and currency.
Subsequently, the lease liability is measured by increasing the carrying amount to reflect interest on the lease liability and
reducing it by the lease payments made. The lease liability is remeasured when there is a lease modification.
Lease payments are allocated between principal and finance cost. The finance cost is charged to profit or loss over the lease
period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period.
The Group is exposed to potential future increases in variable lease payments based on an index or rate, which are not included
in the lease liability until they take effect. When adjustments to lease payments based on an index or rate take effect, the lease
liability is reassessed and adjusted against the right-of-use asset.
Extension and termination options are included in a number of property leases in the Group. Management considers the facts
and circumstances that may create an economic incentive to exercise an extension or termination option in order to determine
whether the lease term should include or exclude such options. Extension or termination options are only included within the lease
term if they are reasonably certain to be exercised in the case of extension options and not exercised in the case of termination options.
Annual Report and Accounts 2020 123
Financial statements
Notes forming part of the consolidated financial statements continued
for the year ended 31 December 2020
1. Accounting policies continued
Leases continued
Considerations include:
‐ if leasehold improvements are expected to have significant value at the end of the lease term;
‐ expected costs or business disruption as a result of replacing a lease; and
‐ significant penalties incurred in order to terminate.
Lease terms are reassessed if the option is exercised or if a significant event occurs which impacts the assessment of
reasonable certainty.
The Group applies the short-term lease recognition exemption to its short-term leases of machinery and equipment (i.e. those leases
that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies
the lease of low-value assets recognition exemption to leases of office equipment that are considered of low value. Lease payments
on short-term leases and leases of low-value assets are recognised as expenses on a straight-line basis over the lease term.
When the Group is an intermediate lessor, entering into a sublease, it accounts for the head lease and the sublease separately.
The sublease is classified as a finance or operating lease by reference to the right-of-use asset arising from the head lease. Rental
income from operating leases is recognised on a straight-line basis over the lease term and the Group retains the right-of-use
asset deriving from the head lease and the lease liability on the balance sheet.
Amounts due from lessees under finance leases are recognised as receivables equivalent to the Group’s net investment in the
lease and the right-of-use asset from the head lease is derecognised. Any difference resulting from the derecognition of the
right-of-use asset and recognition of the net investment in the sublease is recognised in the consolidated statement of comprehensive
income. The head lease liability remains on the balance sheet and interest expense continues to be recognised, while interest
income is recognised from the sublease.
Consolidation of special purpose vehicles (“SPVs”)
Subsidiaries are those entities, including structured vehicles, over which the Group has control. The Group controls an entity
when it 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 investee. The Group has power over an entity when it has existing rights that give it the current ability
to direct the activities that most significantly affect the entity’s returns. Power may be determined on the basis of voting rights or,
in the case of structured entities, other contractual arrangements.
The Group assesses whether it controls SPVs and the requirement to consolidate them under the criteria of IFRS 10. Control is
determined to exist if the Group has the power to direct the activities of each entity (for example, managing the performance of
the underlying assets and raising debt on those assets which is used to fund the Group) and uses this control to obtain a variable
return (for example, retaining the residual risk on the assets). Structures that do not meet these criteria are not treated as
subsidiaries and the assets are derecognised when they are sold.
Where the Group manages the administration of its securitised assets and is exposed to the risks and rewards of the underlying
assets through its continued investment or where the Group does not retain a direct ownership interest in an SPE, but the
Directors have determined that the Group controls those entities, they are treated as subsidiaries and are consolidated.
Investment in associates
An associate is an entity over which the Group has significant influence. Significant influence is the power to participate in the
financial and operating policy decisions of the investee, but is not control or joint control over those policies. The considerations
made in determining significant influence or joint control are similar to those necessary to determine control over subsidiaries.
The Group’s investment in its associate is accounted for using the equity method.
Under the equity method of accounting, the investments are initially recognised at cost. This is adjusted thereafter to recognise
the Group’s share of the post-acquisition profits or losses of the investee in the consolidated statement of comprehensive income.
The Group’s share of movements in other comprehensive income of the investee is recognised in other comprehensive income.
Dividends received or receivable from associates are recognised as a reduction in the carrying amount of the investment.
When the Group’s share of losses in an equity-accounted investment equals or exceeds its interest in the entity, including any
other unsecured long-term receivables, the Group does not recognise further losses, unless it has incurred obligations or made
payments on behalf of the other entity.
Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in these
entities. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.
After application of the equity method, the Group determines whether it is necessary to recognise an impairment loss on its investment in
its associate. At each reporting date, the Group determines whether there is an indication that the investment in the associate is impaired.
If there is such an indication, the Group calculates the amount of impairment as the difference between the recoverable amount of the
associate and its carrying value, and then recognises the loss within the statement of comprehensive income.
Upon loss of significant influence over the associate, the Group measures and recognises any retained investment at its fair value.
Any difference between the carrying amount of the associate upon loss of significant influence or joint control and the fair value
of the retained investment and proceeds from disposal is recognised in profit or loss.
124 Funding Circle Holdings plc
1. Accounting policies continued
Financial instruments
Financial assets
The Group determines the classification of its financial assets at initial recognition. The requirements of IFRS 9 for classification
and subsequent measurement are applied, which require financial assets to be classified based on the Group’s business model
for managing the asset and the contractual cash flow characteristics of the asset:
‐ financial assets are measured at amortised cost if they are held within a business model, the objective of which is to hold
financial assets in order to collect contractual cash flows, and their contractual cash flows represent solely payments of
principal and interest;
‐ financial assets are measured at fair value through other comprehensive income (“FVTOCI”) if they are held within the
business model defined as ”held to collect and sell”, the objective of which is achieved by both collecting contractual cash
flows and selling financial assets, and their contractual cash flows represent solely payments of principal and interest; and
‐ financial assets that do not meet the criteria to be amortised cost or FVTOCI are measured at fair value through profit or loss
(“FVTPL”). In addition, the Group may, at initial recognition, designate a financial asset as measured at FVTPL if doing so
eliminates or significantly reduces an accounting mismatch.
When financial assets are recognised initially, they are measured at fair value, plus, in the case of investments not at fair value
through profit or loss, directly attributable transaction costs. The purchase of any credit impaired assets is also at fair value after
any impairment.
Except for certain investments in SME loans as described below, the Group does not recognise on its balance sheet loans
arranged between borrowers and investors as it is not a principal party to the contracts and is not exposed to the risks and
rewards of these loans.
In certain circumstances the Group buys back loans from investors. The nature of the buy-back is such that these are not treated
as an investment in loans categorised below and the loans are included within other receivables measured at amortised cost
less provision for impairment.
With the exception of investment in SME loans under cure period, investment in trusts, investment in SME loans (warehouse) and
investment in SME loans (securitised), all financial assets are held to collect contractual cash flows.
Under certain circumstances the Group holds investments in SME loans. The four types of investment in SME loans held are as follows:
i) Investment in SME loans (curing)
In the US, investors commit to provide funding to Funding Circle Marketplace LLC (the originator of the borrower loans) in advance
of the physical transfer of monies. Funding Circle, USA Inc. initially funds these committed loans to the borrowers and recovers
the monies from the investors after the two to three-day cure period and therefore retains the credit risk during this short period.
Investments in SME loans (curing) have been classified as financial assets at fair value through profit or loss.
The above classification is mainly because all such loans are acquired principally for selling in the short term. They are initially
recognised at fair value on the balance sheet with the subsequent measurement at fair value with all gains and losses being
recognised in the consolidated statement of comprehensive income.
ii) Investment in SME loans (warehouse)
During the warehouse phase of the securitisation programme, the SME loans purchased using both the Group’s cash and
amounts borrowed under credit facilities are held on the Group’s balance sheet. These investments in SME loans have been
classified as financial assets at fair value through profit or loss. The above classification is because all such loans are acquired
principally for selling in the short term and the collection of interest is incidental. They are initially measured at fair value on the
balance sheet with the subsequent measurement at fair value with all gains and losses being recognised in the consolidated
statement of comprehensive income.
iii) Investment in SME loans (securitised)
Under risk retention regulations the Group is required to retain at least 5% of the bonds issued by the securitisation SPV.
Retaining a significant proportion of the residual
Whilst the Group is required to retain 5% of the overall bond issuance, where the Group holds a significant proportion of the unrated
bonds (referred to as the “residual”), the Group consolidates the securitisation SPV as it considers that the risks and rewards of
ownership continue to reside with the Group. As a result the underlying SME loan book held in the SPV remains on balance sheet
along with the bond liabilities to third parties. They are initially measured at fair value on the balance sheet with the subsequent
measurement at fair value with all gains and losses being recognised in the consolidated statement of comprehensive income.
Selling a significant portion of the residual
Where the Group sells a significant portion of the residual, the Group may no longer be deemed to retain the majority of the risks
and rewards of ownership and the Group would deconsolidate the securitisation SPV. The Group would subsequently apply the
derecognition rules of IFRS 9 to the investment in SME loans. Cash on the sale of the Group’s investment in the residual is
treated as an investing activity.
Annual Report and Accounts 2020 125
Financial statements
Notes forming part of the consolidated financial statements continued
for the year ended 31 December 2020
1. Accounting policies continued
Financial instruments continued
Financial assets continued
iv) Investment in SME loans (other)
The Group holds investments in certain SME business loans as a result of a commercial arrangement with institutional investors
in the marketplace (see note 13). Additionally the Group has originated PPP loans using the SBA’s PPPLF facility, both of which
are held on balance sheet.
These investments in other SME loans are classified as amortised cost (as they are held solely to collect principal and interest
payments) and are initially recognised at fair value and subsequently measured at amortised cost less provision for impairment.
PPP loans are fully guaranteed by the SBA.
Other financial assets
Financial assets recognised in the balance sheet as trade and other receivables are classified as amortised cost.
They are recognised initially at fair value and subsequently measured at amortised cost less provision for impairment.
Cash and cash equivalents are classified as amortised cost with the exception of money market funds that are classified as
FVTPL. Cash and cash equivalents include cash in hand, deposits held at call with banks, money market funds and other
short-term highly liquid investments with original maturities of three months or less. The carrying amount of these assets
approximates to their fair value.
Impairment of financial assets
The Group applies the impairment requirements of IFRS 9. The IFRS 9 impairment model requires a three-stage approach:
‐ Stage 1 includes financial instruments that have not had a significant increase in credit risk since initial recognition or that
have low credit risk at the reporting date. For these assets, 12-month expected credit losses (“ECLs”) (that is, expected losses
arising from the risk of default in the next 12 months) are recognised and interest income is calculated on the gross carrying
amount of the asset (that is, without deduction for credit allowance).
‐ Stage 2 includes financial instruments that have had a significant increase in credit risk since initial recognition (unless they
have low credit risk at the reporting date) but are not credit impaired. For these assets, lifetime ECLs (that is, expected losses
arising from the risk of default over the life of the financial instrument) are recognised, and interest income is still calculated on
the gross carrying amount of the asset.
‐ Stage 3 consists of financial assets that are credit impaired, which is when one or more events that have a detrimental impact
on the estimated future cash flows of the financial asset have occurred. For these assets, lifetime ECLs are also recognised,
but interest income is calculated on the net carrying amount (that is, net of the ECL allowance).
The Group assesses on a forward-looking basis the expected credit losses associated with its financial assets carried at
amortised cost and recognises a loss allowance for such losses at each reporting date. The measurement of ECLs reflects:
‐ an unbiased and probability-weighted amount that is determined by evaluating a range of possible outcomes;
‐ the time value of money; and
‐ 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.
If in a subsequent period the amount of the impairment loss decreases and the decrease can be related objectively to an event
occurring after the impairment was recognised, the previously recognised impairment loss is reversed, to the extent that the
carrying value of the asset does not exceed its amortised cost at the reversal date. Any subsequent reversal of an impairment
loss is recognised in the statement of comprehensive income.
Derecognition of financial assets
Financial assets are derecognised only when the contractual rights to the cash flows from the financial assets expire or the
Group has either transferred the contractual right to receive the cash flows from that asset, or has assumed an obligation to pay
those cash flows to one or more recipients.
The Group derecognises a transferred financial asset if it transfers substantially all the risks and rewards of ownership.
Financial liabilities
Financial liabilities included in trade and other payables are recognised initially at fair value and subsequently at amortised cost.
The fair value of a non-interest-bearing liability is its discounted repayment amount. If the due date of the liability is less than one
year, discounting is omitted.
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.
Bank borrowings
Bank borrowings (drawdowns under the credit facilities) are recognised initially at fair value, being their issue proceeds net of
transaction costs incurred. These instruments are subsequently stated at amortised cost using the effective interest rate method.
126 Funding Circle Holdings plc
1. Accounting policies continued
Financial instruments continued
Financial assets continued
Derivative financial instruments
Interest rate caps are in place to partially mitigate the floating rate interest rate risk associated with drawn amounts from
borrowing facilities and risk associated with floating rate ABS bond liabilities consolidated into the Group. The derivatives are
recognised initially at fair value reflecting the time value implicit in the premium paid and are subsequently measured at fair value
with gains and losses recognised in profit or loss. See note 17 for details of interest rate risk.
Bonds
Bonds represent the bond liabilities which the Group must pay to the bond holders from the cash flows generated from the SME
loans (securitised) held on balance sheet. The liability excludes any amount of bonds that the Group has retained as these are
eliminated upon consolidation.
IFRS 9 permits a company to elect to fair value the bond liabilities where there is an accounting mismatch. In the Group’s case
the associated assets generating the cash flows to pay the bonds are the SME loans (securitised) which are measured at fair
value through profit and loss.
As the cash flows from the SME loans are used to repay the rated bond tranches in advance of the unrated bonds, the Group
does not consider there to be a significant accounting mismatch as default levels impact the unrated bonds first. Therefore the
rated bonds are measured at amortised cost. However, as the unrated bonds are most affected by fair value movements in the
SME loans, the Group has elected to measure the unrated tranches of bonds at fair value through profit and loss to eliminate the
accounting mismatch.
See note 17 for details of the fair value methodology and interest rate risk.
Transaction costs associated with the issuance of bonds are deferred to the balance sheet and recognised over the lifetime of
the bonds using the effective interest rate method.
Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable
that the Group will be required to settle that obligation and a reliable estimate can be made of the amount of the obligation.
Loan repurchases
Loan repurchase contracts issued by the Group are those contracts that require a payment to be made to reimburse the holder
for a loss it incurs because the specified debtor fails to make a payment when due in accordance with the terms of a debt instrument.
Loan repurchase contracts are recognised initially as a liability at fair value, adjusted for transaction costs that are directly
attributable to the issuance of the contract. The liability is measured at the higher of the best estimate of the expenditure
required to settle the present obligation at the reporting date and the amount recognised less cumulative amortisation.
The expected credit loss model is used to measure and recognise the financial liability (as further detailed in note 16).
Share capital
Ordinary shares are classified as equity where their terms include no contractual obligation to transfer cash or another financial
asset to another entity.
Loss per share
The Group presents basic and diluted losses per share (“LPS”) for its ordinary shares. Basic and diluted LPS are calculated by
dividing the loss attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during
the year.
Shares held by the Employee Benefit Trust and Share Incentive Plan Trust
The Company has established an offshore Employee Benefit Trust (“EBT”) and an onshore Share Incentive Plan (“SIP”) Trust.
The EBT and SIP provide for the issue of shares to Group employees principally under share option schemes and SIP respectively.
The Group has control of the EBT and SIP Trust and therefore consolidates the Trusts in the Group financial statements.
Reserves
Foreign exchange reserve
The foreign exchange reserve represents the cumulative foreign currency translation movement on the assets and liabilities of
the Group’s international operations at year-end exchange rates and on the profit and loss items from average exchange rates to
year-end exchange rates.
Share options reserve
The share options reserve represents the cumulative charges to income under IFRS 2 Share-based Payments on all share options
and schemes granted, net of share option exercises. The costs are transferred to retained earnings when options are exercised.
Annual Report and Accounts 2020 127
Financial statements
Notes forming part of the consolidated financial statements continued
for the year ended 31 December 2020
2. Critical accounting judgements and key sources of estimation uncertainty
The preparation of the consolidated financial statements requires the Group to make estimates and judgements that affect the
application of policies and reported amounts. Critical judgements represent key decisions made by management in the application
of the Group accounting policies. Where a significant risk of materially different outcomes exists due to management assumptions
or sources of estimation uncertainty, this will represent a key source of estimation uncertainty.
Estimates and judgements are continually evaluated and are based on experience and other factors, including expectations of
future events that are believed to be reasonable under the circumstances. Although these estimates are based on management’s
best knowledge of the amount, event or actions, actual results ultimately may differ from those estimates.
The significant judgements and estimates applied by the Group in the financial statements have been applied on a consistent
basis with the financial statements for the year to 31 December 2019.
Critical judgements
Consolidation and deconsolidation of special purpose vehicles (“SPVs”) (Note 17)
As part of its asset-backed securitisation programmes, the Group has established warehouse and securitisation SPVs.
Judgement is required in determining who is most exposed to the variability of returns and who has the ability to affect those
returns and therefore who should consolidate these vehicles and subsequently deconsolidate them. Where the Group has a
significant interest in the junior tranches of the securitisation vehicles or the subordinated debt in the warehouses, the Group
is deemed to be exposed to the majority of the variability of the returns of those vehicles and controls them, and therefore
consolidates them. Where this interest is reduced, the Group considers whether the vehicles should be deconsolidated.
During the year a tranche of unrated bonds was sold, reducing the Group’s holding in a UK SPV. However, the Group retained
a significant holding of the subordinate unrated tranches of the vehicle and was considered to be exposed to the majority
of the variability of the returns and the vehicle was not deconsolidated.
Loans originated through the platform
The Group originates SME loans through its platform which are funded primarily by banks, asset managers, other institutional
investors, funds, national entities, retail investors or by usage of its own capital. Judgement is required to determine whether
these loans should be recognised on the Group’s balance sheet. Where the Group, its subsidiaries or SPVs which it consolidates
have legal and beneficial ownership to the title of those SME loans, they are recognised on the Group’s balance sheet. Where this is
not the case, the loans are not recognised at the point of origination.
Key sources of estimation uncertainty
The following are the key sources of estimation uncertainty that the Directors have identified in the process of applying the
Group’s accounting policies and have the most significant effect on the amounts recognised in the financial statements.
Estimated impairment of non-financial assets (notes 10, 11 and 12)
Non-financial assets (primarily goodwill, intangible assets and property, plant and equipment) are held within the Group within cash-
generating units (“CGUs”) which are expected to benefit from the assets. The Group has three CGUs, being Funding Circle USA (“FCUSA”)
and its subsidiaries, Funding Circle Ltd (“FCUK”) and its subsidiaries and the German and Dutch businesses (Funding Circle Continental
Europe or “FCCE”). These assets are assessed annually for impairment or when indicators of impairment are identified. Following the
impact of Covid-19 and a change in the Group’s income and cost forecasts, an event indicating the possibility of impairment was identified
and the Group undertook an impairment review of non-financial assets in each applicable CGU.
The impairment test involved comparing the carrying value of the non-financial assets held for use to their recoverable amount
for each CGU. The recoverable amount represents the higher of the CGU’s fair value net of selling costs and its value in use,
which were determined using discounted cash flow methodology. In undertaking the impairment assessment it was noted that
the recoverable amount of FCUK was not sensitive to estimation uncertainty, nor was FCCE as the non-financial assets were
previously impaired for the year ended 31 December 2019.
The review identified impairment to the goodwill in FCUSA as the recoverable amount calculated was below the carrying amount
and the goodwill was fully impaired by £12.0 million. IAS 36 allocates impairment losses first to goodwill followed by other
non-financial assets; however, it prohibits the reversal of goodwill impairment. As a result the impairment assessment is not
sensitive to a higher estimation of the recoverable amount; but a lower estimated recoverable amount could lead to impairment
of intangible assets within the CGU which are held at a carrying value of £8.7 million and property, plant and equipment totalling
£11.2 million (excluding certain right-of-use assets identified as separate CGUs).
The Group prepared a five-year forecast for the FCUSA CGU for which the majority of the sensitivity to estimation uncertainty is
in the growth rate applied to the fifth year which is forecast out into perpetuity. The cash flow projections are based on the following
key assumptions presented along with the sensitivity to a reduction in the recoverable amount for each key assumption:
‐ fifth-year income growth of 27.0%. A 480 bps reduction in projected fifth-year income growth rate with no cost reduction
would decrease the recoverable amount by £16.2 million to be equal to the carrying value;
‐ fifth-year cost growth of 16.0%. A 520 bps increase in projected fifth-year cost growth rate with no income increase would
decrease the recoverable amount by £16.2 million to be equal to the carrying value;
‐ pre-tax discount rate of 13.0%. A 270 bps increase in discount rate would decrease the recoverable amount by £16.2 million to
be equal to the carrying value; and
‐ income beyond the five-year period extrapolated using an estimated growth rate of 1.5%. A reduction in the growth rate to
0.0% would reduce the recoverable amount by £6.9 million.
128 Funding Circle Holdings plc
2. Critical accounting judgements and key sources of estimation uncertainty continued
Key sources of estimation uncertainty continued
Estimated impairment of non-financial assets (notes 10, 11 and 12) continued
During the prior year ended 31 December 2019, impairment was identified in relation to the goodwill and tangible and intangible
assets of the German and Dutch businesses within the Developing Markets segment. Based on the performance of the German
and Dutch businesses and changes to the medium-term outlook for the non-financial assets included within the associated
CGU it was determined that the carrying value exceeded the recoverable amount. Goodwill was previously fully impaired by
£29.0 million, tangible fixed assets by £0.7 million and intangible assets by £4.6 million. There was not considered to be a
recoverable amount in relation to these assets.
Fair value of financial instruments (note 17)
At 31 December 2020, the carrying value of the Group’s financial instrument assets held at fair value was £547.9 million
(31 December 2019: £754.8 million) and the carrying value of financial liabilities carried at fair value was £7.8 million
(2019: £20.0 million).
In accordance with IFRS 13 Fair Value Measurement, the Group categorises financial instruments carried on the consolidated
balance sheet at fair value using a three-level hierarchy. Financial instruments categorised as level 1 are valued using quoted
market prices and therefore there is minimal estimation applied in determining fair value. However, the fair value of financial
instruments categorised as level 2 and, in particular, level 3 is determined using valuation estimation techniques including discounted
cash flow analysis and valuation models. The most significant estimation is with respect to discount rates and default rates.
Sensitivities to the default rates and discount rates are illustrated below.
Fair value Relationship of
Description £m Unobservable input Inputs unobservable inputs to fair value
Investment in SME 221.8 Lifetime cumulative default US:18.1% and A change in the lifetime cumulative
loans (warehouse) rate as % of original 21.6%1 default rate would have the
UK: 15.4% following impact:
US: +/-300 bps would decrease/
increase fair value by £3.8 million.
UK: +/-330 bps would decrease/
increase fair value by £7.1 million.
Investment in SME 279.8 Lifetime cumulative default US: 21.9% and A change in the lifetime cumulative
loans (securitised) rate as % of original 24.0%1 default rate would have the
UK: 16.8% following impact:
US SPV1¹: +/-140 bps would
decrease/increase fair value by
£2.0 million.
US SPV2¹: +/-200 bps would
decrease/increase fair value by
£4.0 million.
UK: +/-300 bps would decrease/
increase fair value by £2.6 million.
Bonds (unrated) (7.8) Lifetime cumulative default 16.8% A change in the lifetime cumulative
rate of associated assets default rate by +/-300 bps would
decrease/increase fair value by
£2.3 million and £(0.9) million
respectively.
1. Two cumulative default rates are presented for the US representing the portfolios in each of the two respective warehouses and two respective securitisation vehicles. Separate
sensitivities to default rates for the US securitisation vehicles represent the respective seasoning of the loans and the different reasonably possible range of outcomes.
The above sensitivities represent management’s estimate of the reasonably possible range of outcomes and as a result the fair
value of the assets and liabilities measured at fair value could materially diverge from management’s estimate.
Fair value Relationship of
Description £m Unobservable input Inputs unobservable inputs to fair value
Investment in SME 221.8 Discount rate US: 7.8% A change in the discount rate by
loans (warehouse) UK: 7.8% +/-100 bps would decrease/
increase fair value by £3.1 million.
Investment in SME 279.8 Discount rate US: 7.8% A change in the discount rate by
loans (securitised) UK: 7.8% +/-100 bps would decrease/
increase fair value by £3.7 million.
Bonds (unrated) (7.8) Discount rate 21.7% A change in the discount rate by
+/-100 bps would decrease/
increase fair value by £0.2 million.
Annual Report and Accounts 2020 129
Financial statements
Notes forming part of the consolidated financial statements continued
for the year ended 31 December 2020
2. Critical accounting judgements and key sources of estimation uncertainty continued
Key sources of estimation uncertainty continued
Fair value of financial instruments (note 17) continued
It is considered that the range of reasonably possible outcomes in relation to the discount rate used could be +/-100 bps and
as a result the fair value of the assets could materially diverge from management’s estimate.
As the discount rate is risk adjusted, it should be noted that the sensitivities to discount rate and to lifetime cumulative default
rate contain a level of overlap regarding credit risk. The sensitivity in expected lifetime cumulative defaults should not also be
applied to the sensitivity of the credit risk element of the risk-adjusted discount rate and the sensitivities are most meaningful
viewed independently of each other.
Loan repurchase liability (note 16)
In certain historical circumstances, in less mature markets, predominantly Germany and the Netherlands, Funding Circle has
entered into arrangements with institutional investors to assume the credit risk on the loan investments made by the institutional
investors. The Group must estimate the expected credit loss (“ECL”) for these commitments at each reporting date.
In order to quantify the ECL, IFRS 9 is followed. Estimation is required in assessing individual loans and when applying statistical
models for collective assessments, using historical trends from past performance as well as forward-looking information including
macroeconomic forecasts such as changes in interest rates, GDP and inflation in each market together with the impact of loan
defaults. It is estimated that in both the European markets defaults will have already peaked in H2 2020 and will de-stress gradually
afterwards, with Germany expected to fair more favourably than the Netherlands as a result of the government stimulus programme.
The most significant estimation is with default rates on performing loans. For the year ended 31 December 2020 the weighted
average lifetime default rate is estimated at 20.5% under stress assumptions (2019: 12.9% without Covid-19 stress). If the
weighted average default rate estimate were to change by +/-240 bps, the liability would change by £1.2 million for the year ended
31 December 2020 (2019: £1.5 million). It is considered that the range of reasonably possible outcomes in annual default rates used
might be +/-240 bps and as a result it is possible that the liability in future could materially diverge from management’s estimate.
3. Segmental information
IFRS 8 Operating Segments requires the Group to determine its operating segments based on information which is provided
internally. Based on the internal reporting information and management structures within the Group, it has been determined that
there are three geographic operating segments previously supported by two centralised cost segments. Reporting on this basis
is reviewed by the Global Leadership Team (“GLT”), which is the chief operating decision maker (“CODM”). The GLT function is made
up of the Executive Directors and other senior management and is responsible for the strategic decision making of the Group.
The five reportable segments previously consisted of the three geographic segments: the United Kingdom, the United States and
Developing Markets, plus the two centralised cost segments: global product development and corporate costs. The Developing
Markets segment includes the Group’s less mature businesses in Germany and the Netherlands.
The GLT measures the performance of each segment by reference to a non-GAAP measure (see glossary), adjusted EBITDA,
which is defined as profit/loss before finance income and costs, taxation, depreciation and amortisation (“EBITDA”) and
additionally excludes share-based payment charges and associated social security costs, foreign exchange and exceptional
items (see note 5). Together with operating profit/loss, adjusted EBITDA is a key measure of Group performance as it allows
better interpretation of the underlying performance of the business.
During the year ended 31 December 2020 organisational changes led to greater ownership of costs being managed within
geographies. As a result the way the operating segment performance is reported to and reviewed by the GLT was modified to
allocate product development, corporate costs, depreciation and amortisation, share-based payment charges and exceptional
items across the three geographical segments. The comparatives for the year ended 31 December 2019 have been restated to
reflect the revised segmental presentation.
Net income/(loss)
31 December 2020 31 December 2019 (restated)
United United Developing United United Developing
Kingdom States Markets Total Kingdom States Markets Total
£m £m £m £m £m £m £m £m
Total income 152.9 63.0 6.1 222.0 111.6 52.4 13.3 177.3
Fair value (losses)/gains (43.8) (74.5) — (118.3) (3.1) (6.8) — (9.9)
Net income/(loss) 109.1 (11.5) 6.1 103.7 108.5 45.6 13.3 167.4
130 Funding Circle Holdings plc
3. Segmental information continued
Segment profit
31 December 2020 31 December 2019 (restated)
United United Developing United United Developing
Kingdom States Markets Total Kingdom States Markets Total
£m £m £m £m £m £m £m £m
Segment adjusted
EBITDA 30.2 (52.8) (6.3) (28.9) 34.0 (10.3) (12.5) 11.2
Product development (14.7) (6.5) (1.1) (22.3) (15.1) (8.3) (3.0) (26.4)
Corporate costs (9.0) (3.1) (0.5) (12.6) (7.9) (3.4) (1.0) (12.3)
Adjusted EBITDA 6.5 (62.4) (7.9) (63.8) 11.0 (22.0) (16.5) (27.5)
Depreciation and
amortisation (9.4) (6.5) (1.3) (17.2) (8.0) (5.2) (1.7) (14.9)
Share-based payments
and social security costs (5.0) (1.2) (0.4) (6.6) (5.0) (2.7) (0.3) (8.0)
Exceptional items (note 5) — (13.5) (5.2) (18.7) — — (34.3) (34.3)
Operating loss (7.9) (83.6) (14.8) (106.3) (2.0) (29.9) (52.8) (84.7)
Net income by type
In addition to the segmental reporting of performance under IFRS 8, the table below sets out net income by its type:
31 December 31 December
2020 2019
£m £m
Transaction fees 122.5 121.2
Servicing fees 30.2 30.4
Other fees 3.0 5.3
Fee income 155.7 156.9
Investment income 89.0 28.3
Investment expense (22.7) (7.9)
Total income 222.0 177.3
Fair value (losses)/gains (118.3) (9.9)
Net income 103.7 167.4
4. Operating expenses
31 December 2020 31 December 2019
Before Before
exceptional Exceptional exceptional Exceptional
items items Total items items Total
£m £m £m £m £m £m
Depreciation 9.0 — 9.0 7.8 — 7.8
Amortisation 8.2 — 8.2 7.1 — 7.1
Rental income and other recharges (1.1) — (1.1) — — —
Operating lease rentals:
– Other assets — — — 0.1 — 0.1
– Land and buildings 0.1 — 0.1 0.1 — 0.1
Employment costs (including contractors) 81.3 4.0 85.3 90.3 — 90.3
Marketing costs
(excluding employment costs) 46.8 — 46.8 66.5 — 66.5
Data and technology 10.9 — 10.9 9.4 — 9.4
Loan repurchase charge 6.2 — 6.2 6.5 — 6.5
Impairment of goodwill — 12.0 12.0 — 29.0 29.0
Impairment of intangible
and tangible assets — 1.7 1.7 — 5.3 5.3
Other expenses 29.9 1.0 30.9 30.0 — 30.0
Total operating expenses 191.3 18.7 210.0 217.8 34.3 252.1
Annual Report and Accounts 2020 131
Financial statements
Notes forming part of the consolidated financial statements continued
for the year ended 31 December 2020
4. Operating expenses continued
Auditors’ remuneration
31 December 31 December
2020 2019
£m £m
Audit fees
– Fees payable to the Company’s auditors for the audit of the Parent Company and consolidated
financial statements 0.6 0.3
– Fees payable to the Company’s auditors and its associates for the statutory audit of the financial
statements of subsidiaries of the Company 0.1 0.2
Total audit fees 0.7 0.5
Non-audit service fees
– Audit-related assurance services 0.2 0.1
– Other non-audit services 0.1 0.2
Total assurance-related fees 0.3 0.3
5. Exceptional items
31 December 31 December
2020 2019
£m £m
Restructuring costs 6.0 —
Share-based payment credit relating to restructuring (1.0) —
Impairment of goodwill (note 10) 12.0 29.0
Impairment of non-financial assets (notes 11 and 12) 1.7 5.3
Total 18.7 34.3
Exceptional items are the items of income or expense that the Group considers are material, one-off in nature and of such
significance that they merit separate presentation in order to aid the reader’s understanding of the Group’s financial performance.
As announced in March 2020, the Group restructured the German and Dutch (Developing Markets) businesses to focus on
referring loans it originates to local lenders. This restructuring has resulted in one-off costs totalling £4.6 million comprising
redundancy costs of £4.0 million, a related share-based payment credit of £(0.4) million and other costs of £1.0 million.
An additional impairment on right-of-use assets was incurred of £0.6 million. Cash payments associated with these items
totalled £3.8 million to 31 December 2020. See note 16 for movement in associated provisions and note 23 for cash flow.
As announced in July 2020, the Group reorganised the US business, centralising the US technology team in the UK and
moving sales and marketing to Denver, resulting in a net reduction of c.85 roles. This restructuring has resulted in one-off costs
totalling £0.4 million, comprising redundancy costs of £1.0 million and related share-based payment credits of £(0.6) million.
An additional impairment on the right-of-use assets was recognised of £1.1 million. Cash payments associated with these items
totalled £1.1 million to 31 December 2020. See note 16 for movement in associated provisions and note 23 for cash flow.
Following a change in the Group’s income and cost forecasts, an event indicating the possibility of impairment was identified
and the Group has undertaken a goodwill impairment review as a result of which it was identified that goodwill in relation to the
Funding Circle USA business was carried at a value higher than the CGU’s recoverable amount driven by a reduction in the future
discounted cash flows of the CGU. As a result, an impairment was recognised of £12.0 million. There was no cash movement in
relation to the impairment.
In 2019, as part of the annual goodwill impairment assessment it was identified that goodwill in relation to the Continental
European business was carried at a value higher than its value in use driven by a reduction in the future discounted cash flows of
the CGU. As a result an impairment was recognised of £29.0 million. Additionally the Group assessed the tangible and intangible
fixed assets of the German and Dutch businesses as part of the CGU and an impairment of £0.7 million and £4.6 million
respectively was recognised. There was no cash movement in relation to the impairment.
132 Funding Circle Holdings plc
6. Employees
The average monthly number of employees (including Directors) during the year was:
2020 2019
Number Number
UK 601 599
US 240 292
Developing Markets 70 164
911 1,055
In addition to the employees above, the average monthly number of contractors during the year was 91 (2019: 110).
Employment costs (including Directors’ emoluments) during the year were:
31 December 2020 31 December 2019
Before
exceptional Exceptional
items items Total Total
£m £m £m £m
Wages and salaries 70.8 4.0 74.8 80.1
Social security costs 6.9 1.0 7.9 7.8
Pension costs 1.2 — 1.2 1.0
Share-based payments 6.6 (1.0) 5.6 8.0
85.5 4.0 89.5 96.9
Contractor costs 5.2 — 5.2 7.7
Less: capitalised development costs (9.4) — (9.4) (14.3)
Employment costs net of capitalised development costs 81.3 4.0 85.3 90.3
7. Net finance (costs)/income
31 December 31 December
2020 2019
£m £m
Interest receivable 0.4 1.8
Total finance income 0.4 1.8
Interest on lease liabilities (1.4) (1.2)
Total finance costs (1.4) (1.2)
Net finance (costs)/income (1.0) 0.6
8. Income tax
The Group is subject to all taxes applicable to a commercial company in its countries of operation. The UK profits of the Company
are subject to UK income tax at the standard corporation tax rate of 19% (2019: 19%).
31 December 31 December
2020 2019
£m £m
Current tax
UK corporation tax 0.2 0.5
Total current tax 0.2 0.5
Total tax charge 0.2 0.5
The Group continues to be in a loss-making position; however, credits receivable in respect of UK research and development
expenditure credits (“RDEC”) are subject to UK corporation tax. The above tax charge represents the amount of tax deducted
from the RDEC receivable for 2020. In the prior year, the tax charge represents the amount of tax deducted from the RDEC
receivable for the years 2017 to 2019.
Annual Report and Accounts 2020 133
Financial statements
Notes forming part of the consolidated financial statements continued
for the year ended 31 December 2020
8. Income tax continued
The Group charge for the year can be reconciled to the loss before tax shown per the consolidated statement of comprehensive
income as follows.
Factors affecting the tax charge for the year
31 December 31 December
2020 2019
£m £m
Loss before taxation (108.1) (84.2)
Taxation on loss at 19% (2019: 19%) (20.5) (16.0)
Effects of:
Research and development 0.2 0.5
Effect of foreign tax rates (7.7) (2.4)
Non-taxable/non-deductible expenses (0.1) 0.8
Temporary differences not recognised 23.2 10.7
Impairment charge and other exceptional items 5.1 6.9
Tax charge 0.2 0.5
The Group is taxed at different rates depending on the country in which the profits arise. The key applicable tax rates include the
UK (19%), the US (27%), Germany (30.0%) and the Netherlands (25%). The effective tax rate for the year was (0.2%) (2019: (0.6%)).
The statutory UK corporation tax rate is currently 19%, and remained at 19% from 1 April 2020 following it being substantively
enacted on 17 March 2020. This reverses the previously enacted reduction to 17%. In addition, the US federal tax rate has been
revised from 35% to 21%. On 22 December 2017, legislation was enacted that the reduced federal rate of 21% would be effective
from 1 January 2018. Deferred tax has been determined using the applicable effective future tax rate that will apply in the
expected period of utilisation of the deferred tax asset or liability.
Deferred tax assets and liabilities
31 December 31 December
2020 2019
£m £m
Property, plant and equipment 1.3 (1.9)
Carry forward losses 88.6 61.5
Deferred stock options 2.1 1.0
US R&D credit 0.5 0.4
Other 1.1 —
Unrecognised deferred tax asset 93.6 61.0
The Group has unrelieved tax losses of £342.8 million (2019: £248.0 million) that are available for offset against future taxable
profits. The Group has not recognised a deferred tax asset in respect of these losses as there is not sufficient certainty of
suitable taxable profits being generated to utilise these losses.
Factors affecting the tax charge in future years
Factors that may affect the Group’s future tax charge include the geographic location of the Group’s earnings, the tax rates in
those locations, changes in tax legislation and the use of brought forward tax losses. The calculation of the Group’s total tax
charge involves a degree of estimation and judgement with respect to the recognition of any deferred tax asset.
The UK Government announced on 3 March 2021 that the rate of corporation tax will be increased to 25% from 1 April 2023.
This measure will be legislated in the Finance Bill 2021 published on 11 March 2021. As such, it is not substantively enacted for
the accounting year ended 31 December 2020 and deferred tax has been recognised at 19%. Although not substantively enacted,
the effect of the announcement would increase its unrecognised deferred tax asset as at 31 December 2020 by £5.3 million to
£98.9 million (property, plant and equipment £(0.4) million; carry forward losses: £5.0 million; deferred stock options £0.6 million;
others £0.1 million).
134 Funding Circle Holdings plc
9. Loss per share
Basic loss per share amounts are calculated by dividing the loss for the year attributable to ordinary equity holders of the Company
by the weighted average number of ordinary shares outstanding during the year.
There is no difference in the weighted average number of shares used in the calculation of basic and diluted loss per share as the
effect of all potentially dilutive shares outstanding was anti-dilutive.
The following table reflects the income and share data used in the basic and diluted loss per share computations:
31 December 31 December
2020 2019
£m £m
Loss for the year (108.3) (84.7)
Weighted average number of ordinary shares in issue (million) 347.0 347.6
Basic and diluted loss per share (31.2)p (24.4)p
Loss for the year before exceptional items (89.6) (50.4)
Weighted average number of ordinary shares in issue (million) 347.0 347.6
Basic and diluted loss per share before exceptional items (25.8)p (14.5)p
10. Goodwill
Total
£m
Cost and carrying amount
At 1 January 2019 42.3
Impairment charge (note 5) (29.0)
Exchange differences (2.0)
At 31 December 2019 11.3
At 1 January 2020 11.3
Impairment charge (note 5) (12.0)
Exchange differences 0.7
At 31 December 2020 —
Goodwill is reviewed annually for impairment, or more frequently when there are indications that impairment may have occurred.
Following the impact of Covid-19 and a change in the Group’s income and cost forecasts, an event indicating the possibility of
impairment was identified and the Group undertook an interim goodwill impairment review for all CGUs at 30 June 2020.
Goodwill acquired in a business combination is allocated, at acquisition, to the CGUs that are expected to benefit from that
business combination. At the previous balance sheet date, the Group had one CGU to which remaining goodwill was attached,
being Funding Circle USA (“FCUSA”) and its subsidiaries.
31 December 31 December
2020 2019
£m £m
FCUSA — 11.3
FCCE — —
Total — 11.3
The impairment test involved comparing the carrying value of the non-financial assets held for use to their recoverable amount.
The recoverable amount represents the higher of the CGU’s fair value less cost to sell and its value in use. The recoverable
amount was determined using fair value less cost to sell calculations utilising discounted cash flows.
Further details of the impairment assessment are detailed within note 2. The review identified impairment to the goodwill in
FCUSA as the recoverable amount calculated was below the carrying amount. The cumulative amount of impairment losses in
relation to goodwill recognised in the year was £12.0 million (31 December 2019: £29.0 million in FCCE).
Annual Report and Accounts 2020 135
Financial statements
Notes forming part of the consolidated financial statements continued
for the year ended 31 December 2020
11. Intangible assets
Capitalised
development Computer Other
costs software intangibles Total
£m £m £m £m
Cost
At 1 January 2019 34.2 0.8 1.3 36.3
Exchange differences (0.5) — (0.2) (0.7)
Additions 14.3 0.2 — 14.5
Reclassification — — — —
Disposals (0.7) — — (0.7)
At 31 December 2019 47.3 1.0 1.1 49.4
At 1 January 2020 47.3 1.0 1.1 49.4
Exchange differences (0.5) — — (0.5)
Additions 9.4 0.1 — 9.5
Reclassification — — — —
Disposals (10.7) (0.3) — (11.0)
At 31 December 2020 45.5 0.8 1.1 47.4
Accumulated amortisation
At 1 January 2019 13.4 0.3 1.1 14.8
Exchange differences (0.1) — (0.1) (0.2)
Reclassification (0.3) 0.3 — —
Charge for the year 6.9 0.2 — 7.1
Impairment 4.6 — — 4.6
Disposals (0.5) — — (0.5)
At 31 December 2019 24.0 0.8 1.0 25.8
At 1 January 2020 24.0 0.8 1.0 25.8
Exchange differences — — — —
Charge for the year 8.0 0.2 — 8.2
Impairment — — — —
Disposals (10.7) (0.3) — (11.0)
At 31 December 2020 21.3 0.7 1.0 23.0
Carrying amount
At 31 December 2020 24.2 0.1 0.1 24.4
At 31 December 2019 23.3 0.2 0.1 23.6
136 Funding Circle Holdings plc
12. Property, plant and equipment, right-of-use assets and lease liabilities
The Group has right-of-use assets which comprise property leases held by the Group. Information about leases for which the
Group is a lessee is presented below.
Analysis of property, plant and equipment between owned and leased assets
31 December 31 December
2020 2019
£m £m
Property, plant and equipment (owned) 3.9 5.1
Right-of-use assets 24.8 33.9
28.7 39.0
Reconciliation of amount recognised in the balance sheet
Right-of-use
Leasehold Computer Furniture assets
improvements equipment and fixtures (property) Total
£m £m £m £m £m
Cost
At 1 January 2019 5.3 4.0 2.2 33.8 45.3
Reclassification (0.2) — — 0.2 —
Disposals (0.5) — (0.4) (5.3) (6.2)
Additions 1.4 0.9 1.2 21.1 24.6
Exchange differences (0.2) (0.1) — (0.4) (0.7)
At 31 December 2019 5.8 4.8 3.0 49.4 63.0
At 1 January 2020 5.8 4.8 3.0 49.4 63.0
Disposals (0.1) (1.6) (0.2) (2.2) (4.1)
Additions 0.4 0.4 — — 0.8
Exchange differences — — — (0.4) (0.4)
At 31 December 2020 6.1 3.6 2.8 46.8 59.3
Accumulated depreciation
At 1 January 2019 1.7 3.0 1.5 13.9 20.1
Disposals (0.3) — (0.4) (3.7) (4.4)
Charge for the year 1.0 0.9 0.4 5.5 7.8
Impairment 0.6 0.1 — — 0.7
Exchange differences — — — (0.2) (0.2)
At 31 December 2019 3.0 4.0 1.5 15.5 24.0
At 1 January 2020 3.0 4.0 1.5 15.5 24.0
Disposals (0.1) (1.6) (0.2) (2.2) (4.1)
Charge for the year 0.8 0.8 0.4 7.0 9.0
Impairment (exceptional) — — — 1.7 1.7
Exchange differences — — — — —
At 31 December 2020 3.7 3.2 1.7 22.0 30.6
Carrying amount
At 31 December 2020 2.4 0.4 1.1 24.8 28.7
At 31 December 2019 2.8 0.8 1.5 33.9 39.0
During the year right-of-use assets were identified as part of the FCCE and FCUS restructures, which were considered to be
individual CGUs for which the recoverable amount was considered to be the future potential sub-let value. The estimated
discounted cash flows from sub-let income were compared to the carrying value of the asset and an impairment of £1.7 million
was recognised. See note 5 for related exceptional items.
Annual Report and Accounts 2020 137
Financial statements
Notes forming part of the consolidated financial statements continued
for the year ended 31 December 2020
12. Property, plant and equipment, right-of-use assets and lease liabilities continued
Lease liabilities
Amounts recognised on the balance sheet were as follows:
31 December 31 December
2020 2019
£m £m
Current 7.3 8.5
Non-current 23.5 29.8
Total 30.8 38.3
Amounts recognised in the statement of comprehensive income were as follows:
31 December 31 December
2020 2019
£m £m
Depreciation charge of right-of-use assets (property) 7.0 5.5
Interest expense (included in finance costs) 1.4 1.2
Expense relating to short-term leases and leases of low-value assets 0.1 0.2
The total cash outflow for leases (excluding short-term and low-value leases) in 2020 was £7.8 million (2019: £7.1 million).
A maturity analysis illustrating the undiscounted contractual cash flows of lease liabilities is included within the liquidity risk
disclosure within note 17.
As at 31 December 2020 the potential future undiscounted cash outflows that have not been included in the lease liability due
to lack of reasonable certainty the lease extension options might be exercised amounted to £nil (2019: £nil).
13. Investment in SME loans
31 December 31 December
2020 2019
£m £m
Non-current
Investment in SME loans (other) – amortised cost 0.7 1.7
Investment in trusts – FVTPL 21.2 —
Total non-current 21.9 1.7
Current
Investment in SME loans (other) – amortised cost 24.3 —
Investment in SME loans (warehouse) – FVTPL 221.8 342.0
Investment in SME loans (securitised) – FVTPL 279.8 366.6
Total current 525.9 708.6
Total 547.8 710.3
138 Funding Circle Holdings plc
14. Trade and other receivables
31 December 31 December
2020 2019
£m £m
Trade receivables 1.6 0.9
Other receivables¹ 15.5 17.3
Prepayments 3.6 4.2
Accrued income² 43.7 7.3
Rent and other deposits 2.6 3.9
67.0 33.6
1. Includes £7.5 million (2019: £7.5 million) in relation to cash and liquidity reserves held in the UK securitisation vehicle which will unwind to make payments to bond holders in future.
2. Includes £36.2 million (2019: £nil) in relation to transaction fees receivable on CBILS originations. Accrued income outstanding at the start of the year was subsequently collected.
The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivables described earlier.
No trade receivables were overdue or impaired. Other receivables includes amounts related to bought back loans, some of which
are past due or impaired.
Included in rent and other deposits are £1.9 million of rental deposits (2019: £3.3 million) in respect of the Group’s property
leases which expire over the next five years.
The Directors consider that the carrying amount of trade and other receivables approximates to their fair value.
15. Trade and other payables
31 December 31 December
2020 2019
£m £m
Trade payables 2.1 3.2
Other taxes and social security costs 3.7 3.1
Other creditors 5.6 1.7
Accruals 22.7 11.7
34.1 19.7
The Directors consider that the carrying amount of trade and other payables approximates to their fair value.
16. Provisions and other liabilities
Dilapidation Loan repurchase Restructuring 1 Other ¹ Total
£m £m £m £m £m
At 1 January 2019 0.8 3.1 — 0.7 4.6
Reclassification — 0.5 — (0.5) —
Additional provision/liability 0.1 6.5 — 0.7 7.3
Amount utilised — (7.2) — (0.7) (7.9)
At 31 December 2019 0.9 2.9 — 0.2 4.0
Reclassification — — — — —
Exchange differences — 0.2 — (0.1) 0.1
Additional provision/liability — 6.2 6.0 3.2 15.4
Amount utilised — (4.1) (4.9) (0.6) (9.6)
At 31 December 2020 0.9 5.2 1.1 2.7 9.9
1. Restructuring provision is in relation to reorganisation of the USA, German and Dutch businesses; see note 5. Other provisions includes provisions for operational buy backs.
31 December 31 December
2020 2019
£m £m
Current 8.7 3.1
Non-current 1.2 0.9
9.9 4.0
The dilapidation provision represents an estimated cost for dismantling the customisation of offices and restoring the leasehold
premises to its original state at the end of the tenancy period. The provision is expected to be utilised by 2025.
Annual Report and Accounts 2020 139
Financial statements
Notes forming part of the consolidated financial statements continued
for the year ended 31 December 2020
16. Provisions and other liabilities continued
Loan repurchase liability
In certain historical circumstances, in the less mature markets, Funding Circle has entered into arrangements with institutional
investors to assume the credit risk on the loan investments made by the institutional investors. Under the terms of the agreements,
the Group is required either to make payments when the underlying borrower fails to meet its obligation under the loan contract
or buy the defaulted loan from the investors at its carrying value. In return for these commitments, the Group is entitled to the
excess returns or additional income which is recorded as other income.
Under IFRS 9, the Group is required to provide for these loan repurchases under the expected credit loss (“ECL”) model.
The liability related to each loan arranged is based on the ECLs associated with the probability of default of that loan in the next
12 months unless there has been a significant increase in credit risk of that loan since origination. The Group assumes there has
been a significant increase in credit risk if outstanding amounts on the loan investment exceed 30 days, in line with the rebuttable
presumption per IFRS 9.
The Group defines a default, classified within non-performing, as a loan investment with any outstanding amounts exceeding
a 90-day due date, which reflects the point at which the loan is considered to be credit-impaired. Under the loan repurchase
contracts, this was the point at which there is an obligation for the Group to make a payment under the contract or buy back
the loan. However, while the buyback agreement is contractually defined as 90 days past due, due to the impact of Covid-19,
a consent letter was signed with the institutional investors in April 2020 to accommodate loans on forbearance plans whereby
loans on such plans will be repurchased at 180 days past due. However, the definition of default for the purposes of expected
credit losses remains 90 days past due and the buyback may lag the default definition applied.
If the loan is bought back by the Group, at the point of buy back, the financial asset associated with the purchase meets the
definition of purchased or originated credit impaired (“POCI”); this element of the reserve is therefore based on lifetime ECLs.
The Group bands each loan investment using an internal risk rating and assesses credit losses on a collective basis.
Performing: Underperforming: Non-performing:
12-month lifetime lifetime
ECL ECL ECL Total
£m £m £m £m
At 1 January 2019 2.1 0.8 0.2 3.1
Liability against new loans originated 2.8 — — 2.8
Liability against loans transferred from performing (3.6) (0.1) 7.4 3.7
Amounts utilised — — (7.2) (7.2)
Loans repaid (0.5) — — (0.5)
Change in probability of default 1.3 0.1 (0.4) 1.0
At 31 December 2019 2.1 0.8 — 2.9
Liability against new loans originated — — — —
Exchange differences 0.1 0.1 — 0.2
Liability against loans transferred from performing (0.3) 0.5 4.9 5.1
Amounts utilised — — (4.1) (4.1)
Loans repaid (0.8) — — (0.8)
Change in probability of default 1.1 0.1 0.7 1.9
At 31 December 2020 2.2 1.5 1.5 5.2
Gross assets
of external
Basis for parties subject Loan
Expected credit recognition of to loan repurchase repurchase
loss coverage loan repurchase liability liability
At 31 December 2019 % liability £m £m
Performing (due in 30 days or less) 5.0 12-month ECL 40.6 2.1
Underperforming (31–90 days overdue) 81.3 Lifetime ECL 0.9 0.8
Non-performing (90+ days overdue) 100.0 Lifetime ECL — —
Total 41.5 2.9
140 Funding Circle Holdings plc
16. Provisions and other liabilities continued
Loan repurchase liability continued
Gross assets
of external
Basis for parties subject Loan
Expected credit recognition of to loan repurchase repurchase
loss coverage loan repurchase liability liability
At 31 December 2020 % liability £m £m
Performing (due in 30 days or less) 10.8 12-month ECL 20.3 2.2
Underperforming (31–90 days overdue) 71.5 Lifetime ECL 2.1 1.5
Non-performing (90+ days overdue) 79.0 Lifetime ECL 1.9 1.5
Total 24.3 5.2
The percentages applied above are based on the Group’s past experience of delinquencies and loss trends, as well as forward‑looking
information in the form of macroeconomic scenarios governed by an impairment committee, which considers macroeconomic
forecasts such as changes in interest rates, GDP and inflation.
Macroeconomic scenarios are probability weighted within the model and include stress scenarios of: i) low losses, a high
GDP, market confidence and political stability; ii) normal losses based on baseline economic conditions; iii) high losses with
manufacturing and political instability; and iv) very high losses reflecting Covid-19 stress scenarios with the peak of defaults
having occurred in H2 2020 and then de-stressing gradually afterwards.
The stress scenario used was a geography-weighted scenario reflecting higher losses on the Netherlands book than that of
the German portion of the loan book. This reflects the impact of the German Government’s stimulus programme, resulting
in a blended stress of defaults having peaked in H2 2020 and de-stressing gradually afterwards.
The expected credit loss model includes actual defaults determined by monthly cohort, adjusted for forecasted lifetime cumulative
default rates. It applies the latest default curve and lifetime default rates tailored to each cohort based on the expected lifetime
default rate. When actual defaults trend higher than the curve, the forecast default curve is shifted upwards to align with actual
performance. Estimated recoveries from defaults are discounted back to their present value using the effective interest rate.
The items that the model is most sensitive to are default rates. Management has applied an estimated weighted average lifetime
default rate across cohorts of 20.5% (31 December 2019: 12.9%). See note 2 for a sensitivity analysis on the impact of a change
in default rates. At 31 December 2020, there is only one portfolio of loans.
The maximum exposure the Group might have to pay at the balance sheet date if 100% of eligible loans were required to be
bought back would be £24.3 million (2019: £41.5 million). This would be dependent on the timing of any eligible loans defaulting.
Repayments of eligible loans are no longer reinvested and therefore the final loan is due to expire in December 2024, along with
the associated financial guarantees.
17. Financial risk management
The Board of Directors has overall responsibility for the establishment and oversight of the Group’s risk management framework.
The risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits
and controls and to monitor risks and ensure any limits are adhered to. The Group’s activities are reviewed regularly and potential
risks are considered.
Risk factors
The Group has exposure to the following risks from its use of financial instruments:
‐ credit risk;
‐ liquidity risk; and
‐ market risk (including foreign exchange risk, interest rate risk and other price risk).
Principal financial instruments
The principal financial instruments used by the Group, from which financial instrument risk arises, are as follows:
‐ investments;
‐ trade and other receivables;
‐ cash and cash equivalents;
‐ trade and other payables;
‐ bank borrowings;
‐ bonds;
‐ lease liabilities; and
‐ loan repurchase liabilities.
Annual Report and Accounts 2020 141
Financial statements
Notes forming part of the consolidated financial statements continued
for the year ended 31 December 2020
17. Financial risk management continued
Principal financial instruments continued
Categorisation of financial assets and financial liabilities
The tables show the carrying amounts of financial assets and financial liabilities by category of financial instrument as at
31 December 2020:
Fair
value through Amortised
profit and loss cost Total
Assets £m £m £m
Investment in SME loans (other) — 25.0 25.0
Investment in SME loans (warehouse) 221.8 — 221.8
Investment in SME loans (securitised) 279.8 — 279.8
Investment in trusts 21.2 — 21.2
Trade and other receivables 0.3 19.4 19.7
Cash and cash equivalents 24.8 78.5 103.3
547.9 122.9 670.8
Fair
value through Amortised
profit and loss cost Total
Liabilities £m £m £m
Trade and other payables — (7.7) (7.7)
Loan repurchase liability — (5.2) (5.2)
Bank borrowings — (195.5) (195.5)
Bonds (7.8) (286.5) (294.3)
Lease liabilities — (30.8) (30.8)
(7.8) (525.7) (533.5)
The tables show the carrying amounts and fair values of financial assets and financial liabilities by category of financial instrument
as at 31 December 2019:
Fair
value through Amortised
profit and loss cost Total
Assets £m £m £m
Investment in SME loans (other) — 1.7 1.7
Investment in SME loans (warehouse) 342.0 — 342.0
Investment in SME loans (securitised) 366.6 — 366.6
Trade and other receivables 0.2 21.9 22.1
Cash and cash equivalents 46.0 118.5 164.5
754.8 142.1 896.9
Fair
value through Amortised
profit and loss cost Total
Liabilities £m £m £m
Trade and other payables — (4.9) (4.9)
Loan repurchase liability — (2.9) (2.9)
Bank borrowings — (265.8) (265.8)
Bonds (20.0) (328.7) (348.7)
Lease liabilities — (38.3) (38.3)
(20.0) (640.6) (660.6)
Financial instruments measured at amortised cost
Financial instruments measured at amortised cost, rather than fair value, include cash and cash equivalents, trade and other
receivables, investment in SME loans (other), bank borrowings, lease liabilities, certain bonds, loan repurchase liabilities and
trade and other payables. Due to their short-term nature, the carrying value of each of the above financial instruments
approximates to their fair value.
142 Funding Circle Holdings plc
17. Financial risk management continued
Financial instruments measured at fair value
IFRS 13 requires certain disclosures which require the classification of financial assets and financial liabilities measured at fair
value using a fair value hierarchy that reflects the significance of the inputs used in making the fair value measurement.
Disclosure of fair value measurements by level is according to the following fair value measurement hierarchy:
‐ level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the
measurement date;
‐ level 2 inputs are inputs other than quoted prices included within level 1 that are observable for the assets or liabilities, either
directly or indirectly; and
‐ level 3 inputs are unobservable inputs for the asset or liability.
The fair value of financial instruments that are not traded in an active market (for example, investments in SME loans) is
determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is
available and rely as little as possible on entity-specific estimates. If all significant inputs required to fair value an instrument are
observable, the instrument is included in level 2. The investments categorised as level 2 relate to derivative financial instruments.
If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3.
Fair value measurement using
Quoted prices Significant Significant
in active observable unobservable
markets inputs inputs
(level 1) (level 2) (level 3) Total
31 December 2020 £m £m £m £m
Financial assets
Trade and other receivables — 0.1 0.2 0.3
Investment in SME loans (warehouse) — — 221.8 221.8
Investment in SME loans (securitised) — — 279.8 279.8
Investment in trusts — — 21.2 21.2
Cash and cash equivalents 24.8 — — 24.8
24.8 0.1 523.0 547.9
Financial liabilities
Bonds — — (7.8) (7.8)
— — (7.8) (7.8)
Fair value measurement using
Quoted prices Significant Significant
in active observable unobservable
markets inputs inputs
(level 1) (level 2) (level 3) Total
31 December 2019 £m £m £m £m
Financial assets
Trade and other receivables — 0.2 — 0.2
Investment in SME loans (warehouse) — — 342.0 342.0
Investment in SME loans (securitised) — — 366.6 366.6
Cash and cash equivalents 46.0 — — 46.0
46.0 0.2 708.6 754.8
Financial liabilities
Bonds — — (20.0) (20.0)
— — (20.0) (20.0)
Annual Report and Accounts 2020 143
Financial statements
Notes forming part of the consolidated financial statements continued
for the year ended 31 December 2020
17. Financial risk management continued
Financial instruments measured at fair value continued
The fair value of investment in SME loans (warehouse) has been estimated by discounting future cash flows of the loans using
discount rates that reflect the changes in market interest rates and observed market conditions at the reporting date. The
estimated fair value and carrying amount of the investment in SME loans (warehouse) was £221.8 million at 31 December 2020
(2019: £342.0 million).
The fair value of investment in SME loans (securitised) represents loan assets in the securitisation vehicles and has been
estimated by discounting future cash flows of the loans using discount rates that reflect the changes in market interest rates and
observed market conditions at the reporting date. The estimated fair value and carrying amount of the investment in SME loans
(securitised) was £279.8 million at 31 December 2020 (2019: £366.6 million).
Bonds represent the unrated tranches of bond liabilities measured at fair value through profit and loss (the rated tranches of
bonds are measured at amortised cost). The fair value has been estimated by discounting future cash flows in relation to the
bonds using discount rates that reflect the changes in market interest rates and observed market conditions at the reporting
date. The estimated fair value and carrying amount of the bonds was £7.8 million at 31 December 2020 (2019: £20.0 million).
Investment in trusts represents the Group’s investment in the trusts used to fund CBILS loans for which the government-owned
British Business Bank will guarantee up to 80% of the balance in the event of default and is measured at fair value through profit
and loss. The fair value has been estimated by discounting future cash flows in relation to the trusts using discount rates that
reflect the changes in market interest rates and observed market conditions at the reporting date. The estimated fair value and
carrying amount of the investment in trusts was £21.2 million at 31 December 2020 (2019: £nil).
The most relevant significant unobservable input relates to the default rate estimate and discount rates applied to the fair value
calculation, details of which are set out in note 2 for those with material estimation uncertainty.
Fair value movements on investment in SME loans (warehouse), investment in SME loans (securitised), investments in trusts and
bonds (unrated) are recognised through the profit and loss account in fair value (losses)/gains.
A reconciliation of the movement in level 3 financial instruments is shown as follows:
Investment in Investment in
SME loans SME loans Bonds Investment Trade and
(warehouse) (securitised) (unrated) in trusts other receivables
£m £m £m £m £m
At 1 January 2019 — — — — —
Additions 673.4 — (17.1) — —
Securitisations (292.2) 414.5 — — —
Repayments (32.5) (37.4) 0.7 — —
Net (loss)/gain on the change in fair value of financial
instruments at fair value through profit and loss (0.5) (5.8) (3.6) — —
Foreign exchange loss (6.2) (4.7) — — —
At 31 December 2019 342.0 366.6 (20.0) — —
Additions 286.9 — — 20.9 —
Securitisations (214.2) 214.2 — — —
Transfers (0.2) — — — 0.2
Repayments (146.9) (211.7) 4.2 — —
Disposal — — (4.0) — —
Net (loss)/gain on the change in fair value of financial
instruments at fair value through profit and loss (43.4) (87.2) 12.0 0.3 —
Foreign exchange loss (2.4) (2.1) — — —
At 31 December 2020 221.8 279.8 (7.8) 21.2 0.2
144 Funding Circle Holdings plc
17. Financial risk management continued
Financial risk factors
Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual
obligations, and arises principally from the Group’s receivables from customers and cash and cash equivalents held at banks.
The Group’s maximum exposure to credit risk by class of financial asset is as follows:
31 December 31 December
2020 2019
£m £m
Non-current
Investment in SME loans (other) 0.7 1.7
Investment in trusts 21.2 —
Current
Investment in SME loans (other) 24.3 —
Investment in SME loans (warehouse) 221.8 342.0
Investment in SME loans (securitised) 279.8 366.6
Trade and other receivables:
– Trade receivables 1.6 0.9
– Other receivables 15.5 17.3
– Rent and other deposits 2.6 3.9
Cash and cash equivalents 103.3 164.5
Total gross credit risk exposure 670.8 896.9
Less bank borrowings and bond liabilities (489.8) (614.5)
Total net credit risk exposure 181.0 282.4
In addition the Group is subject to financial guarantees it has issued to buy back loans detailed in the loan repayment provision
in note 16. The Group’s maximum exposure to credit risk on financial guarantees were every eligible loan required to be bought
back would be £24.3 million (2019: £41.5 million).
Investment in SME loans (warehouse) and investment in SME loans (securitised) relate to the underlying pool of SME loans in
both the warehouse and securitisation vehicles. Whilst there is credit risk from the loans defaulting, these SME loans and the
associated bank debt or third party bonds are held within bankruptcy remote vehicles. If the SME loans were to all default, then
the bank debt or third party bonds do not receive their money back. Therefore the overall exposure to the Group for these
investments is the Group’s net investment in the SME loans which is after taking account of the bank debt and third party bonds.
Trade receivables represent the invoiced amounts in respect of servicing fees due from institutional investors. The risk of
financial loss is deemed minimal because the counterparties are well established financial institutions.
Ongoing credit evaluation is performed on the financial condition of other receivables and, where appropriate, a provision for
impairment is recorded in the financial statements.
Other receivables include amounts receivable in respect of credit impaired debts acquired by the Group. The carrying amount of
these loans is stated net of impairment charges and represents the Group’s maximum exposure to credit risk as no collateral or
other credit enhancements are held.
Individual risk limits for banks and financial institutions are set by external rating agencies. The Group’s treasury policy has set
limits and quantities that the Group must remain within. No credit or counterparty limits were exceeded during the year. The
Group’s cash and cash equivalents split by S&P counterparty rating were A/A- rated: £78.3 million (2019: £112.6 million), A+ or
better: £24.8 million (2019: £51.1 million) and below A- rated: £0.2 million (2019: £0.8 million).
Annual Report and Accounts 2020 145
Financial statements
Notes forming part of the consolidated financial statements continued
for the year ended 31 December 2020
17. Financial risk management continued
Financial risk factors continued
Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to
managing liquidity is to ensure, as far as possible, that it will always have sufficient financial resources to meet its liabilities when
due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s position.
The Group’s liquidity position is monitored and reviewed on an ongoing basis by the Directors.
The amounts disclosed in the following tables are the contractual undiscounted cash flows. The liquidity requirements of the
bonds are met from cash flows generated by the investment in SME loans (securitised) and the liquidity requirements of bank
borrowings are met from cash flows generated by investment in SME loans (warehouse) and SME loans (other).
The maturity analysis of financial instruments at 31 December 2020 and 31 December 2019 is as follows:
Between Total
Less than 3 months Between 1 Over undiscounted Impact of Carrying
3 months and 1 year and 5 years 5 years cash flows discounting 2 amount
At 31 December 2020 £m £m £m £m £m £m £m
Financial liabilities
Trade and other payables (7.7) — — — (7.7) — (7.7)
Bank borrowings (171.2) — (24.3) — (195.5) — (195.5)
Bonds (45.9) (101.7) (164.3) — (311.9) 17.6 (294.3)
Loan repurchase liability1 (5.2) — — — (5.2) — (5.2)
Lease liabilities (1.8) (5.5) (24.3) (2.2) (33.8) 3.0 (30.8)
(231.8) (107.2) (212.9) (2.2) (554.1) 20.6 (533.5)
Between Total
Less than 3 months Between 1 Over undiscounted Impact of Carrying
3 months and 1 year and 5 years 5 years cash flows discounting 2 amount
At 31 December 2019 £m £m £m £m £m £m £m
Financial liabilities
Trade and other payables (4.9) — — — (4.9) — (4.9)
Bank borrowings (265.8) — — — (265.8) — (265.8)
Bonds (43.4) (108.8) (219.8) (0.5) (372.5) 23.8 (348.7)
Loan repurchase liability1 (2.9) — — — (2.9) — (2.9)
Lease liabilities (2.1) (6.4) (28.8) (5.7) (43.0) 4.7 (38.3)
(319.1) (115.2) (248.6) (6.2) (689.1) 28.5 (660.6)
1. Financial guarantees provided for in the loan repurchase liability are allocated to the earliest period in which the guarantee could possibly be called.
2. Included within the impact of discounting on bonds is £2.5 million of deferred bond issuance costs (2019: £2.7 million).
During 2020, the Group maintained revolving credit facility agreements of up to £220 million and $180 million for the Group’s UK
and US ABS programmes respectively, including a new facility in the US of up to $175 million in the year. The facilities are drawn
down in order to fund the purchase of SME loans for the warehouses. Due to the impact of Covid-19 and the refocus towards
CBILS and PPP loan originations, the warehouses have ceased reinvestment of proceeds from SME loans and commenced
paying down the outstanding facility balances. As at 31 December 2020, the amounts drawn in the UK and US totalled £120.6
million (2019: £144.8 million) and $69.2 million (2019: $159.8 million) respectively. Interest is payable on the borrowings in the UK
at 2.0% plus 1 month London Inter-Bank Offered Rate (“LIBOR”) and in the US at 2.5% plus the 3 month commercial paper rate on
the initial facility and at 3 month USD LIBOR + 3.0% on the new facility respectively.
Additionally in the US the Group has drawn $33.1 million (2019: $nil) on the PPP Liquidity Facility available from the Federal
Reserve Bank at a fixed interest rate of 0.35%.
Market risk
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market
prices. The Group’s market risk arises from open positions in interest-bearing assets and liabilities, to the extent that these are
exposed to general and specific market movements.
a) Price risk
The Group is not exposed to market risk with respect to financial instruments as it does not hold any marketable securities.
b) Cash flow and fair value interest rate risk
The Group is exposed to interest rate risk in relation to financial liabilities through drawn committed borrowing facilities and on
bonds and on financial assets through investment in SME loans.
146 Funding Circle Holdings plc
17. Financial risk management continued
Financial risk factors continued
Market risk continued
b) Cash flow and fair value interest rate risk continued
Non-trading interest rate risk
The Group’s interest risk on financial instruments is limited to interest receivable on loan note investments, cash and cash equivalent
balances and interest on bank borrowings. The maturities of financial instruments subject to interest rate risk are as follows:
Less than 3 months Between 3 months and 1 year Between 1 and 5 years
2020 2019 2020 2019 2020 2019
At 31 December £m £m £m £m £m £m
Fixed rate
Investment in SME loans (other)2 — — — — 25.0 1.7
Investment in trusts — — — — 21.2 —
Investment in SME loans
(warehouse)¹ 1.6 0.3 2.8 11.5 217.4 330.2
Investment in SME loans
(securitised)¹ 0.2 0.6 8.3 4.9 271.3 361.1
Bank borrowings2 — — — — (24.3) —
Bonds¹ — — — — (169.9) (128.9)
Floating rate
Cash and cash equivalents 103.3 164.5 — — — —
Bank borrowings (171.2) (265.8) — — — —
Bonds — — — — (124.4) (219.8)
(66.1) (100.4) 11.1 16.4 216.3 344.3
1. The bonds, investment in SME loans (warehouse) and investment in SME loans (securitised) are classified as current on the balance sheet, reflecting that the holding in residual
junior notes and investment in SME loans in the warehouse by the Group are held to sell, and upon sale the Group would expect to deconsolidate the related assets of the
securitisation vehicles. The above table represents the contractual maturities.
2. The fixed rate bank borrowings and investment in SME loans (other) represent the Group’s drawing of the PPP liquidity facility in the US in order to fund PPP loan originations.
These are classified as current on the balance sheet, representing the expectation that the PPP loans will be forgiven by the SBA and the associated liability will be repaid from
the proceeds within 12 months of the balance sheet date. The above table represents the contractual maturities.
There are no financial assets which are held for a period of over five years.
Interest rate risk sensitivity analysis – non-trading interest (fixed rate)
Interest on loan note investments including investment in SME loans (other), investments in SME loans (warehouse), investment
in SME loans (securitised), investment in trusts, certain bank borrowings (in the US) and bond liabilities (in the US) is fixed until
the maturity of the investment, and is not impacted by market rate changes. The level of future interest rate receivable would be
similar to that received in the year and the impact of movements in interest rates on the value of the assets is considered
immaterial to the Group’s overall performance for the year.
Interest rate risk sensitivity analysis – non-trading interest (floating rate)
Interest on cash and cash equivalent balances is subject to movements in LIBOR. The Directors monitor interest rate risk and note that interest
rates remain at a historical low. The Directors believe that any reasonable increase in the LIBOR rate would not significantly impact the Group.
Interest on bank borrowings is subject to movements in LIBOR and the three-month commercial paper rate. However, the Group
has mitigated the risk of increases in interest rates through the use of interest rate caps. A 1.0% increase in LIBOR would result in
an increase of annual interest paid on facilities drawn to their current levels of £1.7 million.
Interest on bonds (in the UK) is subject to movements in the Sterling Overnight Index Average Rate (“SONIA”). However, the
Group has mitigated the risk of increases in interest rates through the use of interest rate caps. A 1.0% increase in SONIA would
result in an increase of projected annual interest expense for the year ended 31 December 2021 of £1.1 million.
Following the financial crisis, the reform and replacement of benchmark interest rates such as GBP LIBOR and other inter-bank offered rates
(‘IBORs’) has become a priority for global regulators. There remains some uncertainty around the timing and precise nature of these changes.
As described above the Group is exposed to GBP and USD LIBOR on bank borrowings and cash and cash equivalents. The Group
has monitored the market and output from industry working groups and regulators which manage the transition to the new
benchmark interest rates away from GBP LIBOR to SONIA and USD LIBOR to SOFR. In response to the transition the Group has
identified all its LIBOR exposures and is undertaking a plan to smoothly transition to alternative benchmark rates. Given the
Group’s exposures relate to bank borrowings and cash and cash equivalents, the impact is limited and the Group expects to rely
on fall-back language within the contracts.
The amendments to IFRS 9 will be applied until uncertainty arising from the benchmark interest rate reforms that the Group is
exposed to ends. This uncertainty will remain until the Group’s contracts that reference LIBOR are amended to reference the
alternative benchmark.
Annual Report and Accounts 2020 147
Financial statements
Notes forming part of the consolidated financial statements continued
for the year ended 31 December 2020
17. Financial risk management continued
Financial risk factors continued
Market risk continued
b) Cash flow and fair value interest rate risk continued
Instruments used by the Group
Interest rate caps mitigate risk of increases in floating rate interest on borrowing facilities used to fund the origination of loans for
the securitisation warehouses.
All derivatives are held at fair value through profit and loss with movements in the fair value being recognised in fair value gains/
(losses) within net income. Derivatives are not designated into formal hedging relationships within the Group.
Interest rate cap Interest rate cap Interest rate cap
At 31 December 2020 US warehouse US warehouse UK securitisation
Notional amount $180m $87.5m £177m 1
Underlying USD LIBOR USD LIBOR GBP SONIA
Strike rate 4.0% 4.0% 2.0%
Maturity June 2021 March 2022 July 2024
Fair value — — £0.1m
1. The UK securitisation interest rate cap notional is set on a declining basis in line with the expected repayment of bonds subject to floating rate SONIA benchmark.
c) Sensitivity analysis
IFRS 7 requires disclosure of sensitivity analysis for each type of market risk to which the entity is exposed at the report date
showing how profit or loss and equity would have been affected by changing the relevant risk variables that were reasonably
possible at that date.
As discussed above, the Group does not have significant exposure to liquidity or cash flow risk and therefore no sensitivity
analysis for those risks has been disclosed.
d) Foreign exchange risk
The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily
with respect to the US dollar, the UK pound and the euro. Foreign exchange risk arises from future commercial transactions,
recognised assets and liabilities and net investments in foreign operations.
The Group’s policy is, where possible, to allow Group entities to settle liabilities denominated in their functional currency with the
cash generated from their own operations in that currency. Where Group entities have liabilities denominated in a currency other
than their functional currency (and have insufficient reserves of that currency to settle them), cash already denominated in that
currency will, where possible, be transferred from elsewhere within the Group.
Apart from these particular cash flows the Group aims to fund expenses and investments in the respective currency and to
manage foreign exchange risk at a local level by matching the currency in which income is generated and expenses are incurred.
The Group has certain investments in foreign operations, whose net assets are exposed to foreign currency translation risk.
The Group is primarily exposed to the US dollar and euro currencies.
The table below sets out the Group’s currency exposures from financial assets and liabilities held by Group companies in currencies
other than their functional currencies and resulting in exchange movements in the income statement and balance sheet.
31 December 2020 31 December 2019
US dollars GBP EUR Total US dollars GBP EUR Total
£m £m £m £m £m £m £m £m
Cash and cash
equivalents 0.2 — 2.3 2.5 0.2 — 0.1 0.3
Intra-Group assets — — — — 0.1 1.5 0.8 2.4
Intra-Group liabilities (0.5) (10.1) (8.3) (18.9) (0.1) — (0.7) (0.8)
The Group assessed the sensitivity to a 5% depreciation and 5% appreciation in pound sterling against the relevant foreign
currencies. 5% is the sensitivity rate used when reporting foreign currency risk internally to senior management personnel and
represents management’s assessment of a reasonably possible change in foreign exchange rates. The sensitivity analysis
includes only outstanding foreign currency-denominated monetary items and adjusts their translation at the year end for a 5%
change in foreign currency rates. The sensitivity analysis excludes quasi-equity loans to foreign operations within the Group.
148 Funding Circle Holdings plc
17. Financial risk management continued
Financial risk factors continued
d) Foreign exchange risk continued
The Group’s sensitivity to fluctuations in foreign currencies is related to the US dollar and euro amounts held in the Parent Company.
Appreciation in pound sterling Depreciation in pound sterling
Income Income Income Income
statement Equity statement Equity statement Equity statement Equity
2020 2020 2019 2019 2020 2020 2019 2019
At 31 December £m £m £m £m £m £m £m £m
US dollars (0.5) (2.9) — (6.7) 0.6 3.2 — 7.4
Euros (0.3) 0.5 — (2.0) 0.3 (0.5) — 2.2
(0.8) (2.4) — (8.7) 0.9 2.7 — 9.6
Capital management
The Group considers its capital to comprise its ordinary share capital, share premium, foreign exchange reserve, share options
reserve and retained earnings. Quantitative detail is shown in the consolidated statement of changes in equity.
The Directors’ objective when managing capital is to safeguard the Group’s ability to continue as a going concern in order to
provide returns for the shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce
the cost of capital.
The Directors monitor a number of KPIs at both the Group and individual subsidiary level on a monthly basis. As part of the
budgetary process, targets are set with respect to operating expenses in order to effectively manage the activities of the Group.
Performance is reviewed on a regular basis and appropriate actions are taken as required. These internal measures indicate the
performance of the business against budget/forecast and confirm that the Group has adequate resources to meet its working
capital requirements.
Sources of estimation uncertainty and critical judgements that may result in a material adjustment in future periods are outlined
in note 2.
18. Share capital
31 December 31 December 31 December 31 December
2020 2020 2019 2019
Number £ Number £
Called up, allotted and fully paid
Ordinary shares of £0.001 352,943,975 352,944 348,399,274 348,399
During 2020, the Company issued 4,544,701 ordinary shares of £0.001 ranking pari passu with ordinary shares in issue (2019:
2,366,196) in connection with employee share schemes, giving rise to a total share premium of £0.3 million (2019: £0.5 million).
Included in the total number of ordinary shares outstanding above are 1,114,518 (2019: 2,282,239) shares held by the Group’s
Employee Benefit Trust and 2,508,079 (2019: nil) shares held by the Group’s Share Incentive Plan Trust.
19. Share premium account
2020 2019
£m £m
At 1 January 292.3 291.8
Exercise of options – proceeds received 0.3 0.5
At 31 December 292.6 292.3
20. Foreign exchange reserve
£m
At 1 January 2019 15.7
Exchange difference on translating the net assets of foreign operations (7.7)
At 31 December 2019 8.0
Exchange difference on translating the net assets of foreign operations 1.7
At 31 December 2020 9.7
Exchange differences relating to the translation of the net assets of the Group’s subsidiaries from their functional currency into
the Company’s functional currency are recognised directly in the foreign exchange reserves within equity.
Annual Report and Accounts 2020 149
Financial statements
Notes forming part of the consolidated financial statements continued
for the year ended 31 December 2020
21. (Accumulated losses)/retained earnings
£m
At 1 January 2019 87.2
Capital reduction —
Transfer of share option costs 4.0
Loss for the year (84.7)
At 31 December 2019 6.5
Capital reduction —
Transfer of share option costs 3.2
Loss for the year (108.3)
At 31 December 2020 (98.6)
The transfer of share option costs is in relation to the exercise of share options during the year and their associated costs in the
share options reserve which are transferred to retained earnings.
22. Share-based payment
The Company operates share schemes for all employees of the Group. The terms of the main current schemes from which the
Group’s employees benefit are set out below.
Post-IPO Employee Share Plans
Since the Company’s admission on the London Stock Exchange to the year ended 31 December 2019, the Company operated a
single discretionary share-based long-term incentive plan (“LTIP”). In November 2020, the Company introduced a Share Incentive
Plan (“SIP”) approved by HMRC, which includes free shares, partnership shares and matching shares. This plan is only relevant
for UK based employees; the LTIP will continue to make awards for non-UK based employees and employees in senior
management positions.
The main features of the LTIP and SIP are set out below.
Post-IPO – LTIP
Form of LTIP Awards
The Board grants awards in the form of restricted stock units at no cost or options to acquire shares at no cost (a nil-cost option).
Performance conditions
LTIP Awards are not currently subject to performance conditions with the exception of LTIP Awards granted to Executive
Directors which are subject to performance conditions. Refer to the Remuneration Report for further details.
Any performance condition may be amended or substituted if one or more events occur which cause the Board to reasonably
consider that an amended or substituted performance condition would be more appropriate and would not be materially less
difficult to satisfy than originally intended.
Vesting and release of LTIP Awards
LTIP Awards granted to employees, excluding Executive Directors, currently vest subject to continued service only (“Time-Based
Vesting”) in accordance with a vesting schedule set at grant.
LTIP Awards granted to Executive Directors vest at the end of three years subject to achievement of performance conditions.
Further details are shown in the Remuneration Report.
The Board may determine at grant that an LTIP Award is subject to an additional holding period following vesting (a “Holding
Period”). LTIP Options will be exercisable from the date of vest or, if applicable, the end of the Holding Period until the tenth
anniversary of the grant date, or such earlier date as the Board determines.
Cessation of employment
LTIP Options may normally be exercised to the extent vested for a period of six months after ceasing employment or 12 months
after death (or such other period as the Board may determine).
150 Funding Circle Holdings plc
22. Share-based payment continued
Post-IPO Employee Share Plans continued
Post-IPO – SIP
Form of SIP awards
The Board grants awards in the form of: free shares, partnership shares and matching shares.
Performance conditions
There are no performance conditions attached to free shares, partnership shares and matching shares.
Free shares
Under the SIP, UK employees are eligible to receive up to a maximum of £3,600, or ten percent of annual salary if less, of Free
Shares per tax year. Free Shares will be awarded annually with a forfeiture period of two years and a holding period of three years.
Matching shares
UK employees are invited to buy partnership shares from pre-tax salary with a maximum investment in each tax year of £1,800
or 10% of annual salary, if less. Partnership shares are purchased every month. Employees can withdraw partnership shares
from the SIP at any time although there are tax advantages if the shares are retained in the SIP for at least three years.
Participants are awarded one matching share for every one partnership share they purchase. There are tax advantages if the
matching shares are retained in the SIP for at least three years.
Whilst employed by the Company, a participant will forfeit a corresponding number of matching shares if they choose to transfer
partnership shares out of the SIP within three years of the date of purchase.
Under normal circumstances, if a participant leaves the Company before the second anniversary of the date of award, they will
forfeit their matching shares. If they leave between two and three years of the date of award, they retain their matching shares
but those shares must be removed from the SIP and any tax advantages are lost. If a participant leaves under special
circumstances, they will retain all of their matching shares, regardless of how long they have been held in the SIP.
Pre-IPO Employee Share Plans
EMI Options
Prior to June 2014, the Company issued options to UK subsidiary undertakings’ employees under the EMI Options Scheme.
Since then, the Company is not eligible to issue under the scheme.
Unapproved Options
The Company has an Unapproved Options Scheme for all employees of the Group. In accordance with standard vesting terms,
the full award will vest four years after the vesting start date, with 25% vesting on the first anniversary of the vesting date and
6.25% every three months thereafter. If the options remain unexercised after a period of ten years from the date of grant, the
options expire. Options are forfeited if the employee leaves the Group before the options vest.
US Options Scheme 2
Options granted under the “US Options Scheme 2” are Unapproved Options granted to US employees as either non-qualifying
options or incentive stock options. The US Options Scheme 2 has the same vesting period as Unapproved Options. If the options
remain unexercised after a period of ten years from the date of grant, the options expire. Unvested options are forfeited if the
employee leaves the Group before the options vest.
Growth shares with “shadow” Unapproved Options
Growth Shares were an upfront award of B, D or E ordinary shares with a nominal value of £0.00001 per share where the ability to
receive dividends and a capital return from the shares was conditional on the achievement of a performance target (namely, the
growth of the enterprise value of the business beyond a hurdle). According to the terms and conditions, the performance target
differed depending on the underlying share.
If this performance target was met, the participants would profit from the whole of the value of the business, not just the growth
from the date of the award, on the same basis as the ordinary shares.
The Growth Shares were each issued in conjunction with a “shadow” Unapproved Option. The Unapproved Option could be
exercised if the applicable enterprise value hurdle is not met upon an exit event. Both the Growth Shares and the “shadow”
Unapproved Options vested according to the Company’s standard vesting terms, as discussed in the description of Unapproved
Options above.
All share-based incentives are subject to service conditions. Such conditions are not taken into account in the fair value of the
service received. The fair value of services received in return for share-based incentives is measured by reference to the fair
value of share-based incentives granted. The estimate of the fair value of the share-based incentives is measured using market
prices. When market prices do not exist for shares or rights to shares with similar characteristics, fair value is determined by using a
valuation technique (either the Monte Carlo or Black-Scholes pricing model as is most appropriate for each scheme).
Annual Report and Accounts 2020 151
Financial statements
Notes forming part of the consolidated financial statements continued
for the year ended 31 December 2020
22. Share-based payment continued
Charge for the year
Included in operating expenses of the Group is a charge for share-based payments and associated social security costs of
£5.6 million (2019: £8.0 million) that arises from transactions accounted for as equity-settled share-based payment transactions.
Movements in share plans
Details of movements in the share schemes during the year are as follows:
EMI Options Unapproved Options ESS and growth shares LTIP Awards US Options Scheme Total
Number and WAEP 1
Number and WAEP Number and WAEP Number and WAEP Number and WAEP Number and WAEP
Number £ Number £ Number £ Number £ Number £ Number £
Outstanding at
1 January 2019 630,912 0.027 9,093,840 0.327 — — 1,418,196 — 6,380,111 0.406 17,523,059 0.319
Granted during
the year — — — — — — 8,840,545 — — — 8,840,545 —
Exercised during
the year (149,600) 0.027 (1,059,368) 0.386 — — (450,492) — (867,752) 0.338 (2,527,212) 0.279
Forfeited during
the year — — (719,138) 0.535 — — (1,295,157) — (906,152) 0.373 (2,920,447) 0.247
Outstanding at
31 December
2019 481,312 0.027 7,315,334 0.298 — — 8,513,092 — 4,606,207 0.426 20,915,945 0.199
Free shares and
EMI Options Unapproved Options matching shares LTIP Awards US Options Scheme Total
Number and WAEP Number and WAEP Number and WAEP Number and WAEP Number and WAEP Number and WAEP
Number £ Number £ Number £ Number £ Number £ Number £
Outstanding at
1 January 2020 481,312 0.027 7,315,334 0.298 — — 8,513,092 — 4,606,207 0.426 20,915,945 0.199
Granted during
the year — — — — 2,519,616 — 11,340,072 — — — 13,859,688 —
Exercised during
the year (170,000) 0.027 (486,791) 0.309 — — (944,652) — (208,008) 0.390 (1,809,451) 0.131
Forfeited during
the year (5,000) 0.027 (536,454) 0.266 (20,319) — (4,393,292) — (743,344) 0.444 (5,698,409) 0.083
Outstanding at
31 December
2020 306,312 0.027 6,292,089 0.300 2,499,297 — 14,515,220 — 3,654,855 0.424 27,267,773 0.140
1. Weighted average exercise price.
152 Funding Circle Holdings plc
22. Share-based payment continued
Movements in share plans continued
The following table summarises information about the share awards outstanding at 31 December 2020:
Free shares and
EMI Options Unapproved Options matching shares LTIP Awards US Options Total
Number and WARCL 2
Number and WARCL Number and WARCL Number and WARCL Number and WARCL Number and WARCL
Range of
exercise prices Number Years Number Years Number Years Number Years Number Years Number Years
£0–£0.008 — — 2,260,017 7.4 2,499,297 — 14,515,220 7.4 120,969 7.6 19,395,503 6.3
£0.009–£0.176 306,312 2.2 789,918 1.1 — — — — 28,456 — 1,124,686 1.3
£0.177–£0.471 — — 2,866,949 6.9 — — — — 2,855,402 4.4 5,722,351 5.7
£0.472–£1.75 — — 375,205 7.5 — — — — 650,028 6.3 1,025,233 6.7
306,312 2.2 6,292,089 6.4 2,499,297 — 14,515,220 7.4 3,654,855 4.8 27,267,773 6.0
The following table summarises information about the share awards outstanding at 31 December 2019:
EMI Options Unapproved Options LTIP Awards US Options Total
Number and WARCL 2
Number and WARCL Number and WARCL Number and WARCL Number and WARCL
Range of
exercise prices Number Years Number Years Number Years Number Years Number Years
£0–£0.008 — — 2,728,326 8.4 8,513,092 8.2 273,095 8.6 11,514,513 8.2
£0.009–£0.176 481,312 3.6 797,981 2.1 — — 35,893 0.9 1,315,186 2.6
£0.177–£0.471 — — 3,358,705 8.1 — — 3,368,358 6.0 6,727,063 7.0
£0.472–£1.75 — — 430,322 8.5 — — 928,861 7.2 1,359,183 7.6
481,312 3.6 7,315,334 7.6 8,513,092 8.2 4,606,207 6.3 20,915,945 7.5
2. Weighted average remaining contractual life.
Unapproved Options Scheme
There have been no Unapproved Options granted since IPO in 2018. The weighted average fair values of options granted under the
Unapproved Options Scheme and the US Options Scheme ranged between £0.73 and £1.80 per option respectively in the previous
year. These values were determined using the Black-Scholes valuation model. The significant inputs into the model are as follows:
31 December
Unapproved Options Scheme 2018
Share price (various times during the year) £1.89
Exercise price £nil–£0.44
Expected life 4 years
Expected volatility 48%
Risk-free interest rate (between) 0.93%–1.02%
Dividend yield Nil
Forward exchange rate – US Options (between) 0.769
LTIP Awards
Since all LTIP Awards were made post-IPO, the Company has used its share price at grant date as the fair value of the LTIP
Awards granted during the year to employees.
In the prior financial year, the only exception to this was for awards made to the former Chief Financial Officer, who departed
prior to the end of this financial year (these awards have therefore lapsed). These awards contained market-based performance
conditions and the fair value at grant date was calculated using a Black-Scholes model.
The incumbent Chief Financial Officer’s LTIP Awards do not contain market-based performance conditions but do include non-market
performance conditions (refer to Remuneration Report for further detail) and, therefore, the Company’s share price at grant date
is the fair value used, with the likelihood of achieving the non-market performance conditions factored into the accounting charge.
In line with IFRS 2, the likelihood will be reassessed at the end of each reporting period.
Free shares and matching shares
The Company has used its share price at grant date as the fair value of free shares and matching shares granted during the year
to employees.
Annual Report and Accounts 2020 153
Financial statements
Notes forming part of the consolidated financial statements continued
for the year ended 31 December 2020
23. Notes to the consolidated statement of cash flows
Cash inflow/(outflow) from operating activities
31 December 31 December
2020 2019
£m £m
Loss before taxation (108.1) (84.2)
Adjustments for
Depreciation of property, plant and equipment 9.0 7.8
Amortisation of intangible assets 8.2 7.1
Impairment of goodwill (exceptional item) 12.0 29.0
Impairment of intangible and tangible assets (exceptional item) 1.7 5.3
Share based payment restructuring credit (exceptional item) (1.0) —
Interest receivable (0.4) (1.8)
Interest payable 1.4 1.2
Non-cash employee benefits expense – share-based payments and associated social security costs 6.4 7.7
Fair value losses 118.3 9.9
Movement in restructuring provision 1.1 —
Movement in loan repurchase liability 2.3 (0.2)
Movement in other provisions 2.5 (0.4)
Share of losses of associates 0.8 0.1
Other non-cash movements 1.2 (0.1)
Changes in working capital
Movement in trade and other receivables (35.3) (9.1)
Movement in trade and other payables 13.0 0.7
Net cash inflow/(outflow) from operating activities 33.1 (27.0)
Cash and cash equivalents
31 December 31 December
2020 2019
£m £m
Cash and cash equivalents 103.3 164.5
The cash and cash equivalents balance is made up of cash, money market funds and bank deposits. The carrying amount of
these assets is approximately equal to their fair value. Included within cash and cash equivalents above is cash of £1.0 million
(2019: £1.2 million) which is restricted in use in the event of rental payment defaults and cash held in the securitisation and
warehouse SPVs of £38.9 million (2019: £14.2 million) which has been collected for on-payment to lenders and bond holders
and is therefore restricted in its use. A further £4.3 million (2019: £nil) of cash is held which is restricted in use to repaying
investors in CBILS loans and paying CBILS-related costs to the UK Government.
At 31 December 2020, money market funds totalled £24.8 million (2019: £46.0 million).
Analysis of changes in liabilities from financing activities
1 January Exchange Other non-cash 31 December
2019 Cash flow movements movements 2019
£m £m £m £m £m
Bank borrowings — (269.4) 3.6 — (265.8)
Bonds — (349.4) 4.3 (3.6) (348.7)
Lease liabilities (25.1) 7.1 (0.3) (20.0) (38.3)
Liabilities from financing activities (25.1) (611.7) 7.6 (23.6) (652.8)
1 January Exchange Other non-cash 31 December
2020 Cash flow movements movements 2020
£m £m £m £m £m
Bank borrowings (265.8) 69.0 1.3 — (195.5)
Bonds (348.7) 35.6 6.8 12.0 (294.3)
Lease liabilities (38.3) 7.8 (0.3) — (30.8)
Liabilities from financing activities (652.8) 112.4 7.8 12.0 (520.6)
154 Funding Circle Holdings plc
24. Operating lease arrangements
As disclosed in notes 1 and 12, leases of low-value items or short-term leases continue to be treated as operating leases.
31 December 31 December
2020 2019
£m £m
Lease payments under operating leases recognised as an expense in the year 0.1 0.2
At the balance sheet date, the Group had outstanding commitments for future minimum lease payments under non-cancellable
operating leases, which fall due as follows:
31 December 31 December
2020 2019
£m £m
Within one year — 0.1
In the second to fifth years inclusive — —
After five years — —
— 0.1
Operating lease payments represent payments for lease assets that are individually considered low value.
25. Dividends per share
No ordinary dividends were declared or paid in the current or previous financial years.
26. Related party transactions
Balances and transactions between the Company and its subsidiaries, which are related parties, have been eliminated on
consolidation and are not disclosed in this note.
Compensation of key management personnel
Key management personnel are those persons having authority and responsibility for planning, directing and controlling the
activities of the Group. The Group’s key management personnel comprises the Global Leadership Team (“GLT”), which is made
up of the Executive Directors and other senior management as defined in note 3 as the chief operating decision maker (“CODM”)
and the Non-Executive Directors of the Group.
31 December 31 December
2020 2019
£m £m
Salaries and short-term benefits 3.3 4.2
Equity-based compensation 1.9 2.7
Post-employment benefits 0.1 0.1
5.3 7.0
Further details on Directors’ remuneration are disclosed in the Remuneration Report in the Corporate Governance section of the
Annual Report and Accounts on pages 78 to 98.
Transactions with other related parties
During the year the Group invested £0.4 million (2019: £13.9 million) into entities accounted for as associates, received capital
redemptions of £2.3 million (2019: £nil), and received dividends of £0.4 million (2019: £0.1 million).
27. Ultimate controlling party
In the opinion of the Directors, the Group does not have a single ultimate controlling party.
28. Contingent liabilities
There are currently no contingent liabilities expected to have a material adverse financial impact on the Group’s consolidated
financial statements.
29. Subsequent events
There have been no subsequent events since the balance sheet date.
Annual Report and Accounts 2020 155
Financial statements
Notes forming part of the consolidated financial statements continued
for the year ended 31 December 2020
30. Interests in other entities
Investments in subsidiaries
The Group had the following subsidiaries, all of which have been included in these consolidated financial statements. The proportion
of the voting rights in subsidiary undertakings held directly by the Company does not differ from the proportion of ordinary
shares held.
Proportion of Directly/
Place of ownership indirectly
Subsidiary undertakings incorporation interest held Registered office address
Funding Circle Ltd UK 100% Directly 71 Queen Victoria Street, London EC4V 4AY
Funding Circle Asset Finance Limited UK 100% Indirectly 71 Queen Victoria Street, London EC4V 4AY
Funding Circle BB Limited UK 100% Indirectly 71 Queen Victoria Street, London EC4V 4AY
Funding Circle Eclipse Lending Limited UK 100% Indirectly 71 Queen Victoria Street, London EC4V 4AY
Funding Circle Focal Point Lending
Limited UK 100% Indirectly 71 Queen Victoria Street, London EC4V 4AY
Funding Circle Global Partners Limited UK 100% Directly 71 Queen Victoria Street, London EC4V 4AY
Funding Circle Midco Limited UK 100% Directly 71 Queen Victoria Street, London EC4V 4AY
Funding Circle Property Finance Limited UK 100% Indirectly 71 Queen Victoria Street, London EC4V 4AY
Funding Circle Trustee Limited UK 100% Indirectly 71 Queen Victoria Street, London EC4V 4AY
Made To Do More Limited UK 100% Indirectly 71 Queen Victoria Street, London EC4V 4AY
Funding Circle USA, Inc. USA 100% Directly 85 Second Street, 4th Floor,
San Francisco, California 94105
Funding Circle Notes Program, LLC USA 100% Indirectly 85 Second Street, 4th Floor,
San Francisco, California 94105
FC Marketplace, LLC USA 100% Indirectly 85 Second Street, 4th Floor,
San Francisco, California 94105
Funding Circle Investor Funds, LLC USA 100% Indirectly 85 Second Street, 4th Floor,
San Francisco, California 94105
FC Partners, LLC (dissolved 23 November USA 100% Indirectly 85 Second Street, 4th Floor,
2020) San Francisco, California 94105
Funding Circle Securities LLC USA 100% Indirectly 85 Second Street, 4th Floor,
(dissolved 13 November 2020) San Francisco, California 94105
FC Capital US LLC USA 100% Indirectly 85 Second Street, 4th Floor,
San Francisco, California 94105
FC Capital US II LLC USA 100% Indirectly 85 Second Street, 4th Floor,
San Francisco, California 94105
FC Depositor US LLC USA 100% Indirectly 85 Second Street, 4th Floor,
San Francisco, California 94105
FC Partners, LP (dissolved 19 October USA 100% Indirectly 85 Second Street, 4th Floor,
2020) San Francisco, California 94105
Funding Circle Diversified Income Fund, LP USA 100% Indirectly 85 Second Street, 4th Floor,
(dissolved 23 November 2020) San Francisco, California 94105
Funding Circle CE GmbH Germany 100% Directly Bergmannstraße 71/72, 10961 Berlin
Funding Circle Deutschland GmbH Germany 100% Indirectly Bergmannstraße 71/72, 10961 Berlin
Funding Circle Connect GmbH Germany 100% Indirectly Bergmannstraße 71/72, 10961 Berlin
FC Forderungsmanagement GmbH Germany 100% Indirectly Bergmannstraße 71/72, 10961 Berlin
Juwel 182 VV UG (dissolved 29 May 2020) Germany 100% Directly Bergmannstraße 71/72, 10961 Berlin
Funding Circle Espana S.L. Spain 100% Indirectly Calle Claudio Coello número 91,
3a planta, 28006 Madrid
Funding Circle Nederland B.V. Netherlands 100% Indirectly Atrium, Strawinskylaan 3075,
4th Floor, 1077 ZX Amsterdam
Funding Circle Canada Inc. Canada 100% Indirectly c/o TMF Canada Inc., 330 Bay Street,
(dissolved 5 October 2020) Suite 820, Toronto ON M5H 2S8
Funding Circle Capital Canada Inc. Canada 100% Indirectly c/o TMF Canada Inc., 330 Bay Street,
(dissolved 8 September 2020) Suite 820, Toronto ON M5H 2S8
156 Funding Circle Holdings plc
30. Interests in other entities continued
Investments in associates
Set out below are the associates of the Group as at 31 December 2020 which, in the opinion of the Directors, are material to
the Group. The entities listed below have share capital consisting solely of ordinary shares, which are held directly by the Group.
The country of incorporation or registration is also their principal place of business, and the proportion of ownership interest
is the same as the proportion of voting rights held.
Proportion of Directly/
Place of ownership indirectly
Associate entity name incorporation interest held Registered office address
Funding Circle European SME Direct Ireland 24% Indirectly 70, Sir John Rogerson’s Quay, Dublin 2, Ireland
Lending Fund¹
Funding Circle UK SME Direct Ireland 8% Indirectly 70, Sir John Rogerson’s Quay, Dublin 2, Ireland
Lending Fund I¹
1. Private sub-fund held via the Funding Circle ICAV, an Irish collective asset-management vehicle constituted as an umbrella fund with registered office address of 70, Sir John
Rogerson’s Quay, Dublin 2, Ireland.
The tables below provide summarised financial information for those associates that are material to the Group. The information
disclosed reflects the amounts presented in the financial statements of the relevant associates and not Funding Circle Holdings
plc’s share of those amounts. They have been amended to reflect adjustments made by the entity when using the equity method,
including modifications for differences in accounting policy. While the Group holds less than 20% ownership in Funding Circle UK
SME Direct Lending Fund I the Group considers that it has significant influence over the entity through representation on its
board and so continues to account for it as an associate instead of a trade investment.
The associates are sub-funds which invest in SME loans, and the Group is exposed to default and prepayment risk with respect
to the performance of the underlying loans in the associates, to the extent that the share of profit from associate may diminish.
The table below illustrates the Group’s maximum exposure to the investment in associate which represents the value on the
Group balance sheet. The value of the investment is derived from net asset value statements from the sub-funds; however, being
private these are not from observable market data, and therefore the fair value is considered to be aligned to the carrying value.
Funding Circle Funding Circle Funding Circle Funding Circle
European UK European UK
SME Direct SME Direct SME Direct SME Direct
Lending Fund I Lending Fund I Lending Fund I Lending Fund I
31 December 31 December 31 December 31 December
2020 2020 2019 2019
Summarised balance sheet £m £m £m £m
Non-current assets 5.4 5.0 8.3 4.9
Current assets 0.8 0.3 0.3 0.2
Current liabilities — — — —
Non-current liabilities — — — —
Net assets 6.2 5.3 8.6 5.1
Annual Report and Accounts 2020 157
Financial statements
Notes forming part of the consolidated financial statements continued
for the year ended 31 December 2020
30. Interests in other entities continued
Reconciliation of associates’ total shareholders’ equity to carrying amount in Funding Circle Holdings plc’s consolidated
financial statements
Funding Circle Funding Circle Funding Circle Funding Circle
European UK European UK
SME Direct SME Direct SME Direct SME Direct
Lending Fund I Lending Fund I Lending Fund I Lending Fund I
2020 2020 2019 2019
£m £m £m £m
Opening net assets as at 1 January 2020 35.1 35.6 — —
Shares issued in the year 1.2 30.4 34.9 35.0
Profit for the year (1.9) 0.9 0.4 0.8
Exchange differences 1.9 — — —
Other comprehensive income — — — —
Capital redemptions in the year (9.6) — — —
Dividends paid in the year (0.4) (2.8) (0.2) (0.2)
Closing net assets as at 31 December 2020 26.3 64.1 35.1 35.6
Group’s share in % 23.6% 8.3% 24.4% 14.3%
Group’s share of net assets as at 31 December 2020 6.2 5.3 8.6 5.1
Accounting policy alignment (0.2) (0.3) (0.3) (0.2)
Group’s carrying amount 6.0 5.0 8.3 4.9
Funding Circle Funding Circle Funding Circle Funding Circle
European UK European UK
SME Direct SME Direct SME Direct SME Direct
Lending Fund I Lending Fund I Lending Fund I Lending Fund I
2020 2020 2019 2019
Summarised statement of comprehensive income £m £m £m £m
Gross income 0.7 0.5 0.4 0.2
(Loss)/profit for the year (0.4) 0.1 0.1 0.1
Other comprehensive income — — — —
Total comprehensive (loss)/income (0.4) 0.1 0.1 0.1
Dividends received from associates 0.1 0.3 0.1 —
Capital redemptions received from associates 2.3 — — —
Interest in other entities
Stichting Derdengelden Funding Circle is not a direct or indirect subsidiary of Funding Circle Holdings plc but is an independent
special purpose foundation which is required in the Netherlands to safeguard borrower and investor funds and is consolidated as
it is controlled by the Group.
Funding Circle Holdings Employee Benefit Trust was established on 14 September 2018. The purpose of the trust is to facilitate
the acquisition of shares in the Company by, or for the benefit of, existing and future employees of the Company and Group
subsidiaries and is consolidated as it is controlled by the Group.
158 Funding Circle Holdings plc
30. Interests in other entities continued
Consolidated structured entities: Small Business Origination Loan Trust 2019-3 DAC, Great Trinity Lending 1 DAC, Small
Business Lending Trust 2019-A, Small Business Lending Grantor Trust 2019-A, Small Business Lending Trust 2020-A and Small
Business Lending Grantor Trust 2020-A are consolidated structured warehouse and securitisation entities which either hold SME
loan assets in a warehouse awaiting sale to a securitisation entity or hold the portfolio of SME loans and issue bonds after
securitisation has occurred.
The entities are bankruptcy remote special purpose vehicles and as such there is no requirement for the Group to provide
financial support to the entities. The entities’ activities are not governed by voting rights and the Group has assessed that it has
power over the entities based on the purpose and design of the entity and ability to direct the relevant activities of the entity, the
nature of the relationship with the entity and the size of its exposure to the variability of the returns from each entity.
As explained in note 17, the Group experiences net credit risk and prepayment risk in relation to the SME loan assets net of bond
liabilities, and interest rate risk in relation to the warehouse loan facilities and floating rate bond liabilities which is partially
mitigated through the use of derivative financial instruments.
The principal activities of the Group’s most significant subsidiary undertakings are set out below. These are considered
significant in the context of the Group’s business, results and financial position.
Subsidiary undertakings Principal activity
Funding Circle Ltd Acts as facilitator and performs intermediary services in respect of all loans made through the
Funding Circle platform in the UK.
Funding Circle USA, Inc. The US operating subsidiary of Funding Circle. Acts as the administrator of the Funding Circle
platform in the US.
FC Marketplace, LLC Acts as originator and servicer of all loans made through the Funding Circle platform in the US.
FC Marketplace LLC sells each loan it originates, on a servicing retained basis, to third party
institutional investors or to affiliates (e.g. Funding Circle Notes Program, LLC) on an arm’s length
basis. FC Marketplace LLC initially holds loans for a two to three days’ cure period before selling
the loan on to the investor or affiliate.
Funding Circle Notes Program, LLC A special purpose bankruptcy remote entity which issues loan payment dependent debt securities
to accredited investors. It uses the proceeds to purchase a specific corresponding loan made
through the Funding Circle platform from FC Marketplace, LLC. The entity retains the contractual
rights to receive the cash flows from the loan assets it has purchased, but has assumed a
contractual obligation to pay those cash flows to the holders of the debt securities. The eligibility
criteria have been met to derecognise the loan assets and associated issued debt securities as a
pass-through arrangement under IFRS 9.
Funding Circle Focal Point Lending Ltd Subsidiary via which CBILS loans are originated and which holds legal title to loans which are
held via trust structures for the beneficial ownership of institutional investors.
Funding Circle CE GmbH The Continental Europe operating subsidiary of Funding Circle. Facilitates development,
marketing and provision of internet services to affiliated companies of FCCE Group
(e-commerce concerning different goods).
Funding Circle Deutschland GmbH Operates the Funding Circle platform in Germany and services loans.
Funding Circle Nederland B.V. Operates the Funding Circle platform in the Netherlands and services loans.
Annual Report and Accounts 2020 159
Financial statements
Company balance sheet
as at 31 December 2020
31 December 31 December
2020 2019
Note £m £m
Non-current assets
Investments in subsidiary undertakings 5 303.3 416.2
Loans due from subsidiary undertakings 7 — —
303.3 416.2
Current assets
Loans due from subsidiary undertakings 7 10.1 0.9
Trade and other receivables 6 1.0 0.6
Cash and cash equivalents 11 27.8 80.8
38.9 82.3
Total assets 342.2 498.5
Current liabilities
Trade and other payables 8 1.7 1.3
Total liabilities 1.7 1.3
Equity
Share capital 9 0.3 0.3
Share premium account 9 292.6 292.3
Share options reserve 13.6 11.9
Retained earnings 10 34.0 192.7
Total equity 340.5 497.2
Total equity and liabilities 342.2 498.5
The Company’s loss for the year was £161.9 million (2019: loss of £81.6 million).
The financial statements on pages 160 to 170 were approved by the Board and authorised for issue on 25 March 2021.
They were signed on behalf of the Board by:
Oliver White
Director
Company registration number 07123934
The notes on pages 163 to 170 form part of these financial statements.
160 Funding Circle Holdings plc
Company statement of changes in equity
for the year ended 31 December 2020
Retained
Share earnings/
premium Share options (accumulated
Share capital account reserve losses) Total equity
Note £m £m £m £m £m
Balance at 1 January 2019 0.3 291.8 6.0 270.3 568.4
Loss for the year 10 — — — (81.6) (81.6)
Transactions with owners
Transfer of share option costs — — (4.0) 4.0 —
Issue of share capital 9 — 0.5 — — 0.5
Employee share schemes – value of
employee services — — 9.9 — 9.9
Balance at 31 December 2019 0.3 292.3 11.9 192.7 497.2
Loss for the year 10 — — — (161.9) (161.9)
Transactions with owners
Transfer of share option costs — — (3.2) 3.2 —
Issue of share capital 9 — 0.3 — — 0.3
Employee share schemes – value of
employee services — — 4.9 — 4.9
Balance at 31 December 2020 0.3 292.6 13.6 34.0 340.5
The notes on pages 163 to 170 form part of these financial statements.
Annual Report and Accounts 2020 161
Financial statements
Company statement of cash flows
for the year ended 31 December 2020
31 December 31 December
2020 2019
Note £m £m
Net cash outflow from operating activities 11 (3.5) (4.1)
Investing activities
Loans advanced to subsidiary undertakings 7 (29.0) —
Loan repayment from subsidiary undertakings 7 20.7 0.2
Capital contribution to subsidiary undertakings 5 (41.6) (220.9)
Interest received 0.2 1.2
Net cash outflow from investing activities (49.7) (219.5)
Financing activities
Proceeds on the issue of shares from the exercise of share options 0.2 0.7
Net cash inflow from financing activities 0.2 0.7
Net decrease in cash and cash equivalents (53.0) (222.9)
Cash and cash equivalents at the beginning of the year 80.8 303.7
Cash and cash equivalents at the end of the year 27.8 80.8
The notes on pages 163 to 170 form part of these financial statements.
162 Funding Circle Holdings plc
Notes forming part of the Company financial statements
for the year ended 31 December 2020
1. Significant accounting policies
The separate financial statements of the Company are presented as required by the Companies Act 2006. As permitted by that
Act, the separate financial statements have been prepared in accordance with International Financial Reporting Standards
(“IFRS”) and IFRS Interpretations Committee (“IFRS IC”) interpretations adopted pursuant to Regulation (EC) No 1606/2002 as it
applies in the European Union and the Companies Act 2006 applicable to companies reporting under IFRS. The Company is a
public company limited by shares and registered in England and Wales.
The financial statements have been prepared on the historical cost basis. The principal accounting policies adopted are the
same as those set out in note 1 to the consolidated financial statements except as noted below. These policies have been
consistently applied to all the years presented, unless otherwise stated.
As permitted by the exemption in section 408 of the Companies Act 2006, the profit and loss account of the Company is not
presented as part of these financial statements. The Company made a comprehensive loss for the year of £161.9 million (2019:
comprehensive loss of £81.6 million).
The financial statements are prepared on a going concern basis as the Directors are satisfied that the Group has the resources
to continue in business for the foreseeable future (which has been taken as 12 months from the date of approval of the financial
statements).
Investments in subsidiaries
Investments in subsidiaries are stated at cost less, where appropriate, provisions for impairment (see note 5 for further details).
Key sources of estimation uncertainty
The preparation of financial statements requires the Company to make estimates and judgements that affect the application of
policies and reported amounts. Where a significant risk of materially different outcomes exists due to management assumptions
or sources of estimation uncertainty, this will represent a key source of estimation uncertainty. Estimates and judgements are
continually evaluated and are based on experience and other factors, including expectations of future events that are believed to
be reasonable under the circumstances. Although these estimates are based on management’s best knowledge of the amount,
event or actions, actual results ultimately may differ from those estimates.
Impairment of investments in subsidiary undertakings (note 5)
The carrying value of investment in subsidiary undertakings is reviewed for impairment on an annual basis. The recoverable
amount is determined based on the higher of value in use and fair value less cost to sell, with value in use being applied for this
assessment. The use of this method requires the estimate of future cash flows expected to arise from the continuing operation
of the subsidiaries and the choice of a suitable discount rate in order to calculate the present value. Actual outcomes could vary
significantly from these estimates.
Following the impact of Covid-19 and a change in the investments’ income and cost forecasts, an event indicating the possibility
of impairment was identified and an impairment review undertaken. Impairment was identified in relation to the investment in
the Funding Circle USA CGU as the carrying value exceeded the value in use determined by this impairment assessment. The
investment was impaired by £155.9 million to £88.2 million. It is considered that there are reasonably possible outcomes that
may differ from management’s estimation assumptions that could lead to material additional impairment of the investment.
The Group prepares a five-year management plan for its operations, which is used in the value-in-use calculation. For compound
annual growth rates the majority of the sensitivity is in the growth rate applied to the fifth year which is forecast out into
perpetuity. The cash flow projections are based on the following key assumptions presented along with the sensitivity to
impairment for each key assumption:
‐ fifth-year income growth of 27.0% and fifth-year cost growth of 16.0%. A 400 bps decline in the projected fifth-year income
growth rate with no cost reduction or a 400 bps increase in the projected fifth-year cost growth rate without income growth
would reduce the estimated value in use by £16.1 million and £14.7 million respectively;
‐ pre-tax discount rate of 11.6%. A 100 bps increase in the discount rate would reduce the estimated value in use by £10.1 million;
and
‐ income beyond the five-year period is extrapolated using an estimated growth rate of 1.5%. A reduction in the growth rate to
0.0% would reduce the estimated value in use by £9.3 million.
The above assumptions are based on historical trends and future market expectations.
During the prior year ended 31 December 2019 impairment was identified in relation to the investment in Funding Circle CE GmbH.
Based on the performance of the entity and changes to the medium-term outlook for the investment it was determined that the
carrying value exceeded the recoverable value. The investment was fully impaired by £77.5 million.
Annual Report and Accounts 2020 163
Financial statements
Notes forming part of the Company financial statements continued
for the year ended 31 December 2020
2. Financial risk management
The Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk management framework.
The risk management policies are established to identify and analyse the risks faced by the Company, to set appropriate risk
limits and controls, and to monitor risks and ensure any limits are adhered to. The Company’s activities are reviewed regularly
and potential risks are considered.
Risk factors
The Company has exposure to the following risks from its use of financial instruments:
‐ credit risk;
‐ liquidity risk;
‐ market risk (including currency risk, interest rate risk and other price risk); and
‐ foreign exchange risk.
Principal financial instruments
The principal financial assets and liabilities of the Company, from which financial instrument risk arises, are as follows:
‐ loans due from related undertakings;
‐ trade and other receivables;
‐ cash and cash equivalents; and
‐ trade and other payables.
Categorisation of financial assets and financial liabilities
The table shows the carrying amounts and fair values of financial assets and financial liabilities by category as at 31 December 2020:
Carried at amortised cost Carried at fair value
Based on
Based on individual
Carrying market valuation
amount Fair value derived data parameters
£m £m £m £m
Assets
Loans due from related undertakings 10.1 10.1 — —
Trade and other receivables 0.9 0.9 — —
Cash and cash equivalents 13.4 13.4 14.4 —
24.4 24.4 14.4 —
Liabilities
Trade and other payables (0.2) (0.2) — —
(0.2) (0.2) — —
IFRS 13 requires certain disclosures which require the classification of financial assets and financial liabilities measured at fair
value using a fair value hierarchy that reflects the significance of the inputs used in making the fair value measurement.
Disclosure of fair value measurements by level is according to the following fair value measurement hierarchy:
‐ level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the
measurement date;
‐ level 2 inputs are inputs other than quoted prices included within level 1 that are observable for the asset or liabilities, either
directly or indirectly; and
‐ level 3 inputs are unobservable inputs for the asset or liability.
The Company’s financial assets measured at fair value are all categorised as level 1.
164 Funding Circle Holdings plc
2. Financial risk management continued
Categorisation of financial assets and financial liabilities continued
The table shows the carrying amounts and fair values of financial assets and financial liabilities by category as at 31 December 2019:
Carried at amortised cost Carried at fair value
Based on
Based on individual
Carrying market valuation
amount Fair value derived data parameters
£m £m £m £m
Assets
Loans due from related undertakings 0.9 0.9 — —
Trade and other receivables 0.3 0.3 — —
Cash and cash equivalents 34.8 34.8 46.0 —
36.0 36.0 46.0 —
Liabilities
Amounts due to related undertakings (0.2) (0.2) — —
(0.2) (0.2) — —
Financial instruments measured at amortised cost
Financial assets and liabilities measured at amortised cost, rather than fair value, include loans due from subsidiary
undertakings, cash and cash equivalents, trade and other receivables and trade and other payables. Due to their short-term
nature, the carrying value of the above items approximates their fair value.
The fair value of cash and cash equivalents at 31 December 2020 and 31 December 2019 approximates the carrying value.
Credit risk is mitigated as cash and cash equivalents are held with reputable institutions.
Financial risk factors
Credit risk
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial asset fails to meet its
contractual obligations, and arises principally from the Company’s receivables from related undertakings and cash and
cash equivalents held at banks.
The Company’s maximum exposure to credit risk by class of financial asset is as follows:
31 December 31 December
2020 2019
£m £m
Non-current
Loans due from related undertakings — —
Current
Loans due from related undertakings 10.1 0.9
Trade and other receivables:
– Amounts due from related undertakings 0.9 0.3
Cash and cash equivalents 27.8 80.8
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company’s
approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities
when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the
Company’s position.
The Company’s liquidity position is monitored and reviewed on an ongoing basis by the Directors.
The amounts disclosed in the below tables are the contractual undiscounted cash flows.
Annual Report and Accounts 2020 165
Financial statements
Notes forming part of the Company financial statements continued
for the year ended 31 December 2020
2. Financial risk management continued
Financial risk factors continued
Liquidity risk continued
The maturity analysis of financial assets and liabilities at 31 December 2020 and 31 December 2019 is as follows:
Between
Less than 3 months Between 1 Over
3 months and 1 year and 5 years 5 years
At 31 December 2020 £m £m £m £m
Financial assets
Trade and other receivables 0.9 — — —
Cash and cash equivalents 27.8 — — —
Loans due from related undertakings 10.1 — — —
38.8 — — —
Financial liabilities
Trade and other payables (0.2) — — —
(0.2) — — —
Between
Less than 3 months Between 1 Over
3 months and 1 year and 5 years 5 years
At 31 December 2019 £m £m £m £m
Financial assets
Trade and other receivables 0.3 — — —
Cash and cash equivalents 80.8 — — —
Loans due from related undertakings 0.9 — — —
82.0 — — —
Financial liabilities
Trade and other payables (0.2) — — —
(0.2) — — —
Market risk
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market
prices. The Company’s market risk arises from open positions in interest-bearing assets and liabilities, to the extent that these
are exposed to general and specific market movements.
a) Price risk
The Company is not exposed to market risk with respect to financial instruments as it does not hold any marketable equity securities.
b) Cash flow and fair value interest rate risk
Interest on cash and cash equivalent balances is subject to movements in LIBOR. The Directors monitor interest rate risk
and note that interest rates remain at a historical low. A 0.5% increase in LIBOR could increase the annual interest earned by
c.£0.1 million (2019: c.£0.4 million).
c) Sensitivity analysis
IFRS 7 requires disclosure of sensitivity analysis for each type of market risk to which the entity is exposed at the reporting date
showing how profit or loss and equity would have been affected by changing the relevant risk variables that were reasonably
possible at that date.
As discussed above, the Company does not have significant exposure to liquidity or cash flow risk and therefore no sensitivity
analysis for those risks has been disclosed.
d) Foreign exchange risk
The Company has certain investments in foreign operations, whose net assets are exposed to foreign currency translation risk.
Foreign exchange risk is disclosed in note 17 to the consolidated financial statements.
166 Funding Circle Holdings plc
2. Financial risk management continued
Capital management
The Company considers its capital to comprise equity share capital, share premium, share options reserve and retained earnings.
The Directors’ objective when managing capital is to safeguard the Company’s ability to continue as a going concern in order
to provide returns for the shareholders and benefits for other stakeholders.
The Company is not subject to any externally imposed capital requirements.
The Directors monitor a number of KPIs at both the Company and individual subsidiary level on a monthly basis. As part of
the budgetary process, targets are set with respect to operating expenses in order to effectively manage the activities of the
Company. Performance is reviewed on a regular basis and appropriate actions are taken as required. These internal measures
indicate the performance of the business against budget/forecast and confirm that the Company has adequate resources to
meet its working capital requirements.
3. Company loss for the year
The Company made a comprehensive loss for the year of £161.9 million (2019: comprehensive loss of £81.6 million).
4. Employees
The Company had no employees during the current or prior year other than Directors who numbered 10 (2019: 10). The Company
did not operate any pension schemes during the current or preceding year. Directors received emoluments in respect of their services
to the Company during the year of £1.2 million (2019: £1.2 million). For further information see the Remuneration Report.
5. Investments in subsidiary undertakings
2020 2019
£m £m
Balance at 1 January 416.2 264.6
Capital contribution regarding employee services in subsidiaries 4.1 8.2
Additions 41.6 220.9
Impairment (158.6) (77.5)
Balance at 31 December 303.3 416.2
Investments in subsidiary undertakings, which are listed in note 30 of the Group financial statements, are all stated at cost less
any provision for impairment.
During the year the Company made capital contributions in the form of cash investments of £nil (2019: £127.1 million), £2.0 million
(2019: £9.1 million), £38.9 million (2019: £84.7 million) and £0.7 million (2019: £nil) to Funding Circle USA, Inc., Funding Circle CE GmbH,
Funding Circle Ltd and Funding Circle Canada respectively. These amounts have increased the value of investments in subsidiary
undertakings before impairment.
In addition to the above, the Company recognised a capital contribution of £4.1 million (2019: £8.2 million) representing the
service cost for the employees of its subsidiaries, under the Company’s share option schemes.
During the year the Company identified impairment of £155.9 million to the Company’s investment in Funding Circle USA, Inc.
to a value of £88.2 million, £2.0 million in relation to the Company’s investment in Funding Circle CE GmbH to a value of £nil
and £0.7 million in relation to Funding Circle Midco Limited to a value of £nil (2019: £77.5 million to the Company’s investment
in Funding Circle CE GmbH to a value of £nil) as the value in use calculated was below the carrying amount.
The cumulative amount of impairment losses in relation to investment in subsidiaries is £236.1 million (2019: £77.5 million).
6. Trade and other receivables
31 December 31 December
2020 2019
£m £m
Amounts due from related undertakings 0.9 0.3
Prepayments 0.1 0.2
Accrued income — 0.1
1.0 0.6
The Directors consider that the carrying amount of trade and other receivables is approximately equal to their fair value.
Annual Report and Accounts 2020 167
Financial statements
Notes forming part of the Company financial statements continued
for the year ended 31 December 2020
7. Loans due from subsidiary undertakings
31 December 31 December
2020 2019
£m £m
Funding Circle USA, Inc. 10.0 —
Funding Circle CE GmbH — 0.8
Stichting Derdengelden Funding Circle 0.1 0.1
Funding Circle Global Partners Limited — —
10.1 0.9
Less: non-current portion — —
Current portion 10.1 0.9
Amount due from Group undertakings
During 2020, the Company operated a loan facility agreement with Funding Circle Ltd (subsidiary company). Under the terms of
the agreement, the Company provided an unsecured sterling revolving credit facility of a total principal amount not exceeding
£20.0 million (2019: £30.0 million) to Funding Circle Ltd which is repayable at the end of the facility term of five years on 5 August 2025.
Any drawn amount under the facility bears an interest of 3.5% above the base rate of the Bank of England. A term loan facility of
£16.0 million was amended in 2019 to operate as a revolving credit facility (2018: £16.0 million term loan facility) under the same
terms above which expired on 23 November 2020. In the prior year a term loan facility of up to £30.0 million expired on
31 December 2019 under the same terms above.
During the year the Company has provided £19.0 million (2019: £5.1 million) of additional funding under the facility agreement.
Total interest income of £nil (2019: £0.1 million) has been recognised in the Company statement of comprehensive income.
The carrying amount of this receivable approximates to its fair value.
In the current year, Funding Circle Ltd settled certain amounts due under the intercompany loan obligations cumulative of
interest of £19.0 million (2019: £6.6 million) with Funding Circle Holdings plc. £10.0 million of this was settled via cash, and
£9.0 million settled via a capital contribution from the Company to Funding Circle Ltd of £9.0 million. The facility was drawn by
£nil (2019: £nil) at the balance sheet date.
During the year the Company operated a revolving credit facility to Funding Circle CE GmbH of up to €2.0 million (2019: up to
€2.0 million). Any drawn amount under the facility bears an interest of 3.5% above the base rate of the Bank of England and is
repayable at the end of the facility term of five years on 18 July 2024. The facility was drawn by £nil (2019: £0.8 million) at the
balance sheet date. Funding Circle CE GmbH repaid £0.8 million of the facility during 2020.
During the year, the Company continued to operate an unsecured sterling revolving credit facility for £1 million with its subsidiary
(Funding Circle Global Partners Limited (“FCGPL”)). Under the agreement, any drawn amount under the facility bears an interest
of 3.5% above the base rate of the Bank of England and is repayable with the principal amount at the end of the facility term of
five years on 30 June 2022. The facility was drawn by £nil (2019: £nil) at the balance sheet date. The carrying amount of this
receivable approximates to its fair value.
During the year the Company provided a revolving credit facility to Funding Circle Canada of up to £2.1 million. Any drawn
amount under the facility bears an interest of 3.5% above the base rate of the Bank of England and is repayable at the end of the
facility term of two years on 22 April 2021. The facility was undrawn (2019: £0.9 million) at the balance sheet date. In 2019 the
Company impaired this loan balance in full under the expected credit loss model. During the year the loan was repaid in full and
the impairment was reversed as a credit of £0.9 million to profit and loss.
During the year, the Company provided a term loan facility to Funding Circle USA, Inc. of up to £7.7 million. Any drawn amount
under the facility bears an interest of 3.5% above the base rate of the Bank of England and is repayable at the end of the facility
term of five years on 13 January 2025. The facility was fully drawn at the balance sheet date. In addition, the Company provided
a revolving credit facility to Funding Circle USA, Inc. of up to $3.0 million. Any drawn amount under the facility bears an interest of
3.5% above the base rate of the Bank of England and is repayable at the end of the facility term of five years on 27 January 2025.
The facility was fully drawn at the balance sheet date.
168 Funding Circle Holdings plc
8. Trade and other payables
31 December 31 December
2020 2019
£m £m
Accruals 1.1 0.7
Taxes and social security costs 0.4 0.4
Other creditors 0.2 —
Amounts due to related undertakings — 0.2
1.7 1.3
The Directors consider that the carrying amount of trade and other payables approximates to their fair value.
9. Share capital and share premium
The movement on these items is disclosed in notes 18 and 19 to the consolidated financial statements.
10. Retained earnings/(accumulated losses)
£m
At 1 January 2019 270.3
Transfer of share option costs 4.0
Loss for the year (81.6)
At 31 December 2019 192.7
Transfer of share option costs 3.2
Loss for the year (161.9)
At 31 December 2020 34.0
11. Notes to the Company statement of cash flows
Cash outflow from operating activities
31 December 31 December
2020 2019
£m £m
Loss before taxation (161.9) (81.6)
Adjustments for
Interest receivable (0.2) (1.4)
Non-cash employee benefits expense – share-based payments 1.1 1.5
Impairments (note 5 and note 7) 158.6 78.4
Reversal of prior year impairment charge (0.9) —
Changes in working capital
Movement in trade and other receivables (0.6) (0.4)
Movement in trade and other payables 0.4 (0.6)
Net cash outflow from operating activities (3.5) (4.1)
Cash and cash equivalents
2020 2019
£m £m
Balance at 1 January 80.8 303.7
Cash flow (53.0) (222.9)
Balance at 31 December 27.8 80.8
These comprise cash held by the Company, short-term bank deposits with an original maturity of three months or less and
money market funds. The carrying amount of cash balances approximates their fair value. As at 31 December 2020, money
market funds totalled £14.4 million (2019: £46.0 million).
Annual Report and Accounts 2020 169
Financial statements
Notes forming part of the Company financial statements continued
for the year ended 31 December 2020
12. Related parties
Amounts owed by related parties Amounts owed to related parties
31 December 31 December 31 December 31 December
2020 2019 2020 2019
£m £m £m £m
Short-term payables/receivables
Funding Circle Ltd 0.8 0.2 — —
Funding Circle USA, Inc. 0.1 0.1 — —
Funding Circle CE GmbH — — — 0.2
Intercompany loans
Funding Circle USA, Inc. 10.0 — — —
Funding Circle CE GmbH — 0.8 — —
Stichting Derdengelden Funding Circle 0.1 0.1 — —
11.0 1.2 — 0.2
During the year, the Company received payment of expenses for amounts of £0.4 million (2019: received payment of expenses
for amounts of £1.5 million) from Funding Circle Ltd.
As at the year end, the Company was owed a cumulative amount of £10.0 million (2019: £nil), £0.1 million (2019: £0.1 million)
and £nil (2019: £0.8 million) from loans with Funding Circle Ltd, Stichting Derdengelden Funding Circle and Funding Circle CE
GmbH. An impairment was recognised in 2019 in relation to amounts owed from Funding Circle Canada, which was
subsequently repaid in 2020, and a credit to the profit and loss account was recognised.
13. Parent Company guarantee – exemption from audit for subsidiary companies
The following UK entities, all of which are 100% owned by the Group, are not subject to an audit by virtue of section 479A of the
Companies Act 2006 relating to subsidiary companies:
Company Registration number
Funding Circle Asset Finance Limited 07832868
Funding Circle BB Limited 12593368
Funding Circle Eclipse Lending Limited 12570773
Funding Circle Focal Point Lending Limited 12407296
Funding Circle Global Partners Limited 10554628
Funding Circle Midco Limited 11793162
Funding Circle Property Finance Limited 08896582
Funding Circle Trustee Limited 07239092
The Company will guarantee the debts and liabilities of the above UK subsidiary undertakings at the balance sheet date in accordance
with section 479C of the Companies Act 2006. The Company has assessed the probability of loss under the guarantee as remote.
The Company will guarantee the debt and liabilities of the European subsidiary Funding Circle CE GmbH and therefore meets the
requirements of section 264(3) HGB and the entity is not subject to audit by virtue of this guarantee. The Company has assessed the
probability of loss under the guarantee as remote.
The following UK entity, which is 100% owned by the Group, is exempt from the requirement to prepare accounts by virtue
of section 394A and section 448A of the Companies Act 2006 relating to the individual accounts of dormant subsidiaries:
Company Registration number
Made To Do More Limited 10575978
14. Remuneration of key management personnel
The remuneration of key personnel is disclosed in note 26 to the consolidated financial statements.
15. Ultimate controlling party
In the opinion of the Directors, the Group does not have a single ultimate controlling party.
170 Funding Circle Holdings plc
Glossary
Alternative performance measures
The Group uses a number of alternative performance measures (“APMs”) within its financial reporting. These measures are not
defined under the requirements of IFRS and may not be comparable with the APMs of other companies. The Group believes
these APMs provide stakeholders with additional useful information in providing alternative interpretations of the underlying
performance of the business and how it is managed and are used by the Directors and management for performance analysis
and reporting. These APMs should be viewed as supplemental to, but not as a substitute for, measures presented in the financial
statements which are prepared in accordance with IFRS.
Closest equivalent Adjustments to reconcile
APM IFRS measure to IFRS measure Definition
Income statement
Adjusted EBITDA EBITDA, while not defined Refer to note 3. Profit/loss before finance income and costs, taxation,
under IFRS, is a widely depreciation and amortisation (“EBITDA”) and
accepted profit measure. additionally excludes share-based payment charges
and associated social security costs, foreign exchange
and exceptional items.
Segment adjusted EBITDA, while not defined Refer to note 3. Adjusted EBITDA before product development and
EBITDA under IFRS, is a widely central costs.
accepted profit measure.
Investment AEBITDA EBITDA, while not defined Refer to Finance Review. Investment AEBITDA refers to net investment income
and under IFRS, is a widely (being investment income, investment expense and fair
Operating AEBITDA accepted profit measure. value adjustments) as previously reported and
operating AEBITDA represents AEBITDA excluding
investment AEBITDA.
Net investment Net income. Refer to Finance Review. We have redefined net investment income, first
income described in the 2019 financial results, to be investment
income less investment expense. Investment AEBITDA
is net investment income less fair value (losses)/gains.
Exceptional items None. Refer to note 5. Items which the Group excludes from Adjusted EBITDA
in order to present a measure of the Group’s
performance. Each item is considered to be significant
in nature or size and is treated consistently between
periods. Excluding these items from profit metrics
provides the reader with additional performance
information on the business across the business as it is
consistent with how information is reported to the
Board and GLT.
Earnings/loss per Earnings per share. Refer to note 9. Profit/loss after tax attributable to owners of the Parent
share before and before the impact of exceptional items, divided by
exceptional items the weighted average number of ordinary shares in
issue during the year.
Diluted earnings/ Diluted earnings per share. Refer to note 9. Profit/loss after tax attributable to owners of the Parent
loss per share before and before the impact of exceptional items, divided by
exceptional items the weighted average number of ordinary shares in
issue during the year adjusted for the effects of any
potentially dilutive options.
Cash flow
Free cash flow Cash generated from Refer to Finance Review. Net cash flows from operating activities plus the cost of
operating activities. purchasing intangible assets, property, plant and
equipment, lease payments and interest received. It
excludes the warehouse and securitisation financing and
funding cash flows.
Annual Report and Accounts 2020 171
Financial statements
Shareholder and Company information
Shareholder information Company information Solicitors
Receiving shareholder information by email: Directors Freshfields Bruckhaus
Executive Directors Deringer LLP
You can opt to receive shareholder information from us by
S Desai CBE (Founder, Chief 65 Fleet Street
email rather than by post. We will then email you whenever
Executive Officer) London EC4Y 1HS
we add shareholder communications to the Company
website. To set this up, please visit www.shareview.co.uk O J White (Chief Registrars
and register for electronic communications (e-comms). Financial Officer)
Equiniti Limited
If you subsequently wish to change this instruction or revert to Non-Executive Directors Aspect House
receiving documents or information by post, you can do so by A D Learoyd (Chairman) Spencer Road
contacting the Company’s registrars at the address shown in J E Daniels Lancing
the Company Information opposite. You can also change your G Gopalan West Sussex BN99 6DA
communication method back to post by logging in to your C J Keers
Brokers
Shareview account and going to “update my communication H W Nelis
preferences” within the “Quick links” section. Goldman Sachs
N A Rimer
International
R K Steel (Senior
The registrars can also be contacted by telephone on Peterborough Court
Independent Director)
+44 (0)371 384 2030 (non-UK callers +44 (0)121 415 7047) 133 Fleet Street
E J Wray
or +44 (0)371 384 2255 (text phone). Calls to this number cost London EC4A 2BB
no more than a national rate call from any type of phone or Company Secretary
provider. These prices are for indication purposes only; if in Numis Securities Limited
L K Vernall
doubt, please check the cost of calling this number with your The London Stock Exchange
phone line provider. Lines are open 8.30am–5.30pm, Mon–Fri Independent auditors Building
excluding public holidays in England and Wales. PricewaterhouseCoopers LLP 10 Paternoster Square
7 More London Riverside London EC4M 7LT
Shareholder enquiries London SE1 2RT
Registered office
If you have any queries relating to your shareholding, dividend
Bankers 71 Queen Victoria Street
payments or lost share certificates, or if any of your details
Barclays Bank UK plc London EC4V 4AY
change, please contact the Company’s registrars by visiting
www.shareview.co.uk or by using the contact details above. 1 Churchill Place Registered number
London E14 5HP
07123934
Annual shareholder calendar Santander UK plc
Final results announced 25 March 2021 2 Triton Square
Annual Report published 14 April 2021 Regent’s Place
Annual General Meeting 19 May 2021 London NW1 3AN
Interim report Lloyds Banking Group plc
As part of our e-comms programme, we have decided not to 25 Gresham Street
produce a printed copy of our Interim Report. We will instead London EC2V 7AE
publish the report on our website. It is expected that this year’s
report will be available on our website in September.
Cautionary statement
Certain statements included in our 2020 Annual Report, or incorporated by reference to it, may constitute “forward-looking
statements” in respect of the Group’s operations, performance, prospects and/or financial condition.
Forward-looking statements involve known and unknown risks and uncertainties because they are beyond the Group’s control
and are based on current beliefs and expectations about future events about the Group and the industry in which the Group operates.
No assurance can be given that such future results will be achieved; actual events or results may differ materially as a result of
risks and uncertainties facing the Group. If the assumptions on which the Group bases its forward-looking statements change,
actual results may differ from those expressed in such statements. The forward-looking statements contained in this report
reflect knowledge and information available at the date of this Annual Report and the Group undertakes no obligation to update
these forward‑looking statements except as required by law.
This report does not constitute or form part of any offer or invitation to sell, or any solicitation of any offer to purchase, any
shares or other securities in the Company, and nothing in this report should be construed as a profit forecast.
172 Funding Circle Holdings plc
Funding Circle Holdings plc’s commitment to environmental issues is reflected in this
Annual Report, which has been printed on Amadeus Silk, an FSC ® certified material.
This document was printed by Pureprint Group using its environmental print
technology, with 99% of dry waste diverted from landfill, minimising the impact of
CBP006416
printing on the environment. The printer is a CarbonNeutral® company.
Both the printer and the paper mill are registered to ISO 14001.
Funding Circle Holdings plc
71 Queen Victoria Street
London
EC4V 4AY
corporate.fundingcircle.com
File and source
- File
- funding-circle-holdings-plc-annual-report-and-accounts-2020-pdf_d20492c353f071f5.pdf
- Size
- 8,409,134 bytes
- SHA-256
- fb0e407fb7ad5e28fc8cb80c77f55d80b4f80af8fe00155888301fd98b8372d6
- Original
- corporate.fundingcircle.com
Cited in: Funding Circle