Banking Competition Remedies Ltd (BCR) update on Capability and Innovation Fund Pool E

Banking Competition Remedies Ltd (BCR), the independent body established to implement the £775 million Royal Bank of Scotland (RBS) State Aid Alternative Remedies Package (ARP), today confirms the grant sizes for the Capability and Innovation Fund (CIF) Pool E and outlines the process and timeline for applications.

The purpose of BCR is to implement the ARP such that the UK’s State Aid commitments are met, coupled with an ambition that seeks to increase and expand competition among providers of financial services to SMEs.

Pool E application process

Under Pool E, BCR will be offering £100m of grant funds to eligible bodies over two application periods, with the eligibility criteria, grant sizes and key dates as set out below.

BCR held a consultation this month to gather views of the size of grants under Pool E. BCR contacted 238 organisations directly, while also publicising the consultation via relevant industry trade bodies, associations and the media. Over 100 organisations responded.

Responses for Pool D eligible bodies (total £20m available) were consistently in favour of grants in the £2.5m-£5m range. Responses from Pool A, B and C eligible bodies (total £80m available) show larger challengers advocating awards above £20m and smaller challengers advocating awards £20m or less. Taking into consideration these responses, the BCR board has now decided on the grant sizes available under Pool E and these are shown below.

Pool E: application round one (Pool D eligible bodies)

  • Grants sizes: 2 x £5m / 4 x £2.5m
  • Applicant eligibility: organisations that are eligible under previous Pool D criteria (more information can be foundhere)
  • Key dates:
    • Application window opens:         1 June 2020 09:00
    • Query deadline:                                19 June 2020 17:00
    • Application window closes:          26 June 2020 17:00
    • Public announcement:                   Expected w/c 17 August 2020

Pool E: application round two (A/B/C eligible bodies)

  • Grant sizes: 1 x £35m / 1 x £25m / 2 x £10m
  • Eligibility: banks and organisations that are eligible under previous Pool A, B and C criteria (more information can be found here)
  • Key dates:
    • Application window opens:         22 June 2020 09:00
    • Query deadline:                             17 July 2020 17:00
    • Application window closes:         31 July 2020 17:00
    • Public announcement:                   Expected w/c 21 September 2020

Further information regarding Pool E, including application forms and how to submit queries, can be found here.

It is important to note:

  1. All potential applicants will need to register with BCR by sending details of a named  point of contact and the application period(s) being applied for to bcradmin@bcr-ltd.com.
  2. To assist applicants in familiarisation with the Scout tool which will be used to manage the application process, the Scout Test event launches Tuesday 26 May 09:00 and will remain open until 19 June 17:00, ahead of the Application Period Two window opening.

As with each previous Pool of the Capability and Innovation Fund, BCR has engaged business and technology consultancy Baringa, to receive and analyse the applications via a rigorous and detailed process. BCR’s evaluation team will discuss the output of this process and present a set of supported applications to the full Board, for consideration and final decision. For further details of how BCR makes CIF decisions please see here.

BCR retains a robust focus on monitoring and compliance of all funding recipients once funds have been awarded. Each awardee will make a series of public commitments against which they will report quarterly, and awardees will be required to report and/or meet BCR as requested

Aidene Walsh, BCR Lead Director on CIF said: “We look forward to welcoming a diverse range of applications, across the two funding rounds. The redeployment of £100m to potential applicants provides a further opportunity to enable greater competition in challenger provision of financial services to UK SMEs – a resilient and vibrant sector that will play a crucial role in Britain’s recovery especially in light of  the coronavirus pandemic.”

Background to the ARP and previous funding rounds

The ARP was designed and agreed between HM Treasury, the European Commission and RBS. It prescribes in detail the design of the eligibility criteria for applicants, the timelines for delivery, the legal agreements to be entered into, the sums to be disbursed and the associated processes for those engaging with the two workstreams. The ability of BCR to alter or revise these details is extremely limited.

In 2019, the Board, assisted by Baringa, awarded 15 grants under the CIF fund across four Pools (A, B, C and D). The process and decisions were monitored by Mazars, who have been appointed by HM Treasury. The process attracted 165 applications from a diverse range of applicants showcasing real ambition to provide more choice for UK SMEs across a breadth of financial services.

13 awardees, across the four Pools, are making traction on delivering against their public commitments, despite the challenging economic and business environment. BCR is now actively engaged in monitoring awardees performance, with regular meetings to discuss delivery and progress towards implementation of their business strategies.

In 2020, two awardees, Metro Bank and Nationwide returned £50m each to BCR after their own internal strategic reviews. This scenario was foreseen in the design of the ARP and as a result, £100m is being redeployed through Pool E.

Delivery in a context of challenge

COVID-19 is impacting everyone, including BCR awardees and the many SMEs they work with. The earlier run-up to Brexit and the associated uncertainties ahead are also factors.

The Incentivised Switching Scheme has already made a difference in doubling the switching rate of CASS. However, we now expect to see an inevitable decline in SMEs switching banks given the current circumstances.

Brendan Peilow, BCR Lead Director on ISS commented “It’s understandably not top of an SME’s ‘must do’ list at the moment. BCR nevertheless recently enhanced the scheme for those looking to switch and is looking at ways to extend (current expiry date end August 2020) for those who are considering transferring their accounts in the months ahead but have more pressing priorities right now.”

In relation to CIF, as with the rest of the market, it is likely that COVID-19 will have an impact on awardees but the pandemic has also provided opportunities for some awardees to accelerate their offerings to assist SMEs.

Aidene Walsh BCR Lead Director on CIF said “Despite the difficult circumstances, some challengers have in fact come into their own. The “younger” more digital companies seem to have adapted to this shift quickly and some are using new technologies to assist SMEs in areas such as lending. BCR funding is enabling delivery that creates longer-term opportunities for SMEs and which otherwise might never had had the chance to develop. “

Several awardees have also been very positively engaging with the COVID-19 lending initiatives. Nevertheless, outside the government schemes – and this applies to both non-awardees and BCR CIF awardees alike – there is a low appetite for lending given the substantially increased risk of business failure and bad debt. While short-term targets may be met through these schemes, at this stage long-term lending is posing difficulties for all lenders to SMEs.

Inevitably some commitments are going to take longer to achieve than originally envisaged and BCR processes allow for revised business cases. Where possible, awardees have been sensibly reprioritising to ensure they continue to build capability that will make a difference to SMEs both now and in the future.

Despite current and future challenges for SMEs and for those who provide them with financial services, BCR will continue to support the build-out of competition whatever the external environment. While tightly controlled by its terms of reference agreed between HM Government and European Commission, BCR seeks a pragmatic and transparent approach to addressing these contextual factors.

BCR remains in close liaison with awardees and, at this challenging time for SMEs, has also gained HM Treasury and RBS agreement to implement the £100m Pool E funding earlier than originally foreseen.

What has been achieved by CIF awardees so far?

As part of supporting competition within the SME banking sector, CIF funding is enabling awardees to take forward a diversity of innovative ways to make financial services more wide-ranging and more effective for SMEs. Achievements span branch openings to digital technologies, sourcing lending to FX services, cash delivery to cyber security and client onboarding to new business services. A selection of achievements, by awardees, has been provided below. A fuller picture will be published on 29th May alongside the public commitments quarterly update.

Godfrey Cromwell, BCR’s Chairman said: “Throughout this project, we have sought under CIF to fund initiatives which, if successful, will ‘move the dial’ on competition in the SME banking services sector. We chose a diversity of awardee strategies in part to optimise the chances of success across a range. As one would expect, some initiatives are rapidly successful, while others are longer term initiatives.

“ISS has already made a difference in achieving switching rates above historic levels accounting for 32,773 SME customers moving from RBS to challenger banks in the 13-month period (beginning of March 2019 to end March 2020). That is some 50% of all non-personal switches and a significant achievement given that it was widely expected that very few SMEs would even consider moving banks. Switching is a matter of customer choice, and in the current environment, understandably, it is not a priority for many. Nevertheless, BCR continues to do everything possible within its terms of reference to streamline and support customer switching as well as exploring activity with RBS and HMT to enhance the scheme for those that do wish to switch.

“We have worked quickly to finalise Pool E to ensure that we can deliver the money into the market as soon as possible while abiding scrupulously by the requirements and tasks tightly defined by the Alternative Remedies Package agreement. We will also retain a robust focus on monitoring and compliance of all funding. There will be further challenges and difficulties along the way. Awardees and BCR will work together to address them.”

Author: Laimis Bilys

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