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This publication is available at https://www.gov.uk/government/publications/rbs-state-aid-alternative-remedies-package/introduction-to-the-alternative-remedies-package-information-pack
This document provides an overview of the alternative remedies package (the “Package”) and certain documents relevant to eligible bodies interested in applying for funding from the Capability and Innovation Fund and/or the Incentivised Switching Scheme.
Please note that this summary is not a substitute for reading in full the documents contained in the annexes and an eligible body is advised to read each document relevant to the specific fund from which it is applying for funding carefully, before submitting an application (in accordance with the process described below).
2. Background to the Package
In 2009, the European Commission (the “Commission”) approved a number of state aid measures granted to The Royal Bank of Scotland Group plc (“RBS”). This approval was given on the basis of a restructuring plan submitted by RBS and a number of commitments given by the UK Government in 2009 and subsequently amended in 2014, including, amongst other things, the divestment of a part of RBS’ branch-based retail and small and medium-sized enterprise (“SME”) business, which later became known as ‘Williams and Glyn’ (the “Divestment”).
As a result of considerable challenges in achieving the Divestment, the UK Government proposed substituting the 2014 commitments with a revised package of measures with the aim of achieving the objectives of promoting competition in the market for banking services to SMEs that lay behind this divestment. The Package (described in more detail at 4 and 5 below) was agreed in principle in July 2017 and formally approved by the Commission on 18 September 2017.
3. The Independent Body
An independent company (the “Independent Body”) will be established as soon as reasonably practicable to administer the Capability and Innovation Fund and the Incentivised Switching Scheme.
The primary responsibilities of the Independent Body will be:
- responding to queries from applicants and other interested parties in respect of the Capability and Innovation Fund and Incentivised Switching Scheme
- managing and disbursing the Capability and Innovation Fund to eligible bodies
- administering dowry payments to eligible bodies and overseeing the delivery of the Incentivised Switching Scheme (including overseeing RBS’s delivery of its obligations in connection with the Incentivised Switching Scheme)
- monitoring the compliance by eligible bodies with the terms of the agreements governing the use of funds
- reporting publicly on the Package (including how funding has been applied)
The Independent Body will be independent from both RBS and the UK Government. It will be governed by an independent board of directors, with neither RBS nor HM Treasury having ownership or control rights over the Independent Body.
The directors of the Independent Body will be selected using a two-step process:
- HM Treasury will request that a number of well-established, independent institutions propose individuals to form a nominations committee
- once formed, the nominations committee will run a recruitment process to identify individuals to act as the directors of the Independent Body
Once established, the Independent Body will be responsible for the administration and oversight of the Package. All decisions of the Independent Body relating to the delivery and oversight of the Package will be taken in its absolute discretion.
The performance of the Independent Body will be overseen by an independent monitor (and not by the UK Government or RBS).
4. Capability and Innovation Fund
The purpose of the Capability and Innovation Fund is to encourage eligible bodies to (i) develop and improve their capability to compete with RBS in the provision of banking services to SMEs; and (ii) develop and improve the financial products and services which are available to SMEs.
The Capability and Innovation Fund comprises a total of £425 million which is divided into four pools. The four pools each have a distinct purpose and are divided into a number of pre-determined grants as follows:
|Fund||Number and value of grant||Purpose|
|Pool A||1 x £120 million 1 x £100 million 1 x £60 million||To facilitate the development of more advanced business current account offerings and ancillary product sets by banks with existing and substantive business current account capability|
|Pool B||1 x £50 million 2 x £15 million||To facilitate the modernisation of existing business current account offerings or (in the case of eligible bodies without existing business current account offerings) the development of new propositions|
|Pool C||4 x £10 million||To facilitate the development of new and existing SME lending and payments businesses with a particular focus on facilitating the deployment of new technology to the relevant markets|
|Pool D||5 x £5 million||To facilitate the commercialisation of financial technology that is relevant to SMEs|
The Capability and Innovation Fund will be administered by the Independent Body. RBS will provide the Independent Body with the £425 million and there will be no further RBS involvement in the Capability and Innovation Fund.
It is intended that the Capability and Innovation Fund application process will commence during the first half of 2018, with distributions occurring later that year. Further information on timing will be made available once the Independent Body is established.
4.2 Eligibility for funding
In order to be eligible to apply for funding from the Capability and Innovation Fund, an eligible body must fall within one of the four pre-defined pools, labelled A-D. Full details of the objective eligibility criteria for each pool are set out in the Capability and Innovation Fund Terms and Conditions attached as Annex 1.
4.3 Application process and application periods
In order to apply for funding from the Capability and Innovation Fund, eligible bodies will be required to submit (i) an application form; and (ii) a supporting business case to the Independent Body. Application forms will be made available by the Independent Body in due course.
The business case will be assessed by the Independent Body against predetermined criteria which differ depending on the pool to which the eligible body is applying. Annex 3 sets out the non-exhaustive list of factors that may be taken into account by the Independent Body when assessing an application.
The application periods for Pool A, Pool B and Pool C grants will be phased sequentially so that eligible bodies may apply for more than one round of funding if they are unsuccessful in their first application. For example, if an eligible body applied to Pool B and was not awarded a grant, they would (assuming that they met the eligibility criteria) be able to apply for a grant from Pool C. The Pool D application period will run concurrently with the Pool A, B and C application periods. It is anticipated that Pools A and D will open for applications during the first half of 2018, with Pool B and C opening 3 and 6 months later, respectively. More details on application periods will be available once the Independent Body has been established.
Within an application for funding from a particular pool, an eligible body does not need to apply for a specific grant; however, an eligible body will only receive a maximum of one grant. If an eligible body is applying for more than one size of grant, the business case should set out how funds will be applied depending on the category of grant applied for. Eligible bodies will compete for these grants.
If its application is successful, an eligible body will be required to enter into a Capability and Innovation Fund Agreement with the Independent Body in the form set out in Annex 5.
5. Incentivised Switching Scheme
The purpose of the Incentivised Switching Scheme is to provide funding of up to a maximum of £275 million to eligible bodies to use as incentives to encourage SME banking customers (with an annual turnover of £25 million or less at an individual company level) of the business previously described as Williams & Glyn (the “Relevant Customers”) to switch their business current accounts and loans to the eligible bodies; £225 million of the fund is available in dowries with respect to any Relevant Customers that agree to transfer their business current account and £50 million will be available for loan related dowries for those Relevant Customers who move a loan product in addition to their business current account. Up to an additional £75 million will be made available by RBS to cover customers’ costs of switching (e.g. through waiving or reimbursing break fees and/or other third party costs incurred by customers, such as legal fees). The initial duration of the Incentivised Switching Scheme will be 18 months or, if earlier, until such time as £225 million has been distributed to eligible bodies as dowries in relation to business current accounts.
It is intended that the Incentivised Switching Scheme will open during the first half of 2018. Further information on timing will be made available once the Independent Body is established.
The amount of dowry that an eligible body is entitled to receive in respect of each Relevant Customer that switches will be determined based on the Relevant Customer’s turnover and, if applicable, the outstanding balance on the loan product being transferred. Dowries would be distributed quarterly. Eligible bodies will be required to use the dowries for the benefit of transferring Relevant Customers.
The applicable dowries in respect of business current account transfers are set out in the table below:
|Turnover of Relevant Customer (£)||BCA Element (£)|
|Less than 15,000||750|
|15,000 to 100,000||1,000|
|100,001 to 500,000||3,000|
|500,001 to 1,000,000||3,000|
|1,000,001 to 1,500,000||6,250|
|1,500,001 to 2,000,000||13,125|
|2,000,001 to 2,500,000||16,875|
|2,500,001 to 5,000,000||25,000|
|5,000,001 to 7,500,000||25,000|
|More than 7,500,000||50,000|
The applicable dowries in respect of relevant loan product transfers will be calculated as follows: outstanding loan balance transferred x 0.025.
Further details are set out in the Dowry Calculation Schedule set out in Annex 7.
In order to be eligible for funding from the Incentivised Switching Scheme, the eligible body must meet the eligibility criteria. Full details of the objective eligibility criteria are set out in the Incentivised Switching Scheme terms and conditions attached as Annex 2.
5.3 Application process and application periods
Eligible bodies will be required to submit (i) an application form; and (ii) a switching proposal as part of the application process. The switching proposal must contain details of its proposals to incentivise Relevant Customers to switch and how the eligible body proposes to use any dowries it receives. Application forms will be made available by the Independent Body in due course.
The switching proposal will be assessed by the Independent Body against predetermined criteria summarised at Annex 4 and if an application is successful, the eligible body will be required to enter into an Incentivised Switching Agreement with the Independent Body in the form set out in Annex 6. The application period for Incentivised Switching is expected to commence during the first half of 2018. More information on application periods will be available once the Independent Body has been established.
Under certain circumstances, the Incentivised Switching Scheme may be extended. This extension is subject to eligible bodies having participated fully in the Incentivised Switching Scheme for a reasonable period of time. If it is extended, any eligible body who is participating in the Incentivised Switching Scheme at the relevant time shall be entitled to apply for continued access. In such circumstances, the Independent Body shall consider each eligible body’s application, taking into account its engagement in the Incentivised Switching Scheme to date, including the quality of its switching offers, whether the eligible body has targeted Relevant Customers with a range of turnovers and the on-boarding process for such customers.
5.5 Interaction with RBS
The Independent Body will be responsible for the oversight of the Incentivised Switching Scheme and distribution of dowries, pursuant to which RBS will be responsible for communicating Incentivised Switching to Relevant Customers on an ongoing basis in order to provide such customers with information on the incentivised switching offers available from participating eligible bodies that they may wish to consider. Consequently, participating eligible bodies will be entitled to provide RBS with a summary setting out its SME offering and incentives that will be available to customers that switch and RBS may use such information in communication materials sent by it to Relevant Customers.
5.6 Branch access
In order to support the success of the Incentivised Switching Scheme, successful eligible bodies who enter into Incentivised Switching Agreements will also have the opportunity to request access to certain RBS group branches (on reasonable and non-discriminatory commercial terms) so that Relevant Customers who switch to an eligible body may still use cash and cheque handing services, subject to the terms and conditions of an Inter-Bank Agency Deed to be entered into between RBS and the relevant eligible body, substantially in the form set out in Annex 8.
6. Summary of relevant Package documents
6.1 Terms and conditions
There are two sets of terms and conditions; one for the Capability and Innovation Fund (Annex 1) and one for the Incentivised Switching Scheme (Annex 2). An eligible body will be required to agree to the relevant terms and conditions when an application for funding is submitted.
Under the terms and conditions, the Independent Body has full discretion over the application process and whether or not an application is successful. In particular, eligible bodies should be aware that publication of marketing materials by the Independent Body does not constitute an offer for funding and that there is no obligation on the Independent Body to provide funding or enter into a legally binding agreement with any eligible body.
Amongst other things, the terms and conditions set out:
- the eligibility criteria that must be satisfied in respect of an eligible body applying for funding from the Capability and Innovation Fund and Incentivised Switching Scheme
- what the business case or switching proposal must include
- what funds must be used for if an application is successful
- any relevant restrictions on the use of funds
- exclusions of liability for the Independent Body, HM Treasury and RBS
6.2 Capability and Innovation Fund Agreement
The Capability and Innovation Fund Agreement (Annex 5) governs the relationship between the Independent Body and a successful eligible body with respect to the funding received from the Capability and Innovation Fund.
Pursuant to the terms of this agreement, an eligible body will be required to use awarded funds for permitted purposes only and not for prohibited purposes (which differ depending on whether the eligible body is a Pool A Body, Pool B Body, Pool C Body or a Pool D Body), and provide the Independent Body with certain information regarding the use of funds on a quarterly basis.
The Independent Body is required to review the information which it is provided with by the eligible body and assess whether any updates need to be made to a business case. The Independent Body is also given: (i) a right of audit in order to allow it to establish whether the funding amount has been properly applied and whether the eligible body has complied with its obligations under the agreement; and (ii) a right to clawback amounts paid to the eligible body in the event of a “material breach” that has not been remedied within the relevant timescale (including failure to use funds for permitted purposes or in accordance with the business case or applying funds for prohibited purposes).
6.3 Incentivised Switching Agreement
The Incentivised Switching Agreement (Annex 6) governs the relationship between the Independent Body and a successful eligible body with regards to the use of dowries received from the Incentivised Switching Scheme. Under the terms of this agreement, a successful eligible body agrees to use dowries for the benefit of Relevant Customers that transfer to them and in the manner contemplated in their switching proposal.
An eligible body will, on a monthly basis, provide the Independent Body with certain information regarding the use of dowries and the Independent Body is required to review the information provided to it. The Independent Body is also given: (i) a right of audit in order to establish compliance with the terms of the agreement; and (ii) a right to clawback amounts paid to an eligible body in the event of a “material breach” that has not been remedied within the relevant timescale (including failure to use funds in accordance with the terms of the agreement).
6.4 Dowry Calculation Schedule
The Dowry Calculation Schedule (Annex 7) determines the amount of dowry payable in respect of each Relevant Customer that switches from RBS to an eligible body and will form part of the Incentivised Switching Agreement. As stated above, the calculation will be based on the turnover of the Relevant Customer and, if applicable, the outstanding balance on the loan product that is being transferred. The Dowry Calculation Schedule provides that dowries will accrue on a quarterly basis and will be payable following the end of each three month period.
6.5 Inter-Bank Agency Deed
The Inter-Bank Agency Deed (Annex 8) governs the relationship between the eligible body and a relevant member of the RBS group with respect to the access to cash and cheque handling facilities at certain RBS branches. The agreement will last for an initial term of three years following the commencement of the Incentivised Switching Scheme. This agreement sets out the terms on which services will be provided at certain RBS branches.