RBS 2012 Annual Report Download - page 475

RBS GROUP 2012
473
41 Related parties
UK Government
On 1 December 2008, the UK Government through HM Treasury became
the ultimate controlling party of The Royal Bank of Scotland Group plc.
The UK Government's shareholding is managed by UK Financial
Investments Limited, a company wholly owned by the UK Government.
As a result, the UK Government and UK Government controlled bodies
became related parties of the Group.
The Group enters into transactions with many of these bodies on an
arm’s length basis. The principal transactions during 2012, 2011 and
2010 were: the Asset Protection Scheme, Bank of England facilities and
the issue of debt guaranteed by the UK Government discussed below.
In addition, the redemption of non-cumulative sterling preference shares
and the placing and open offer in April 2009 was underwritten by HM
Treasury and, in December 2009, B shares were issued to HM Treasury
and a contingent capital agreement concluded with HM Treasury (see
Note 26). Other transactions include the payment of: taxes principally UK
corporation tax (page 386) and value added tax; national insurance
contributions; local authority rates; and regulatory fees and levies
(including the bank levy (page 375) and FSCS levies (page 454));
together with banking transactions such as loans and deposits
undertaken in the normal course of banker-customer relationships.
Asset Protection Scheme
On 22 December 2009, the Group entered into an agreement, the Asset
Protection Scheme (APS), with HM Treasury acting on behalf of the UK
Government, under which the Group purchased credit protection which,
subject to a first loss of £60 billion, covered 90% of losses net of
recoveries in a portfolio of specified assets and exposures (covered
assets) from HM Treasury. The portfolio of covered assets had a par
value of approximately £282 billion. On 18 October 2012, the Group
exited the APS.
The Group paid APS premiums totalling £2,500 million (2012 - £275
million; 2011 - £125 million; 2010 - £700 million; 2009 - £1,400 million).
The APS contract was accounted for as a derivative financial instrument,
recognised at fair value (2011 - liability £231 million; 2010 - asset £550
million) and included within the Derivative liability/asset balance sheet
caption. Changes in fair value of £44 million (2011 - £906 million; 2010 -
£1,550 million) were recognised in profit or loss within Income from
trading activities.
There was no change in the recognition and measurement of the covered
assets as a result of the APS.
In connection with its participation in the APS, the Group agreed to a
number of behavioural commitments in respect of lending for businesses
in the UK and personal current accounts in the UK. These commitments
ran for two years and were completed by the end of February 2011.
Bank of England facilities
The Group also participates in a number of schemes operated by the
Bank of England available to eligible banks and building societies.
x Open market operations - these provide market participants with
funding at market rates on a tender basis in the form of short and
long-term repos on a wide range of collateral and outright purchases
of high-quality bonds to enable them to meet the reserves that they
must hold at the Bank of England.
x The special liquidity scheme - this was launched in April 2008 to
allow financial institutions to swap temporarily illiquid assets for
treasury bills, with fees charged based on the spread between 3-
month LIBOR and the 3-month gilt repo rate. The scheme officially
closed on 30 January 2012.
At 31 December 2012, the Group had no amounts outstanding under
these facilities (2011 - nil; 2010 - £16.1 billion).
Members of the Group that are UK authorised institutions are required to
maintain non-interest bearing (cash ratio) deposits with the Bank of
England amounting to 0.11% of their eligible liabilities. They also have
access to Bank of England reserve accounts: sterling current accounts
that earn interest at the Bank of England Rate.
Government credit and asset-backed securities guarantee schemes
These schemes guarantee eligible debt issued by qualifying institutions
for a fee. The fee, payable to HM Treasury is based on a per annum rate
of 25 (asset-backed securities guarantee scheme) and 50 (credit
guarantee scheme) basis points plus 100% of the institution's median
five-year credit default swap spread during the twelve months to 1 July
2008. The asset-backed securities scheme closed to new issuance on 31
December 2009 and the credit guarantee scheme on 28 February 2010.
At 31 December 2012, the Group had no debt outstanding guaranteed by
the Government (2011 - £21.3 billion; 2010 - £41.5 billion).