RBS 2013 Annual Report Download - page 497
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Notes on the consolidated accounts
495
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 2013, 2012 and
2011 were: Bank of England facilities and the issue of debt guaranteed
by the UK Government discussed below and the Asset Protection
Scheme which the Group exited on 18 October 2012 having paid total
premiums of £2.5 billion. 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 27). Other transactions include the payment
of: taxes principally UK corporation tax (page 404) and value added tax;
national insurance contributions; local authority rates; and regulatory fees
and levies (including the bank levy (page 393) and FSCS levies (page
473)); together with banking transactions such as loans and deposits
undertaken in the normal course of banker-customer relationships.
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.
• 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.
• 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 2013, the Group had no amounts outstanding under
these facilities (2012 and 2011 - nil).
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 2013, the Group had no debt outstanding guaranteed by
the UK Government (2012 - nil; 2011 - £21.3 billion).
National Loan Guarantee Scheme
The Group participated in the National Loan Guarantee Scheme (NLGS),
providing loans and facilities to eligible customers at a discount of one
percent. It did not issue any guaranteed debt under the scheme and
consequently, it was not committed to providing a particular volume of
reduced rate facilities. At 31 December 2013 the Group had no amounts
outstanding under the scheme (2012 - £898 million). The NLGS was
superseded by the Funding for Lending Scheme.
The Funding for Lending Scheme
The Funding for Lending Scheme was launched in July 2012. Under the
scheme UK banks and building societies are able to borrow UK treasury
bills from the Bank of England in exchange for eligible collateral during
the drawdown period (1 August 2012 to 31 January 2014). Borrowing is
limited to 5% of the participant’s stock of loans to the UK non-financial
sector as at 30 June 2012, plus any expansion in lending from that date
to the end of 2013. Eligible collateral comprises all collateral eligible for
the Bank of England’s discount window facility. The term of each
transaction is four years from the date of drawdown. The price for
borrowing UK treasury bills under the scheme depends on the
participant’s net lending to the UK non-financial sector between 30 June
2012 and the end of 2013. If lending is maintained or expanded over that
period, the fee is 0.25% per year on the amount borrowed. If lending
declines, the fee increases by 0.25% for each 1% fall in lending, up to a
maximum fee of 1.5%. As at 31 December 2013, the Group had no
amounts outstanding under the scheme (2012 - £749 million).
Other related parties
(a) In their roles as providers of finance, Group companies provide
development and other types of capital support to businesses. These
investments are made in the normal course of business and on arm's
length terms. In some instances, the investment may extend to
ownership or control over 20% or more of the voting rights of the
investee company. However, these investments are not considered
to give rise to transactions of a materiality requiring disclosure under
IAS 24.
(b) The Group recharges The Royal Bank of Scotland Group Pension
Fund with the cost of administration services incurred by it. The
amounts involved are not material to the Group.
(c) In accordance with IAS 24, transactions or balances between Group
entities that have been eliminated on consolidation are not reported.
(d) The captions in the primary financial statements of the parent
company include amounts attributable to subsidiaries. These
amounts have been disclosed in aggregate in the relevant notes to
the financial statements.