Vanquis Banking : Pillar 3 Disclosures 2022

Pillar 3 Disclosures

Vanquis Banking Group plc

31 December 2022

Contents

1	Introduction	1
2	Key metrics and overview of risk-weighted exposure amounts	3
3	Risk management	7
4	Remuneration policies and practices	8

1 Introduction

This document sets out the consolidated Vanquis Banking Group plc (the Company) Pillar 3 disclosures (together with its subsidiaries the Group) at 31 December 2022 in accordance with the requirements of the UK Capital Requirements Regulation (CRR).

On 2 March 2023, Provident Financial plc changed its name to Vanquis Banking Group plc. Qualitative or quantitative references herein to prior periods relate to Provident Financial plc and the Provident Financial Group as disclosed at the time of publication.

1.1 The Group

On 31 December 2022 the Group comprised two principal trading divisions:

• Vanquis Bank, which provides credit cards to the non-standard UK consumer credit market, offers unsecured personal loans and accepts retail deposits; and
• Moneybarn, which provides vehicle finance in the UK.

Vanquis Bank is authorised by the Prudential Regulation Authority (PRA) and regulated by the PRA and the Financial Conduct Authority (FCA). The PRA sets requirements for Vanquis Bank relating to capital and liquidity adequacy and large exposures.

The Group, incorporating Vanquis Bank and Moneybarn, is the subject of consolidated supervision by the PRA by virtue of Vanquis Banking Group plc (formerly Provident Financial plc) being the parent company of Vanquis Bank. The PRA sets requirements for the consolidated Group in respect of capital and liquidity adequacy and large exposures. Moneybarn is regulated by the FCA.

1.2 Disclosure framework

The Group is regulated for prudential capital purposes under the Basel 3 regime, the international regime governing capital maintenance in banks, which is supervised by the Basel Committee on Banking Supervision (BCBS). In the UK this regime is enforced through the PRA Rulebook (the Rulebook), following the implementation of the Financial Services Act 2021 on 1 January 2022. Formerly these rules were applied on a European Union (EU) basis through the fourth Capital Requirements Directive (CRD IV) and the first Capital Requirements Regulation (CRR) (Regulation 575/2013). Certain aspects of this EU legislation remain applicable in the UK.

The framework consists of three 'pillars', as summarised below:

• Pillar 1 is the calculation of minimum regulatory capital requirements that firms are required to hold against risk, the most significant elements for the Group being credit risk and operational risk.
• Pillar 2 aims to enhance the link between an institution's risk profile, its risk management and risk mitigation systems, and its capital planning. The Group performs an internal capital adequacy assessment process (ICAAP) on at least an annual basis to assess the risk management processes in place and whether additional regulatory capital over and above Pillar 1 should be held based on the risks faced by the Group. The amount of any proposed additional capital requirement is also assessed by the PRA during its capital supervisory review and evaluation process (C-SREP), which also aims to ensure that institutions have adequate arrangements, strategies, processes and mechanisms and capital and liquidity to ensure sound management and coverage of their risks.
• Pillar 3 complements Pillars 1 and 2 and aims to encourage market discipline by developing a set of disclosure requirements which allow market participants to assess key pieces of information on a firm's capital, risk exposures, risk management processes, leverage and remuneration.

Disclosures have been updated for 2022 following the onshoring of the CRR into the PRA Rulebook as a result of the UK's departure from the EU and the updates made in the version of the CRR by the EU before it became UK law. These included an increased level of prescription in the level, structure and format of the disclosures to be provided, including the introduction of a suite of templates covering all Pillar 3 disclosure matters.

The Group has adopted the standardised approach (SA) for credit risk and the alternative standardised approach (ASA) for operational risk.

1.3 Pillar 3 Disclosure Policy

The Group's approved Pillar 3 Disclosure Policy is as follows:

The Company's Pillar 3 disclosures cover the Group as a whole, comprising the Company and all its subsidiary undertakings. They are therefore prepared on the same basis as the Group's consolidated accounts. References to the Group in this document therefore include the Group's banking subsidiary, Vanquis Bank Limited (the Bank).

Pillar 3 disclosures will be made on an annual basis using the Group's financial year-end date of 31 December. The disclosures will be published in line with the publication of the Group's Annual Report and Financial Statements (the Annual Report). More frequent disclosures will be made if there is a material change in the nature of the Group's risk profile during any particular year.

These Pillar 3 disclosures will be published on the Group's corporate website, www.vanquisbankinggroup.com, alongside other disclosures made in the Annual Report, which is published in the same location. Both documents are published on the website at approximately the same time, in accordance with the requirement in Article 433 of the Rulebook.

The Company's Disclosure Policy for Pillar 3 is based on the interpretation of the requirements of the Disclosure (CRR) Part of the Rulebook. The Group is defined as a 'Small and Non-Complex Institution' under these rules (i.e., neither Large nor Other), as it meets the criteria for such classification in Article 4(145) of the CRR. Its disclosure requirements are therefore set out in Article 433b of the Rulebook. This requires that the Group produces an annual Pillar 3 Report and discloses key metrics on a half yearly basis.

Vanquis Banking Group plc Pillar 3 Disclosures - 31 December 2022	1

1 Introduction continued

1.3 Pillar 3 Disclosure Policy continued

There are certain disclosures that are only required by the Rulebook where an institution is large or an LREQ firm, as defined by the PRA Rulebook. The Group's balance sheet size is too small to be classified as large or to fall within the LREQ rules on leverage. Therefore, these have not been presented for the Group.

The level of disclosure on remuneration matters is subject to proportionality rules set out in PRA SS2/17 'Remuneration' (updated February 2023). Institutions are divided between level one, level two or level three based on their total assets, which determines the amount of detail required in these disclosures. The Group is a proportionality level three bank as its average total assets do not exceed £13bn. A number of templates in the PRA Rulebook apply only to proportionality level one or two banks and therefore are not applicable to the Group.

1.4 Basis and scope of disclosures

This document has been prepared and should be read in conjunction with the Annual Report for the year ended 31 December 2022. The results of Vanquis Banking Group plc and all subsidiary undertakings have been included in the Pillar 3 disclosures and there are no differences between the basis of consolidation for accounting and prudential purposes. These disclosures have been subject to internal verification and have been reviewed by the Risk Committee. These disclosures have not been externally audited and do not constitute any part of the Group's financial statements; however, some of the information within the disclosures also appears in the Annual Report.

Article 432 of the CRR states that institutions may omit one or more of the Pillar 3 disclosures if the information is not regarded as material. Information in disclosures shall be regarded as not material if the Group does not expect that its omission or misstatement would change or influence the assessment or decision of a user relying on that information for the purpose of making economic decisions. No disclosures required by Article 433b have been omitted on the grounds of materiality from this document.

These disclosures have been compiled on the most appropriate basis for this purpose and following the instructions on calculation and classification given in the Rulebook and therefore may not agree directly with disclosures addressing similar matters presented in the Annual Report.

1.5 Approval of disclosures

The Group's Pillar 3 disclosures have been reviewed and approved by the Group Risk Committee on behalf of the Board. Separately, the remuneration disclosures detailed in this document have been reviewed and approved by the Group Remuneration Committee on behalf of the Board.

The Risk Committee considered the disclosures document in light of (i) the Annual Report; (ii) the ICAAP and its input; (iii) the internal liquidity adequacy assessment process (ILAAP) and its input; and (iv) its overall understanding of the Group's risk profile.

The Annual Report includes audited and unaudited disclosures addressing the Group's risk exposure, mitigation and appetites referred to in this document. In approving the Annual Report, the directors consider the appropriateness of those disclosures and the overall adequacy of the Risk Management Framework.

The Group went through its annual ICAAP during the year. The ICAAP was prepared under the direction of executive management, with appropriate input and challenge from other areas of the business. The ICAAP was reviewed and challenged by the Group's Risk Committee and was formally approved by the Board in September 2022. The Group completes an updated ICAAP on at least an annual basis.

Concluding in early 2023, the PRA has conducted a capital supervisory review and evaluation process (C-SREP) of the Group's capital requirements, based on the ICAAP approved in September 2022. The outcome is that the Group's total SREP own funds requirements as reported in the UK KM1 table have reduced by more than a third, from 18.3% to 11.9%. Including the current regulatory combined buffers of 3.5% (capital conservation buffer of 2.5% and countercyclical buffer of 1.0%), the Group's overall capital requirement has reduced by 6.4% from 21.8% to 15.4%. The reduction in capital requirements partly reflects the Group's successful repositioning as a specialist banking group focused on lower risk customers, the receipt of the Core UK Group Waiver in November 2022 which enables the Group to leverage its retail deposit funding capabilities to fund its other lending products, and the significant amount of work undertaken to strengthen the Group-wide Risk Management Framework.

Future ICAAPs will be subject to C-SREP reviews periodically, particularly in the event of significant changes in the business.

Vanquis Banking Group plc Pillar 3 Disclosures - 31 December 2022

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2 Key metrics and overview of risk-weighted exposure amounts

This section sets out the Group's total risk-weighted exposure amount (RWEA) and its key capital and liquidity metrics.

2.1 UK OV1 - Overview of risk-weighted exposure amounts

			Risk-weighted exposure		Total own funds
			amounts (RWEAs)		requirements
31 December			a		b		c
£m			2022		2021		2022
1	Credit risk (excluding CCR)		1,656.5		1,595.0		132.5
2	Of which the standardised approach		1,656.5		1,595.0		132.5
3	Of which the foundation IRB (FIRB) approach		-		-		-
4	Of which the slotting approach		-		-		-
UK 4a	Of which equities under the simple risk-weighted approach		-		-		-
5	Of which the advanced IRB (AIRB) approach		-		-		-
6	Counterparty credit risk (CCR)		23.0		4.1		1.8
7	Of which the standardised approach		12.1		1.0		1.0
8	Of which internal model method (IMM)		-		-		-
UK 8a	Of which exposures to a CCP		-		-		-
UK 8b	Of which credit valuation adjustment (CVA)		10.9		3.1		0.9
9	Of which other CCR		-		-		-
10	Empty set in the UK
11	Empty set in the UK
12	Empty set in the UK
13	Empty set in the UK
14	Empty set in the UK
15	Settlement risk		-		-		-
16	Securitisation exposures in the non-trading book (after the cap)		-		-		-
17	Of which the SEC-IRBA approach		-		-		-
18	Of which SEC-ERBA (including IAA)		-		-		-
19	Of which the SEC-SA approach		-		-		-
UK 19a	Of which 1,250%/deduction		-		-		-
20	Position, foreign exchange and commodities risks (market risk)		-		-		-
21	Of which the standardised approach		-		-		-
22	Of which IMA		-		-		-
UK 22a	Large exposures		-		-		-
23	Operational risk		131.3		141.5		10.5
UK 23a	Of which the basic indicator approach		-		-		-
UK 23b	Of which the standardised approach		131.3		141.5		10.5
UK 23c	Of which the advanced measurement approach		-		-		-
24	Amounts below the thresholds for deduction (subject to 250%		29.4		32.1		2.4
	risk weight) (for information)
25	Empty set in the UK						-
26	Empty set in the UK						-
27	Empty set in the UK						-
28	Empty set in the UK						-
29	Total		1,810.8		1,740.6		144.8

Vanquis Banking Group plc Pillar 3 Disclosures - 31 December 2022

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