UK’s Banking Competition Remedies launches “Pool E” of its Capability and Innovation Fund

The UK’s Banking Competition Remedies Ltd (BCR) has launched the application process for the new £100m “Pool E” of its Capability and Innovation Fund. This note describes how to apply to funding from Pool E, and includes some recommendations from us if you are considering applying.

Background

BCR was established in 2018, to implement alternative competition law remedies in relation to  state aid granted to The Royal Bank of Scotland in 2009. The purpose of the remedies package is to promote competition in the market for banking services for SMEs.

BCR’s funds were originally divided into the £425m “Capability and Innovation Fund” (CIF), which provides grants to improve awardees’ banking capabilities for SMEs, and the £275m “Incentivised Switching Scheme”, to incentivise customers of Williams and Glyn (a bank established by RBS, which it had planned to divest as part of its original remedies package) to switch to other providers.

The CIF was in turn divided into four “Pools”: Pools A to C were aimed at the improvement of business current account offerings, and the expansion of the financial services available to SMEs, and Pool D was aimed a “facilitating the commercialisation of financial technology that is relevant to SMEs”.

In early 2020, Metro Bank and Nationwide each returned £50m that they had been granted by BCR, from Pool A and from Pool B respectively. The BCR has used that £100m to create a new “Pool E” which, following a consultation process, will be open to applications in June 2020.

Pool E – size and eligibility

The £100m available in Pool E has been divided into:

• £80m for firms which would be eligible for Pools A-C of the CIF, ie incumbent and challenger current account providers and lenders; the previous grantees included Starling, ClearBank, Investec, Co-operative Bank, Atom Bank, Currency Cloud, iwoca, and Modulr; and
• £20m for firms which would be eligible for Pool D of the CIF, ie financial technology businesses; the previous grantees were Codat, Fluidly, Form3, Funding Options, and Swoop Finance.

Pools A-C are open to firms which either offer (or plan to offer) a business current account offering in the UK, or which derive the majority of their revenue from the provision of financial services and which plan to expand their business to include lending and payment services to SMEs in the UK. Pool A-C firms must be authorised to take deposits, must have gross assets in the UK of less than £350bn, and must be domiciled in the UK, the EU, the EEA, or Switzerland.

Pool D is open to firms which are domiciled in the UK, the EU, the EEA or Switzerland, which provide or develop financial products and services predominantly to or for SMEs in the UK (or products and services to businesses which do so), and which have raised capital of at least £1m in the three years prior to the submission of their business case.

The £80m sub-pool will be available in one grant of £35m, one grant of £25m, and two grants of £10m. The £20m sub-pool will be available in two grants of £5m and four grants of £2.5m.

Application process

The application process for the £80m and £20m sub-pools has been staggered, as follows:

• applications for the £20m sub-pool open at 9am on 1 June 2020. The deadline for queries is 5pm on 19 June 2020, and then applications close at 5pm on 26 June 2020; and
• applications for the £80m sub-pool open at 9am on 22 June 2020, with a query deadline of 5pm on 17 July 2020, and then applications close at 5pm on 31 July 2020.

BCR expects to announce awards under the £20m sub-pool in the week commencing 17 August 2020, and awards under the £80m sub-pool in the week commencing 21 September 2020.

If you are considering applying, you must 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. You can also familiarise yourself with BCR’s “Scout” application tool here.

The application forms are available here (for Pool A/B/C firms) and here (for Pool D firms).

If you are successful in obtaining an award, you will need to enter into an agreement with the Capability and Innovation Fund (available here), which will require you to make public commitments on which you will report quarterly.

If you are considering applying

The most important aspect of your application will be a very clear business case on how you plan to increase competition and improve customer outcomes, together with evidence which demonstrates your understanding of SMEs’ needs and the competitive landscape.

Note that timing is very important. BCR will expect applicants' business plans to have been achieved by the end of 2022. So, given that the BCR will award the funds in Q3 and Q4 2020, there will only be 18-24 months to implement the plans. This means that the ability to execute quickly (and to demonstrate that you can execute quickly) is paramount.

If you’d like to discuss any aspect of the new Pool E further, please contact any of our team.

Herbert Smith Freehills’ Fintech group

Our global Fintech group advises Fintech businesses from the earliest stages to the most complex, multi-billion pound transactions. We understand and advise on the whole sector, including challengers such as Tandem, LendInvest and ClearBank, major incumbent banks and insurers such as Lloyds, RBS and Willis, payment businesses such as EML Payments and Klarna, and investment platforms, insurtech business, and venture capital investors. Our integrated team includes corporate, regulatory, technology, and cyber experts across Europe, the Middle East, and Asia-Pac. Our latest thinking is available here.