Contents
Company Information ........................................................................................................................................................ 3
Business Model.................................................................................................................................................................. 4
Business Performance....................................................................................................................................................... 7
Business Environment..................................................................................................................................................... 12
Non-Financial Statement ................................................................................................................................................. 21
Section 172 Report........................................................................................................................................................... 25
Governance ...................................................................................................................................................................... 28
Audit Committee Report .................................................................................................................................................. 36
Directors’ Report .............................................................................................................................................................. 38
Independent Auditors' Report to the Members of FCE Bank plc .................................................................................... 40
Consolidated Statement of Profit or Loss and Other Comprehensive Income ............................................................... 47
Statements of Financial Position ..................................................................................................................................... 48
Statements of Cash Flows ............................................................................................................................................... 49
Statements of Changes in Equity .................................................................................................................................... 50
Index to the Notes to the Financial Statements ............................................................................................................... 52
Notes to the Consolidated Financial Statements ............................................................................................................ 53
European Operating Locations .......................................................................................................................................129
Pillar 3 Disclosures .........................................................................................................................................................130
Glossary of Defined Terms .............................................................................................................................................164
Website Addresses .........................................................................................................................................................166
Approval of the 2021 Strategic Report
The Strategic Report for the year ended 31 December 2021 as set out on pages 3 to 35 was approved by the Board on 17
March 2022.
ON BEHALF OF THE BOARD
Carlos Treadway
Chief Executive Officer
17 March 2022
Strategic Report
Audit Committee
Directors' Report
Financial Statements
Pillar 3 Disclosures
Other Information
2021 Strategic Report
Company Information
FCE Bank plc – ANNUAL REPORT 2021 3
Registered Name:
Directors:
Marlene Martel
Chair, Non-Executive Director (appointed 16
th
September 2021)
Narpal Ahluwalia
Non-Executive Director
Charles Bilyeu
Chief Executive Officer (resigned 26
th
November 2021)
Natalie Ceeney
Non-Executive Director
Talita Ferreira
Non-Executive Director
Paul Kiernan
Executive Director, Finance
Brendan O’Connor
Non-Executive Director
John Reed
Senior Independent Director
Keith Robinson
Executive Director, Chief Risk Officer
Tom Schneider
Non-Executive Director (resigned 2
nd
December 2021)
Carlos Treadway
Chief Executive Officer (appointed Executive Director on 14
th
January 2021
and CEO on 1
st
November 2021)
Company
Abimbola Adesanya
Secretaries:
Howard Cohen
Michael Lavender (resigned 28th February 2021)
Registered Office:
Registered Number:
00772784
Independent
BDO LLP
Auditors:
55 Baker Street
London
W1U 7EU
United Kingdom
Website:
www.fcebank.com
2021 Strategic Report
Business Model
4 FCE Bank plc – ANNUAL REPORT 2021
Organisational Structure
FCE Bank plc (FCE), a public limited company incorporated in England and Wales, is now wholly owned by Ford ECO GmbH
(Ford ECO) following a corporate restructure completed on 13th October 2021 and is an indirect subsidiary of Ford Motor Credit
Company LLC (Ford Credit/FMCC) which is wholly owned by Ford Motor Company (Ford) . FCE is authorised by the Prudential
Regulation Authority (PRA) and regulated by the PRA and the Financial Conduct Authority (FCA).
FCE provides savings products to approximately 109,000 savings customers in the UK and Germany.
Customers and Products
FCE is integrally tied to Ford; it aims to be the reason why customers choose and stay with Ford Motor Company through a
focus on:
• Lifetime customer relationships that surprise and delight customers through moments that matter
• An integrated, always-on, go-to-market strategy
• Innovative financing solutions to support Ford’s electrification plans
• A cost-effective and efficient operating structure
• Strong risk management, ensuring regulatory compliance
FCE’s business is best described in the context of its four main customer Groups:
FCE supports Ford customers to acquire Ford vehicles by providing:
• Lending to retail customers to purchase or lease vehicles
• Access to insurance products to protect customers
FCE supports Ford dealers through wholesale loans to sell Ford vehicles by:
• Financing new and used vehicle inventory
• Providing an understanding of the automotive dealer business and the financing required to optimise their business
model through all economic cycles
FCE supports savings customers by offering:
• A range of savings products that are easy to open, easy to manage and highly secure
• Competitive rates compared to the high street banks and an attentive, personal service
• A promise for existing customers to enjoy the same rate as new customers
FCE supports Ford's automotive operations through:
• A branded finance network dedicated to supporting the sale of Ford products
• High quality customer service that has been proven to increase customer loyalty to the Ford brand
• Financial risk management support to ensure continuity and viability of the Ford dealer distribution network
• Specialist support for key businesses and new markets
2021 Strategic Report
Business Model
FCE Bank plc – ANNUAL REPORT 2021 5
2021 Overview
In 2021, Ford announced its plan for growth and value creation through the execution of Ford+. The Ford+ Plan is focused on
delivering distinctive and increasingly electric products plus “Always-On” customer relationships and user experiences. It is
designed to leverage Ford’s foundational strengths, including Ford Credit, to build new capabilities enriching customer
experiences and deepening loyalty. Aligned with Ford Credit’s global strategy, FCE’s vision is to be a reason that customers
choose and stay with Ford. FCE is uniquely positioned to drive incremental sales, improve customer satisfaction and owner loyalty
to Ford, and direct profits and distributions back to support the delivery of Ford+. Consistent with this strategy, priorities for FCE
during 2021 were:
• Investing in digital capabilities both to support online sales of vehicles and meet customer needs for an outstanding ‘in
person’ experience. This included developing a digital channel in the UK and France, enabling customers to configure
and apply for finance for the new Mustang Mach-E. This will be expanded in 2022 to enable customers to complete their
finance transaction online in more markets and include other Ford vehicles;
• Focusing on creating a product driven and customer obsessed culture. Actions include deployment of a new system to
enable customers to provide faster feedback on their experience in three dimensions: start of agreement (new customers),
inbound contact and end of agreement. Overall customer experience, as measured through Net Promoter Score (NPS)
for both our retail and Ford Money savings’ customers, was largely flat during 2021, progress having been hampered by
COVID-19 volatility during the year. However, we believe a solid foundation has been put in place for improvements in
2022;
• Realigning our organisation to better focus on financing and services for Commercial customers;
• Leveraging Ford Bank Germany’s retail deposit platform that was launched at the end of 2020 to grow FCE’s deposits
to £5 Billion and increase FCE’s funding diversity. By the end of 2021, across the UK and Germany, 109,000 customers
had invested in FCE’s savings products to benefit from its best rate promise;
• Caring for our employees by valuing diversity, embracing inclusion, celebrating success, and encouraging new thinking.
Consistent with the advice from governmental authorities, nearly all FCE’s employees continued working remotely to
reduce the spread of COVID-19. For the minority of place-dependent workers required to attend the office strict workplace
protocols were put in place to ensure employee health and safety;
• Completing implementation of FCE’s Brexit plans in early 2021 with the launch of a finance company in Italy and an
Austrian branch of its German banking subsidiary;
• Delivering a standalone credit rating for FCE Bank plc with Moody’s Investors Service.
Financial Results
The combined impact of COVID-19 restrictions and the global semi-conductor shortage which limited new vehicle production
made for another challenging year. That FCE was again able to deliver strong financial results is a testament to the commitment
of our team who continued to support FCE’s customers whether they were impacted by COVID-19 or required extended finance
for delayed vehicle deliveries. Overall profit from operating activities remained flat year over year. The impact on profit from
operating activities of lower loans and advances resulting from reduced vehicle production, were largely offset by reduced costs
and the non-recurrence of COVID-19 related credit loss reserve changes in 2020.
2021 Strategic Report
Business Performance
6 FCE Bank plc – ANNUAL REPORT 2021
0.12% 0.12%
0.13%
0.16%
0.05%
£283
£281
£297
£184
£238
514
508
494
346
282
43.6%
46.1%
46.5%
44.3%
41.4%
£3,233
£9,369
£10,893
£12,602
26.20%
£0.3
£2.7
Profit before tax, PBT (Mils)
2017
2017
2017
2017
2017
2017
2018
2018
2018
2018
2018
2018
2019
2019
2019
2019
2019
2019
2020
2020
2020
2020
2020
2020
2021
2021
2021
2021
2021
2021
Total capital
*Total capital/Risk exposure amount
Tier 2 Capital (Bils)
Tier 1 Capital (Bils)
Total capital ratio*
21.79%
18.60%
16.70%
17.00%
£3.0
£2.6
£2.7
£0.3
£0.3
£0.3
£2.4
£0.4
Annual originations of retail/finance
lease contracts in top 5 locations (000s)
£15,804
£16,798
£10,893
£18,526
98
£17,866
£4,911
£6,561
£10,237
£11,247
£11,048
£6,818
Penetration
FCE new contracts/Ford sales top 5 locations
Total net loans and advances (Mils)
Retail
Wholesale
Credit loss ratio
Net credit losses/average net loans and advances
£7,279
2021 Strategic Report
Business Performance
FCE Bank plc – ANNUAL REPORT 2021 7
Sales
Although FCE’s penetration remained strong, retail contracts for the five largest locations reduced to approximately 282,000 in
2021 from 346,000 in 2020 reflecting the impact of COVID-19 and the global semi-conductor shortage.
Customer Experience
FCE works with independent research companies to measure the customer experience (CX) with FCE across the following
touchpoints:
• Start of Agreement (New Customers)
• Inbound Contact
• Log on to Account Online
• End of Agreement (Payoff Customers/ Account Closure)
Net Promoter Score (NPS) is the primary metric measured as part of the CX program. NPS is measured with a single question
‘How likely are you to recommend FCE to a friend or colleague?’ The NPS is calculated by subtracting the percentage of
‘Detractors’ (those rating 0 to 6 on the recommend question) from the ‘Promoters’ (those rating 9 or 10 on the same question).
The NPS is reported as a number ranging from -100 to +100.
2021 Net Promoter Score (NPS) Performance
a) Metrics for customers in FCE’s largest markets
b) 2020 data is UK only. 2021 includes Germany (from mid-year)
In 2021, FCE’s Customer NPS was 45 and down 1 point from 2020. During 2021, and particularly across the first half of the year,
some markets experienced operational issues as a result of COVID-19 and semi-conductor shortages. These issues led to a
significant increase in inbound call volume which has resulted in some customers experiencing longer wait times and/or issues
taking longer to resolve.
Profit Performance
FCE’s Profit Before Tax (PBT) of £238 million in 2021 increased by £54 million compared to the previous year. Excluding fair
value adjustments to financial instruments and gain or loss on foreign exchange, the profits from operating activities of £210 million
remained flat year over year. This is primarily explained by lower volume driven by the impact of the global semi-conductor
shortages offset by the non-recurrence of a credit loss reserve increase due to COVID-19 and 2020 restructuring effects.
Profit performance
Note
2021
£ mil
2020
£ mil
Profit from operating activities
210
216
Fair value adjustments to financial instruments
10
46
(3)
Gain/(loss) on foreign exchange
7
(18)
(29)
Profit before tax (PBT)
238
184
All Touchpoints combined
2021
2020
FCE’s Customer NPS (a)
45
46
Ford Money NPS (b)
46
57
2021 Strategic Report
Business Performance
8 FCE Bank plc – ANNUAL REPORT 2021
Alternative Performance Measures (APMs)
To evaluate performance, FCE uses a number of financial measures that are not defined or specified in the financial reporting
framework (IFRS). These are often referred to as Alternative Performance Measures (APMs). The APMs disclosed in this report
are the profit from operating activities (defined above) and the four Key Performance Indicators (KPIs) defined in the table below.
The variances are all impacted by movements in the exchange rates used to translate non-sterling transactions.
Reconciliation of KPIs to financial statements
Financial statements data:
Note
2021
£ mil
2020
£ mil
A
Total income
599
736
B
Depreciation of operating lease vehicles
(146)
(190)
C
Net credit losses*
(7)
(26)
D
Operating expenses
5
(239)
(275)
E
Profit before tax
238
184
F
Total assets
15,065
19,534
Additional data:
G
Average net loans and advances to customers
13,793
16,903
Key performance indicators:
Margin ratio ([A+B]/G)
3.28%
3.25%
Credit loss ratio (C/G)
0.05%
0.16%
Cost efficiency ratio (D/G)
1.73%
1.63%
Return on Assets (E/F)
1.58%
0.94%
*Net credit loss is defined as total write offs less recoveries
2021 Strategic Report
Business Performance
FCE Bank plc – ANNUAL REPORT 2021 9
Net Loans and Advances to Customers
FCE’s loan portfolio reduced in 2021 with net loans and advances decreasing to £12.6 billion in 2021 from the 2020 year end
position of £15.8 billion.
An analysis of FCE’s net loans and advances by market as at 31 December 2021 and 31 December 2020 is set out in the chart
below.
Net Credit Losses
The ‘Net Credit Losses’ chart below expresses net credit losses for both wholesale and retail financing as a percentage of average
net loans and advances to customers.
FCE’s overall net credit loss ratio on total receivables is 0.05% (2020: 0.16%). The retail loss ratio is 0.09% (2020: 0.21%) and
the wholesale loss ratio is (0.08%) (2020: 0.05%). These are better than planned levels in aggregate.
32%
31%
18%
6%
5%
7%
34%
30%
19%
7%
5% 5%
2020 2021
2020 2021
2020 2021
2020 2021
Analysis of net loans and advances to customers by market
Other
Spain
France
Italy
Germany
UK
Switzerland 1.65%
Austria 0.81%
Ireland 0.71%
WWTF 1.43%
Portugal 0.21%
All Other 0.67%
2020 2021
2020 2021
0.08%
0.10%
0.47%
0.06%
0.28%
0.06%
0.16%
0.02%
-0.02%
0.10%
0.13%
0.40%
0.00%
0.05%
2020 2021
2020 2021
2020 2021
2020 2021
2020 2021
2020 2021
2020 2021
UK
Germany
Italy
France
Spain
Other
Total
Net credit losses as a percentage of average net loans and advances to customers
2021 Strategic Report
Business Performance
10 FCE Bank plc – ANNUAL REPORT 2021
Capital
FCE’s policy is to manage its capital base to targeted levels that exceed all current and expected future regulatory requirements.
FCE's regulatory capital adequacy is managed through its monthly Asset and Liability Management Committee (ALCO) in which
actual and projected capital positions are monitored against capital requirements as determined by the Internal Capital Adequacy
Assessment Process (ICAAP) and minimum regulatory levels.
As at 31 December 2021, FCE’s Common Equity Tier 1 (CET 1) ratio was 23.49% (2020: 19.54%) and the total capital ratio was
26.20% (2020: 21.79%). During 2021, FCE’s leverage ratio remained well above the regulatory minimum. For more details see
the unaudited ‘Pillar 3 Disclosures’ section which starts on page 130.
FCE paid a dividend of £300 million in 2021. FCE’s future dividend planning will consider future receivables levels and profits
while maintaining a capital ratio that exceeds regulatory requirements and internal targets.
Funding Sources
FCE’s funding strategy focuses on diversification, accessing a variety of markets, channels, and investors, including government-
sponsored funding programmes. The funding strategy is further designed to optimise the level of encumbrance in line with risk
appetites.
FCE’s German subsidiary, Ford Bank GmbH (FBG), launched customer deposits in December 2020, and has grown the portfolio
to €2.2 billion at year end. As a consequence, FCE’s total Retail Deposits worth £5.0 billion as at 31 December funds 33.0% of
the total FCE’s assets.
Levels of both inter company and external debt reduced in 2021, with no new issuances, reflecting lower loans and advances and
the increased funding being provided by deposits.
In the secured funding segment, FCE continued to pledge eligible assets as collateral in the form of structured asset backed
securities, taking the opportunity to utilise the ECB’s open market operations. In addition, FCE issued German Public Retail
securitisation debt of €500 million in March 2021 and UK Private Wholesale securitisation debt of £300 million in November 2021.
For further details see the ‘Funding Structure’ chart below.
£2.6
£7.3
£9.5
£8.7
£1.5
£2.0
£1.5
£1.7
£2.9
£0.7
£0.7
£0.6
£0.6
£0.5
£2.4
£2.4
£2.8
£3.0
£2.7
£9.7
£7.9
£5.7
£3.7
£2.2
£2.6
£4.5
£5.0
£5.7
£3.2
£3.8
£4.7
£4.4
£2.9
£1.5
£0.4
£1.2
£2.0
£3.6
£5.0
£19.6
£21.4
£20.5
£19.5
£15.1
2017 2018 2019 2020 2021
Funding structure of total assets (Bils)
Deposits
Securitisation
Intercompany
Debt
Unsecured
External Debt
Equity
Other
2021 Strategic Report
Business Performance
FCE Bank plc – ANNUAL REPORT 2021 11
Credit Ratings
FCE’s short-term and long-term unsecured debt is rated by three major credit rating agencies: Fitch, Moody’s and Standard &
Poor’s (S&P).
FCE has standalone ratings from Moody’s (received in 2021) and S&P, both rating FCE at investment grade. The rating from Fitch
is based on the rating from Ford and Ford Credit.
The credit ratings table below summarises the long-term senior unsecured credit ratings, short-term credit ratings and the outlook
assigned to FCE.
Credit Ratings
Fitch*
Moody’s
S&P
Long-Term Senior Unsecured
BB+
Baa3
BBB-
Short -Term Unsecured
B
NP
B
Outlook/Trend
Stable
Stable
Stable
Liquidity Profile
FCE's financial position is inherently liquid because of the short-term nature of FCE’s loans and advances to customers and cash
compared to its debt.
For additional information with regard to contractual maturities of receivables and debt, see Note 33 ‘Liquidity Risk’.
Future Prospects
During 2022, FCE plans to continue to develop its digital capabilities and increase its focus on the customer to enable the
successful development of products and services to support Commercial Vehicles and online vehicle sales. This will include
strengthening its Product Organisation and commencing the deployment of a new flexible IT platform to support faster deployment
of new products.
Ford Credit launched the Ford Fleet Management JV in the UK in 2021 and further launches in other Europe an markets are
planned in 2022. As a result, FCE expects reductions in fee income in future years as the Ford lease business will progressively
transfer into the Ford Fleet Management joint venture. FCE expects that vehicle production will continue to be impacted by the
semi-conductor shortage, resulting in lower volumes of loans and advances than previous years. FCE bases its plans of Ford’s
latest production forecasts, although the outlook remains uncertain and subject to continuous change, at year-end 2022, FCE
anticipates 'Net loans and advances to customers' to be in the range of £15 billion to £16 billion, subject to the impact of COVID-
19 and the industry wide semi-conductor shortage’.
Although FCE successfully completed its Brexit strategy in 2021, it plans to continue to monitor the post-Brexit regulatory
landscape and work with regulators to identify opportunities to optimise its operating model to reduce complexity and cost.
Finally, FCE notes that COVID-19 is continuing to evolve and that its ongoing impact in many European markets is uncertain.
Also, many of FCE’s customers are experiencing higher costs of living and that central banks are beginning to respond to
increasing inflation with changes to policy. Furthermore there is also political uncertainty in East Europe. FCE is confident that its
capital and liquidity plans, which include scenario modelling, put it in a good position to manage the potential impacts of these
factors and the increases in credit losses that could result from a severe recession. Other than this, FCE does not undertake to
update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.
Although FCE has only minimal exposure to the Ukraine market, it is deeply concerned about the situation in Ukraine and the
safety and well-being of people there and throughout the region. While there are no direct Ford employees in Ukraine, the
Company continues to focus on the safety of the employees of our distributor in Ukraine.
£5.1
£1.9
2021 Strategic Report
Business Environment
12 FCE Bank plc – ANNUAL REPORT 2021
Risk Profile and Management
FCE is an automotive captive with a mission to provide stable funding and risk management throughout all economic cycles.
Its business strategy is to be a secured lender, its loans collateralised primarily through retention of title in the underlying assets.
The collateral is easy to value, portable and liquid. FCE has clearly defined rights in relation to counterparty default.
Its funding strategy is to maintain a positive structural liquidity profile, i.e. assets liquidate faster than debt, with a lending portfolio
of a short duration.
FCE’s lending portfolio is driven by Ford vehicle sales and production so that in a stressed environment, a decline in sales is likely
to result in lower capital and liquidity requirements, i.e as seen with the global semi-conductor shortage.
Risk Management
FCE’s risk management is based on the principles of the Committee of Sponsoring Organisations (COSO), the Treadway
Commission ERM Framework and supported by its Three Lines of Defence.
FCE’s risk appetite is set annually by its Board of Directors (the Board) and is clearly defined, monitored and managed through
its Risk Appetite Framework. FCE has established processes for its identification of risks arising from its activities and manages
each form of risk uniquely in the context of its contribution to overall risk. Business decisions are evaluated on a risk-aware and
risk-adjusted basis and are priced consistently with these risks.
Risk Appetite and Monitoring
The Risk Appetite Framework is integrated within the Governance structure of FCE and informs the day-to-day risk management
processes/policies which minimise the risk of unexpected losses. FCE conducts close monitoring of the risks in line with its defined
risk appetite, and applies proactive risk-mitigating actions and controls which have been developed based on nearly 60 years of
experience in the automotive lending sector.
The Risk Appetite Framework clearly defines the amount of risk FCE is willing to accept in pursuit of its long-term objectives and
is measured across its principal risk categories. The Risk Management function proposes risk appetite thresholds to the Board,
and is responsible for recommending either the tolerance, treatment, transfer or termination of any risk tracking towards an out-
of-tolerance position to the appropriate governance committee, be that Executive Committee, Board Risk Committee or Board of
Directors.
FCE’s key metrics include credit loss ratios, liquidity adequacy, capital adequacy, cyber risk and operational risk and operational
resilience metrics.
Risk Management and Culture
FCE continues to increase risk awareness by making it an integral part of its culture through communication and training. FCE
reviews and seeks to improve its risk management practices in line with industry best practices.
FCE’s risk management follows the Three Lines of Defence model, which ensures clear delineation of responsibilities between
day-to-day operations, monitoring and oversight, as well as independent assurance.
2021 Strategic Report
Business Environment
FCE Bank plc – ANNUAL REPORT 2021 13
First Line of Defence
The first line of defence comprises the operational staff and departmental management who have responsibility for following policy
and procedure to mitigate any risks inherent in the operations of the business. It operates in accordance with FCE’s control
framework with prescribed controls designed into systems and processes, including self-assessment audit tools and reporting
requirements through to the second line of defence.
Second Line of Defence
Central office teams such as Compliance, Risk, and the Internal Controls Office (ICO) undertake the second line of defence and
are responsible for pan-European policy and procedures executed by the first line management.
Each of the control functions in the second line of defence reports into one or more of FCE’s committees as delegated by the
Board. These committees monitor and challenge performance metrics, review key risk indicators and escalate, as appropriate,
through FCE’s governance structure.
Third Line of Defence
The third line of defence provides independent assurance to the Audit Committee and comprises of the Ford General Auditor’s
Office (‘GAO’). GAO auditors audit the business frontlines and the oversight functions to ensure that they are carrying out their
tasks to the required level of competency.
FCE also recognises the importance of the Board Risk Committee, Board Audit Committee, Non-Executive Directors (NEDs),
external auditors and consultants in providing independent insight and challenge to FCE’s risk management and control framework
leading to a culture of continuous improvement.
Board Risk Committee
The Committee monitors and reviews FCE’s systems for risk management and compliance with financial services legislation and
regulatory requirements. The committee met five times during 2021.
The Chair of the Board Risk Committee formally reports to the Board after each meeting on how its duties and responsibilities
have been discharged.
The core responsibilities include:
• Annual review of the bank’s risk appetite statements
• Review, as appropriate, inputs scenario assumptions to the company’s Internal Liquidity Adequacy Assessment Process
(ILAAP) and ICAAP
• Approval of FCE’s annual Anti Money Laundering Report
• Review of regulatory reports from the Head of Compliance including money laundering, unusual events and regulatory
audit reports to ensure appropriate actions are being taken where required
• Provide oversight and direction to the company’s whistleblowing and fraud procedure
• Recommendation of approval to the Board of a number of policy letters covering topics such as Regulatory Compliance,
Vehicle Residual Value Risk, Large Exposure and Outsourcing Arrangements, in each case ensuring the policies are
consistent with FCE’s strategy and risk appetite
• Operational Risk and Operational Resilience oversight delegated by the Board
• Provide direction on establishing the bank cyber resilience strategy
• Environmental, social and governance risk and model governance risk
2021 Strategic Report
Business Environment
14 FCE Bank plc – ANNUAL REPORT 2021
Whistleblowing
FCE has a whistleblowing procedure for the confidential and anonymous submission by employees of concerns regarding
business, accounting, and internal controls or auditing matters.
Principal Risks and Uncertainties
FCE defines its principal risks as those key risks which are set out on pages 15 to 20. FCE conducts horizon scans, as a method
to provide foresight into the early detection and assessment of emerging technologies or threats. It considers how emerging trends
and developments might potentially affect current policy and processes. This helps guide the Board to take a longer-term strategic
approach and makes present policy more resilient to future uncertainty. In contingency planning, horizon scanning helps to
manage risk by planning ahead for unlikely, but potentially high impact events. In addition to the risks faced by FCE in the normal
course of business, some risks and uncertainties are outside FCE's direct control. This section outlines specific areas where FCE
is sensitive to such risks.
The automotive industry continues to face a significant shortage of semi-conductors, which has presented challenges and
production disruptions globally, including at Ford's assembly plants. This shortage has led to lower dealer inventories of both new
and used vehicles, resulting in lower non-consumer receivables and higher residual values. Based on the overall recovery rate
FCE is seeing for the industry, FCE believes the automotive semi-conductor shortage will remain fluid and could extend into 2023.
A sustained shortage of semi-conductors, or other key components, can cause a significant disruption to Ford's production
schedule. This in turn may negatively impact FCE's business, whose focus is to profitably support the sale of Ford vehicles.
FCE expects economic uncertainty and continuing semi-conductor shortages to have a negative impact on vehicle sales, and
higher default rates within its retail portfolio following the end of COVID-19 related forbearance measures. A sustained decline in
sales could have a significant adverse effect on dealer profitability and creditworthiness.
COVID-19 continues to create significant economic uncertainty, partially mitigated by government actions taken in response. As
new strains of COVID-19 continue to develop or if sufficient amounts of vaccines are not available, not widely administered for a
significant period of time, or otherwise prove ineffective, the impact of COVID-19 on the global economy, and, in turn Ford and
FCE’s financial condition, liquidity, and results of operations could be material. FCE’s business is focused on financing Ford
vehicles, and the duration or re-emergence of COVID-19 or similar public health issues may negatively impact the level of
originations.
FCE is planning and investing for substantial changes to its business model in anticipation of the move of vehicle production to
electric vehicles, changes in Ford’s distribution strategy and the resulting shifts in customer financing needs and service
expectations. There is a risk that if FCE’s plans are executed incorrectly or the market evolves in unexpected ways that FCE’s
relevance to Ford sales and its penetration may decline.
FCE’s ability to obtain unsecured and intercompany funding at a reasonable cost is dependent on its and FMCC’s credit ratings
or the perceived creditworthiness. Further, FCE’s ability to obtain securitised funding under its committed asset-backed liquidity
programmes and certain other asset-backed securitisation transactions is subject to having a sufficient amount of assets eligible
for these programmes, as well FCE’s ability to obtain appropriate credit ratings and, for certain committed programmes, derivatives
to manage the interest rate risk. Over time, and particularly in the event of credit rating downgrades, market volatility, market
disruption, or other factors, FCE may reduce the amount of receivables it purchases or originates if there is a significant decline
in the demand for the types of securities it offers or FCE is unable to obtain derivatives to manage the interest rate risk associated
with its securitisation transactions. A significant reduction in the amount of receivables FCE purchases or originates would
significantly reduce its ongoing results of operations and could adversely affect its ability to support the sale of Ford vehicles. The
potential risk impacts of LIBOR transition and negative interest rates could cause market volatility or disruption. It is difficult to
predict the effect of this change, or other reforms. FCE successfully completed the migration of GBP, USD and CHF LIBOR to
Risk Free Rates (RFR) by the end of December 2021 and will continue to review market updates and regulator announcements
regards LIBOR and take appropriate action. Regular reviews are conducted on negative interest rates within FCE to be prepared
both operationally and financially for such an eventuality.
Ford of Europe currently provides a number of marketing programmes that employ financing incentives to generate increased
sales of vehicles. These financing incentives generate significant business for FCE. If Ford chooses to shift the emphasis from
such financing incentives, this could negatively impact FCE's share of financing related to Ford's automotive brand vehicles.
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Key Risks
FCE’s Pillar 1 capital requirements are calculated using prescribed methods aligned with the Standardised Approach for each of
the following risk types:
• Credit risk including counterparty credit risk
• Operational risk
• Market risk
The nature of these risks, along with the other key risks facing FCE, are discussed in more detail in the remainder of this section.
Credit Risk
As a provider of automotive financial products, FCE's primary credit risk is the loss from a retail customer or dealer's failure to
make payments according to contract terms. Credit risk is mitigated in the majority of FCE's retail, leasing and wholesale financing
plans through title retention or a similar security interest in the financed vehicle. In the case of default, the value of the repossessed
collateral provides a source of protection. FCE’s credit risk policy permits the granting of payment deferrals to provide short-term
support to its retail, leasing and wholesale customers.
FCE applies the Standardised Approach for assessing the Pillar 1 capital requirements for credit risk using standard industry-wide
risk weightings based on the classification of asset and counterparty types. The unaudited ‘Pillar 3 Disclosures’ section, which
starts on page 130, gives more detail on FCE’s credit risk exposures, their relationship to FCE’s Statement of Financial Position
and the capital requirements.
Retail and Finance Lease (Consumer and Commercial) Credit Risk Management
'Retail' typically includes Conditional Sale, Balloon Conditional Sale, Hire Purchase, Balloon Hire Purchase, Credit Sale, and
Retail Financing contracts introduced through a dealer to individual consumers, sole traders and businesses, as well as assets
purchased by customers under conditional sale agreements and leased under finance leases.
Retail contracts are primarily fixed-rate, retail contracts or finance leases which generally require customers to pay equal monthly
payments over the life of the contracts. Trade Cycle Management (TCM) contracts are retail contracts that provide customers with
the choice to purchase, trade-in or hand back the vehicle at the end of the contract.
Retail products are classified by term and whether the vehicle is new or used. This segmentation is used to assist with product
pricing to ensure risk factors are appropriately considered.
Retail consumer credit underwriting normally includes a credit bureau review of each applicant and an affordability check where
market functionality exists, together with an internal review and verification process. Statistic-based risk-rating models are normally
used to determine the creditworthiness of applicants. Portfolio performance is monitored regularly and FCE's originations
processes and models are reviewed, revalidated and recalibrated as necessary. Retail credit loss management strategy is based
on extensive experience.
FCE also provides automotive financing for commercial entities, including daily rental companies. Each commercial lending
request is carefully evaluated using information requested and supported by credit bureau data, where available.
FCE operates centralised originations, servicing and collections activities in all locations which creates economies of scale and
enhances process consistency. The UK and Germany locations use advanced servicing technology, risk management techniques
and controls. These include customer behavioural models that are used in contract servicing to ensure appropriate collection
attention.
Vehicle repossession is considered as a last resort. After proceeds are applied from the sales of repossessed vehicles, collection
of the remaining balance continues where legally permitted until the account is paid in full or it is deemed by FCE to be
economically uncollectable.
For further details refer to Note 29 'Credit Risk’.
Vehicle Residual Value Risk
This is the risk that the actual proceeds realised by FCE upon the sale of a returned vehicle at the end of the contract will be lower
than that forecast at the beginning of the contract. FCE is prepared to incur vehicle residual value risk, predominantly in respect
of Ford brand vehicles. Vehicle residual values are set based on a careful evaluation of internal and external data sources and
are subject to review and approval by the appropriate committee.
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Trade Cycle Management (TCM) contracts, which represent the majority of finance plans whereby FCE have residual value risk,
are typically set below expected market value. This approach generates equity for the customer at the end of the contract and
also serves to provide protection for FCE against residual value risk. The unforeseen impact of COVID-19, and the industry-wide
reductions in new vehicle supply (as a result of reduced availability of semi-conductors), has resulted in a significant increase in
used vehicle values at this time and increased future forecast values from external trade guides. FCE expects these values to
normalise over time as new vehicle supply constraints ease. FCE continues to monitor used values and seek independent third
party trade guide opinion in its decision making processes.
As the industry transitions to electric vehicles, FCE is continuing to grow and enhance its knowledge and strategy for both electric
vehicles (EV) and internal combustion engine (ICE) residual value setting.
With respect to FCE’s operating lease portfolio, residual value risk is reduced by an arrangement with Ford, under which Ford
indemnifies FCE for the majority of residual value losses and receives the benefit of the majority of residual value gains.
For further details refer to Note 30 'Vehicle residual values’.
Wholesale Credit Risk Management
'Wholesale' primarily includes financing to Ford franchised dealers to fund inventory of new and used vehicles (vehicle wholesale
financing, demonstrator or courtesy vehicles) and, to a much lesser extent, spare parts and loans for working capital. For the vast
majority of FCE’s dealer financing products security is taken in the underlying vehicle asset.
Each dealer lending request is evaluated, including the borrower’s financial condition, supporting security, debt servicing capacity,
and numerous other financial and qualitative factors.
All credit exposures are reviewed annually. Asset verification processes are in place and include physical audits of vehicle stocks
with increased audit frequency for higher risk dealers. In addition, stock-financing payoffs are monitored to detect adverse
deviations from typical payoff patterns, in which case appropriate actions are taken.
Wholesale lending generally requires dealers to pay a floating-rate interest and include receivables from dealerships that are
either partly or wholly owned by Ford.
2021 has seen continued challenges, due to the ongoing impacts of the COVID-19 pandemic and the vehicle shortage resulting
from the global semi-conductor shortage. During this time FCE has continued to work closely with Ford to not only maintain but
strengthen its communication and relationships with its dealer and commercial partners. FCE has worked with each individual
partner to understand the impact of the above challenges on their business, with particular focus on their immediate cashflow
situation. FCE has continued to provide dealer specific support where necessary through 2021.
Initial government lockdowns resulted in the majority of dealers in impacted markets being closed for vehicle sales, however in
more recent lockdowns, most governments have permitted ‘Click and Collect’, or ‘Click and Deliver’ sales which has enabled the
large majority of dealers to maintain sales through these restrictions. Dealers have also benefitted from unprecedented levels of
government aid to support their cash positions including employee furlough schemes, government supported loan schemes and
payment moratoria which have gradually been phased out in 2021. These have varied by market but have been tracked closely
as part of the individual dealer monitoring implemented. Standard vehicle auditing has been maintained where local government
restrictions permitted and has been fully restored since mid-2021. Where physical audits were not possible, remote audits have
continued to be undertaken where viable.
For further details refer to Note 29 'Credit Risk’.
Counterparty Credit Risk
FCE could incur a credit loss if the counterparty to an interest rate or foreign currency derivative with FCE defaults. This is known
as counterparty credit risk and is mitigated by the cash collateral that FCE exchanges with most of its counterparties under margin
arrangements. FCE uses the Mark to Market (MTM) method to measure this risk and determine its related capital requirements.
More detail on FCE’s counterparty credit risk exposures, and capital requirements can be found in the unaudited ‘Pillar 3
Disclosures’ which start on page 130.
In addition to a credit loss caused by a counterparty default, banks can also suffer Mark to Market losses associated with the
counterparty’s creditworthiness and this is termed credit valuation adjustment (CVA) risk. FCE does not consider CVA to be a key
risk. FCE holds Pillar 1 capital for CVA calculated under the Standardised Approach as prescribed by the Capital Requirements
Regulation (CRR). The value of this capital requirement is described in the unaudited ‘Pillar 3 Disclosures’ in Table 5 on page
138.
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Operational Risk and Operational Resilience
Operational Risk is the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external
events. Operational Resilience is the ability to continue operating in the face of disruption, regardless of source, and to have the
ability to prevent, adapt, respond to, recover and learn from operational disruptions. Operational risk includes risks such as
information technology process failure, significant organisational change risk, human error, and lapses in internal controls, fraud
or external threats (e.g. cyber-attacks). Processes are in place to identify and assess these risks in order to enable effective risk
management. The Risk Control Self-Assessment process (RCSA) is the process used across the business to identify and assess
operational risk in line with the Basel Framework.
FCE follows the principles of the Three Lines of Defence model as outlined on page 13, to manage and mitigate operational risk
through a robust governance framework. This includes specific committees in place to implement policies, procedures and
processes to control or mitigate material exposure to losses.
Based on the guiding principle that management at all levels is responsible for managing operational risk, FCE maintains a strong
internal control culture across the organisation. The Annual Control Testing, a self-assessment control process used across the
business, is used to monitor adherence to key controls.
FCE is indemnified under insurance policies for certain operational risks including health and safety. Notwithstanding these control
measures and this insurance coverage, FCE remains exposed to operational risk that could negatively impact its business and
results of operations.
To assess Pillar 1 capital requirements for operational risk, FCE qualifies for both the Basic Indicator Approach (BIA) and the
Standardised Approach. As FCE has two distinct product lines, it has adopted the Standardised Approach where a firm divides
its activities into a number of business lines and applies the relevant beta factor to each one. The value of this capital requirement
can be seen in the unaudited ‘Pillar 3 Disclosures’ in Table 5 on page 138.
FCE’s effective response to the impact of COVID-19, including the transition of most of its employees to home-working has
demonstrated many aspects of its operational resilience.
Market Risk
This is the risk of adverse impacts to FCE’s profits and capital as a result of changes to foreign currency exchange rates.
Currency exposures are managed by FCE as an integral part of its overall risk management programme, which recognises the
unpredictability of foreign exchange markets and seeks to reduce the potential adverse effects on FCE’s results.
FCE reduces its exposure to market risk through the use of foreign currency exchange derivatives.
FCE’s strategy for the use of derivatives is designed only to mitigate risk; derivatives are not used for speculative purposes. For
further details, refer to Note 31 ‘Market Risk’. FCE holds equity in its overseas branches and subsidiaries in order to hedge its
capital ratios against movements in exchange rates.
The Pillar 1 capital requirement relating to market risk is made up of a number of risk elements, all of which require their Position
Risk Requirement (PRR) to be calculated.
FCE’s derivatives policy as described on page 108 means that it does not have a trading book under CRD rules and is therefore
only required to hold Pillar 1 capital for its currency risk under the market risk requirements. The value of the capital requirement
can be seen in the unaudited ‘Pillar 3 Disclosures’ in Table 5 on page 138.
Other Risks
In addition to the risk types outlined on page 15, which are reflected in FCE’s Pillar 1 capital requirements, FCE considers a
number of other risk areas significant to its business. These are also integrated into FCE’s risk management processes and are
detailed below:
Concentration risk is the risk resulting from FCE’s concentration of exposures within geographic regions, sectors, and large
dealer groups and fleets. FCE is prepared to incur concentration risk, subject to the risk appetite established by the Board and
regulatory requirements, where this is consistent with executing its mission as a captive automotive finance provider.
FCE’s wholesale portfolio is the business segment most exposed to concentration risk. However, it is FCE’s view that this risk is
mitigated by a number of positive characteristics of its wholesale business model, such as retention of title, the short-term nature
of the funding, the realisable value of the asset within a reasonable timeframe and the fact that the majority of wholesale funding
is uncommitted.
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The retail portfolio consists of a large number of individual loans to retail customers across multiple markets and FCE’s analysis
indicates sufficient granularity within the portfolio to not pose a significant concentration risk.
Pension risk arises from FCE’s obligations as a result of participating in defined benefit pension schemes for its employees. The
most significant retirement benefit obligations to FCE relate to the UK and German pension plans. These are principally Ford
Group sponsored plans in which FCE is a participating employer. FCE recognises that there is inherent volatility in the investment
markets that will affect the value of assets of the schemes at any point in time. The pension liabilities also change over time as
longevity and other assumptions develop and the balance between the populations of the active workforce and retirees matures.
For the UK and German plans, Ford is solely responsible for funding any deficit which may arise from time to time. Should Ford
fail to meet its obligations, FCE retains residual legal risk for the UK plans as does Ford Bank GmbH for the German plans.
FCE, in conjunction with Ford, uses internal and external actuaries to review the pension liabilities; the results are taken into
account in FCE’s capital planning.
FCE, together with Ford, leverages in-house US-based pensions management expertise to assist with recommendations to the
fiduciary bodies responsible for the UK and German pension funds on investment strategy and liability management.
Liquidity risk is the possibility of being unable to meet present and future financial obligations as they become due. FCE’s
strategy is to maintain a diverse range of funding sources to enable it to continue to fund its business in all market conditions.
FCE is funded primarily through unsecured and intercompany debt, public and private securitisation, retail deposits and equity,
ensures that liabilities on average, mature later than assets liquidate.
FCE holds liquidity in the form of cash, committed capacity and collateral eligible for central bank liquidity facilities. FCE’s
committed capacity is in the form of committed securitisation capacity (which is free of material adverse change clauses, restrictive
financial covenants and credit rating triggers), and contractually committed unsecured credit facilities (which have similar terms
with the exception of certain covenants). FCE also participates in the Bank of England Window Facility (DWF) scheme which can
act as an additional source of liquidity.
For further details, refer to Note 22 ‘Securitisation and Related Financing’ and Note 33 ‘Liquidity Risk’.
The Liquidity Coverage Ratio (LCR) requires banks to hold high-quality liquid assets (HQLA) to survive a 30-day liquidity stress.
FCE has established processes to monitor its HQLA position in accordance with the LCR part of the PRA Rulebook. FCE also
complies with the Net Stable Funding Ratio (NSFR) requirements, which are designed to ensure that banks maintain a stable,
long-term funding profile to reduce structural liquidity risk, in accordance with the PRA Rulebook.
Processes embedded in FCE’s governance include liquidity forecasting and reporting against risk tolerances, stress/scenario
testing and contingency planning. FCE’s Board of Directors recognises that liquidity may be affected by the following liquidity risk
drivers, which are material to FCE. FCE has measured its risk appetite against each of these:
• Wholesale funding risk
• Funding concentration risk
• Off balance sheet risk
• Cross-currency liquidity risk
• Balance sheet growth
• Franchise-viability risk
• Non-marketable assets risk
• Retail funding
• Intraday liquidity
• Intra-group liquidity
Group risk is the risk of loss due to FCE’s association with its parent company. As a captive automotive finance company, FCE
has an inherent exposure to Ford. However, this is carefully controlled through FCE’s Large Exposure monitoring process and
minimised through strong adherence to internal policies which ensure an arm’s-length approach to all transactions and services
with FCE’s parent and other Ford-owned entities. FCE leverages some services provided by other areas of the wider Ford Credit
and Ford corporate organisation. However, these services are governed and regulated by service level agreements which typically
provide for ring-fenced capabilities.
Conduct Risk is defined by FCE as: “The risk that FCE’s culture, strategy, policies or procedures encourage its staff, individually
or collectively, to act (or omit to act) in a way that delivers poor customer outcomes for FCE’s customers or negatively impacts on
the integrity of FCE Bank plc, the financial services market as a whole or competition there-in.”
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Conduct Risk is wide-ranging and FCE recognises that one of best ways to manage Conduct Risk, as well as instiling values of
Treating Customers Fairly “TCF” (and like Family), is through the development and maintenance of a culture to which good
conduct and TCF is central. FCE’s approach to Conduct Risk is embedded by the Ford Truths, Values, Corporate Beliefs and
Behaviours, a global approach intended to strengthen and entrench a culture of customer-centricity, reflecting on customer
experience, satisfaction and outcomes.
FCE’s objective is to demonstrate and ensure fair outcomes to consumers throughout the conduct risk lifecycle which includes
product governance, consumers’ retail experiences with FCE and post-sale processes. Conduct risk is managed within each of
FCE’s business operations with oversight from FCE’s central compliance function.
FCE offers well established finance products, including retail deposit-taking to its customers and has comprehensive controls to
ensure that its sales processes, including the introduction of new products, or changes to existing products, ensure fair customer
outcomes as well as meeting all regulatory requirements. FCE monitors customers’ retail experiences, including post sales
processes, through the use of performance data such as complaints metrics as well as through periodic surveys.
Cyber Risk is the risk of a cyber-attack harming FCE’s reputation and/or subjecting FCE to regulatory actions or litigation.
FCE continually employs capabilities, processes, and other security measures designed to reduce and mitigate the risk of cyber-
attacks, although such preventative measures cannot provide absolute security and may not be sufficient in all circumstances or
mitigate all potential risks. FCE participates in and benefits from Ford and Ford Credit’s global tools and focus on Cyber Security.
Preventive measures in place include the use of tools for the integration of security scans within the software delivery pipeline,
and the sharing of best practice and knowledge around remediation of security vulnerabilities; ensuring Ford Credit Application
Programming Interfaces (APIs) are secure through tool driven analysis of conformance to design specifications, best practices
and security requirements; executing Dynamic Security Testing (DAST) vulnerability scans across Ford Credit externally facing
applications containing sensitive data; improving Ford Credit’s cybersecurity posture through training and awareness initiatives
such as secure coding and phishing identification skills; monitoring and limiting USB Device Control Exception requests globally,
in between others.
Interest rate risk is the risk arising from fluctuating interest rates. FCE’s asset base consists primarily of fixed-rate retail instalment
sale, hire purchase, conditional sale and lease contracts, with an average life of approximately three years, and floating rate
wholesale financing loans with an average life of approximately two months.
It is FCE's policy to execute interest rate derivatives to change the interest rate characteristics of its debt to match, within a
tolerance range, the interest rate characteristics of its assets. This matching policy seeks to maintain margins and reduce profit
volatility. Further details on FCE’s interest risk and interest rate risk management can be found in Note 32b ‘Interest Rate Risk’.
FCE also utilises the Economic Value of Equity model to inform its capital requirement for interest rate risk.
Environmental, Social and Governance (ESG) Risk
ESG risk is divided into three elements:
• Environmental risk is the actual or potential threat of adverse effects on living organisms, businesses and the environment
by effluents, emissions, wastes, resource depletion and climate change
• Social risk includes the impact of issues of inequality, inclusiveness, labour relations, investment in human capital and
communities
• Governance risk is the internal system of practices and controls, required for governance effective decisions within legal
and compliance in order to meet the needs of external stakeholders
FCE is continuing to develop its approach to ESG including minimising the potential future impact of financial risks created by
climate change.
FCE is working on implementing plans consistent with the response of the industry and its regulators to this emerging risk. The
Board has appointed the Chief Risk Officer, under the Senior Managers Regime, as the responsible person for climate change
issues.
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The financial risks from climate change present themselves via two main channels:
• Physical risks arising from increased severity and frequency of climate and weather related events which damage
property and infrastructure disrupting business supply chains. These events may reduce asset values, profitability and
impact the wider economy by reducing output and productivity;
• Transition risks, which arise from adjustments towards a carbon neutral economy, and require significant structural
changes. These changes will require an adjustment to asset values, changes in energy pricing and may have a negative
impact on the incomes and credit profile of some borrowers, leading to increased credit losses.
European jurisdictions are focusing on air quality, predominantly in cities as well as climate change in general. Various statements
have been issued indicating a desire or even firm rules to restrict access to, or ban, vehicles with Internal Combustion engines
(“ICE”) from designated cities, or parts thereof as well as ban of new registrations on a national or regional level. There has also
been a focus on legal claims against diesel vehicles and assume illegal defeat devices in the short to medium term and, there is
a risk that residual values for diesel engine vehicles will depreciate at a greater rate than originally forecast. In the longer-term,
with the development of electric powered vehicles, combined with legislative changes to the disadvantage of ICE vehicles, there
could be an adverse impact on FCE’s business.
Ford has recently announced its portfolio of vehicles will progressively move towards full electrification by investing around $30
billion by 2025. In Europe, by mid-2026, 100% of its passenger vehicle range will be zero-emissions capable, all-electric or plug-
in hybrid; moving to all-electric by 2030. Ford’s commercial vehicle range in Europe also will be 100% zero-emissions capable,
all-electric or plug-in hybrid, by 2024; two-thirds of commercial vehicle sales are expected to be all-electric or plug-in hybrid by
2030. This will require FCE to adapt its strategies and products to ensure it is able to continue to support Ford sales, whilst
protecting its portfolio and its exposure to residual value risk.
The effects of increased scrutiny and CO2 regulation for motor vehicles, including access restrictions for ICE vehicles in cities,
has been assessed and the impact on vehicle values is monitored closely. FCE has processes to identify legislation changes and
their future impacts are assessed as appropriate. For receivables where FCE takes the residual value risk, forward looking vehicle
values are assessed in the light of such legislation changes and a shift towards vehicles with alternative propulsion types. FCE
has relatively short dated receivables, which provides flexibility for it to react relatively quickly to changes, however, also
acknowledges that these risks may affect investors’ risk appetite and FCE’s access to wholesale and retail deposits markets. FCE
regularly meets with its investors to gain insight as to potential future changes.
FCE expect investor interest in ESG-related information and investment products will continue to intensify in the coming years. If
interest in investments without ESG-related features declines and FCE are slow to ramp up our “green” portfolio of receivables,
FCE could experience a decrease of investor interest in its notes, which could lead to funding constraints or higher interest
rates. Further, there is no guarantee that investors will find the information FCE provide about ESG to be sufficient and FCE
cannot know for sure how investors will use their ESG questionnaires to make investment decisions. Further, as broader society
transitions away from ICE to electrified vehicles, investors may become increasingly concerned about the residual values of either
vehicle type, potentially impacting their interest in holding FCE notes.
Further information on environmental and social matters can be found in the Non-Financial Statement on page 23.
FCE’s Approach to Regulatory Compliance
FCE proactively monitors and implements relevant regulatory changes and regularly assesses and controls its exposure to
regulatory risks through the time bound completion of a compliance monitoring programme. This programme assesses FCE’s
compliance with all applicable regulatory rules. All material changes to laws and regulations impacting FCE are overseen by
Senior Management and where necessary are implemented and recognised within regularly revised policies and procedures.
Board declaration on adequacy of risk management
FCE’s Directors are satisfied that the Enterprise Risk Management Framework adequately supports FCE’S profile and risk
strategies in a way that meets the requirements of all key stakeholders.
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Our People
FCE relies on the skills and talents of its dedicated European workforce of around 1,400 individuals for its ongoing success and
risk management.
People Strategy
FCE’s people policies and practices recognise fully the company’s status as a regulated bank domiciled in the UK, and therefore
the standards of conduct, behaviour and ethics it is required to meet. FCE aims to be an “Employer of Choice”. It has a strong
focus on developing employees, together with a retention strategy to ensure that the skills and experience required to support
business objectives are retained. In accordance with the company succession planning policy, FCE’s people strategy includes
the use of Accelerated Development programme to support the recruitment and development of employees and ensure effective
succession planning for key roles. FCE has a remuneration and benefits philosophy targeted at achieving overall competitiveness
with the external market, rewarding contribution to FCE's performance and retaining key skills. FCE operates a robust training
and competency framework to provide individuals with the skills, knowledge and expertise to discharge their responsibilities
effectively. In line with the Company’s performance management and development processes, regular partnership discussions
are held with people leaders in order to align on the employee's goals and results, growth and development, career aspirations
and wellbeing.
FCE is committed to diversity in the workplace. This approach values the differences provided by culture, ethnicity, race, gender,
disability, nationality, age, religion, beliefs, education, experience and sexual orientation. FCE uses the views of employees to
improve processes and to foster a culture based on honesty and respect.
Applications for employment by persons with a disability are always fully considered, with consideration to the aptitudes of the
applicant concerned. In the event of members of staff becoming disabled every effort is made to ensure that their employment
with FCE continues and that appropriate support is arranged. It is FCE's policy that the training, career development and promotion
of persons with a disability should, as far as possible, be identical to that of other employees.
Consistent with the principle of diversity, FCE also operates a Dignity at Work policy which promotes a business environment
where employees, customers and suppliers are valued for themselves and their contribution to the business. FCE is committed
to conducting its business with integrity and utilising the talents of all employees through providing an environment free from
discrimination, harassment, bullying and victimisation.
FCE requires all employees to act with integrity and demonstrate ethical behaviour, as set out in Employee Handbooks and related
policies. This is supported by a culture where there is a strong focus on risk identification, control and governance as part of the
Operational Risk Framework and a senior management team that demonstrates principled decision making through their actions
and behaviours.
Employee Communication and Engagement
Employees are kept informed of its activities on a national, pan-European and global level by means of weekly e-bulletins , internal
intranet, email updates and all-employee meetings. All-employee activities are supported by local location and onsite
communications including team meetings, cascades, dedicated project websites.
During 2021, employee communication has continued to evolve and increase in response to the ongoing global pandemic and
evolution of work to incorporate regular remote working. Aimed at helping colleagues feel informed, supported, included and a
sense of belonging, specific actions included:
• Timely, digital communications designed to drive awareness and understanding of Ford and Ford Credit’s strategic
direction, accelerate momentum on FCE’s culture journey and prepare the Ford Credit workforce for workplace changes
such as hybrid working;
• Regular virtual employee meetings between directors, management and the entire workforce with open, honest and
transparent two-way discussion including questions and answers. These have been welcomed by employees, with
attendance remaining high;
• Ongoing LearnX webinar series providing a variety of support tools and training to help employees explore, experience
and experiment with their personal and professional development, as well as the challenges of working remotely.
• Frequent communication to raise awareness on mental health and wellbeing issues with support available to employees
through ‘FCE’s Mental Health First Aiders’, ‘Occupational Health Service’ ‘24-hr Employee Assistance helpline’ and
online resources;
• Regular staff ‘PULSE’ surveys used to monitor employee satisfaction and culture.
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Basic Working Conditions and Corporate Responsibility
FCE recognises that employees are its most important resource. In recognition of their contributions, FCE has policies and
programmes designed to ensure that its employees enjoy the protection afforded by principles articulated in this report.
FCE also strives to be a good corporate citizen and works to implement policies and programmes to benefit the communities
where it operates. Although these principles are not new to FCE, they are important to what it stands for as a company.
FCE has policies that set forth the Company’s guiding principles for human rights, labour, and environmental standards throughout
its operations.
FCE intends its policies to be an affirmation of basic guiding principles that should serve as the cornerstone of its relationship with
employees and other stakeholders in the countries where it operates.
Human Rights
It is a goal of FCE to respect human rights in all of its activities. FCE personnel are required to follow the Company’s corporate
policies and comply with national laws and regulations related to human rights. FCE personnel should also work to reduce the
risk of any potential human rights violations by identifying risks, monitoring those risks and remediating any non-compliance.
Bribery and Corruption
FCE does not tolerate the giving or receiving of money, gifts, or favours to influence in any way the behaviour of another individual,
organisation, government employee, politician, or government body in furtherance of a commercial or personal advantage. Bribery
is never permitted, even in countries or regions where it may appear to be tolerated or condoned.
Labour
FCE does not use forced labour in any form and does not tolerate physically abusive disciplinary practices. The Company does
not use or tolerate human trafficking in its labour force.
Health and Safety
FCE provides and maintains for all personnel a safe and healthy work environment that meets or exceeds applicable legal
standards for occupational safety and health.
FCE’s overriding priority during the ongoing COVID-19 pandemic was to ensure it continued to protect the safety of its employees
and the wider community. As the crisis broke in March 2020, FCE very quickly moved from an office environment to over 95% of
employees working from home. A variety of tools and training were provided to assist employees including mental and physical
health and safety, and effective remote working practices. Onsite health and safety protocols such as daily attestations,
temperature checks, mandatory facemasks, increased cleaning regimes and social distancing were in place at various times
throughout 2021.
Employment Practices
FCE complies fully with relevant legislation enacted by both European and national parliaments on Human Resources (HR) policy
and process. FCE ensures that HR policies and procedures meet the aims of relevant PRA, FCA and other national regulatory
requirements.
Work Hours
FCE complies with applicable laws regulating hours of work.
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FCE Bank plc – ANNUAL REPORT 2021 23
Environmental and Social Matters
FCE is an integral part of Ford’s global effort towards a sustainable environment. Ford knows climate change is real and remains
committed to doing its part to address it by delivering on CO2 reductions consistent with the Paris Climate Agreement. Ford has
already charted its course for the future that includes investing more than $30 billion in electrified vehicles by 2025, as well as
responsible development of self-driving technology.
With Ford+ the Company is accelerating its efforts to be a leader in mobility and making progress toward its vision of clean, safe,
affordable and accessible transportation for all, with less congestion, better air quality, shorter journey times and fewer accidents.
Ford foresees smart vehicles operating in a smart world, communicating with each other and the surrounding infrastructure
through open-source platforms such as Ford’s Transportation Mobility Cloud. To help fulfil the Company’s vision, Ford has
invested in strategic partnerships with Argo AI and Volkswagen to develop self-driving technology.
For more information on Ford’s sustainability strategy refer to the corporate website.
FCE continues to evidence its long standing commitment to the communities across Europe in which it works with a number of
projects and initiatives. This includes empowering all FCE employees to use up to sixteen normal paid work hours each year
(equivalent to two paid workdays) to participate in community projects. This approach provided free of charge resources to support
diverse projects in local communities across Europe. The company also enables employee fundraising for good causes during
office hours.
Streamlined Energy and Carbon Reporting
Energy Consumption
CO2 Emissions
Location Based
CO2 Emissions
Market Based
kWh
tCO2
tCO2
2021
2020
2021
2020
2021
2020
Scope 1 Energy/Emissions
Natural Gas
907,871
758,205
167
139
167
139
Business Owned Transport
127,536
173,093
31
43
31
43
Total Scope 1
Energy/Emissions
1,035,407
931,298
198
182
198
182
Scope 2 Energy/Emissions
Electricity
1,307,964
1,389,401
278
324
52
74
Total Scope 2
Energy/Emissions
1,307,964
1,389,401
278
324
52
74
Scope 3 Energy/Emissions
Employee owned and leased
vehicles
19,008
58,038
5
14
5
14
Total Scope 3
Energy/Emissions
19,008
58,038
5
14
5
14
Total Scope 1, 2 & 3
2,362,379
2,378,737
480
520
255
270
Intensity Metric
2021
2020
Revenue in mil £
599
736
tCO2 per mil £ revenue
0.80
0.71
2021 Strategic Report
Non-Financial Statement
24 FCE Bank plc – ANNUAL REPORT 2021
Scope and Methodology
FCE reports greenhouse gas (GHG) emissions in accordance with the Companies (Directors’ Report) and Limited Liability
Partnerships (Energy and Carbon Report) Regulations 2018. FCE follows the HM Government Environmental Reporting
Guidelines (March 2019) and has defined the scope of the FCE SECR report as all energy use and carbon emissions from its
operations in the United Kingdom, using the financial control boundary approach.
Scope 1 emissions are generated from the gas used in all buildings where FCE operates in the UK and emissions generated from
company vehicles used for business travel in the UK.
Scope 2 emissions are generated from the use of electricity in all buildings FCE occupies in the UK.
Scope 3 emissions are generated from employees on company business using their own or leased vehicles.
The reporting period for GHG emissions ran from 1 January to 31 December 2021. Conversion factors were taken from the 2021
UK Government’s Conversion Factors for Company Reporting document. Both location based and market based emissions are
presented.
Where possible energy use was determined from sub meter readings. Where the landlord controls the supply via a service
arrangement, estimates were made based on the floor space occupied. Transport emissions were determined from fuel expense
and mileage claims, which include business travel in company owned or leased vehicles as well as employee vehicles on company
business.
Energy Efficiency Actions Taken
At FCE’s European headquarters electricity comes from renewable sources and the offices have been fitted with LED energy
efficient lighting. To support the transition to low carbon transportation, electric vehicle charging points have been installed, which
employees can use to charge their electric cars while at work.
In 2021 FCE continued the hot desk office and remote working arrangements and mid-year consolidated its head office operation
into a smaller footprint, resulting in a significant energy saving for FCE. However, whereas in 2020 some offices were completely
shut for part of the year, in 2021 the offices were open throughout the year. In addition as a COVID-19 prevention measure, air
circulation was increased, with no air being recirculated, which resulted in higher gas use for heating. In the head office a project
to replace the heating boilers with more efficient boilers has started and the units are awaiting commissioning.
Virtual meetings have been expanded, which greatly reduced business travel further during 2021.
Supply Chain
FCE encourages businesses throughout its supply chain to adopt and enforce similar policies to those articulated here for its own
operations. Further, FCE seeks to identify and do business with organisations that conduct their businesses to standards that are
consistent with its own policies including working to extend these principles within their own supply chain.
FCE, as appropriate, seeks the assistance of independent third parties to assess compliance with its policies. FCE’s policies are
not intended to benefit any third parties or to create or confer any third party rights.
FCE expects its personnel to report known or suspected violations of its policies through the established reporting channels. FCE
prohibits retaliation against anyone who in good faith reports a violation.
2021 Strategic Report
Section 172 Report
FCE Bank plc – ANNUAL REPORT 2021 25
Section 172(1) Companies Act 2006 Statement
This section 172(1) statement, which is required under section 414A of the Companies Act 2006, describes how the Board of
Directors (hereafter referred to as the Board) have had regard to the matters set out in section 172(1)(a) to (f). Furthermore, the
financial services regulatory requirements and expectations to which FCE is subject to requires the Company to demonstrate how
the Directors act in ways they consider, in good faith, would be most likely to promote the success of the Company for the benefit
of its stakeholders as a whole. This means that as well as promoting the success of the Company for the benefit of its members,
the Directors must have regard, amongst other matters, to the likely consequences of any decisions in the long-term, the interests
of FCE’s employees, the need to foster FCE’s business relationships with suppliers, customers and other stakeholders, the impact
of FCE’s operations on the community and the environment, the desirability of the company maintaining a reputation for high
standards of business conduct, the need to act fairly as between members of the company and how FCE complies with the
requirements of section 172 of the Companies Act 2006.
The Board is committed to maintaining high standards of corporate governance to support the delivery of the business strategy,
to maintain positive relations with all the Company’s stakeholders and to create long-term value for its shareholder. FCE does not
apply a single Corporate Governance Code but as required under the UK financial services regulatory regime complies with a
number of different regulations relating to corporate governance matters. During the reporting year, FCE applied the Wates
Corporate Governance Principles for Large Private Companies (the “Wates Principles”).
During 2021, the Board held six scheduled Board meetings and a two-day Strategic session and the statement on corporate
governance arrangements on page 28 provides details on how the Board have approached their responsibilities during the year
and the work of the Board committees which, in turn, demonstrates how the Directors have acted in a way which is likely to
promote the success of the company, as set out in section 172(1).
Board Composition, Experience and Expertise
FCE’s Board comprises of three Executive Directors and six Non-Executive Directors of which four are considered independent.
and are able to provide independent oversight and constructive challenge to the executive directors. Each director has been
selected and appointed based on their breadth of experience and collectively the Board have the required skills to discharge the
duties as set out in section 172 as well as identify and understand the needs of its stakeholders. The appointments of the three
Executive Directors and the Non-Executive Directors holding prescribed Senior Manager functions under the Senior Managers
and Certification Regime (‘SM & CR’) have been approved by both the PRA and FCA (the “regulators”) who ensure that the
Directors are suitable to carry on regulated activities.
Corporate Strategy and Purpose
Section 172 duties are at the fore when Directors deliberate and determine the corporate strategy and purpose, during decision
making, during proactive stakeholder engagement and when implementing and complying with the corporate governance
arrangements.
FCE’s strategy is determined by the Board annually at a two-day Strategic meeting held during the first quarter of the reporting
year. The process considers the many aspects of FCE’s business and its stakeholders consistent with the Directors section 172
duties and has regard to the immediate, mid-term and long-term risks and opportunities faced by FCE.
This year, the Board considered how FCE needs to evolve to support Ford’s accelerated electrification strategy; the increasing
focus on the impact of climate change on the Company’s activities; the need to deliver a best-in-class experience for its existing
and new commercial and retail customers as well as reviewing horizon risks including but not limited to ongoing global pandemic,
ongoing global inventory shortages; business performance and conduct risks with particular regard to the interests of its retail and
wholesale borrowers, its retail deposit investors, its employees and the discharge of the company’s regulatory expectations.
2021 Strategic Report
Section 172 Report
26 FCE Bank plc – ANNUAL REPORT 2021
Stakeholder Engagement
FCE recognises the need to engage with key stakeholders to help inform the Board’s strategy and decision-making. The following
have been identified as FCE’s key stakeholders in the context of discharging their section 172 duties, namely, retail customers,
commercial customers, retail deposit holders and other investors, Ford dealership network, employees, suppliers, regulators, Ford,
and the communities where FCE operates.
The Board keeps the interests of its stakeholders at the heart of its deliberations and decision-making alongside the need to
maintain a reputation for high standards of business conduct. During the year, the Board has continued to provide oversight for
the implementation of key strategic decisions that were made in the previous year including the deployment of Medallia – a
software platform which provides customer feedback in real time, the roll out of the new eCommerce platform including e-
contracting; maintained oversight of employee wellbeing in light of the continuing global pandemic resulting in employees working
from home; kept abreast of all key developments in the employee space; maintained oversight of the development of the
Company’s culture framework to align the Company culture with the business strategy and its values to ensure that FCE is better
placed to manage future opportunities and risks as well as unlock more value for customers and other stakeholders. Examples of
how stakeholders’ interests have influenced decision-making are included below.
Customers and Suppliers
FCE’s primary purpose is to support the distribution and sale of Ford passenger and commercial vehicles. FCE and its ultimate
parent Ford’s goal is that every customer is treated like family through the development of customer-focused products and services
that meet or exceed their expectations and in so doing enhance the loyalty model, increase client referrals and build trust. In this
vein, FCE is continuing to enhance and simplify the customer engagement experience using technology. Furthermore, the FCE
Board has considered Ford’s European business plan including the accelerated electrification strategy to ensure that FCE’s
European business footprint and operations are in alignment with Ford’s European business model. Consequently, FCE decided
to organise it’s Sales and Marketing functions into two organisational units to focus on Passenger Vehicles and Commercial
Vehicles to better leverage resources and focus on delivering the strategic priorities for the benefit of its stakeholders. The Board
has also continued to focus on the needs and expectations of retail deposit customers and the Ford dealership network particularly
in the area of operational resilience.
In response to the ongoing global shortage of semi-conductors, FCE has deployed 0% APR re-financing as a bridging tool for
those customers who are experiencing long delivery times for their new vehicles.
In response to the COVID-19 pandemic and the resulting adverse impact on businesses and individuals, the Board has also
continued to focus on identifying and addressing the risks and requirements of the dealer network and retail customers ensuring
that high standards of business conduct are maintained across the business. The Board also periodically reviews the areas of the
business that have oversight for fostering relationships with retail and wholesale customers, dealers, retail depositors and
suppliers. Furthermore, Board members now periodically listen in on customer calls to the Company’s contact centre to ensure
that the values delivered to the customers are satisfactory and in doing so enhance the customer experience and retention. The
Board also supported the continued roll out of the Ford Money application to retail depositors.
The Board via delegation to the Chief Finance Officer also ensures that FCE’s payment terms and practices in relation to its
suppliers meet or exceed the statutory requirements.
Employees
FCE and the Board believe that people are critical to its business success and that it is vital to protect all employees and workers
by providing a safe and healthy work environment. FCE’s response to COVID-19 has required particular focus on the part of the
Board through effective communication and engagement with staff throughout the year including discussion forums to understand
employees’ views and concerns around a number of topics such as culture, diversity and inclusion, bureaucracy, innovation and
wellbeing. FCE has continued to support employees to work from home by providing an established range of flexible working
options and provision for equipment. Furthermore, FCE has put in place workplace health and safety protocols which go beyond
the government guidelines, to ensure place-dependent employees are able to work in the office as safely as practically possible.
Further details on the increased engagement and communication with employees during the year as a result of COVID-19 can be
found on page 21 as part of the Non-Financial Statement narrative. The Board has also supported the deployment of a range of
wellbeing activities, as part of caring for each other, during what has been another challenging year due to the ongoing pandemic.
FCE values the diversity of its employees and encourages an inclusive culture so that everyone is free to contribute and develop
in a safe working environment that is free from harassment or bullying. FCE has taken specific actions to improve gender and
ethnicity representation initiaiting a new advocacy and mentoring scheme with a view to increasing female representation at senior
levels. In addition, FCE has taken steps to ensure that its employees, particularly its senior leaders, model diversity and inclusion
and recognise the connection between diversity and inclusion and better decision-making, innovation, and employee engagement.
FCE has also put in place frameworks and policies that are accessible to all employees and workers covering anti-bribery,
Corruption and Whistleblowing.
2021 Strategic Report
Section 172 Report
FCE Bank plc – ANNUAL REPORT 2021 27
FCE ensures that all its employees and workers are adequately trained in relation to their roles and responsibilities and
encourages everyone to request any additional training or professional development which may be required. During the year,
FCE sponsored a number of employees who are pursuing a postgraduate degree course in Business Administration. Employees
also have 24/7 access to an online learning platform where they can access webinars, courses, tutorials and other high-quality
online learning options. Further, the Board through its sub-committees ensures that the assessment of the fitness of prospective
candidates to senior management and board positions are robust and the interests of all stakeholders are taken into consideration.
Regulators
The Board recognises the importance of open and transparent dialogue with FCE’s regulators. The Directors are monitored and
periodically assessed by the PRA to ensure that they satisfy their obligations under the SM & CR and the PRA’s supervisory
review and evaluation process.
During the year, the Board ensured that high standards of business conduct were maintained across the business particularly in
light of staff continuing to work from home and the future hybrid working model.
Environmental Considerations and Community
In response to the regulatory expectations and planned legislation in relation to disclosures on climate change risks, the Board
has kept under review the development of FCE’s approach to addressing climate-related financial risks and opportunities.
FCE continues to encourage and engage with various local community initiatives, through employee participation, in the locations
where it operates including charitable and project activities.
2021 Strategic Report
Governance
28 FCE Bank plc – ANNUAL REPORT 2021
Statement of Corporate Governance Arrangements
The following section sets out FCE’s corporate governance arrangements as required under Part 8 of Schedule 7 to the Large
and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 and satisfies the requirements set out by
Section 172 (1) of the Companies Act 2006. Further details on section 172 can be found on page 25 of the Strategic Report.
FCE does not apply a single Corporate Governance Code but is required under the UK financial services regulatory regime to
comply with a number of different regulations and standards of corporate governance including but not limited to the following: the
Rulebook of the Prudential Regulation Authority (PRA), the Handbook of the Financial Conduct Authority (FCA), the Wates
Corporate Governance Principles for Large Private Companies dated December 2018 (the Wates Principles) and other industry
guidelines covering Internal Governance, Sound Remuneration Policies, Risk Management, Internal Control and Related Financial
and Business Reporting, Audit Committees, Board Effectiveness and Board Responsibilities in the context of corporate
governance. FCE publishes relevant corporate governance related disclosures on its website www.fcebank.com.
The Company has applied the Wates Corporate Governance principles during the financial year, as detailed in the table below.
In practice these principles are embedded within, and supplemented by, FCE’s existing governance practices as required by the
PRA and the FCA (the Regulators). Furthermore, compliance with these matters is assured through the Company’s Three Lines
of Defence model as detailed on page 13 of the Strategic Report and by ongoing supervision by the Regulators.
Wates Principles
Purpose
An effective board promotes the purpose
of a company and ensures that its values,
strategy and culture align with that
purpose.
FCE’s corporate values are aligned with those of Ford (the ‘Ford Truths’). A
principal value is that employees act with integrity and demonstrate ethical
behaviour, as set out in Employee Handbooks and related policies, approved by
the Board. Furthermore, FCE’s Business Model and Strategy to deliver the
Company’s purpose are set out on page 4.
Composition
Effective board composition requires an
effective chair and a balance of skills,
backgrounds, experience and knowledge,
with individual directors having sufficient
capacity to make a valuable contribution.
The size of a board should be guided by
the scale and complexity of the company.
The Board composition for 2021 is detailed on page below. The size and
composition of the Board reflects the requirements of the PRA’s Rulebook with
each director satisfying the fit and proper tests and regulatory requirements. The
Board is satisfied that its composition includes individuals with a mix of skills and
experience necessary to make informed decisions and provide effective oversight
of the risks. The Board and its committees regularly receive briefings on pertinent
thematic issues.
Responsibilities
A board should have a clear
understanding of its accountability and
terms of reference. Its policies and
procedures should support effective
decision-making and independent
challenge.
The Board periodically reviews its Board Charter relating to the internal corporate
governance of the Company and its group. This Charter satisfies industry
guidelines in defining the duties and accountabilities of directors and the
accountability and terms of reference of each aspect of governance. Policies and
procedures relating to all relevant governance and decision-making matters are
approved by the Board and its committees, cascaded to employees, and
monitored for compliance by the FCE’s Three Lines of Defence. Examples of
matters considered by Board and its committees are set out on page below.
Opportunity and risk
A board should promote the long-term
success of the company by identifying
opportunities to create and preserve value
and establishing oversight for the
identification and mitigation of risks.
The Board has adopted a sustainable business model and strategy. The Company
has appointed a Chief Risk Officer in accordance with PRA requirements and the
Board has established a Risk Committee with its terms of reference published on
its website. The Company has put in place a robust risk appetite framework
against which business performance is proactively assessed. FCE also has in
place a risk horizon scanning framework which is reviewed by the Board on a
quarterly basis.
Remuneration
A board should promote executive
remuneration structures aligned to the
sustainable long-term success of a
company, taking into account pay and
conditions elsewhere in the company.
Details regarding FCE’s remuneration polices are outlined its remuneration
disclosures published annually on FCE’s website www.fcebank.com.
2021 Strategic Report
Governance
FCE Bank plc – ANNUAL REPORT 2021 29
Stakeholders
A board has a responsibility to oversee
meaningful engagement with material
stakeholders, including the workforce, and
have regard to that discussion when
making decisions. The board has a
responsibility to foster good stakeholder
relationships based on the company’s
purpose.
Further details on the Company’s stakeholder engagement can be found in the
section 172 statement on page 26.
The Board is satisfied that it meets the desired outcomes from a regulatory perspective. Furthermore, it meets its regulatory
obligations, is open and transparent with the regulators and has set a culture that supports prudent management.
As part of its continuing authorisation, FCE is periodically subject to the PRA’s Supervisory Review and Evaluation Process, part
of which includes the examination of FCE’s business model, the fitness of FCE’s governance arrangements and how risks are
addressed.
The Board
The FCE Board has approved a written charter to establish systems of effective corporate governance. This charter establishes
the Board’s sub-committees, their terms of reference and composition, and matters reserved to the Board. In order to maintain
oversight of these delegated activities, executive directors invariably attend most of the sub-committee meetings. The chairs of
the Audit, Risk and Remuneration Committees, who are Independent Non-Executive Directors, provide reports of those
committees’ deliberations to the Board. Members of the Board engage with the business through an open working environment
and attendance at the various sub-committees of the Board and team meetings.
FCE’s Board comprises nine members, namely three Executive Directors and six Non-Executive Directors (NEDs) of whom four
are deemed to be independent.
The Company has a Chair, responsible for leadership of the Board and a Chief Executive Officer, responsible for the Company’s
management. Executive Directors are accountable for the conduct and performance of their business function.
The Directors and Company Secretaries, who have served at any time between the beginning of the financial year and the date
of this Directors report are stated on page 3 and the Directors biographies are detailed below on pages 29 and 30.
All Directors have access to the advice and services of the Company Secretary and can obtain independent professional advice
at the Company's expense in furtherance of their duties, if required.
FCE's Articles of Association require that all Directors retire and stand for reappointment at each Annual General Meeting (AGM).
Appointments are terminable on one month's notice by either party.
Directors’ Interests
Directors disclose relevant external interests which might conflict with their role including the directorships that they hold. The
directors formally reconfirm their external interest biannually and are expected to obtain the agreement of the Board Chair before
accepting additional commitments that might impact time commitment and have an ongoing obligation to inform the Company as
soon as they become aware of any potential or actual conflicts of interest. Furthermore, at each Board meeting, the Directors are
required to disclose any conflict or potential conflict in relations to the matters being considered at the meeting.
Biographical Details of Directors
Marlene Martel, Non-Executive Director and Board Chairman. Her other key positions include General Counsel Ford Motor Credit
Company LLC. She is also a Director of Alternatives for Girls Detroit, Michigan. Marlene was appointed to the Board on 16
September 2021.
Narpal Ahulwalia, Chief Risk Officer and China Ford Motor Credit Company LLC. His other key positions include Chairman of
the Board and Director, Ford Automotive Finance (China) Limited; Chairman of the Board and Manager, FCA Holdings LLC;
Chairman of the Board and Director, Ford Automotive Financial Leasing (Shanghai) Limited; Director, Ford ECO GmbH; and
Manager, Fairlane Credit LLC. Narpal was appointed to the Board on 24 March 2019.
Charles Bilyeu, Charles was Chief Executive Officer until 31 October 2021 and retired from the Board on 26 November 2021.
2021 Strategic Report
Governance
30 FCE Bank plc – ANNUAL REPORT 2021
Natalie Ceeney, Independent Non-Executive Director and Chair of FCE’s Remuneration Committee. Natalie is also currently a
Non-Executive Director of Anglian Water Services Limited, Sports England and Liverpool Victoria. She also leads an independent
strategy consultancy practice and is a Director of San Fairy Ann Cycling Club. Natalie who has a strategy consultancy background
from McKinsey & Company has previously held senior executive roles with HM Courts & Tribunals Service, the Financial
Ombudsman Service, the National Archives and HSBC UK. Natalie is a graduate of the University of Cambridge. Natalie was
appointed to the Board on 17 October 2019.
Talita Ferreira, Independent Non-Executive Director and Chair of FCE’s Audit Committee. Talita is also currently a Non-Executive
Director at Tandem Bank Limited. She is also the CEO and Founder of Authentic Change Solutions Limited - a thought leadership
firm which helps individuals and organisations transform culturally. Talita is a Chartered Accountant, Chartered Director and Fellow
of the Institute of Chartered Accountants for England and Wales (ICAEW) and a Fellow of the Institute of Directors. Talita’s career
has been in the automotive and captive financial services industries. Previously, she was the Chief Financial Officer (CFO) of
BMW UK Limited, CFO of BMW Automotive Ireland Limited, CFO of BMW Financial Services Limited (UK and Ireland) and the
CFO of Alphabet (GB) Limited. Talita was appointed to the Board on 8 February 2019.
Paul Kiernan, Executive Director, Finance, a Chartered Accountant since 1992 and a member of the ICAEW. His other key role
is Chair and Supervisory Board Member, Ford Bank GmbH. Prior to taking up his present role on the FCE Board, Paul was
Finance Director for Ford of Britain. Paul was appointed to the Board on 1 November 2011.
Brendan O’Connor, Independent Non-Executive Director. Brendan is also currently a Non-Executive Director of Coventry
Building Society. Prior to taking up his role on the FCE Board, Brendan was Chief Executive Officer of AIB Group (UK) plc.
Brendan was appointed to the Board on 17 September 2020.
John Reed, Independent Non-Executive Director, Senior Independent Non-Executive Director and Chair of FCE’s Board Risk
Committee is an Associate of Chartered Institute of Bankers (ACIB). John is Chairman of EFG Private Bank and Chairman of
Activtrades. He is also a Director of Silverback (UK) Limited. Previously, he has served on the boards of Hambros Bank, which
later became a subsidiary of Société Générale when he became Group Chief Operation Officer, Arbuthnot Banking Group, Tesco
Bank and Arbuthnot Latham where he was Chief Executive Officer, the Bank of the Philippine Islands (Europe), Innovation Finance
Limited and the National Motor Museum Trust. John was appointed to the Board on 7 April 2014.
Keith Robinson, Executive Director and Chief Risk Officer, His other key roles are Director, FCLH Limited and Supervisory Board
Member, Ford Bank GmbH. Prior to taking up his present role on the FCE Board, Keith has held other senior roles within the
group. Keith was appointed to the Board on 1 April 2020.
Thomas (‘Tom’) Schneider, Tom was Board Chair until 16 September 2021 and retired from the Board on 2 December 2021.
He was previously Executive Vice President and Chief Risk Officer, Ford Motor Credit Company.
Carlos Treadway, Carlos was appointed Chief Executive Officer on 1 November 2021. His other key roles are Supervisory Board
Member, Ford Bank GmbH and Director, Ford Fleet Management B.V. Prior to taking up his present appointment as CEO, Carlos
was FCE Executive Director, Sales and Marketing and prior to joining the FCE Board he was the Vice President, Business Center
Operations, North America. He is also Director, Demons Unlimited Foundation, an Athletic Foundation at his Alumni University.
Carlos was appointed to the Board on 14 January 2021.
Director Independence and Board Challenge
The appointment of an Independent Non-Executive Director is for an initial term of up to three years, renewable for a second term
of up to three years on mutual agreement. In certain circumstances further terms may be agreed.
The Board considers four of the six current Non-Executive Directors to be independent because they have no material business
relationship with FCE, (either directly or as a partner, shareholder or officer of an organisation that has a relationship with FCE),
and they neither represent the shareholders nor have any involvement in the day-to-day management of FCE, its parent
companies or its subsidiaries. As such they bring objectivity and independent judgement to the Board, which complements the
Executive Directors’ skills, experience and detailed knowledge of the business.
Moreover, they play a vital role in the governance of FCE through their membership of the Audit, Risk and Remuneration
Committees to which they are each appointed. Each year the NEDs hold a meeting with the Chair to discuss Executive Director
succession planning, corporate governance and any other relevant issues. The Board reviews the number of Executive Directors
and NEDs periodically to maintain an appropriate balance for effective control and direction of the business.
A Senior Independent Director (‘SID’) has been appointed to provide a sounding board for the Chair and to serve as an
intermediary for the other Directors when necessary. The role of the SID is to take a lead role with the other NEDs, representing
collective views to the Chair, Board and to representatives of FCE's shareholders. John Reed is the SID.
The NEDs meet from time to time in the absence of FCE's management and the SID presides at such meetings.
2021 Strategic Report
Governance
FCE Bank plc – ANNUAL REPORT 2021 31
Selection of Directors and Executive Management
FCE recognises the value and competitive advantages of having a diverse Board and management team that make optimal use
of different skills, experiences, perspectives, background, ethnicity, age, gender and other attributes. FCE‘s policies on equality
of opportunity, diversity and inclusion ensure that these matters are considered fully when considering the composition of its Board
and management team.
FCE has a strategic vision to achieve appropriate diversity representation across its management groups, including the Board. In
selecting suitable candidates for executive and non-executive roles, whether from inside the broader Ford Group or externally,
candidates are sought from as diverse a pool as possible. They are assessed on merit against objective criteria by the transparent
application of fair policies and processes, which are free from any unfair barriers.
Specialist executive recruitment agencies may be employed to find suitable Directors. In addition, direct appointments are made
where specific skills and experience are needed, and FCE may consult other professional advisers on appropriate candidates
when specialist financial skills are required. Formal interviews are held with senior Company management before a preferred
candidate meets other members of the Board including the SID and the other NEDs.
Matters Reserved and considered by the Board during the reporting period
During 2021, the Board held a total of six regular board meetings and a strategic meeting at which the strategy was reviewed,
taking into consideration the external economic environment, Ford Motor Company's strategy, and the Company’s need to create
stakeholder value.
During the reporting period, the following matters were considered by the Board and demonstrate how the directors have complied
with their statutory duties and in particular s.172 CA 2006 duty to promote the success of the Company:
• The Board updated the corporate strategy at a two-day Strategic meeting. As part of this, Ford Credit is working with
Ford to deliver the accelerated electrification strategy and refocusing on the sale of commercial vehicles;
• The Board considered the progress against the corporate strategic objectives and plans by reviewing metrics and actions
via the CEO’s report at each board meeting;
• The Board reviewed the updated business plan and funding strategy in support of the acceleration of the electrification
of the Ford of Europe product line-up. As part of this, the Board has also supported the modernisation of the Company’s
IT receivables platform to enable the increased penetration into commercial vehicle sales and continues to focus on cost
efficiencies;
• The Board continued to monitor the long-term capital and liquidity issues considering the global pandemic and impact of
the semi-conductor microchip shortage. Scenario planning tools have been developed to assess the impact of changes
in the macro economic environment on the balance sheet;
• The Board considered its existing executive leadership team to determine how it could be more diverse with a view to
introducing dynamic innovation within the team;
• The Board challenged Executive Management on the volume and quality of Management Information received;
• The Board received and reviewed information on employee wellbeing initiatives;
• The Board reviewed and deliberated on the activities carried out at the Manchester Business Centre Operations with a
focus on delivering the group’s goal of treating customers fairly as well as like family to enhance customer loyalty and
optimising the centre’s efficiency. Furthermore, the Board has considered the development of a new framework to
measure performance against conduct risk;
• The Board ensured that the Company complied with its duties to treat customers fairly and received a report at each of
its meetings focusing on the topic with metrics and monitors FOS adjudications to identify trends and lessons learnt to
improve decision making;
• The Board reviewed the progress being made to enhance the Company’s eCommerce marketplace capabilities as well
as the digital customer interaction platform with a view to delivering an enhanced and better customer interaction and
experience;
• The Board continued to review the support being provided to retail and wholesale customers who have been impacted
by the pandemic;
• The Board continued to monitor the expansion of the retail deposits business as well as the roll out of Ford Money
application;
• The Board reviewed the performance and governance of the Company’s insurance product portfolio;
• The Board continued to focus on ensuring that the Company had a robust and resilient Cybersecurity Incident Plan.
• The Board had oversight of the completion of the Brexit Implementation Strategy. Following on from this, the Board is
continuing to ensure that Ford Credit’s European structure is streamlined and fit for purpose;
2021 Strategic Report
Governance
32 FCE Bank plc – ANNUAL REPORT 2021
• The Board is continuing to focus on further developing the Ford Credit Culture to be a product driven and customer
organisation. As part of this, the Board is working with executive management to identify key metrics within a conduct
and culture dashboard with a view to identifying early warning indicators which could jeopardise customer loyalty or
potentially cause customer harm;
• The Board via delegation to the Chief Financial Officer continued to support the timely publication of the Company’s
payment practices report and support practices to ensure payments practices satisfy statutory requirements;
• The Board continued to support the timely publication of the Company’s Modern Slavery Statement and supports
practices within the group to prevent modern slavery practices;
• The Board fulfilled their obligations in respect of their transparent interactions with the regulators as well as the
development and approval of key documents required by regulators including the ICAAP, ILAAP, RRP and Solvent Wind
down Assessment;
• The Board has continued to monitor the development of the framework to underpin its key business services as part of
the Operational Resilience Programme;
• The Board has continued to monitor the development of a robust ESG strategy and plan in line with the regulatory
requirements;
• The Board receives periodic Compliance Controls reports (in relation to staff training, compliance metrics and AML) and
periodic internal & external audit reports;
• The Board has continued to monitor the status of the delivery of the regulatory reporting automation project;
• The Board has continued to monitor the LIBOR transition programme;
• The Board has continued to proactively monitor the horizon risks that could impact the Company’s operations;
• The Board reviewed and supported the timely publication of the Gender Pay Report covering gender pay and bonus
gaps and the work that is being done to support women’s advancement and development;
• The Board continued to receive a status update on staff matters covering morale, mental well being initiatives as well as
the approach to implementing a hybrid work model;
• The Board received and deliberated a Health and Safety Report as well as updates on the Culture Sprint projects.
• The Board received SME briefings to enhance their knowledge on key thematic issues to ensure that they can collectively
make sound decisions in respect of matters considered;
• The Board received periodic updates on significant legal matters and ensured that adequate provisions are made, where
necessary;
• The Board received status updates on relevant strategic projects;
• The Board reviewed the performance of executive management and other senior managers to ensure that their delegated
responsibilities were being performed. Furthermore, they have ensured that adequate succession plans are in place for
key roles.
Committees of the Board
The Board has constituted five direct sub-committees, these are the Audit, Risk, Remuneration, Executive and Administration
committees. The Board periodically reviews their composition to ensure an appropriate balance and good mix of skills and
experience. It also periodically reviews the committees’ activities and terms of reference, which contain their delegated authorities
and risk responsibilities.
The Terms of Reference for the Audit, Risk and Remuneration Committees can be found on FCE’s website
https://www.fcebank.com/investor-center.html.
The report of the work of the Board Audit Committee can be found on pages 36 and 37.
Details on the risk functions and work of the Board Risk Committee can be found on page 13 of the Strategic Report.
During the reporting period, the Remuneration Committee (RemCo) met six times. In the first quarter, the RemCo reviewed
compensation awards made to the bank’s Material Risk Takers to ensure alignment of pay and performance within the company’s
prescribed risk appetite framework, ensuring alignment with Proportionality Level Two pay-out requirements. During the reporting
period the RemCo also reviewed succession plans for all senior roles, reviewed development plans for the new Board chair and
new CEO, deliberated the leadership team diversity, reviewed and approved FCE’s unaudited ‘Pillar 3 Disclosures’ regarding
remuneration, reviewed remuneration related policies, reviewed the gender pay report, reviewed the culture framework and
received updates on employee wellbeing initiatives.
2021 Strategic Report
Governance
FCE Bank plc – ANNUAL REPORT 2021 33
The Executive Committee (EC), chaired by FCE’s CEO, provides direction, monitors performance and ensures FCE has the
capabilities, resources and effective controls to deliver its Business Plan. The EC has sixteen members, three of whom are
Executive Directors. The EC includes individuals responsible for Deposits, Sales and Marketing, Information Technology, Legal,
Risk Management and Compliance, Strategy, Finance, Operations, Human Resources, Products, Markets and Communications.
The EC held 12 meetings during 2021.
The Administrative Committee comprises any two Executive Directors and meets when required. It considers and approves
operational matters delegated to it and the execution of contracts not otherwise the subject of general management delegated
authorities.
The full sub-committee structure is set out below:
2021 Strategic Report
Governance
34 FCE Bank plc – ANNUAL REPORT 2021
2021 Membership and Attendance
Board
Board Audit
Remuneration
Board Risk
Number of
Committee
Committee
Committee
Directorships
Meetings held
6
4
6
5
Attendance
N K Ahluwalia
6/6
6
C A Bilyeu
5/6
4
N A Ceeney
6/6
4/4
6/6
5/5
9
T Ferreira
6/6
4/4
5/6
5/5
4
P R Kiernan
6/6
2
M M Martel
2/2
2
B O’Connor
6/6
4/4
6/6
5/5
2
J Reed
6/6
4/4
6/6
5/5
4
K Robinson
6/6
3
T C Schneider
6/6
5/5
3
C D Treadway
5/5
4
Other Governance
Risk Management and Internal Control
The Board ensures that FCE’s systems of effective corporate governance are supported by effective internal controls that apply
to both its strategies and operations.
Details of FCE’s Three Lines of Defence model can be found on page 13 of the Strategic Report.
Financial Reporting
FCE has developed strong and defined internal controls, including controls over financial reporting.
The financial statements were prepared and reviewed by the entire executive team and subject matter experts within the business,
prior to submission to the Audit Committee. The Audit Committee has considered the content, accuracy and tone of the disclosures
in the Annual Report. The Board has reviewed and approved the Annual Report following the review by the Audit Committee. This
governance process has ensured that both management and the Board were given enough opportunity to review and challenge
the financial statements and other significant disclosures before they are made public.
The process is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external reporting purposes in accordance with international accounting standards in conformity with the
requirements of the Companies Act 2006 and FCE’s Group financial statements in accordance with the UK adoped international
accounting standards.
Ford’s Internal General Auditor’s Office (GAO)
Ford’s GAO is independent from FCE. Its coverage is based on the relative risk assessment of each 'audit entity', which is defined
as a collection of processes and systems that are closely related. The Audit Committee reviews the GAO’s audit plan and
resources for appropriateness.
The GAO's mission, as the third line of defence, is to provide objective assurance and advisory services to management, in order
to improve the efficiency and effectiveness of FCE operations and assist the Company in achieving its objectives through systemic
and disciplined auditing.
Statutory auditor rotation
PwC, FCE’s prior statutory auditor, reached the maximum permitted tenure for auditors of public interest entities in 2020.
Following the conclusion of a competitive tender process by the Audit Committee and a comprehensive transition process, BDO
were appointed as FCE’s external auditor for the year ending 31 December 2021 on 8
th
April 2021 at the Company’s Annual
General Meeting.
2021 Strategic Report
Governance
FCE Bank plc – ANNUAL REPORT 2021 35
External Audit
BDO LLP (BDO) conducts audits of FCE's Group financial statements prepared in accordance with UK adopted international
accounting standards (IFRS), and Company financial statements prepared in accordance with UK adopted international
accounting standards and the Companies Act 2006.
The Audit Committee reviews BDO's continued independence, performance, significant relationships and compliance with
relevant ethical and professional guidance. The Audit Committee makes a recommendation to FCE’s Directors on the appointment
of the auditor who then propose the appointment to shareholders who appoint the auditors at the Annual General Meeting. In
addition, the Audit Committee reviews BDO's audit plan, its scope and cost effectiveness and the audit fee. BDO's audit fees for
2021 are outlined in Note 5 ‘Operating Expenses’.
Independence
To help ensure that the auditors’ independence and objectivity are not prejudiced by the provision of non-audit services, the Audit
Committee has implemented procedures to ensure that:
• Non-audit work suggested to be performed by BDO is approved upfront to ensure only permissible non-audit services
are performed;
• All non-audit work by BDO is pre-approved by the Audit Committee unless the amount involved is minimal. The annual
remuneration for any non-audit work performed by the statutory auditor should not exceed 70% threshold of the audit
fees for the year in line with the requirements.
Additionally, it has been agreed that the external auditors should generally be excluded from providing permitted advisory services
and all other non-audit related services, unless the firm appointed as external auditor is:
• The only provider of the specific expertise/service required
• The clear leader in the provision of the service and is able to provide that service on a competitively priced basis
As auditors, BDO will undertake work that they must or are best placed to complete. This includes formalities related to borrowings
or work in respect to regulatory reports. The appropriateness of proposed engagements are reviewed by the Audit Committee in
the light of relevant Ethical Standards, Securities and Exchange Commission requirements and the considerations highlighted on
pages 36 and 37.
2021 Audit Committee
Audit Committee Report
36 FCE Bank plc – ANNUAL REPORT 2021
Composition, skills and experience
Under the chairmanship of Talita Ferreira, the other members of the Audit Committee (“the Committee”) during the year were
John Reed, Natalie Ceeney, and Brendan O’Connor. All members of the Committee are independent Non-Executive Directors.
The qualifications and experience of the members of the Committee are set out on pages 29 and 31. The Company is satisfied
that the Committee members have recent and relevant experience in the sector that the Company operates. The Company is
satisfied that Ms Ferreira has the necessary competence in accounting and auditing.
The Chief Executive Officer, Chief Finance Officer, Chief Risk Officer, Company Secretary, Legal Affairs Director, Head of Internal
Control and Head of Internal Audit are invited to attend Committee meetings along with the External Auditors who are invited to
attend and report at all meetings. The Committee also meets periodically with the internal and external auditors, without
management being present. The Committee met four times during the year and the member attendance list can be found on page
34.
Terms of Reference
The terms of reference of the Committee, which are updated annually, can be found on the Company’s website www.fcebank.com.
The responsibilities of the Committee include:
• Monitoring the financial reporting process and submit recommendations or proposals to ensure its integrity;
• Monitoring the effectiveness of the Company’s internal quality control, risk management systems and processes, and,
where applicable the internal audit function;
• Reviewing the arrangements and processes for developing the Recovery and Resolution Planning;
• Monitoring the performance of the statutory audit of the annual and consolidated financial statements;
• Reviewing and monitoring the independence of the statutory auditor, and in particular the appropriateness of the
provision of non-audit services;
• Informing the Board of the outcome of the statutory audit and explaining how the statutory audit contributed to the integrity
of financial reporting and what the role of the Audit Committee was in that process;
• Overseeing the selection process of the statutory auditor and making a recommendation to the Board in respect to the
appointment of the statutory auditor;
• Reviewing the accuracy and quality of regulatory reporting including the implementation of new regulatory requirements,
as applicable.
The Board Audit Committee’s Work
In fulfilling its role and responsibilities, the Committee has carried out the following activities during the year:
• Kept under review the effectiveness of FCE’s governance, risk and control frameworks, including the receipt of periodic
reports on the integrity of financial reporting, the reliability of regulatory reporting, progress against internal audit plans
and management’s approach to self-identifying, managing and closing operational audit comments as well as the
identification of any thematic trends and how the root causes have been addressed;
• Reviewed and approved the Internal Audit annual work plan. The annual work plan focused on key risks and key internal
controls. The Committee also reviewed internal audit resources allocation required to meet the audit plan including the
outsourcing of a portion of the internal audit work to a third party;
• Reviewed the content of the Annual Report and Accounts including the effectiveness of governance and quality
assurance, management representations, going concern statements and the unaudited ‘Pillar 3 Disclosures’ in the
context of the impact of COVID-19, the implementation of the Brexit strategy and the uncertain economic outlook;
• Reviewed the fact that the information presented in the Annual Report, when taken as a whole, is fair, balanced and
understandable and contains the information necessary to assess FCE’s position and performance, business model and
strategy;
• Reviewed and approved the annual external audit plan ensuring it focused on significant audit risks, monitored the
Company’s response to audit findings and approved the audit fees;
• Reviewed the external auditor’s performance including the audit and non-audit services provided by them during the year
and considered the policy for non-audit services to ensure that auditor objectivity and independence was safeguarded.
The Committee reviewed each area of non-audit work performed above the required threshold of 70% of the average
audit fees for the previous three years and considered the relevant safeguards the auditors had put in place to address
any potential threat to independence;
2021 Audit Committee
Audit Committee Report
FCE Bank plc – ANNUAL REPORT 2021 37
The Board Audit Committee’s Work continued
• Received status updates and monitored the implementation of the project to automate regulatory reporting;
• Reviewed FCE’s going concern paper and challenged the ability of the Group to withstand severe but plausible downside
scenarios;
• Scrutinised how the Company is responding to and is complying with significant accounting, regulatory and legal
developments affecting it and considered how these matters have been reflected in the Annual Report, including both
the accounting adopted and the disclosures made;
• Reviewed the Company’s tax strategy and relevant policy statements;
• Continued to review its effectiveness against predetermined objectives defined by the committee and wider stakeholders
as part of a wider board effectiveness review;
• Reviewed the Dividend Payment, Provisioning, Pillar 3 and Internal Management and Public Disclosure of Inside
Information Policy Statements;
• Reviewed the Recovery Plan;
• Reviewed the Modern Slavery and Human Trafficking Statement and the framework underpinning the Statement
• Reviewed internal audit reports, including those in relation to: Ford Bank GmbH and its relocation, Robotic Process
Automation, Models Reports, Business Continuity Planning, Treasury & Liquidity Management, Data Retention, Retail
Deposits, Anti Money Laundering Continuous Monitoring, User Developed Applications, Internal Capital Adequacy
Assessment Process (ICAAP) & Capital, Internal Liquidity Adequacy Assessment (ILAAP), eCommerce, Disaster
Recovery, Data Privacy, Operational Risk Management, Supplier Risk Management, Worldwide Trade Finance,
European Insurance, Compliance Function, Remuneration System, External Audit, Forbearance and Arrears
Management Information, Provisioning Process, Business Managed IT, Residual Value Risk Management and Retail
and Lease Credit, Regulatory Reporting;
• Continued to review the impact of the global pandemic on FCE’s culture and control environment;
• Monitored the evolution of credit loss reserves and evaluation of management judgement overlays in relation to modelled
losses;
• Reviewed the Audit Regulator’s inspection report on BDO;
• Received briefings on key thematic issues, namely, Audit Culture, Climate Change Reporting, the proposed UK
government Audit & Governance Reform, Regulatory Reporting and the proposed changes in relation to Consumer Duty;
• Selected a firm to undertake a Quality Assessment review of the Internal Audit function during 1H 2022.
ON BEHALF OF THE AUDIT COMMITTEE
Talita Ferreira
17 March 2022
2021 Directors’ Report
Directors’ Report
38 FCE Bank plc – ANNUAL REPORT 2021
The Directors present their Annual Report, together with the Company and Group Financial Statements and Independent Auditors'
Report, for the year ended 31 December 2021.
The Business Review and future developments are set out in the Strategic Report on pages 3 to 35.
The Group’s risk management disclosures are set out in the Strategic Report on pages 12 to 20. FCE’s Directors are satisfied
that the Enterprise Risk Management Framework adequately supports the bank’s profile and risk strategies in a way that meets
the requirements of all key stakeholders.
The Group's policies for hedging each major type of transaction are discussed in Note 31 ‘Market Risk’ to the financial statements.
Events occurring after the reporting date are discussed in Note 39 ‘Events After The Reporting Period’ to the financial statements.
Details of branches outside the UK are disclosed on page 129.
The Directors consider that the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides
the information necessary for shareholders to assess the group and company’s position and performance, business model and
strategy.
Particulars of the present Directors and Company Secretary, who have served throughout the year and up to the date of signing
the financial statements are contained on pages 29 and 31. The content of the Non-Financial Statement on pages 21 to 24 are
incorporated by reference into this report. Dividend payments and payment policy are referred to on page 10. Information
concerning corporate governance arrangements is disclosed on pages 28 to 35.
All Directors have been issued a Qualifying Third-Party Indemnity. All Qualifying Third-Party Indemnities were in force at the date
of approval of the financial statements.
Going concern
Directors are required to prepare the financial statements on a going concern basis unless it is inappropriate to presume that the
‘Group and parent company’ will continue in business. The Directors have made an assessment of going concern, taking into
account both current performance and the Group’s outlook, including consideration of the ongoing global pandemic and global
inventory shortages, projections for the Group’s capital and funding position and the general economic outlook. As a result of this
assessment, the Directors consider that it is appropriate to adopt the going concern basis of accounting in preparing the Company
and Consolidated Financial Statements.
Disclosure of Relevant Audit Information
So far as each Director is aware at the date of approving this report, there is no relevant audit information, being information
needed by the auditor in connection with preparing this report, of which the auditor is unaware. All of the Directors have taken all
reasonable steps to make themselves aware of any relevant audit information and to establish that the auditor is aware of such
information.
Directors Responsibility Statement
The Directors are responsible for preparing the Annual Report and the Company and Group's financial statements in accordance
with applicable law and regulations.
The Directors are required by law to prepare the Company and Group's financial statements for each financial year in accordance
with UK adopted international accounting standards in conformity with the requirements of the Companies Act 2006. Additionally,
the FCA’s Disclosure Guidance and Transparency Rules require the Directors to prepare the Group’s financial statements in
accordance with IFRS (together the “applicable legal requirements”). IFRS has been followed for the Group and Company financial
statements, subject to any material departures disclosed and explained in the financial statements notes.
The Directors are required to ensure that the Company and Group's financial statements give a true and fair view of the assets,
liabilities and financial position of the Company and Group and of the profit or loss of the Group.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company and
Group's transactions and which disclose with reasonable accuracy at any time the financial position of the Company and the
Group and enable them to ensure that the financial statements comply with the above requirements. They are also responsible
for safeguarding the assets of the Company and the Group, and for taking reasonable steps for the prevention and detection of
fraud and other irregularities.
2021 Directors’ Report
Directors’ Report
FCE Bank plc – ANNUAL REPORT 2021 39
In preparing the Company and Group's financial statements for the year ended 31 December 2021, the Directors also are required
to select suitable accounting policies and apply them consistently, make judgements and estimates that are reasonable and
prudent, confirm that applicable accounting standards have been followed and confirm that the financial statements have been
prepared on the going concern basis.
Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Group and Company and of the profit or loss of the Group and Company for that period. Each of
the Directors confirms that, to the best of their knowledge:
• The financial statements, which have been prepared in accordance with applicable accounting framework as above, give
a true and fair view of the assets, liabilities, financial position and profit of the Group
• The Directors’ Report includes a fair review of the development and performance of the business and the position of the
Group, together with a description of the principal risks and uncertainties that it faces
The Directors are responsible for the maintenance and integrity of the company's website. Legislation in the United Kingdom
governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
The Directors confirm that they have complied with the above requirements in preparing the financial statements for the year
ended 31 December 2021.
Approved by the Board of Directors and signed on behalf of the Board
Carlos Treadway - Chief Executive Officer
17 March 2022
2021 Financial Statements
Independent Auditors’ Report to the Members of
FCE Bank plc
40 FCE Bank plc – ANNUAL REPORT 2021
Opinion on the financial statements
In our opinion:
• the financial statements give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at
31 December 2021 and of the Group’s profit for the year then ended;
• the Group financial statements have been properly prepared in accordance with UK adopted international accounting
standards;
• the Group financial statements have been properly prepared in accordance with international financial reporting
standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union;
• the Parent Company financial statements have been properly prepared in accordance with UK adopted international
accounting standards and as applied in accordance with the provisions of the Companies Act 2006; and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements of FCE Bank plc (the ‘Parent Company’) and its subsidiaries (the ‘Group’) for the year
ended 31 December 2021 which comprise the Consolidated Statement of Profit or Loss and other Comprehensive Income, the
Group and Company Statements of Financial Position, the Group and Company Statements of Cash Flows, and the Group and
Company Statements of Changes in Equity and notes to the financial statements, including a summary of significant accounting
policies. The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable
law and UK adopted international accounting standards and international financial reporting standards adopted pursuant to
Regulation (EC) No 1606/2002 as it applies in the European Union. The financial reporting framework that has been applied in
the preparation of the Parent Company financial statements is applicable law and UK adopted international accounting standards
as applied in accordance with the provisions of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements
section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
opinion. Our audit opinion is consistent with the additional report to the audit committee.
Independence
Following the recommendation of the audit committee, we were appointed by the Board of Directors on 8 April 2021 to audit the
financial statements for the year ending 31 December 2021 and subsequent financial periods. The period of total uninterrupted
engagement is one year as this is our first year as auditors of the Group and Parent Company. We are independent of the Group
and the Parent Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in
the UK, including the FRC’s Ethical Standard as applied to public interest entities, and we have fulfilled our other ethical
responsibilities in accordance with these requirements. The non-audit services prohibited by that standard were not provided to
the Group or the Parent Company.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the Directors’ use of the going concern basis of accounting in the
preparation of the financial statements is appropriate. Our evaluation of the Directors’ assessment of the Group and the Parent
Company’s ability to continue to adopt the going concern basis of accounting included:
• Evaluating the Directors’ going concern assessment, including evaluating forecasts, considering the ongoing and
expected impact of COVID 19, challenging the assumptions and predicted outcomes within the forecasts, including
assessing their reasonableness against historic performance and our understanding of the business. We also considered
the Directors’ ability to forecast accurately, comparing historic forecasts to actual results.
• An evaluation of the availability of the different funding sources of the Group.
• Review of the latest Internal Capital Adequacy Assessment Process (ICAAP) and Internal Liquidity Adequacy
Assessment Process (ILAAP) prepared by the entity.
• An assessment the ability of Ford Motor Credit Company, FCE Bank Plc’s intermediate parent company, to provide
funding to the Group to meet the terms of the agreement described in Note 25.
• A review of the Bank’s regulatory correspondence, and discussion with the Prudential Regulation Authority (PRA), the
Group’s lead regulator, to understand their views of the Group and its ability to continue as a going concern.
• A review of the adequacy of the disclosures within the financial statements in relation to going concern.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the Group and the Parent Company’s ability to continue as a going
concern for a period of at least twelve months from when the financial statements are authorised for issue.
2021 Financial Statements
Independent Auditors’ Report to the Members of
FCE Bank plc
FCE Bank plc – ANNUAL REPORT 2021 41
Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the relevant sections
of this report.
Overview
Coverage
93% of Group profit before tax
94% of Group revenue
87% of Group total assets
Key audit matters
2021
Revenue recognition
Loan Loss provisioning
Materiality
Group financial statements as a whole
£11.93m based on 5% of Profit before tax
An overview of the scope of our audit
Our Group audit was scoped by obtaining an understanding of the Group and its environment, including the Group’s system of
internal control, and assessing the risks of material misstatement in the financial statements. We also addressed the risk of
management override of internal controls, including assessing whether there was evidence of bias by the Directors that may have
represented a risk of material misstatement.
The Group is made up of the parent and its wholy owned subsidiaries, and operates in multiple European countries through its
subsidiary and branch network. The Group’s most financially significant markets are the UK and Germany, and the Parent
Company and Ford Bank GmbH were identified as significant components for the audit. The Parent Company was subject to a
full scope audit performed by the Group engagement team whilst the audit of Ford Bank GmbH was performed by a non-BDO
member firm in Germany.
Other larger markets in which the Group operates are Italy, France and Spain, and whilst not individually significant components,
testing was performed by BDO member firms on certain balances from the components in these markets to the extent necessary
to obtain sufficient and appropriate audit evidence over relevant financial statement line items. In determining the work to be
performed we considered the quantitative significance of balances, as well as any significant audit risks and any other qualitative
factors that were relevant. The risk of material misstatement in the remaining balances and components not in scope was
mitigated through audit procedures including testing of controls, including information technology general controls and analytical
review procedures performed by the Group engagement team.
The Group also obtains operational and infrastructure support from related parties within the wider Ford Group, mainly in the US,
Germany and India. Within our scoping process we identified audit work to be performed over selected business processes
performed by the Ford Group on behalf of the Group and Parent Company. We determined whether audit procedures would be
performed by the Group audit team, or by Ford Group non-BDO member firm auditors operating under our instruction, based on
the location of the business processes within the wider Ford Group.
We also issued group reporting instructions to component auditors and instructions to the auditors of the selected business
processes. Each of these instructions included the required nature, timing and extent of procedures to be performed, materiality
levels to be used, compliance with the UK ethical standard, UK auditing standards and independence regulations. Our
engagement with these teams included regular meetings to discuss the audit approach and any issues arising in their work,
reviews of formal reporting documents and selected working papers, ensuring that the work performed was adequate for the
purpose of our audit. In addition, we met with the local management of Ford Bank GmbH, the significant component.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to
fraud) that we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in
the audit, and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the
financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
2021 Financial Statements
Independent Auditors’ Report to the Members of
FCE Bank plc
42 FCE Bank plc – ANNUAL REPORT 2021
Key audit matter
How the scope of our audit addressed
the key audit matter
Revenue recognition
Refer to Note 2 (Net interest income),
and Note 34 (Related party
transations)
The Group’s interest income is
recognised on an Effective Interest
Rate (EIR) method in accordance
with IFRS 9 Financial Instruments.
The calculation of EIR is complex
and relies on the completeness and
accuracy of input data.
Significant management judgement
and assumptions are also required to
determine the EIR.
Error within the underlying input or
bias in key assumptions applied
could result in the material
misstatement of revenue.
Therefore revenue recognition was
considered a key audit matter as it is
a complex area, and is subject to
significant assumptions and
judgement by management.
Our procedures included the following:
We tested the operating effectiveness of
controls over the entry of interest rates,
and entry of loan contracts into the
relevant systems, including the
identification of contracts that contained
interest supplements from related
parties, review and approval of manual
adjustments, and the automated
calculation of interest income for retail,
wholesale and interest supplement from
related parties.
We assessed whether the Group’s
revenue recognition policies were
appropriate and in compliance with the
requirements of IFRS 9 including the
treatment of integral fees included within
the EIR.
We challenged the assumptions used by
management in the calculation of the
EIR, including an assessment of the
appropriatness of the expected life of
loan contracts using the Bank’s historic
loan data.
We used data auditing techniques to
recalculate interest income for a sample
of markets, covering retail, wholedsale
and interest supplements earned from
related parties. Where we did not use
data auditing techniques we performed
other substantive procedures to
recalculate interest income recognised
to ensure it was appropriately recorded.
We verified a sample of interest income
and loans recognised back to underlying
contracts, agreeing the key contractual
terms of the agreement into the systems
in which the related interest income is
calculated.
Key observations:
We did not identify any indicators that
the data or management judgements
included within the calculation of interest
income were inappropriate, and no
material exceptions were noted in the
above testing.
Loan loss provisioning
Refer to Note 13 (Allowance for
expected credit losses), and Note 29
(Credit risk)
The provision for expected credit
losses on Loans and Advances to
Customers is £33m (2020: £46m). Of
this provision, £12m (2020: £34m)
was calculated by the provisioning
model, and £21m (2020: £12m) was
a judgemental management overlay.
Our procedures included the following:
We tested the operating effectiveness of
controls over the completeness and
accuracy of data input into the model,
management’s validation of the output of
the impairment model by running a
2021 Financial Statements
Independent Auditors’ Report to the Members of
FCE Bank plc
FCE Bank plc – ANNUAL REPORT 2021 43
Commensurate with the activities of
the Group the Expected Credit Loss
(ECL) provision is a material balance
subject to management judgement
and estimation.
Key management judgements and
estimates in respect of the timing and
measurement of expected credit
losses include:
• Allocation of assets to stage 1, 2, or
3 using criteria in accordance with
the requirements of the applicable
accounting standard;
• Accounting interpretations and
modelling assumptions used to build
the models that
calculate the ECL;
• Completeness and accuracy of
data used to calculate the ECL;
• Inputs and assumptions used to
estimate the impact of multiple
economic scenarios; and
The accuracy and adequacy of the
financial statement disclosures was
also considered to be a significant
area as they are expected to be a key
area of interest for the users of the
financial statements.
Management also apply adjustments
of a judgemental nature, based on
their best estimate of the credit risk,
in instances that they believe that the
allowances calculated by the model
are not appropriate. Included in the
management judgement overlay is
an adjustment arising from historical
data used in the models not
capturing conditions arising from
COVID-19.
Loan loss provisioning was
determined to be a significant audit
risk and key audit matter because it
is a complex area which requires
significant judgement.
separate challenger model, reviewing
the approval of the key assumptions
including macroeconomic factors and
reviewing the governance and approval
of post model adjustments.
We assessed the overall characteristics
of the Group’s loan book and considered
whether management’s processes for
the identification and treatment of
underperforming loans was appropriate.
We critically assessed the methodology
for determining Significant Increase in
Credit Risk criteria with reference to the
requirements of the applicable
accounting standard, including
evaluating the impact of modifications to
loan terms. We independently tested the
staging allocation of loan assets.
We evaluated the appropriateness of the
source of the information used by the
Group to determine Probability of
Default, Loss Given Default and
Exposure at Default. We made an
assessment of the completeness and
accuracy of the credit provision by
reference to internal and external
information to establish if provisioning
was in accordance with requirements of
accounting standards.
With the support of our internal
valuations experts, we assessed the
appropriateness of the predictive model
used and assessed the macro-economic
scenarios, including challenging the
probability weightings and comparing to
other scenarios from external sources.
This included assessing whether
forecasted macro-economic variables
such as unemployment rates were
appropriate.
We used our internal IT specialists to
review the code within the challenger
model which recalculates the ECL
provision to check its compliance with
Group policies and applicable
accounting standards, and to assess the
accuracy of the model.
With the use of our internal valuation
experts, we assessed the methodology
used for calculating the post model
adjustments to take account of COVID-
19, and challenged management on the
appropriateness of each of the
significant inputs.
We assessed the adequacy and
appropriateness of disclosures included
within the financial statements.
2021 Financial Statements
Independent Auditors’ Report to the Members of
FCE Bank plc
44 FCE Bank plc – ANNUAL REPORT 2021
Our application of materiality
We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements. We
consider materiality to be the magnitude by which misstatements, including omissions, could influence the economic decisions of
reasonable users that are taken on the basis of the financial statements.
In order to reduce to an appropriately low level the probability that any misstatements exceed materiality, we use a lower materiality
level, performance materiality, to determine the extent of testing needed. Importantly, misstatements below these levels will not
necessarily be evaluated as immaterial as we also take account of the nature of identified misstatements, and the particular
circumstances of their occurrence, when evaluating their effect on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole and performance
materiality as follows:
Group
Parent Company
2021
£m
2021
£m
Materiality
£11.93
£7.34
Basis for
determining
materiality
5% of profit before tax
5% of profit before tax
Rationale for the
benchmark applied
We determined that profit before tax
represents the most useful benchmark
for the users of the financial
statements, as financial performance is
considered the main driver of the
Group at this time.
We determined that profit before tax
represents the most useful benchmark
for the users of the financial
statements, as financial performance
is considered the main driver of the
Parent Company at this time.
Performance
materiality
£7.75
£4.77
Basis for
determining
performance
materiality
65% of materiality, determined on the
basis of our risk assessment together
with our assessment of the overall
control environment and the fact that
this is our first year as auditor.
65% of materiality, determined on the
basis of our risk assessment together
with our assessment of the overall
control environment and the fact that
this is our first year as auditor.
Component materiality
We set materiality for each component of the Group based on a percentage of between 62% and 83% of Group materiality
dependent on the size and our assessment of the risk of material misstatement of that component. Component materiality ranged
from £7.34m to £9.96m. In the audit of each component, we further applied performance materiality levels of 65% of the
component materiality to our testing to ensure that the risk of errors exceeding component materiality was appropriately mitigated.
Reporting threshold
We agreed with the Audit Committee that we would report to them all individual audit differences in excess of £0.6m. We also
agreed to report differences below this threshold that, in our view, warranted reporting on qualitative grounds.
Key observations:
There were no material matters
regarding the key management
judgements and estimates or in respect
of the completeness and measurement
of Expected credit losses and related
disclosures arising from performing
these procedures.
2021 Financial Statements
Independent Auditors’ Report to the Members of
FCE Bank plc
FCE Bank plc – ANNUAL REPORT 2021 45
Other information
The directors are responsible for the other information. The other information comprises the information included in the annual
report other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover
the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance
conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether the other information is
materially inconsistent with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to
be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to
determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we
have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
Other Companies Act 2006 reporting
Based on the responsibilities described below and our work performed during the course of the audit, we are required by the
Companies Act 2006 and ISAs (UK) to report on certain opinions and matters as described below.
Strategic report
and Directors’
report
In our opinion, based on the work undertaken in the course of the audit:
• the information given in the Strategic report and the Directors’ report for the
financial year for which the financial statements are prepared is consistent with the
financial statements; and
• the Strategic report and the Directors’ report have been prepared in accordance
with applicable legal requirements.
In the light of the knowledge and understanding of the Group and Parent Company and
its environment obtained in the course of the audit, we have not identified material
misstatements in the strategic report or the Directors’ report.
Matters on
which we are
required to
report by
exception
We have nothing to report in respect of the following matters in relation to which the
Companies Act 2006 requires us to report to you if, in our opinion:
• adequate accounting records have not been kept by the Parent Company, or
returns adequate for our audit have not been received from branches not
visited by us; or
• the Parent Company financial statements are not in agreement with the
accounting records and returns; or
• certain disclosures of Directors’ remuneration specified by law are not made;
or
• we have not received all the information and explanations we require for our
audit.
Opinion on other matter prescribed by the Capital Requirements (Country-by-Country Reporting) Regulations 2013
In our opinion the information given in note 39 for the financial year ended 31 December 2021 has been properly prepared, in all
material respects, in accordance with the Capital Requirements (Country-by-Country Reporting) Regulations 2013.
Responsibilities of Directors
As explained more fully in the Directors’ Responsibilities Statement, the Directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors
determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due
to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing the Group’s and the Parent Company’s ability
to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of
accounting unless the Directors either intend to liquidate the Group or the Parent Company or to cease operations, or have no
realistic alternative but to do so.
2021 Financial Statements
Independent Auditors’ Report to the Members of
FCE Bank plc
46 FCE Bank plc – ANNUAL REPORT 2021
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial
statements.
Extent to which the audit was capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which
our procedures are capable of detecting irregularities, including fraud is detailed below:
We gained an understanding of the legal and regulatory framework applicable to the Group and the industry in which it operates,
and considered the risk of acts by the Group which were contrary to applicable laws and regulations, including fraud. This included,
but was not limited to, compliance with laws and regulations that have a direct impact on the preparation of the financial
statements, including the Companies Act 2006 and UK adopted International Accounting Standards. We also considered the
Bank’s compliance with licence conditions and supervisory requirements of the PRA, the Financial Conduct Authority (FCA), and
relevant tax legislation. We assessed the susceptibility of the financial statements to material misstatement, including fraud and
considered these areas to be Revenue recognition, Loan loss provisioning and Management override of controls.
Audit procedures performed by the engagement team included the following:
- Reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with the
relevant laws and regulations discussed above;
- Reading minutes of meetings of those charged with governance and reviewing correspondence with the FCA and PRA;
- Enquiring of management, including Internal Audit and Compliance, in relation to known or suspected instances of fraud;
- In addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries
related to areas susceptible to fraud risk and other adjustments; and
- Assessing whether the judgements made in making accounting estimates are indicative of a potential bias, including
those noted in our key audit matters section of our report.
We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members and
remained alert to any indications of fraud or non-compliance with laws and regulations throughout the audit. This including
communicating relevant identified laws and regulations and potential fraud risks to the component auditor and reviewing their
work performed in this regard.
Our audit procedures were designed to respond to risks of material misstatement in the financial statements, recognising that the
risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud
may involve deliberate concealment by, for example, forgery, misrepresentations or through collusion. There are inherent
limitations in the audit procedures performed and the further removed non-compliance with laws and regulations is from the events
and transactions reflected in the financial statements, the less likely we are to become aware of it.
A further description of our responsibilities is available on the Financial Reporting Council’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Use of our report
This report is made solely to the Parent Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies
Act 2006. Our audit work has been undertaken so that we might state to the Parent Company’s members those matters we are
required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the Parent Company and the Parent Company’s members as a body, for our audit
work, for this report, or for the opinions we have formed.
Daniel Taylor (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
London
17 March 2022
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
2021 Financial Statements
Consolidated Statement of Profit or Loss and other
Comprehensive Income
FCE Bank plc – ANNUAL REPORT 2021 47
The accompanying 'Notes to the consolidated financial statements' are an integral part of these financial statements.
Group
For the year ended 31 December
2021
2020
Note
£ mil
£ mil
Interest income
Interest expense
(162 )
(217 )
NET INTEREST INCOME
2
Fees and commissions income
Fees and commissions expense
(8 )
(11 )
NET FEES AND COMMISSIONS INCOME
3
Income from leasing & other operating income
4
TOTAL INCOME
Allowance for expected credit losses
13
(49 )
Operating expenses
5
(239 )
(275 )
Depreciation of property and equipment
15
(147 )
(190 )
Depreciation of right-of-use assets
16
(8 )
(6 )
Gain/(Loss) on fair value adjustment - non designated derivatives
10
(3 )
Gain/(Loss) on foreign exchange
7
(18 )
(29 )
PROFIT BEFORE TAX
Income tax expense
8
(84 )
(56 )
PROFIT AFTER TAX AND PROFIT FOR THE PERIOD
Translation differences on foreign currency net investments
(115 )
ITEMS THAT CAN BE RECYCLED THROUGH PROFIT OR LOSS
(115 )
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD
2021 Financial Statements
Statements of Financial Position
48 FCE Bank plc – ANNUAL REPORT 2021
Company
Group
As at 31 December
2021
2020
2021
2020
Note
£ mil
£ mil
£ mil
£ mil
ASSETS
Cash and cash equivalents
9
776
1,143
Derivative financial instruments
10
47
90
Other assets
11
2,931
3,321
Loans and advances to customers
12
6,176
10,636
Property and equipment
15
2
4
Right-of-use assets
16
14
20
Intangible assets
17
38
33
Income taxes receivable
18
6
7
Deferred tax assets
19
35
57
Investment in other entities
20
1,104
842
TOTAL ASSETS
11,129
16,153
LIABILITIES
Financial liabilities
21
5,154
9,386
Lease liabilities
16
14
21
Deposits
23
3,165
3,609
Derivative financial instruments
10
14
34
Other liabilities and provisions
24
130
188
Income taxes payable
18
18
14
Deferred tax liabilities
19
9
12
TOTAL LIABILITIES
8,504
13,264
SHAREHOLDERS' EQUITY
Ordinary shares
25
614
614
Share premium
25
352
352
Retained earnings
1,659
1,923
TOTAL SHAREHOLDERS' EQUITY
2,625
2,889
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
11,129
16,153
The accompanying 'Notes to the consolidated financial statements' are an integral part of these financial statements.
The financial statements on pages 47 to 128 were approved by the Board of Directors on 17 March 2022 and were signed on its
behalf by:
Carlos Treadway Paul Kiernan
Chief Executive Officer Executive Director, Finance
Registered Number: 00772784
2021 Financial Statements
Statements of Cash Flow
FCE Bank plc – ANNUAL REPORT 2021 49
Company
Group
For the year ended 31 December
2021
2020
2021
2020
Note
£ mil
£ mil
£ mil
£ mil
Cash flows from operating activities
Cash from operating activities
36
1,391
2,315
Interest paid
(165)
(194)
(184 )
(217 )
Interest received
561
357
Other operating income received
0
5
Income taxes paid
(24)
(48)
(43 )
(50 )
Net cash generated (used in)/from operating
activities
1,763
2,435
Cash flows from investing activities
Purchase of property and equipment
-
(1)
(1 )
(1 )
Proceeds from sale of property and equipment
4
1
Investment in internally and externally
generated software
(11)
(11)
(11 )
(11 )
Dividend from group undertakings
8
-
-
-
Investment in other entities
-
(2)
-
-
Net cash generated (used in)/from investing
activities
1
(13)
(6 )
(11 )
Cash flows from financing activities
Proceeds from the issue of debt securities and
from loans provided by banks and other
financial institutions
510
103
Repayments of debt securities and of loans
provided by banks and other financial
institutions
(2,822)
(3,872)
(6,212 )
(7,357 )
Proceeds of funds provided by parent and
related undertakings
888
2,025
Repayment of funds provided by parent and
related undertakings
(838)
(1,528)
(2,614 )
(833 )
Net increase/ (decrease) in short term
borrowings
498
(118)
(102 )
Net increase/ (decrease) in deposits
(444)
1637
Net cash inflow/ (outflow) on derivative financial
instruments
49
63
Increase in restricted cash
(77)
(356)
(97 )
(410 )
Decrease in restricted cash
430
22
Dividend Paid
(300)
-
(300 )
Net cash generated from/(used in) financing
activities
(2,106)
(2,024)
(3,447 )
(2,125 )
Net (decrease)/increase in cash and cash
equivalents
36
(342)
398
(161 )
Cash and cash equivalents at beginning of year
36
1,143
741
Effect of exchange rate changes on cash and
cash equivalents
(25)
4
(65 )
Cash and cash equivalents at end of year
36
776
1,143
2021 Financial Statements
Statements of Changes in Equity
50 FCE Bank plc – ANNUAL REPORT 2021
Company
Share
Share
Profit or
Translation
Total
Total
capital
premium
loss
reserve
retained
reserve
earnings
£ mil
£ mil
£ mil
£ mil
£ mil
£ mil
Balance at 1 January 2020
614
352
1,420
375
1,795
2,761
Profit for the year
-
-
78
-
78
78
Translation differences
-
-
-
48
48
48
Total comprehensive income
for the year ended 31
December 2020
-
-
78
48
126
126
Other equity adjustments
-
-
2
-
2
2
Balance at 31 December 2020
/
1 January 2021
614
352
1,500
423
1,923
2,889
Profit for the year
-
-
88
-
88
88
FCTA for year
-
-
-
(52)
(52)
(52)
Total comprehensive income
for the year ended 31
December 2021
-
-
88
(52)
36
36
Dividend Paid
-
-
(300)
-
(300)
(300)
Other equity adjustments
-
-
-
-
-
-
Balance at 31 December 2021
614
352
1,288
371
1,659
2,625
2021 Financial Statements
Statements of Changes in Equity
FCE Bank plc – ANNUAL REPORT 2021 51
Group
Share
Share
Profit or
Translation
Total
Total
capital
premium
loss
reserve
retained
reserve
earnings
£ mil
£ mil
£ mil
£ mil
£ mil
£ mil
Balance at 1 January 2020
Profit for the year
-
-
-
Translation differences
-
-
-
Total comprehensive income for
the year ended 31 December
2020
-
-
Other equity adjustments
-
-
-
Balance at 31 December 2020 /
1 January 2021
Profit for the year
-
-
-
Translation differences
-
-
-
(115 )
(115 )
(115 )
Total comprehensive income for
the year ended 31 December
2021
-
-
(115 )
Dividend Paid
-
-
(300 )
-
(300 )
(300 )
Other equity adjustments
-
-
-
-
-
-
Balance at 31 December 2021
2021 Financial Statements
Index to the Notes to the Financial Statements for the
Year ended 31 December 2021
52 FCE Bank plc – ANNUAL REPORT 2021
Policy
1 Accounting Policies ....................................................................................................................................................... 53
Statement of Profit or Loss and Other Comprehensive Income
2 Net Interest Income ....................................................................................................................................................... 58
3 Net Fees and Commissions Income .............................................................................................................................. 59
4 Other Operating Income ................................................................................................................................................ 60
5 Operating Expenses ..................................................................................................................................................... 60
6 Transactions with Directors’ and Officers’ ...................................................................................................................... 62
7 Gain/(Loss) On Foreign Exchange ................................................................................................................................. 64
8 Income Tax Expense .................................................................................................................................................... 65
Statement of Financial Position
9 Cash and Cash Equivalents .......................................................................................................................................... 66
10 Derivative Financial Instruments and Hedging Activities ................................................................................................. 67
11 Other Assets ................................................................................................................................................................. 71
12 Loans and Advances to Customers ............................................................................................................................... 72
13 Allowance for Expected Credit Losses ........................................................................................................................... 74
14 Provision for Vehicle Residual Value Losses .................................................................................................................. 80
15 Property and Equipment ................................................................................................................................................ 81
16 Right of Use Assets and Lease Commitments ................................................................................................................ 83
17 Intangible Assets .......................................................................................................................................................... 87
18 Income Taxes Receivable and Payable ......................................................................................................................... 88
19 Deferred Tax Assets and Liabilities ................................................................................................................................ 88
20 Investments in Other Entities ......................................................................................................................................... 90
21 Financial Liabilities ........................................................................................................................................................ 92
22 Securitisation and Related Financing ............................................................................................................................. 95
23 Deposits ....................................................................................................................................................................... 97
24 Other Liabilities and Provisions...................................................................................................................................... 98
25 Ordinary Shares and Share Premium ............................................................................................................................ 99
26 Dividend Per Share ....................................................................................................................................................... 99
Unrecognised Items
27 Retirement Benefit Obligations .................................................................................................................................... 100
28 Contingent Liabilities, Financial Guarantees and Commitments .................................................................................... 102
Risk
29 Credit Risk .................................................................................................................................................................. 103
30 Vehicle Residual Values .............................................................................................................................................. 107
31 Market Risk ................................................................................................................................................................ 108
32 A) Currency Risk ......................................................................................................................................................... 109
32 B) Interest Rate Risk ................................................................................................................................................... 110
33 Liquidity Risk .............................................................................................................................................................. 111
Other
34 Related Party Transactions ......................................................................................................................................... 115
35 Segment Reporting ..................................................................................................................................................... 119
36 Notes to the Statement of Cash Flows ......................................................................................................................... 125
37 FCE and Other Related Party Information .................................................................................................................... 127
38 Country-by-Country ..................................................................................................................................................... 128
39 Events after the Reporting Period ................................................................................................................................ 128
Index to the Notes to the Financial Statements
2021 Financial Statements
Notes to the Consolidated Financial Statements for the
Year ended 31 December 2021
FCE Bank plc – ANNUAL REPORT 2021 53
1 ACCOUNTING POLICIES
For each accounting topic that is addressed in its own note, the description of the accompanying accounting policy may be found
in the related note. The remaining accounting policies are described below.
A Basis of Presentation .................................................................................................................................................... 53
B Basis of Consolidation ................................................................................................................................................... 54
C Critical Accounting Judgements and Estimates .............................................................................................................. 54
D Classification and Measurement of Financial Assets and Financial Liabilities .................................................................. 55
E Fair Value ..................................................................................................................................................................... 56
F Offsetting ...................................................................................................................................................................... 56
G Accounting Standards Development - IFRS ................................................................................................................... 57
A BASIS OF PRESENTATION
These financial statements are prepared on a going concern basis in accordance with UK adopted International Accounting
Standards (IFRS) and with the requirements of the Companies Act 2006 as issued by the International Accounting Standards
Board (IASB). In addition, the consolidated financial statements also comply with international financial reporting standards
adopted pursuant to Regulation (EC) No 1606/2002.The consolidated financial statements are prepared under a historical cost
convention with the exception of certain financial assets and liabilities which are stated at fair value.
As required by the Companies Act 2006, FCE files financial statements for both Company and Group accounts respectively:
• 'Company' accounts included within these consolidated financial statements comprises of FCE Bank plc. a UK registered
company, and all of its 8 European branches
• 'Group' accounts include FCE Bank plc , a UK registered company, and all of its 8 European branches and 5 subsidiaries.
Refer to Note 20 ‘Investments in Other Entities' for details of FCE's subsidiaries
Statement of profit or loss – As permitted by Section 408 of the Companies Act 2006, a separate statement of profit or loss has
not been presented in respect of the Company. The profit after tax of the Company is reported within the Company disclosures
contained in the 'Statements of changes in equity'.
Functional and presentation currency – FCE’s financial statements are presented in Sterling, being the functional currency of the
Company. Assets and liabilities of each entity of the Group which are denominated in foreign currencies are translated into Sterling
at the exchange rates published at the reporting date.
Statement of profit or loss and statement of cash flows of branches and subsidiaries outside of the UK are translated into the
Company’s and the Group's presentation currency at average exchange rates. Exchange differences arising from the application
of year end rates of exchange to opening net assets of foreign branches and subsidiaries are taken to shareholders’ equity, as
are those differences resulting from the revaluation of the results of foreign operations from average to year end rates of exchange.
Statements of cash flows - FCE has elected to produce an indirect statement of cash flow and as such shows cash flows from
operating activities by adjusting profit before tax for non-cash items and changes in operating assets and liabilities.
Index to the Accounting Policies
2021 Financial Statements
Notes to the Consolidated Financial Statements for the
Year ended 31 December 2021
54 FCE Bank plc – ANNUAL REPORT 2021
1 ACCOUNTING POLICIES CONTINUED
B BASIS OF CONSOLIDATION
(i) Subsidiaries
The consolidated financial statements incorporate the financial statements of the company, subsidiaries and structured entities.
Subsidiaries are those entities over which the Group has control. The Group controls an entity when it is exposed, or has rights,
to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.
Subsidiaries are consolidated from the date on which control is transferred to the Group, and are no longer consolidated from the
date that control ceases. The purchase method of accounting is used to account for the acquisition of subsidiaries. The cost of
acquisition is measured at the fair value of the assets given up, shares issued or liabilities incurred at the date of acquisition, plus
costs directly attributable to the acquisition. Intercompany transactions, balances and income and expense on transactions
between companies within the Group are eliminated.
For entities purchased which are under common control, the cost of acquisition is recognised as the Net book value.
The consolidated statement of profit or loss and statement of financial position include the financial statements of the Company
and its subsidiary undertakings drawn up to the end of the financial year.
(ii) Structured Entities
The structured entities (SEs) utilised by the Company and which are listed within Note 20 ‘Investments in Other Entities', conduct
their activities solely to meet securitisation requirements of the Company. Although the Company does not hold equity interest in
the SEs, it is exposed, or has rights, to variable returns from its involvement and has the ability to affect those returns through its
power over the SEs and therefore the SEs are consolidated under IFRS 10.
C CRITICAL ACCOUNTING JUDGEMENTS AND ESTIMATES
The preparation of financial statements requires the use of estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts
of income and expenses during the reporting period. Although these estimates are based on management's best knowledge of
current events and actions, actual results ultimately may differ from those estimates. The level of estimation uncertainty and
judgement has increased as a result of the economic effects of COVID-19. Both PRA and IASB have issued guidance on how to
consider provisions under IFRS 9 and management have made several judgements in the current uncertain economic
environment. These are covered as a part of Note 13 ‘Allowance for Expected Credit Losses'.
An accounting estimate is considered to be critical if:
• The accounting estimate requires assumptions to be made about matters that were uncertain at the time the accounting
estimate was made
• Changes in the estimate are reasonably likely to occur from period to period, or use of different estimates that reasonably
could have been used in the current period
• The accounting estimate could have a material impact on the financial statements within the next financial period
The estimates that are critical to FCE's business are:
• Allowance for credit losses on loans and advances (refer to Note 13 ‘Allowance for Expected Credit Losses')
• Vehicle residual value provisions and depreciation rates applied for vehicles subject to operating leases (refer to Note
14 ‘Provision for Vehicle Residual Value Losses’ and Note 15 ‘Property and Equipment’)
Management has discussed the development and selection of these critical accounting estimates and reviewed with FCE’s Audit
Committee.
In the course of preparing the financial statements, no significant judgements have been made in the process of applying the
Group’s accounting policies, other than those involving estimations that have had a significant effect on the amounts recognised
in the financial statement.
2021 Financial Statements
Notes to the Consolidated Financial Statements for the
Year ended 31 December 2021
FCE Bank plc – ANNUAL REPORT 2021 55
1 ACCOUNTING POLICIES CONTINUED
D CLASSIFICATION AND MEASUREMENT OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES
D1 Financial Assets
Financial assets are classified based on the business model within which they are held and their contractual cash flow
characteristics, considering whether the cash flows are consistent with a basic financing/lending arrangement. The Group
classifies its financial assets in the following categories:
• Fair value through profit or loss (FVPL)
• Fair value through other comprehensive income (FVOCI) and
• Amortised cost
Classification and subsequent measurement of financial assets depend on:
• The Group’s business model for managing the financial assets and
• The contractual cash flow characteristics of the financial asset
The business model reflects how the Group manages its financial assets in order to generate cash flows and is determined by
whether the Group’s objective is solely to collect contractual cash flows from the assets or to collect both contractual cash flows
and cash flows arising from the sale of assets. If neither of these models applies, the financial assets are classified at FVPL.
The Group considers past experience in collecting cash flows for a group of assets, how the performance of the assets are
evaluated and reported to key management when determining the business model. The Group’s business model as described on
page 4 is to hold and to collect contractual cash flows arising from the loans to dealers and customers. The Group legally sells
loans and advances to internally consolidated SEs for the purpose of collateralising notes issued to Investors with no resulting
derecognition by the Group.
Where the business model is to hold financial assets to collect contractual cash flows or to collect contractual cash flows and sell
the assets, the Group assesses whether the financial asset’s cash flows represent solely payments of principal and interest (the
SPPI test). When making this assessment, the Group considers whether the contractual cash flows are consistent with a basic
lending arrangement.
Financial Assets at Amortised Cost
Assets held for the collection of contractual cash flows where those cash flows represent solely payments of principal and interest,
and that are not designated as FVPL, are classified and subsequently measured at amortised cost using the effective interest
method. The carrying value of these financial assets is adjusted by any allowance for credit loss recognised and measured.
Interest income from these assets is included in Note 2 ‘Net Interest Income’.
Financial assets at Fair Value through Other Comprehensive Income (FVOCI)
Financial assets that are held for collection of contractual flows and for selling the assets, where those cash flows represents
solely payment of principal and interest, and that are not designated at FVPL, are classified and subsequently measured at FVOCI.
The Group does not hold any debt instruments at FVOCI.
Financial assets at Fair Value through Profit or Loss (FVPL)
Financial assets that do not meet the criteria for recognition at amortised cost or at FVOCI are measured at FVPL.
2021 Financial Statements
Notes to the Consolidated Financial Statements for the
Year ended 31 December 2021
56 FCE Bank plc – ANNUAL REPORT 2021
1 ACCOUNTING POLICIES CONTINUED
D2 Financial liabilities
Financial liabilities are only derecognised when the obligation specified in the contract is discharged or cancelled or expires. Any
difference between the carrying amount and the consideration paid, is recognised in profit or loss.
Financial liabilities at fair value through profit or loss
This consists of derivatives which are held at fair value, with changes in fair value recognised in the statement of profit or loss
unless hedge accounting is applied.
Financial liabilities at amortised cost
These include borrowings, deposits, debt securities in issue and subordinated loans that are initially recognised at fair value.
These are subsequently measured at amortised cost using the effective interest method.
E FAIR VALUE
Fair value is obtained by calculating the amount at which an asset or liability could be exchanged in an arm’s length transaction
between informed and willing parties other than in a forced liquidation.
Accordingly, the information as presented does not purport to represent, nor should it be construed to represent, the underlying
value of the business as a going concern.
FCE measures the fair value of its assets and liabilities based on the fair value hierarchy that reflects the significance of the inputs
used in making the measurements. The fair value hierarchy has the following measurements:
• Level 1: inputs include quoted prices for identical instruments and are the most observable
• Level 2: inputs include quoted prices for similar assets and observable inputs such as interest rates, currency exchange
rates and yield curves
• Level 3: inputs are not observable in the market and include management’s judgements about the assumptions market
participants would use in pricing the asset or liability
For additional information concerning recurring fair value measurements, refer to Note 10 ‘Derivative Financial Instruments and
Hedging Activities’ and Note 12 ‘Loans and Advances to Customers’ for further details. There were no non-recurring items
measured at fair value during the current period.
For certain assets and liabilities which are not measured at fair value, the Group has disclosed their relevant fair values.
F OFFSETTING
Financial assets and financial liabilities are offset and the net amount presented in the statement of financial position when and
only when, the Group has a legally enforceable right to set off the amounts and it intends either to settle them on a net basis or to
realise the asset and settle the liability simultaneously.
The Group has certain Interest rate derivatives that are subject to an enforceable master netting arrangement or similar agreement,
irrespective of whether they are offset in the statement of financial position. Refer to Note 10 ‘Derivative Financial Instruments
and Hedging Activities’ for further details.
2021 Financial Statements
Notes to the Consolidated Financial Statements for the
Year ended 31 December 2021
FCE Bank plc – ANNUAL REPORT 2021 57
1 ACCOUNTING POLICIES CONTINUED
G ACCOUNTING STANDARDS DEVELOPMENT - IFRS
Interest Rate benchmark (IBOR) reform - Phase 2 amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16
Effective from 1 January 2021. The required disclosures are provided within Note 10 ‘Derivative Financial Instruments and
Hedging Activities’.
Others
The following accounting standard amendments/interpretations are mandatory for the financial year beginning 1 January 2021
but are either not relevant or do not have a material impact on the Group’s consolidated financial statements:
• Amendments to IFRS 16 ‘Leases’ – COVID-19-Related Rent Concessions
The Group continues to monitor new accounting standard/amendments/interpretations that have been issued and become
mandatory in subsequent accounting periods. The Group is assessing the potential impact of the following:
• IFRS 17 'Insurance Contracts'
• Annual improvements to IFRS Standards 2018-2020 cycle: IFRS1 ‘First-time Adoption of International Financial
Reporting Standards’, IFRS 9 ‘Financials Instruments’
• Amendments to IFRS 3 ‘Business Combinations’ - Reference to the Conceptual Framework
• Amendments to IFRS 4 ‘Insurance Contracts’ – Applying IFRS 9 ‘Financial Instruments’ with IFRS 4 ‘Insurance Contracts’
• Amendments to IAS 1 ’Presentation of Financial Statements’ – Classification of liabilities and disclosure of accounting
policies
• Amendments to IAS 8 ‘Accounting Policies, Changes in Accounting Estimates and Errors’ – definition of accounting
estimates
• Amendments to IAS 12 ‘Income taxes’ – deferred tax on lease and decommissioning obligations
• Amendments to IAS 16 ‘Property, Plant and Equipment’ - Proceeds before intended use
• Amendments to IAS 37 ‘Provisions, Contingent Liabilities and Contingent Assets - Onerous contracts
2021 Financial Statements
Notes to the Consolidated Financial Statements for the
Year ended 31 December 2021
58 FCE Bank plc – ANNUAL REPORT 2021
2 NET INTEREST INCOME
Policy
Interest earned on retail loans and finance leases is generally fixed at the time the contracts are originated.
On certain loans and advances, primarily wholesale financing, FCE charges interest at a floating rate that varies with changes in
short-term interest rates.
Revenue from retail loans is calculated using the effective interest rate method. Revenue from finance leases is recognised to
represent a constant periodic rate of return on the net investment in the lease. Both are recognised in the statement of profit or
loss as interest income.
Interest supplements and other support payments from related parties are provided at the time of purchase or origination of eligible
contracts. Payments received in relation to retail are deferred on the Statement of Financial Position within ‘Loans and Advances
to Customers’ and are recognised in ‘Interest income’ using the effective interest method, over the expected term of the related
receivable.
Certain loan origination fees (income) and costs (expenses) which can be directly associated to the origination of retail loans and
finance leases are regarded as part of the economic return of the receivables and included in its carrying value and deferred. The
amount deferred is recognised in interest income, using the effective interest method, over the expected term of the related
receivable. The expected term is assessed at an individual contract level for retail loans and finance leases; and is the same as
the contractual term, given this is the most likely outcome at the outset of the contract.
Based on an assessment of FCE’s largest markets contractual term is the expected term of retail loans and finance leases.
'Interest income from loans and advances to external parties' includes revenue from retail, finance lease and wholesale
product segments, of which £4 million (2020: £11 million) relates to financial assets classified as FVPL. Income from operating
lease vehicles is reported within Note 4 ‘Other Operating Income'.
'Interest income from related parties' primarily relates to interest supplements relating to loans and advances received from
entities under common control, of which £9 million (2020: £14 million) relates to financial assets classified as FVPL.
'Interest income adjustment relating to residual values' relates to changes in vehicle residual value provisions on retail and
finance lease contracts.
‘Cash and short-term deposit income from external parties and other miscellaneous income' mainly relates to interest
income from short term investments.
Group
For the year ended 31 December
2021
2020
£ mil
£ mil
Interest income
Note
Loans and advances to external parties
203
275
Related parties
34
347
397
Adjustment relating to residual values
14
2
5
Cash and short-term deposit income from external
parties
and other miscellaneous income
-
2
Total interest income
552
679
Interest expense
External parties
(89)
(129)
Related parties
34
(73)
(88)
Total interest expense
(162)
(217)
Net interest income
390
462
2021 Financial Statements
Notes to the Consolidated Financial Statements for the
Year ended 31 December 2021
FCE Bank plc – ANNUAL REPORT 2021 59
2 NET INTEREST INCOME CONTINUED
'Interest expense to external parties' includes expense relating to securitisation, local bank borrowings, public debt offering and
deposits. It also includes commitment fees incurred on revolving debt facilities that are expected to be utilised.
'Interest expense to related parties' includes expense related to senior and subordinated debt. For further information see the
section of Note 21 ‘Financial Liabilities’.
3 NET FEES AND COMMISSIONS INCOME
Fees and commissions income and expense are recognised when earned or incurred, net of any taxes payable.
Group
For the year ended 31 December
2021
2020
£ mil
£ mil
Fees and commissions income
Finance related and other fee income
36
35
Insurance sales commission income
17
26
Total fees and commissions income
53
61
Fees and commissions expense
Finance related and other fee expense
(8)
(11)
Total fees and commissions expense
(8)
(11)
Net fees and commissions income
45
50
Finance related and other fee income' relates to fees earned which cannot be directly associated with the origination of loans
and advances to customers. This includes fee income earned by FCE for the provision of marketing and sales of commercial
operating leases ('Full Service Leasing' or 'FSL') to a non-affiliated business partner, typically received monthly in arrears. This
income is recognised once the performance obligation is satisfied which is either at a point in time or over time.The third party
business partner in each market is responsible for financing, maintenance, repair services, the resale of vehicles at the end of the
lease period and all associated risks.
'Insurance sales commission income' primarily relates to Ford branded insurance products offered throughout Europe. These
insurance products, which are mainly related to vehicle insurance and payment protection plans, are underwritten by non-affiliated
local insurance companies from which FCE earns both fixed and variable commission income, but the underwriting risk remains
with the third-party insurance companies. FCE is therefore acting as agent, arranging for services to be provided by the third party
to the end customer. Insurance sales commission income is earned at the time FCE has fulfilled its performance obligations to
the customer which is typically at point of sale of the product or service. Insurance payments collected from the customer, from
which FCE retains its commission quota, are typically received monthly in arrears. Where this income is rebateable upon
cancellation, a cancellation reserve is established.
'Fees and commissions expense' includes commissions, fees and other bonuses payable to dealers which cannot be directly
associated with the origination of loans and advances to customers and are recognised when incurred.
2021 Financial Statements
Notes to the Consolidated Financial Statements for the
Year ended 31 December 2021
60 FCE Bank plc – ANNUAL REPORT 2021
4 OTHER OPERATING INCOME
Rental income on operating leases is credited to income on a straight-line basis.
‘Income from operating leases’ represents rentals earned for operating lease vehicles leased to commercial customers including
leasing companies, daily rental companies and fleet customers. The associated depreciation expense, sale proceeds of vehicles
disposed are disclosed within Note 15 ‘Property and Equipment’.
‘Other operating income’ includes gains/losses from operating lease vehicles. For details on the sale proceeds of operating
lease vehicles, please refer to Note 15 ‘Property and Equipment’.
5 OPERATING EXPENSES
Group
For the year ended 31 December
2021
2020
Note
£ mil
£ mil
Staff costs
Wages and salaries
96
127
Social security costs
12
13
Retirement benefits
27
22
21
Total staff costs
130
161
Other expenses
Software amortisation
17
6
4
Administrative expenses
97
102
Other expenses
6
8
Total other expenses
109
114
Total operating expenses
239
275
Number of employees
Monthly average number of permanent employees
during the year
1,375
1,497
‘Administrative expenses’ includes amounts paid to Ford and its related companies for services received which are detailed
within Note 34 ‘Related Party Transactions’. It also includes Auditor Remuneration, details of which are shown on the following
page.
Group
For the year ended 31 December
2021
2020
£ mil
£ mil
Income from operating leases
163
218
Other operating income
1
6
Total other operating income
164
224
2021 Financial Statements
Notes to the Consolidated Financial Statements for the
Year ended 31 December 2021
FCE Bank plc – ANNUAL REPORT 2021 61
5 OPERATING EXPENSES CONTINUED
Auditor Remuneration
Company
Group
For the year ended 31 December
2021
2020
2021
2020
£ 000's
£ 000's
£ 000's
£ 000's
Nature of services:
Audit services
Audit of parent company and consolidated accounts
2,069
2,110
2,069
2,110
Audit of subsidiaries and SEs pursuant to legislation
-
-
171
677
Total audit services
2,069
2,110
2,240
2,787
Assurance services
Audit related assurance services
-
153
-
153
Other assurance services
-
194
-
194
Total assurance services
-
347
-
347
Total fees
2,069
2,457
2,240
3,134
Definition of services:
In line with European regulation on auditor rotation, FCE appointed BDO LLP on 8th April 2021 as the new statutory auditor.
BDO did not perform non-audit services during the year. The fees included services provided to support ultimate parent (FMCC)
consolidation group results.
For further details on the policies and procedures that govern the engagement of BDO, please refer to the Audit Committee report
on page 36 and 37.
2021 Financial Statements
Notes to the Consolidated Financial Statements for the
Year ended 31 December 2021
62 FCE Bank plc – ANNUAL REPORT 2021
6 TRANSACTIONS WITH DIRECTORS AND OFFICERS
FCE's Directors and Officers, and persons connected with them, are also considered to be related parties for disclosure purposes.
Details of the Directors can be found in the Directors report. There are 11 Officers defined as the members of FCE's Executive
Committee who are not also statutory Directors of the Company. For more information on the Executive Committee please refer
to 'Governance Report - Committees of the Board' on page 32.
Company
2021
2020
Directors
Officers
Total
Directors
Officers
Total
£ 000's
£ 000's
£ 000's
£ 000's
£ 000's
£ 000's
Loans
Outstanding at 1 January
90
294
384
79
172
251
Issued in the year
87
267
354
174
682
856
Repayments during the year
(86)
(278)
(364)
(163)
(560)
(723)
Loans outstanding at 31 December
91
283
374
90
294
384
Maximum loans in period
116
300
416
109
313
422
Revenue
Interest revenue from loans
2
5
7
2
6
8
Remuneration payments
Salaries/other short-term benefits
1,618
1,748
3,366
1,522
1,476
2,998
Post-employment benefits
223
580
803
208
505
713
Share based payments
326
171
497
267
128
395
Total remuneration payments
2,167
2,499
4,666
1,997
2,109
4,106
Customer Deposits
Deposits
101
321
422
448
163
611
Customer Deposits at 31 December
101
321
422
448
163
611
2021 Financial Statements
Notes to the Consolidated Financial Statements for the
Year ended 31 December 2021
FCE Bank plc – ANNUAL REPORT 2021 63
6 TRANSACTIONS WITH DIRECTORS’ AND OFFICERS’ CONTINUED
Loans
In the ordinary course of business, the Company makes loans available to certain management grade employees, Officers and
Directors under a management car loan plan (Non-Executive Directors are not entitled to participate in this arrangement). Under
the terms of the plan, certain Directors and Officers of the Company have been granted loans under their contract of employment
to finance the purchase of vehicles from Ford Motor Company Limited (FMCL). The individual only pays the Company the interest
on the loan which is set at a commercial rate. These payments are made monthly as incurred and no interest was outstanding at
year-end. The terms of the loans are not intended to last for longer than twelve months. When the loans mature the employee
may settle the loan directly with FCE or by returning the vehicle.
Salaries/other short-term benefits
There was one termination payment made in 2021 to one Officer of £113,850.22.
Post-employment benefits
Retirement benefits are accruing to two current Directors and six current Officers (2020: two Directors and six Officers) under
various Ford retirement benefit schemes.
Share Based Payments
FCE is allocated an RSU expense by Ford relating to the FCE employee services received in exchange for the grant of RSU. This
is allocated in line with the vesting period and is recognised by FCE as an expense.
Share based payments do not have a material impact on the financial statements of the Company or Group, for 2021 this is
£497,000.
During the financial year ended 31 December 2021 no Director or Officer exercised their share options held over Ford Common
Stock.
Shares were receivable under a Long Term Incentive scheme by four Directors and 11 Officers in 2021.
Directors Emoluments
Aggregate emoluments for the highest paid Director were £497,686 (2020: £518,483).
The highest paid Director in 2021 was a member of the Ford (US) General Retirement Plan (GRP) and comparison between the
two pension schemes could be misleading due to their different features and structures. The GRP is a defined benefit plan and
allows for an optional full lump sum payment upon termination of employment. No employer contributions or annual interest
payment were made to the GRP in 2021 for the highest paid director. The projected accrued annual benefit at age 65 for the
highest paid director in 2021 was £68,893.
The highest paid Director in 2020 was a member of the Ford (US) General Retirement Plan (GRP) and comparison between the
two pension schemes could be misleading due to their different features and structures. The GRP is a defined benefit plan and
allows for an optional full lump sum payment upon termination of employment. No employer contributions or annual interest
payment were made to the GRP in 2020 for the highest paid director. The projected accrued annual benefit at age 65 for the
highest paid director in 2020 was £86,534.
2021 Financial Statements
Notes to the Consolidated Financial Statements for the
Year ended 31 December 2021
64 FCE Bank plc – ANNUAL REPORT 2021
7 GAIN/(LOSS) ON FOREIGN EXCHANGE
The table below analyses the gains and losses recognised in the statement of profit or loss within 'Gain/(loss) on foreign exchange'
arising primarily from the revaluation of foreign currency assets and liabilities into sterling at exchange rates ruling at the reporting
date.
To meet funding objectives, FCE borrows in a variety of currencies. FCE's exposure to currency exchange rates occurs if a
mismatch exists between the currency of the receivables and the currency of the debt funding those receivables.
Wherever possible, FCE funds receivables with debt in the same currency, minimising exposure to exchange rate movements.
When a different currency is used, foreign currency derivatives are executed to convert foreign currency debt obligations to the
local currency of the receivables and reduce the exposure to movements in foreign exchange rates.
Consequently, the losses on 'foreign currency debt obligations' of £18 million (2020: £29 million loss) is substantially offset by fair
value gains on cross currency interest rate swaps and foreign exchange forwards as detailed in Note 10 ‘Derivative Financial
Instruments and Hedging Activities’.
Refer to Note 31 ‘Market Risk' for further information on FCE's use of derivatives.
Group
For the year ended 31 December
2021
2020
£ mil
£ mil
Foreign currency debt obligations
(18)
(29)
Total gain/(loss) on foreign exchange
(18)
(29)
2021 Financial Statements
Notes to the Consolidated Financial Statements for the
Year ended 31 December 2021
FCE Bank plc – ANNUAL REPORT 2021 65
8 INCOME TAX EXPENSE
Income tax payable on profits is based on the applicable tax law in each jurisdiction and is calculated at rates of tax substantially
enacted at the reporting date. Income tax payable is recognised as an expense in the period in which the profits arise. The tax
effects of income tax losses available for carry forward are recognised as an asset when it is probable that future taxable profits
will be available which these losses can be utilised against.
Group
For the year ended 31 December
Note
2021
2020
£ mil
£ mil
Current tax:
UK Corporation tax of 19% (2020: 19%)
22
17
Overseas taxation
39
23
Adjustment to prior year corporation tax
(3)
3
Income tax expense current
58
43
Deferred tax:
Current year
19
13
Prior year
7
-
Income tax expense deferred
19
26
13
Income tax expense
84
56
The factors affecting the tax charge for the period are explained below.
Group
For the year ended 31 December
2021
2020
£ mil
£ mil
Profit before tax
238
184
Profit multiplied by standard rate of UK Corporation tax of 19% (2020:
19%)
45
35
Effects of:
Foreign taxes higher / (lower) than UK taxes
14
14
Prior year current and deferred tax
4
3
Bank surcharge
5
4
Change in deferred tax rates (UK corporate tax rate to increase to 25%
from 2023)
(3)
(1)
Charge for deferred tax asset no longer recognised
14
-
Expenses not deductible
5
1
Income tax expense
84
56
2021 Financial Statements
Notes to the Consolidated Financial Statements for the
Year ended 31 December 2021
66 FCE Bank plc – ANNUAL REPORT 2021
9 CASH AND CASH EQUIVALENTS
Company
Group
As at 31 December
2021
2020
2021
2020
£ mil
£ mil
£ mil
£ mil
Cash in bank (including cash at central banks)
776
785
1,580
1,360
Cash equivalents
-
358
-
358
Cash and cash equivalents
776
1,143
1,580
1,718
Other bank deposits
-
-
178
216
Collateralised deposits
-
-
64
114
Cash associated with securitisation transactions
-
-
242
330
Total cash and cash equivalents
776
1,143
1,822
2,048
‘Cash and cash equivalents’ include cash and highly liquid investments with a maturity of 90 days or less at date of acquisition.
Cash in bank is primarily cash held at central banks.
The net book value of cash and cash equivalents approximates fair value due to the short maturities of these investments.
‘Cash associated with securitisation transactions’ represents balances held by and available to consolidated SEs. The amount
included in the note is not available for use in FCE’s day to day operations.
2021 Financial Statements
Notes to the Consolidated Financial Statements for the
Year ended 31 December 2021
FCE Bank plc – ANNUAL REPORT 2021 67
10 DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
Policy
In the normal course of business, the Group’s operations are exposed to global market risks, including the effect of changes in
interest rates and foreign currency exchange rates. To manage these risks, the Group enters into the following highly effective
derivative contracts:
• Interest rate contracts, including swaps, that are used to manage the effects of interest rate fluctuations
• Foreign currency exchange contracts, including forwards, that are used to manage foreign exchange exposure
• Cross-currency interest rate swap contracts that are used to manage foreign currency and interest rate exposures on
foreign-denominated debt
The Group reviews its hedging program, derivative positions, and overall risk management strategy on a regular basis.
The derivatives are over-the-counter (OTC) customised transactions and are not exchange traded. The majority of the Group’s
OTC derivatives are cleared centrally through a Qualified Central Counterparty (QCCP). Derivative transactions are entered into
under International Swaps and Derivatives Association (ISDA) master netting agreements. The ISDA and similar master netting
arrangements do not meet the criteria for offsetting in the statement of financial position. This is because they create for the parties
to the agreement a right of set-off of recognised amounts that is enforceable only following an event of default, insolvency or
bankruptcy of the Group or the counterparties or following other predetermined events. In addition, the Group and its
counterparties do not intend to settle on a net basis or to realise the assets and settle the liabilities simultaneously.
The fair value of these instruments are estimated using industry-standard valuation models such as a discounted cash flow. These
models project future cash flows and discount the future amounts to a present value using market-based expectations for interest
rates, foreign exchange rates, and the contractual terms of the derivative instruments. The discount rate used is the relevant
benchmark interest rate (e.g., LIBOR, SONIA) plus an adjustment for non-performance risk as applicable. The adjustment reflects
the full credit default swap (CDS) spread applied to a net exposure, by counterparty, considering the master netting agreements
and any posted collateral. The counterparty’s CDS spread is used when in a net asset position and the Group’s CDS spread when
in a net liability position. The Group posts initial margin collateral for all centrally cleared OTC interest rate swaps.
FCE have elected to apply hedge accounting to certain derivatives. Derivatives that are designated in hedging relationships are
evaluated for effectiveness using regression analysis at the time they are designated and throughout the hedge period. Some
derivatives do not qualify for hedge accounting; for others, the Group has elected not to apply hedge accounting.
‘Fair Value Hedges’. All derivatives entered into by FCE are to reduce the risk of changes in the fair value of debt. The Group
have designated certain receive-fixed, pay-float interest rate swaps as fair value hedges of fixed-rate debt. The risk being hedged
is the risk of changes in the fair value of the hedged debt attributable to changes in the benchmark interest rate. It is FCE's policy
to execute interest rate swaps to change the interest rate characteristics of the debt to match, within a tolerance range, the interest
rate characteristics of FCE’s assets. The Group considers whether the critical terms of the hedged item and the hedging instrument
closely align when assessing the presence of an economic relationship. If the hedge relationship is deemed to be highly effective,
the Group reports the changes in the fair value of the hedged debt related to the risk being hedged in Debt securities in issue and
Interest expense. Net interest settlements and accruals, and the fair value changes on hedging instruments are reported in Interest
expense. The cash flows associated with fair value hedges are reported in Net cash generated / (used in) from operating activities
in the statement of cash flows. The ratio of the quantity of the item being hedged to the notional of the hedge will always be 1:1.
The hedge continues to meet the effectiveness requirements when no change has occurred in the hedging relationship or hedge
ratio, including no change in notional amount, timing change, or other source of ineffectiveness.
Hedge accounting is applied for derivatives only when the following criteria are met:
• Formal documentation of the hedging instrument, hedged item, hedge objective, strategy and relationship is prepared
at or before inception of the hedge transaction
• The hedge is documented showing that it is expected to be highly effective in offsetting the risk in the hedged item
throughout the reporting period
• The hedge is highly effective on an ongoing basis, as measured by re-performance of effectiveness testing by the way
of regression analysis, on a minimum quarterly basis
When a fair value hedge is de-designated, or when the derivative is terminated before maturity, the fair value adjustment to the
hedged debt continues to be reported as part of the carrying value of the debt and is recognised in Interest income/expense over
its remaining life. In 2020, all previously designated interest rates swaps as fair value hedges were de-designated after our risk
management hedging objective was met.
2021 Financial Statements
Notes to the Consolidated Financial Statements for the
Year ended 31 December 2021
68 FCE Bank plc – ANNUAL REPORT 2021
‘Derivatives Not Designated as Hedging Instruments’. The Group reports net interest settlements and accruals in Interest
income/expense. Changes in the fair value of interest rate swaps not designated as hedging instruments and foreign currency
revaluation on accrued interest along with gains and losses on foreign exchange contracts and cross currency interest rate swaps
are reported in Fair value changes on non-designated derivatives. Cash flows associated with non-designated or de-designated
derivatives are reported in Net cash generated (used in)/ from financing activities in our statement of cash flows.
All interest rate swaps referencing LIBOR requiring conversion to an alternative interest rate have been transitioned.
Income Effect of Derivative Financial Instruments
The gains / (losses), by hedge designation, reported in income for the years ended December 31 were as follows (in millions):
Statement of Financial Position Effect of Derivative Financial Instruments
Derivative assets and liabilities are reported on the statement of financial position at fair value and are presented on a gross basis.
The fair values are included in both assets and liabilities sections of the statement of financial position within Derivative financial
instruments. The notional amounts of the derivative instruments do not necessarily represent amounts exchanged by the parties
and are not a direct measure of our financial exposure. The Group also enters into master agreements with counterparties that
may allow for netting of exposure in the event of default or breach of the counterparty agreement. Collateral represents cash
received or paid under reciprocal arrangements entered into with derivative counterparties, which the Group does not use to offset
derivative assets and liabilities.
Group
As at 31 December
2021
2020
£ mil
£ mil
Fair value hedges
Interest rate contracts
Net interest settlements and accruals on hedging instruments
-
1
Fair value changes on hedging instruments
-
3
Fair value changes on hedged debt
-
(3)
Total fair value hedges
-
1
Derivative not designated as hedging instruments
Net interest settlements and accruals
(4)
3
Fair value changes on non-designated derivatives
Interest rate contracts
29
(32)
Cross-currency interest rate contracts
(13)
23
Foreign exchange forwards
30
6
Total fair value changes on non-designated derivatives
46
(3)
Total non-designated derivatives
42
-
Total
42
1
2021 Financial Statements
Notes to the Consolidated Financial Statements for the
Year ended 31 December 2021
FCE Bank plc – ANNUAL REPORT 2021 69
10 DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES CONTINUED
The fair value of the Company and the Group’s derivative instruments and the associated notional amounts at December 31 were
as follows (in millions):
Company
As at 31 December
2021
2020
£ mil
£ mil
£ mil
£ mil
£ mil
£ mil
Fair value
Fair value
Notional
Assets
Liabilities
Notional
Assets
Liabilities
Non-designated derivatives
Interest rate contracts
8,207
35
14
13,666
63
33
Cross currency interest rate contracts
-
-
-
193
26
-
Foreign currency exchange contracts
825
12
-
334
1
1
Total non-designated derivatives
9,032
47
14
14,193
90
34
Total derivative financial instruments
9,032
47
14
14,193
90
34
Derivatives centrally cleared
5,741
18
6
9,215
16
33
Derivatives bilateral collateralised
1,290
-
8
2,072
2
-
Derivatives not cleared
2,001
29
-
2,906
72
1
Total derivative financial instruments
9,032
47
14
14,193
90
34
Current portion
-
26
11
-
62
24
Non-current portion
-
21
3
-
28
10
Total derivative financial instruments
-
47
14
-
90
34
Group
As at 31 December
2021
2020
£ mil
£ mil
£ mil
£ mil
£ mil
£ mil
Fair value
Fair value
Notional
Assets
Liabilities
Notional
Assets
Liabilities
Non-designated derivatives
Interest rate contracts
14,411
51
16
22,143
66
42
Cross currency interest rate contracts
-
-
-
193
26
-
Foreign currency exchange contracts
825
12
-
334
1
1
Total non-designated derivatives
15,236
63
16
22,670
93
43
Total derivative financial instruments
15,236
63
16
22,670
93
43
Derivatives centrally cleared
8,135
25
6
11,451
18
36
Derivatives bilateral collateralised
2,479
-
10
3,832
3
-
Derivatives not cleared
4,622
38
-
7,387
72
7
Total derivative financial instruments
15,236
63
16
22,670
93
43
Current portion
-
29
10
-
64
30
Non-current portion
-
34
6
-
29
13
Total derivative financial instruments
-
63
16
-
93
43
All derivatives are categorised within Level 2 of the fair value hierarchy.
2021 Financial Statements
Notes to the Consolidated Financial Statements for the
Year ended 31 December 2021
70 FCE Bank plc – ANNUAL REPORT 2021
10 DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES CONTINUED
The fair value of the Company and the Group’s derivative instruments at December 31 were as follows (in millions):
2021
2020 (restated)
Assets
Liabilities
Assets
Liabilities
Group
£ mil
£ mil
£ mil
£ mil
Gross derivatives amount recognised in the statement
of financial position
63
16
93
43
Related amounts not offset
-
-
-
-
Amounts subject to master netting agreements
-
-
(1)
(1)
Cash collateral posted/held
51
19
64
4
Net Amounts
114
35
156
46
Upon review, for both Company and Group, it was determined that the 2020 ‘Amounts subject to master Netting arrangements’
under Assets and Liabilities should be corrected from £17m to £1m. These changes have been made in the comparative
information in the above table. There was no impact on profit, total assets or total equity due to this correction.
2021
2020 (restated)
Assets
Liabilities
Assets
Liabilities
Company
£ mil
£ mil
£ mil
£ mil
Gross derivatives amount recognised in the statement
of financial position
47
14
90
34
Related amounts not offset
-
-
-
-
Amounts subject to master netting agreements
-
-
(1)
(1)
Cash collateral posted/held
37
13
42
2
Net Amounts
84
27
131
35
2021 Financial Statements
Notes to the Consolidated Financial Statements for the
Year ended 31 December 2021
FCE Bank plc – ANNUAL REPORT 2021 71
11 OTHER ASSETS
Policy
The carrying value of 'Other assets' except vehicles awaiting resale is stated at amortised cost less any provision for expected
credit losses. Vehicles returned to FCE from operating lease, retail and finance leases which are awaiting resale are recorded at
the lower of their carrying amount or fair value less costs to sell.
Gains and losses on disposals of Operating lease vehicles are included in the statement of profit or loss within ‘Depreciation of
property and equipment’ and for vehicles returned from retail and finance lease contracts within 'Interest income'.
Other assets at 31 December were as follows:
Company
Group
As at 31 December
2021
2020
2021
2020
£ mil
£ mil
£ mil
£ mil
Short-term receivables
Note
Related parties
34
8
186
21
304
External
33
47
48
97
Subsidiary undertakings
34
24
28
-
-
Sub-total short-term receivable
65
261
69
401
Loans receivable
Subsidiary undertakings
34
2,728
2,513
-
-
Sub-total loans receivable
2,728
2,513
-
-
Vehicles awaiting resale
8
41
85
192
Restricted cash
59
420
92
465
Prepayments and accrued income
47
48
49
50
Prepaid taxes and related interest
24
38
25
40
Total other assets
2,931
3,321
320
1,148
Current
1,178
1,100
192
950
Non-current
1,753
2,221
128
198
Total other assets
2,931
3,321
320
1,148
‘Short term receivables and Loans receivable’ the book value of short-term receivables and loans receivable approximates fair
value due to the short maturities of these assets.
‘Loans receivable’ these loans are usually revolving in nature allowing subsidiaries to repay in line with receivable levels.
‘Restricted cash’ includes cash in central banks to be held as minimum reserves and cash required as initial margin collateral.
‘Prepayments and accrued income' include sundry prepaid expenses (insurance, rent & property related services, postage,
etc.), capitalised commitment fees, and deferred charges.
2021 Financial Statements
Notes to the Consolidated Financial Statements for the
Year ended 31 December 2021
72 FCE Bank plc – ANNUAL REPORT 2021
12 LOANS AND ADVANCES TO CUSTOMERS
Policy
Loans and advances to customers are initially recognised at fair value including direct and incremental transaction fees (including
interest supplements and other support payments from related parties) and costs. They are subsequently measured at amortised
cost using the effective interest method. Refer to Note 2 ‘Net Interest Income’ for further details.
The majority of our Finance Leases consist of Hire Purchase contracts and Trade Cycle Management products as described in
the Business Environment section.
Company
Group
As at 31 December
2021
2020
2021
2020
£ mil
£ mil
£ mil
£ mil
Loans and advances to customers
Note
Retail loans and receivables
647
3,067
4,861
5,720
Finance lease
3,522
4,188
4,538
5,207
Wholesale (a)
2,025
3,416
3,236
4,923
Gross loans and advances to customers
6,194
10,671
12,635
15,850
Allowance for expected credit losses
13
(18)
(35)
(33)
(46)
Net loans and advances to customers
6,176
10,636
12,602
15,804
Current
3,550
6,135
6,594
8,676
Non-current
2,626
4,501
6,008
7,128
Net Loans and advances to customers
6,176
10,636
12,602
15,804
Fair value
Retail loans and receivables
657
3,131
4,997
5,873
Finance Lease
3,577
4,332
4,635
5,389
Wholesale
2,021
3,409
3,233
4,911
Total fair value
6,255
10,872
12,865
16,173
a) During 2020, FCE conducted a review of terms of its wholesale lending products and concluded that the lending terms in one market
did not meet the ‘solely payments of principal and interest’ requirement of IFRS 9. As a result, the wholesale receivables line now
includes £309 million (2020 : £560 million) treated as financial assets at fair value through profit or loss (FVPL). The fair value of these
assets approximates their book value given the short-term nature of the lending. The related interest received of £14m (2020: £25m)
continues to be reported within net interest income given this represents the substance of the lending arrangement. FCE provides IFRS
7 disclosures in relation to Loans and Advances to Customers on a total basis including assets measured at FVPL. This approach is
considered to present more relevant information to users than IFRS 13 disclosures on fair value given this aligns with how these assets
are managed and given book value approximated fair value throughout the current and prior periods.
‘Loans and advances to customers’ are measured at fair value for purposes of disclosure using internal valuation models.
These models project future cash flows of financing contracts based on scheduled contract payments (including principle and
interest). The projected cash flows are discounted to present value based on assumptions regarding credit losses, average
maturity profile, applicable spreads and operating costs. The fair value is categorised within Level 3 of the hierarchy.
2021 Financial Statements
Notes to the Consolidated Financial Statements for the
Year ended 31 December 2021
FCE Bank plc – ANNUAL REPORT 2021 73
12 LOANS AND ADVANCES TO CUSTOMERS CONTINUED
Finance Leases
As at 31 December
Company
Group
2021
2020
2021
2020
Finance Lease
£ mil
£ mil
£ mil
£ mil
Within 1 year
627
789
840
1,161
After 1 year and within 2 years
575
729
883
1,057
After 2 year and within 3 years
427
575
685
828
After 3 year and within 4 years
130
193
300
325
After 4 year and within 5 years
5
6
136
13
After 5 years
-
-
4
-
Total finance lease payments receivable
1,764
2,292
2,848
3,384
Unguaranteed residual value
1,964
2,151
1,964
2,151
Unearned finance income
(67)
(90)
(116)
(139)
Unearned interest supplements from related
parties
(175)
(213)
(199)
(242)
Allowance for expected credit losses
(13)
(16)
(16)
(19)
Provision for vehicle residual value losses
-
(1)
-
(1)
Deferred origination costs
36
49
41
54
Net investment in finance leases
3,509
4,172
4,522
5,188
2021 Financial Statements
Notes to the Consolidated Financial Statements for the
Year ended 31 December 2021
74 FCE Bank plc – ANNUAL REPORT 2021
13 ALLOWANCE FOR EXPECTED CREDIT LOSSES
The allowance for credit losses represents FCE’s estimate of the expected credit loss on retail, finance leases and wholesale
receivables at the date of the statement of financial position. The adequacy of the allowance for credit losses is assessed quarterly
and the assumptions and models used in establishing the allowance are evaluated regularly. Credit losses can vary substantially
over time and, estimating credit losses requires a number of assumptions about matters that are uncertain. The majority of credit
losses are attributable to FCE’s retail and finance lease portfolios.
Impairment
Under IFRS 9, credit loss allowances are measured on each reporting date according to a three-stage expected credit loss (ECL)
impairment model:
• Stage 1 (12 month ECL) – From initial recognition of a financial asset until the date on which the asset has experienced
a significant increase in credit risk relative to its initial recognition, a loss allowance is recognised equal to the credit
losses expected to result from defaults occurring over the next 12 months
• Stage 2 (Lifetime ECL not credit impaired) – Following a significant increase in credit risk relative to the initial recognition
of the financial asset, a loss allowance is recognised equal to the credit losses expected over the remaining lifetime of
the asset
• Stage 3 (Lifetime ECL credit impaired) – When a financial asset is considered to be credit impaired, a loss allowance
equal to full lifetime expected credit losses is recognised. Interest revenue is calculated based on the carrying amount
of the asset, net of the loss allowance, rather than on its gross carrying amount (GCA)
Retail and Finance Leases
FCE estimates the allowance for credit losses on retail and lease receivables using a combination of measurement models and
management judgment. The models consider factors such as historical trends in credit losses and recoveries, the composition
and recent performance of FCE’s present portfolio, risk evaluation at the time of origination, and a forecast of future economic
conditions. If management does not believe these models reflect expected losses for the portfolio, an adjustment is made to reflect
management judgement regarding observable changes in recent or expected economic trends and conditions, portfolio
composition, and other relevant factors.
FCE calculates the allowance for credit losses on retail and finance leases using Probability of Default (PD), Exposure at Default
(EAD), and Loss Given Default (LGD). The probability of default models are developed from internally developed risk scoring
models taking into account the expected probability of payment and time to default adjusted for macroeconomic outlook and
recent performance. The exposure at default is the expected principal and interest balance due at default. The loss given default
is the percentage of the expected balance due at default that is not recoverable, taking account the expected collateral value. The
monthly expected credit loss is calculated for each month by applying the expected probability of default to the expected exposure
at default and the loss given default. The 12-month and lifetime expected credit losses is calculated by summing these monthly
expected credit losses over the next 12 months and remaining lifetime of the receivable, respectively. The expected credit losses
are discounted to the reporting date using the original effective interest rate or the current effective interest rate for variable rate.
The loss models incorporate forward-looking macroeconomic conditions for baseline, upturn, and downturn scenarios. Three
separate credit loss allowances are calculated from these scenarios. They are then probability-weighted to determine the credit
loss allowance recognised in the financial statements. FCE identified that the key macro-economic variables that impact its
expected losses, both in Probability of Default and in Loss Given Default include: GDP Growth, CPI, Housing Price Index, and
Import of Goods, however the main one is Unemployment. The forecast for these variables is sourced from an external vendor
for all three scenarios and is used to estimate FCE’s expected losses. The period is specific to the particular macroeconomic
variable. FCE updates the forecasts quarterly and on an annual basis, FCE evaluates the selection of scenarios and the scenario
weighting to ensure they reflect the risk of the portfolio. In the current and prior years the base scenario has been weighted 60%,
with the upturn and downturn scenarios both assigned 20% probabilities.
As the retail and finance lease models were not able to reflect appropriately the particular circumstances of COVID-19, including
the unprecedented actions taken by Governments to contain and combat the impact, the reserves include post-model adjustments
and management overlays.
2021 Financial Statements
Notes to the Consolidated Financial Statements for the
Year ended 31 December 2021
FCE Bank plc – ANNUAL REPORT 2021 75
13 ALLOWANCE FOR EXPECTED CREDIT LOSSES CONTINUED
The following table details the unemployment macro-economic factors applied in the retail and finance lease model for the large
FCE markets:
Macro Economics – Average Unemployment Rate
2021
2020
Upturn
Business As
Usual
Downturn
Upturn
Business As
Usual
Downturn
Country
Next 12
Months
%
Next 5
Years
%
Next 12
Months
%
Next 5
Years
%
Next 12
Months
%
Next 5
Years
%
Next 12
Months
%
Next 5
Years
%
Next 12
Months
%
Next 5
Years
%
Next 12
Months
%
Next 5
Years
%
UK
4.9
4.1
5.4
4.8
6.3
6.6
7.2
6.1
7.7
6.9
8.7
8.9
Italy
9.3
8.8
9.5
9.1
10.9
10.9
11.6
10.6
11.9
10.9
13.3
12.7
Germany
5.4
5.0
5.3
5.2
6.4
6.9
5.7
5.1
6.3
5.6
7.4
7.3
France
7.5
7.5
7.9
7.9
8.8
8.9
9.5
8.3
10.1
8.6
11.0
9.6
Spain
13.6
12.6
14.5
13.5
17.0
16.4
16.0
13.8
17.0
14.4
20.6
17.8
Wholesale Portfolio
Ford Credit estimates the expected allowance for credit losses for wholesale receivables based on historical experience, expected
future cash flows, and the fair value of collateral.
Given the immaterial level of wholesale losses over many years, FCE uses loss-to-receivable (LTR) ratios as a proxy for the base
modelled ECL allowance. A 20-quarter historical average LTR for Wholesale is calculated by dividing credit losses by average
net finance receivables, excluding unearned interest supplements and allowance for credit losses . The average LTR that is
calculated is multiplied by the end-of-period receivable balance.
After establishing the allowance for expected credit losses, if management believes the allowance does not reflect expected losses
for the portfolio due to changes in recent or expected economic trends and conditions, or other relevant factors, an adjustment is
made based on management judgement. As the applied methodology was not able to reflect appropriately the particular
circumstances of COVID-19, including the unprecedented actions taken by Governments to contain and combat the impact, the
reserve includes a management overlay.
Significant Increase in Credit Risk
In every reporting period, FCE assesses whether the credit risk on a financial asset has increased significantly on an individual or
collective basis. When evaluating assets on a collective basis FCE group the assets on the basis of shared risk characteristics
taking into account product type such as consumer/commercial loans and new/used vehicles, initial credit risk category, term,
vintage, geography, and other relevant factors.
For retail and finance leases, FCE measure the allowance for credit loss at 12-month expected credit losses. If FCE determine
the credit risk of a receivable/group of receivables has increased significantly since origination, FCE increase the measurement
of credit loss to an amount equal to the lifetime expected credit loss.
When determining whether credit risk of the retail and finance leases has increased significantly since initial recognition, FCE
considers the significant change in actual default experience of the pooled receivables relative to the expectation to date from the
original PD, significant changes in macro-economic conditions, past due status, payment performance, and other relevant factors.
FCE assume the credit risk on a financial asset has increased significantly if it is more than 30 days past due.
Retail and finance lease receivables are considered credit impaired or non-performing (stage 3) when it is probable that FCE will
be unable to collect all amounts due. Credit impaired receivables can be reclassified to stage 2 once they have cured and when
payments are up to date for a period of 12 months, however they cannot be reclassified to stage 1.
2021 Financial Statements
Notes to the Consolidated Financial Statements for the
Year ended 31 December 2021
76 FCE Bank plc – ANNUAL REPORT 2021
13 ALLOWANCE FOR EXPECTED CREDIT LOSSES CONTINUED
FCE measure the allowance for credit loss for wholesale receivables, independent of their contractual maturities, at an amount
equal to lifetime expected credit loss. Wholesale receivables with contractual lives of about one year typically have a behavioural
life of less than 90 days and payment is required when the dealer has sold the vehicle.
Wholesale receivables are regarded as having had a significant increase in credit risk and are subsequently reported in stage 2
if the loans pertain to a dealer who moved from Group II to Group III (as defined in Note 29 ‘Credit Risks’) after origination, or if
the dealer is otherwise regarded as having had a significant increase in credit risk since loan origination, e.g. due to deteriorating
cash flow metrics.
Wholesale receivables that have been modified (i.e. forborne exposures) and receivables from dealers classified as Group IV are
generally considered credit-impaired. Refer to the Wholesale Credit Risk Management section on page 16 which details the
actions taken in response to COVID-19. These receivables can be reclassified to stage 1 once they have cured and are up to
date for a period of 12 months.
Retail, Finance Leases and Wholesale Write Off
Initial write-off typically occurs when a customer is assessed as unlikely to pay its credit obligations or when an account reaches
120 days delinquent, whichever is earlier. This initial write-off is based on historic modelled expectations of recoveries, taking
consideration of the financial condition of the customer, borrower, or lessee, the value of the collateral, recourse to guarantors,
and other factors. A final write-off is performed once all collection avenues have been exhausted. This point varies depending on
the product and country, though is typically a number of years after the initial delinquency. Consequently, the amounts written off
during any particular year primarily reflect accounts subject to enforcement. The amount written off in 2021 was £38 million (2020:
£54 million) and recoveries in 2021 were £31 million (2020: £28 million).
The value of the FCE’s loans and advances considered to be credit impaired at the reporting date is £127 million (2020 £262
million).
2021 Financial Statements
Notes to the Consolidated Financial Statements for the
Year ended 31 December 2021
FCE Bank plc – ANNUAL REPORT 2021 77
13 ALLOWANCE FOR EXPECTED CREDIT LOSSES CONTINUED
The changes in the Company allowance for expected credit losses for retail, finance leases and wholesale receivables for the
year ended December 31, 2021 and 2020 were as follows:
Company
2021
Stage 1
Stage 2
Stage 3
Total
GCA
ECL
GCA
ECL
GCA
ECL
GCA
ECL
£ mil
£ mil
£ mil
£ mil
£ mil
£ mil
£ mil
£ mil
Opening Balance January 2021
9,528
(27)
948
(7)
195
(1)
10,671
(35)
New receivables originated
2,200
(2)
-
-
-
-
2,200
(2)
Transfers Between Stages
Transfers out of Stage 1
(51)
0
43
(0)
8
(0)
-
-
Transfers out of Stage 2
317
(0)
(320)
0
3
(0)
-
-
Transfers out of Stage 3
8
(0)
7
(0)
(15)
0
-
-
Total Transfers Between Stages
274
(0)
(270)
0
(4)
0
-
-
Increases/(Decreases)
Change in Credit Risk (a)
(1,718)
2
(498)
6
38
(21)
(2,178)
(13)
Receivables derecognised during period
(1,501)
1
(115)
-
(60)
-
(1,676)
1
Restructuring actions (b)
(2,548)
10
(8)
0
(120)
0
(2,676)
10
Write off
-
-
-
-
(20)
20
(20)
20
Total Increases/(Decreases)
(5,767)
13
(621)
6
(162)
(1)
(6,550)
18
Exchange rate movements (FX)
(127)
1
-
-
-
-
(127)
1
Closing Balance December 2021
6,108
(15)
57
(1)
29
(2)
6,194
(18)
Prior Year:
Opening Balance January 2020
12,263
(16)
176
(1)
132
(0)
12,571
(17)
Movement
(2,735)
(11)
772
(6)
63
(1)
(1,900)
(18)
Closing Balance December 2020
9,528
(27)
948
(7)
195
(1)
10,671
(35)
Memo:
Retail and Finance Leases
4,088
(14)
56
(1)
26
(0)
4,170
(15)
Wholesale
2,020
(1)
1
(0)
3
(2)
2,024
(3)
Closing Balance December 2021
6,108
(15)
57
(1)
29
(2)
6,194
(18)
Retail and Finance Leases
6,351
(22)
856
(5)
48
(1)
7,255
(28)
Wholesale
3,177
(5)
92
(2)
147
(0)
3,416
(7)
Closing Balance December 2020
9,528
(27)
948
(7)
195
(1)
10,671
(35)
(a) The change in credit risk line contains the general incremental movements within each stage (e.g. on a regular basis the provision
allowances are recalculated using reporting date PD’s, LGD’s and macro economic factors and a contract will naturally experience an
increase or decrease in ECL without changing stage). Changes in the GCA is primarily related to customer payments.
(b) Restructuring actions is the launch of a finance company in Italy and an Austrian branch of its German banking subsidiary. The company
results in 2021 exclude these two entities that are now included in the 'Group' only.
2021 Financial Statements
Notes to the Consolidated Financial Statements for the
Year ended 31 December 2021
78 FCE Bank plc – ANNUAL REPORT 2021
13 ALLOWANCE FOR EXPECTED CREDIT LOSSES CONTINUED
The changes in the Group allowance for expected credit losses for retail, finance leases and wholesale receivables for the year
ended December 31, 2021 and 2020 were as follows:
Group
2021
Stage 1
Stage 2
Stage 3
Total
GCA
ECL
GCA
ECL
GCA
ECL
GCA
ECL
£ mil
£ mil
£ mil
£ mil
£ mil
£ mil
£ mil
£ mil
Opening Balance January 2021
14,504
(34)
1,084
(9)
262
(3)
15,850
(46)
New receivables originated
3,542
(4)
-
-
-
-
3,542
(4)
Transfers Between Stages
Transfers out of Stage 1
(143)
0
67
(0)
76
(0)
-
-
Transfers out of Stage 2
324
(0)
(328)
0
4
(0)
-
-
Transfers out of Stage 3
19
(0)
40
(0)
(59)
0
-
-
Total Transfers Between Stages
200
(0)
(221)
0
21
(0)
-
-
Increases/Decreases
Change in Credit Risk (a)
(3,025)
5
(570)
8
(18)
(37)
(3,613)
(24)
Receivables derecognised during period
(2,324)
2
(140)
-
(100)
-
(2,564)
2
Write off
-
-
-
-
(38)
38
(38)
38
Total Increases/Decreases
(5,349)
7
(710)
8
(156)
1
(6,215)
16
Exchange rate movements (FX)
(542)
1
-
-
-
-
(542)
1
Closing Balance December 2021
12,355
(30)
153
(1)
127
(2)
12,635
(33)
Prior Year:
Opening Balance January 2020
17,426
(20)
273
(1)
188
(0)
17,887
(21)
Movement
(2,922)
(14)
811
(8)
74
(3)
(2,037)
(25)
Closing Balance December 2020
14,504
(34)
1,084
(9)
262
(3)
15,850
(46)
Memo:
Retail and Finance Leases
9,175
(28)
148
(1)
75
(0)
9,328
(29)
Wholesale
3,180
(2)
5
(0)
52
(2)
3,237
(4)
Closing Balance December 2021
12,355
(30)
153
(1)
127
(2)
12,635
(33)
Retail and Finance Leases
9,843
(27)
990
(6)
94
(1)
10,927
(34)
Wholesale
4,661
(7)
94
(3)
168
(2)
4,923
(12)
Closing Balance December 2020
14,504
(34)
1,084
(9)
262
(3)
15,850
(46)
(a) The change in credit risk line contains the general incremental movements within each stage (e.g. on a regular basis the provision
allowances are recalculated using reporting date PD’s, LGD’s and macro economic factors and a contract will naturally experience an
increase or decrease in ECL without changing stage). Changes in the GCA is primarily related to customer payments.
2021 Financial Statements
Notes to the Consolidated Financial Statements for the
Year ended 31 December 2021
FCE Bank plc – ANNUAL REPORT 2021 79
13 ALLOWANCE FOR EXPECTED CREDIT LOSSES CONTINUED
Total net profit or (loss) charge for the year ended December 31, 2021 and 2020 were as follows:
Company
Group
2021
2020
2021
2020
Retail
Whole
sale
Total
Retail
Whole
sale
Total
Retail
Whole
sale
Total
Retail
Whole
sale
Total
£ mil
£ mil
£ mil
£ mil
£ mil
£ mil
£ mil
£ mil
£ mil
£ mil
£ mil
£ mil
Charges –
(Increase) /
Decrease
(19)
4
(15)
(50)
(13)
(63)
(34)
8
(26)
(17)
(60)
(77)
Recoveries
18
2
20
22
3
25
28
3
31
3
25
28
P&L
(1)
6
5
(28)
(10)
(38)
(6)
11
5
(14)
(35)
(49)
Sensitivity Analysis
Changes in the probability of default and loss given default assumptions could be driven by actual default performance, as well
as changes in the macroeconomic outlook and these would affect the allowance for credit losses. Compared to the year end
reserve level, the credit loss value would have increased by 30% if downturn was weighted at 100% (assuming no changes in
staging). In an extreme scenario, if the downturn scenario given 100% weighting and all contracts moved from 12 month to lifetime
ECL, then the ECL would increase by about 130% from £27 million to £62 million.
The analysis below assumes no additional provisions are required for wholesale exposures in a downturn given FCE's experience
of mitigating loss primarily through enforcing the collateral held.
As at 31 December
Retail and Lease
2021
Expected Credit
Losses
2020
Expected Credit
Losses
Country
Probability
Weighted
Current Staging
100% Downturn
Scenario
Current Staging
100% Downturn
Scenario All
contracts at
Lifetime
Probability
Weighted
Current Staging
100% Downturn
Scenario
Current Staging
100% Downturn
Scenario All
contracts at
Lifetime
£ mil
£ mil
£ mil
£ mil
£ mil
£ mil
UK
9
12
20
10
13
17
Italy
8
11
20
10
13
18
Germany
5
6
12
5
6
11
France
2
2
4
2
2
3
Spain
2
3
5
3
3
6
FCE Other
1
1
1
1
2
1
Total FCE
27
35
62
31
39
56
2021 Financial Statements
Notes to the Consolidated Financial Statements for the
Year ended 31 December 2021
80 FCE Bank plc – ANNUAL REPORT 2021
14 PROVISION FOR VEHICLE RESIDUAL VALUE LOSSES
Policy
Residual values represent the estimated value of the vehicle at the end of the retail and lease financing plan. Residual values are
calculated after analysing published residual values and FCE's own historical experience in the used vehicle market. Vehicle
residual value provisions are reviewed at least quarterly and are accounted for as an adjustment to the carrying value of the
assets. The amount of any impairment to residual values is accounted for as a deduction from 'Loans and advances to customers'
for retail and lease contracts. These assumptions and the related reserves may change based on market conditions.
Changes to residual value provisions for retail and finance lease contracts are included in the consolidated statement of profit or
loss and other comprehensive income within Interest Income.
Company
Group
2021
2020
2021
2020
£ mil
£ mil
£ mil
£ mil
Note
Beginning of period balance
1
5
1
5
Residual value adjustments charged/(credited) to
Income Statement
2
(2)
(5)
(2)
(5)
Residual value losses incurred in the period
1
1
1
1
End of period balance
0
1
0
1
2021 Financial Statements
Notes to the Consolidated Financial Statements for the
Year ended 31 December 2021
FCE Bank plc – ANNUAL REPORT 2021 81
15 PROPERTY AND EQUIPMENT
a) The gross sales proceed from operating lease vehicles is £417m (2020: £555m), of which £441m (2020: £691m) relates to cost of sales.
Company
Group
Leasehold
improve-
ments
£ mil
Office
Equip-
ment
£ mil
Motor
Vehicles
£ mil
Total
£ mil
Leasehold
improve-
ments
£ mil
Office
Equip-
ment
£ mil
Motor
Vehicles
£ mil
Total
£ mil
Cost
At 1 January 2020
1
4
-
5
2
5
377
384
Additions
-
-
1
1
-
-
641
641
Disposals (a)
-
-
-
-
-
-
(691)
(691)
Translation adjustment
-
-
-
-
-
-
36
36
At 31 December 2020/
1 January 2021
1
4
1
6
2
5
363
370
Additions
-
-
1
1
-
1
312
313
Disposals (a)
-
(1)
(2)
(3)
(1)
(2)
(443)
(446)
Translation adjustment
-
-
1
1
-
-
(32)
(32)
At 31 December 2021
1
3
1
5
1
4
200
205
Accumulated
Depreciation
At 1 January 2020
1
1
-
2
2
3
74
79
Charge for the year
-
-
1
1
-
-
190
190
Gains/Losses on disposals
-
-
-
-
-
-
(27)
(27)
Disposal
-
-
(1)
(1)
-
-
(201)
(201)
Translation adjustment
-
-
-
-
-
-
13
13
At 31 December 2020/
1 January 2021
1
1
-
2
2
3
49
54
Charge for the year
-
-
-
-
-
-
147
147
Gains/Losses on
disposals
-
-
-
-
-
-
(16)
(16)
Disposal
-
-
-
-
(1)
(1)
(129)
(131)
Translation adjustment
-
1
-
1
-
-
(11)
(11)
At 31 December 2021
1
2
-
3
1
2
40
43
Net book value at 31
December 2020
-
3
1
4
-
2
314
316
Net book value at 31
December 2021
-
1
1
2
-
2
160
162
2021 Financial Statements
Notes to the Consolidated Financial Statements for the
Year ended 31 December 2021
82 FCE Bank plc – ANNUAL REPORT 2021
15 PROPERTY AND EQUIPMENT CONTINUED
Policy
All property and equipment is stated at historical cost less accumulated depreciation. Depreciation is calculated on a straight line
method to write down the cost of such assets to their residual values at the following rates:
Asset Type
Annual Depreciation Rate
Computer equipment
16.67%
Other office equipment
8.0%
Company motor vehicles
25.0%
Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its
recoverable amount. Gains and losses on disposal of property and equipment are determined by reference to their carrying
amount and are included in 'Operating expenses' in the statement of profit or loss.
Operating lease assets over which FCE has entered into operating lease agreements as the lessor are included in Property and
equipment. Depreciation is charged on Operating Lease assets over the period of the lease to the lower of its net book value or
guaranteed residual value on a straight line basis.
The depreciation policy for leased vehicles (including vehicles subject to operating leases) is reviewed on a regular basis taking
into consideration various assumptions, such as expected values at lease termination and the estimated number of vehicles that
will be returned.
Adjustments are made to depreciation expense to reflect revised estimates of expected values at the end of the lease terms. Upon
return of the vehicle, depreciation expense is adjusted for the difference between net book value and expected resale value and
the vehicle is transferred to 'Other assets'.
When an operating lease is terminated before the lease period has expired, any payment required to be made to the lessor by
way of penalty is recognised in the period in which the obligation arises.
Company
Group
As at 31 December
2021
2020
2021
2020
£ mil
£ mil
£ mil
£ mil
Analysis of property and equipment
Current
-
-
159
312
Non-current
2
4
3
4
Total
2
4
162
316
Company
Group
As at 31 December
2021
2020
2021
2020
£ mil
£ mil
£ mil
£ mil
Operating Leases
Cost
-
-
199
360
Accumulated depreciation
-
-
(41)
(49)
Total
-
-
158
311
2021 Financial Statements
Notes to the Consolidated Financial Statements for the
Year ended 31 December 2021
FCE Bank plc – ANNUAL REPORT 2021 83
16 RIGHT OF USE ASSETS AND LEASE COMMITMENTS
Policy
The group lease offices and office equipment under agreements with contractual periods ranging from less than one year to ten
years. Some leases contain one or more options to extend and include options that are reasonably certain to be exercised in the
group’s evaluation of the lease term after considering all relevant economic and financial factors.
Leases are recognised as a right-of-use asset and a corresponding liability at the date in which the leased asset is available for
use. The right-of-use assets and lease liabilities are reported separately on the statement of financial position.
The right-of-use asset is initially measured at cost and is subsequently depreciated using the straight-line method from the
commencement date to the earlier of the end of the useful life or the end of the lease term.
The group does not separate the non-lease components (e.g., maintenance and operating services) from the lease components
to which they relate. Instead, non-lease components are included in the measurement of the lease liabilities. The initial lease
liability is calculated as the present value of fixed payments not yet paid and variable payments that are based on a market rate
or an index (e.g. CPI), measured at commencement. The majority of the leases are discounted using internal incremental
borrowing rate because the rate implicit in the lease is not readily determinable. All other variable payments are expensed as
incurred.
The lease liability is measured at amortised cost using the effect interest method. It is remeasured when there is a change in
future lease payments arising from changes in rates or assessments of options.
2021 Financial Statements
Notes to the Consolidated Financial Statements for the
Year ended 31 December 2021
84 FCE Bank plc – ANNUAL REPORT 2021
16 RIGHT OF USE ASSETS AND LEASE COMMITMENTS CONTINUED
Lease right-of-use assets at December 31 were as follows (in thousands):
Company
Group
Land and
Buildings
Office
Equipment
Total
Land and
Buildings
Office
Equipment
Total
£ 000's
£ 000's
£ 000's
£ 000's
£ 000's
£ 000's
Cost
At 1 January 2020
31,517
254
31,771
39,430
459
39,889
Modification to the original cost
(3,569)
4
(3,565)
(2,707)
4
(2,703)
Lease termination
(47)
(15)
(62)
(69)
(15)
(84)
New Leases
-
-
-
31
-
31
Translation Adjustment
129
7
136
165
18
183
At 31 December 2020/
1 January 2021
28,030
250
28,280
36,850
466
37,316
Modification to the original cost
(7)
60
53
(261)
144
(117)
Lease termination
1
(1,589)
(21)
(1,610)
(9,773)
(70)
(9,843)
New Leases
39
-
39
1,502
-
1,502
Restructuring actions
2
(1,915)
(90)
(2,005)
-
-
-
Translation Adjustment
(131)
-
(131)
(138)
(2)
(140)
At 31 December 2021
24,427
199
24,626
28,180
538
28,718
Accumulated Depreciation
At 1 January 2020
(3,209)
(113)
(3,322)
(4,486)
(190)
(4,676)
Depreciation during the year
(4,444)
(105)
(4,549)
(6,003)
(189)
(6,192)
Lease Termination
-
15
15
5
16
21
Translation Adjustment
-
-
-
-
-
-
At 31 December 2020/
1 January 2021
(7,653)
(203)
(7,856)
(10,484)
(363)
(10,847)
Depreciation during the year
(3,959)
(66)
(4,025)
(7,205)
(141)
(7,346)
Lease Termination
620
51
671
5,594
64
5,658
Restructuring actions
581
41
622
-
-
-
Translation Adjustment
145
9
154
306
17
323
At 31 December 2021
(10,266)
(168)
(10,434)
(11,789)
(423)
(12,212)
Net carrying amount
at 31 December 2020
20,377
47
20,424
26,366
103
26,469
Net carrying value
at 31 December 2021
14,161
31
14,192
16,391
115
16,506
1
During the year Germany and France terminated leases for £8m and £1.4m respectively.
2
This is with regards to the transfer of the Austrian branch to the Germany subsidiary and Italy to the finance company.
2021 Financial Statements
Notes to the Consolidated Financial Statements for the
Year ended 31 December 2021
FCE Bank plc – ANNUAL REPORT 2021 85
16 RIGHT OF USE ASSETS AND LEASE COMMITMENTS CONTINUED
Minimum non-cancellable lease commitments at December 31 were as follows (in thousands):
Company
Group
As at 31 December
2021
2020
2021
2020
£ 000's
£ 000's
£ 000's
£ 000's
Within 1 year
3,829
4,404
4,431
5,795
After 1 year and within 2 years
3,353
4,227
3,809
5,376
After 2 year and within 3 years
3,352
3,699
3,766
4,847
After 3 year and within 4 years
2,525
3,670
2,939
4,818
After 4 year and within 5 years
1,131
2,802
1,448
3,950
After 5 years
2
1,622
113
1,683
Total
14,192
20,424
16,506
26,469
The amounts contractually due on lease liabilities as of December 31, 2021 were as follows (in thousands):
Company
Group
As at 31 December
2021
2020
2021
2020
£ 000’s
£ 000’s
£ 000’s
£ 000’s
Lease Commitments:
Within 1 year
4,137
4,858
4,790
6,264
After 1 year and within 2 years
3,658
4,667
4,161
5,834
After 2 year and within 3 years
3,657
4,138
4,118
5,305
After 3 year and within 4 years
2,690
4,109
3,151
5,275
After 4 year and within 5 years
1,169
3,098
1,526
4,265
After 5 years
-
1,701
169
1,807
Total
15,311
22,571
17,915
28,750
Less: Present value discount
(1,045)
(1,895)
(1,337)
(1,995)
Total lease liabilities
14,266
20,676
16,578
26,755
Supplemental cash flow information related to leases for the year ended December 31 was as follows (in thousands):
Company
Group
As at 31 December
2021
2020
2021
2020
£ 000’s
£ 000’s
£ 000’s
£ 000’s
Cash paid for amounts included in the
measurement of lease liabilities
4,267
5,060
4,899
6,567
2021 Financial Statements
Notes to the Consolidated Financial Statements for the
Year ended 31 December 2021
86 FCE Bank plc – ANNUAL REPORT 2021
16 RIGHT OF USE ASSETS AND LEASE COMMITMENTS CONTINUED
The components of lease expense for the year ended December 31, 2021 and 2020 were as follows (in thousands):
Group
As at 31 December
2021
2020
£ 000's
£ 000's
Depreciation
Land and buildings
7,205
6,003
Machinery, equipment, and other
141
189
Total depreciation
7,346
6,192
Other Expenses
Interest expense
413
1,177
Variable lease expense
-
-
Sublease income
(312)
(312)
Net lease expense
7,447
7,057
2021 Financial Statements
Notes to the Consolidated Financial Statements for the
Year ended 31 December 2021
FCE Bank plc – ANNUAL REPORT 2021 87
17 INTANGIBLE ASSETS
Policy
Intangible assets relate to computer software development costs. Such costs typically are expensed as incurred. Costs that are
directly associated with identifiable and unique software products controlled by FCE and which are anticipated to generate future
economic benefits exceeding costs are recognised as intangible assets. Direct costs include staff costs of the software
development team.
Expenditure which significantly enhances or extends the performance of computer software programmes beyond their original
specifications is recognised as capital improvements and added to the original costs of the software. Computer software
development costs recognised as assets are amortised using a straight line method over their useful lives of six or eight years for
PC/network and mainframe applications respectively. Intangible assets are carried at cost less accumulated amortisation and any
impairment charges. Impairment is tested at each reporting date. The amortisation of intangible assets is recorded in the statement
of profit or loss within ‘operating expenses’.
Company
Group
Software
Total
Software
Total
Internally
generated
Externally
acquired
Internally
generated
Externally
acquired
£ mil
£ mil
£ mil
£ mil
£ mil
£ mil
Cost
At 1 January 2020
51
17
68
51
17
68
Additions
24
1
25
25
1
26
Transfer/Disposals
(22)
-
(22)
(23)
-
(23)
At 31 December 2020
/ 1 January 2021
53
18
71
53
18
71
Additions
18
-
18
18
-
18
Transfer/Disposals
(2)
(5)
(7)
(2)
(5)
(7)
At 31 December 2021
69
13
82
69
13
82
Accumulated
amortisation and
impairment
At 1 January 2020
(26)
(16)
(42)
(26)
(16)
(42)
Amortisation charge for
the year
(2)
(2)
(4)
(2)
(2)
(4)
Transfer/Disposals
8
-
8
8
-
8
At 31 December 2020
/ 1 January 2021
(20)
(18)
(38)
(20)
(18)
(38)
Amortisation charge for
the year
(6)
-
(6)
(6)
-
(6)
Transfer/Disposals
(5)
5
-
(5)
5
-
At 31 December 2021
(31)
(13)
(44)
(31)
(13)
(44)
Net book value at 31
December 2020
33
-
33
33
-
33
Net book value at 31
December 2021
38
-
38
38
-
38
2021 Financial Statements
Notes to the Consolidated Financial Statements for the
Year ended 31 December 2021
88 FCE Bank plc – ANNUAL REPORT 2021
18 INCOME TAXES RECEIVABLE AND PAYABLE
Company
Group
As at 31 December
2021
2020
2021
2020
£ mil
£ mil
£ mil
£ mil
Overseas taxation
6
7
6
7
Income taxes receivable
6
7
6
7
UK taxation
(12)
(9)
(12)
(9)
Overseas taxation
(6)
(5)
(28)
(19)
Income taxes payable
(18)
(14)
(40)
(28)
Net income taxes receivable / payable
(12)
(7)
(34)
(21)
Current
(12)
(7)
(34)
(21)
Non-current
-
-
-
-
Total
(12)
(7)
(34)
(21)
19 DEFERRED TAX ASSETS AND LIABILITIES
Company
Group
2021
2020
2021
2020
£ mil
£ mil
£ mil
£ mil
At 1 January asset
45
41
35
46
Adoption of IFRS 9/Pension OCI
0
0
0
1
Income statement (charge)/credit
(17)
3
(26)
(13)
Transfers
-
-
-
-
Foreign currency translation adjustment
(2)
1
(1)
1
At 31 December asset
26
45
8
35
2021 Financial Statements
Notes to the Consolidated Financial Statements for the
Year ended 31 December 2021
FCE Bank plc – ANNUAL REPORT 2021 89
19 DEFERRED TAX ASSETS AND LIABILITIES CONTINUED
Company
Group
As at 31 December
2021
2020
2021
2020
£ mil
£ mil
£ mil
£ mil
Deferred income tax asset
Accelerated tax depreciation
16
19
16
19
Tax losses
20
22
20
22
Loss reserves and other temporary differences
(1)
16
(1)
18
Deferred income tax asset
35
57
35
59
Deferred income tax liability
Accelerated tax depreciation
-
-
(19)
(13)
Loss reserves and other temporary differences
(9)
(12)
(8)
(11)
Deferred income tax liability
(9)
(12)
(27)
(24)
At 31 December asset
26
45
8
35
Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and
liabilities and their carrying amounts in the financial statements. Deferred tax is recognised in the statement of profit or loss except
to the extent that it relates to items recognised directly in equity, in which case it is recognised in the statement of changes in
equity.
Deferred tax is determined using tax rates and laws that have been substantively enacted by the reporting date and are expected
to apply when the related deferred tax asset is realised, or the deferred tax liability is settled. Deferred tax assets are recognised
to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.
Company
Group
2021
2020
2021
2020
£ mil
£ mil
£ mil
£ mil
Note
Accelerated tax depreciation
(2)
(2)
(9)
(15)
Tax losses
0
(1)
(1)
(7)
Loss reserves and other temporary differences
(15)
6
(16)
9
Income statement (charge) / Credit
8
(17)
3
(26)
(13)
Finance Act 2021 increased the main rate of UK Corporation Tax from 19% to 25%, effective from April 2023. This has been
reflected in deferred taxes as at 31 December 2021. In addition, it was announced that the rate of the Bank Surcharge would
reduce from 8% to 3% and the surcharge allowance would be increased from £25m to £100m, both from April 2023. The changes
to the Bank Surcharge have not been enacted and are not reflected as at 31 December 2021.
2021 Financial Statements
Notes to the Consolidated Financial Statements for the
Year ended 31 December 2021
90 FCE Bank plc – ANNUAL REPORT 2021
20 INVESTMENTS IN OTHER ENTITIES
Investments in Subsidiaries and Group undertakings at 31 December were as follows:
Company
2018YR
As at 31 December
2021
2020
£ mil
£ mil
Net book value at 1 January
842
840
Additional investment in group undertakings
262
2
Net book value at 31 December
1,104
842
Non-current
1,104
842
Net book value at 31 December
1,104
842
‘Additional Investments in Group undertakings’ relates to the increased share capital in Ford Credit Italia S.p.A (£241m) and
Ford Bank Germany (£21m).
2021 Financial Statements
Notes to the Consolidated Financial Statements for the
Year ended 31 December 2021
FCE Bank plc – ANNUAL REPORT 2021 91
20 INVESTMENTS IN OTHER ENTITIES CONTINUED
List of Consolidated Companies
Subsidiary Undertakings
Entity
Country of
Principal Activity
Accounting
Ownership
Incorporation
Reference Date
FCE Credit s.r.o.
Czech Republic
Finance company
31 December
100%
Ford Bank GmbH
Germany
Bank
31 December
100%
FCE Credit Hungaria Zrt
Hungary
Finance company
31 December
100%
FCE Services Kft *
Hungary
Finance company
31 December
100%
Ford Credit (Switzerland) GmbH
Switzerland
Finance company
31 December
100%
Globaldrive (Switzerland) GmbH *
Switzerland
Structured entity
31 December
100%
Ford Credit Italia S.p.A
Italy
Finance company
31 December
100%
*subsidiaries indirectly owned by the Company
Structured Entities (SE)*
Entity
Country of
Assets Securitised
Accounting
Ownership
Incorporation
or SE type
Reference Date
Active Retail SE's
Globaldrive Auto Receivables UK VFN 2017 plc
England
UK Retail
31 December
0%
Globaldrive Auto Receivables UK 2019-A plc
England
UK Retail
31 December
0%
Globaldrive Auto Receivables UK 2020-A plc
England
UK Retail
31 December
0%
Globaldrive Auto Receivables UK 2020-B plc
England
UK Retail
31 December
0%
Globaldrive Germany Retail VFN 2018 B.V.
Netherlands
Germany Retail
31 December
0%
Globaldrive Auto Receivables 2018-A B.V.
Netherlands
Germany Retail
31 December
0%
Globaldrive Auto Receivables 2019-A B.V.
Netherlands
Germany Retail
31 December
0%
Globaldrive Auto Receivables 2020-A B.V.
Netherlands
Germany Retail
31 December
0%
Globaldrive Auto Receivables 2021-A B.V.
Netherlands
Germany Retail
31 December
0%
Active Wholesale SE's
Globaldrive Dealer Floorplan Germany 2018 B.V.
Netherlands
Germany Wholesale
31 December
0%
Globaldrive Dealer Floorplan UK 2021 plc
England
UK Wholesale
31 December
0%
Inactive Retail SE's (pending liquidation):
Globaldrive Auto Receivables UK 2018-A plc
England
UK Retail
In the process of being liquidated
Inactive Wholesale SE's (pending liquidation):
Globaldrive UK Dealer Floorplan Funding I
Limited
Jersey
UK Wholesale -
Funding
In the process of being liquidated
Globaldrive UK Dealer Floorplan Receivables
Trustee I Ltd
Jersey
UK Wholesale -
Receivables Trustee
In the process of being liquidated
*Quasi-subsidiaries of the Company as recognised under IFRS 10 and included within the consolidation of the Group accounts.
2021 Financial Statements
Notes to the Consolidated Financial Statements for the
Year ended 31 December 2021
92 FCE Bank plc – ANNUAL REPORT 2021
21 FINANCIAL LIABILITIES
Policy
Financial liabilities, which primarily comprises amounts due to banks and other financial institutions, deposits, debt securities in
issue and subordinated loans, are initially stated at fair value net of transaction costs incurred.
Financial liabilities, which are not designated as part of a hedging relationship, are subsequently stated at amortised cost and any
differences between net proceeds and the redemption value are recognised in the statement of profit or loss over the life of the
underlying debt.
Certain transaction costs, which can be directly associated to the issuance of financial liabilities, are included in the initial
measurement of the debt and amortised to 'interest expense' over the term of the related debt using the effective interest method.
Transaction costs which cannot be directly associated to debt issuance are expensed to 'Operating expenses'. Where commitment
fees are incurred in relation to revolving credit facilities and there is an expectation that the facility will be utilised, the fees will be
initially recorded as an asset and amortised on a straight line basis to 'interest expense' over the total commitment period.
Foreign currency debt obligations are translated into sterling at the exchange rates ruling at the reporting date and gains and
losses are recorded within 'Gain/(Loss) on foreign exchange' on the statement of profit or loss. The table below provides a
summary of the total financial liabilities. Due to banks and financial Institutions, in the table below, is primarily made up of private
securitisation transactions and an ECB loan. Further details on the ‘Debt securities in issue’ and ‘Due to parent and related
undertakings’ are provided in subsequent tables:
Company
Group
As at 31 December
2021
2020
2021
2020
£ mil
£ mil
£ mil
£ mil
Due to banks and financial institutions
645
113
1,096
1,798
Debt securities in issue
1,582
3,576
2,486
4,814
Due to parent and related undertakings
2,927
5,697
3,405
5,854
Total financial liabilities
5,154
9,386
6,987
12,466
Current
1,876
3,421
2,617
4,818
Non-current
3,278
5,965
4,370
7,648
Total financial liabilities
5,154
9,386
6,987
12,466
Total fair value
5,227
9,349
7,063
12,413
‘Debt’ is measured at fair value for the purposes of disclosure, using quoted prices for our own debt with approximately the same
remaining maturities, where possible. Where quoted prices are not available, FCE estimates fair value using discounted cash
flows and market-based expectations for interest rates, credit risk, and the contractual terms of the debt instruments. For certain
short-term debt with an original maturity date of one year or less, it assumes the carrying value is a reasonable approximation of
fair value. The fair value of debt is categorised within Level 2 of the hierarchy.
2021 Financial Statements
Notes to the Consolidated Financial Statements for the
Year ended 31 December 2021
FCE Bank plc – ANNUAL REPORT 2021 93
21 FINANCIAL LIABILITIES CONTINUED
Debt securities in issue
Company
Group
As at 31 December
2021
2020
2021
2020
£ mil
£ mil
£ mil
£ mil
Listed debt:
Euro Medium Term Notes issued
Non-hedged items
1,576
3,450
1,576
3,450
Asset backed securities
-
-
904
1,238
Sub-total listed debt:
1,576
3,450
2,480
4,688
Unlisted debt:
Euro Medium Term Notes issued
Non-hedged items
-
107
-
107
Sub-total unlisted debt:
-
107
-
107
Fair value adjustment on hedged notes (a)
6
19
6
19
Total securities issued a/
1,582
3,576
2,486
4,814
Note a/ of which de-designated
6
19
6
19
(a) At December 31, 2021 and 2020, the balance includes an unfavourable adjustment related to discontinued hedging relationships of £6
million and £19 million, respectively.
FCE allowed its existing Euro Medium Term Notes (EMTN) programme on the Luxembourg Stock Exchange to expire in
September 2019. The Group repaid the equivalent of £1.9 billion (2020: £2 billion) of primarily Euro denominated EMTN loans
that matured during the year.
The remaining movement of the EMTN’s in 2021 represents currency revaluation.
FCE launched its new EMTN programme in December 2021. The EMTN programme has an issuance limit of €10 billion and is
listed on the Irish Stock Exchange. The EMTN Base Prospectus contains information relating to all notes and is dated 9 December
2021. Although, FCE has not issued any debt under the new programme, future listed notes will be available to view on the Official
List of the Irish Stock Exchange and be admitted for trading on the Irish Stock Exchange’s regulated market.
The Irish Stock Exchange’s website address is provided on page 166.
‘Asset backed securities’ for more information, please see Note 22 ‘Securitisation and Related Financing’.
2021 Financial Statements
Notes to the Consolidated Financial Statements for the
Year ended 31 December 2021
94 FCE Bank plc – ANNUAL REPORT 2021
21 FINANCIAL LIABILITIES CONTINUED
Due to parent and related undertakings
Company
Group
As at 31 December
2021
2020
2021
2020
£ mil
£ mil
£ mil
£ mil
Sub loans:
Loans from FCSH GmbH
-
250
-
375
Loans from Ford ECO
248
-
364
-
Senior debt:
Loans from FCSH GmbH
-
395
-
395
Loans from Ford ECO
390
-
390
-
Loans from Ford Credit
2,124
4,395
2,462
4,933
Deposits received from related undertakings
16
16
16
16
Sub-total senior debt:
2,530
4,806
2,868
5,344
Net cash proceeds from structured financing
23
529
-
-
Trade and other payables:
Accounts payable to related undertakings
123
108
170
130
Accrued interest
3
4
3
5
Sub-total trade and other payables
126
112
173
135
Total due to parent and related undertakings
2,927
5,697
3,405
5,854
‘Sub loans’ listed above are subordinated loans, which satisfy the conditions for eligibility as Tier 2 capital instruments, and are
included in the calculation of ‘Own Funds’, as shown in Table 14 on page 151. For further details refer to the unaudited Pillar 3
disclosure in Table 14 on page 151. The rights to payment and interest in respect of all subordinated loans will, in the event of
winding up of the Company, be subordinated to the rights of all unsubordinated creditors of the Company with respect to their
senior claims. For further details refer to Table 15 in the unaudited 'Pillar 3 Disclosures' on page 152.
‘Senior debt’ comprises various loans with related parties, which include two (2020: two Sterling denominated from FCSH to
FCE) Euro denominated loans from Ford ECO to FCE, as well as five (2020: nine) Euro denominated loans from Ford Credit to
FCE, one (2020: one) Swiss Franc denominated loan from Ford Credit to FCE and one (2020: two) Euro denominated loan from
Ford Credit to the Ford Bank GmbH.
'Net cash proceeds' from structured financing’ represents proceeds received from the transfer of loans to SEs. This liability is
reported net of retained interests and is not the legal obligation of the Company. It is repayable only out of collections on the
underlying loans transferred to the finance provider or retained interests.
2021 Financial Statements
Notes to the Consolidated Financial Statements for the
Year ended 31 December 2021
FCE Bank plc – ANNUAL REPORT 2021 95
22 SECURITISATION AND RELATED FINANCING
FCE's funding sources include securitisation programmes as well as other secured financing transactions that generally include
the transfer of 'Loans and advances to customers’ (Asset backed securities) through a variety of programmes and structures.
These asset backed securities are encumbered through the use of these programmes and are therefore restricted from being
assigned, pledged or transferred within the group again whilst part of these programmes.
Retained interests
The Company retains junior note interests in all of its securitisation transactions. For private securitisation programs, the Company
also holds senior retained interests in several of its programmes to provide greater flexibility in the use of its committed
securitisation capacity. Under these programmes funding counterparties are legally obligated, at FCE's option, to make advances
under asset-backed securities, thereby reducing FCE's senior interest and generating funding proceeds.
The Company also holds senior interest in some of its public term securitisation structure as eligible collateral to access central
bank liquidity facilities. For regulatory reporting, the underlying assets in these transactions are considered unencumbered if they
are not being used as security for central bank funding.
The Company retains credit risk in securitisation transactions through its junior retained interests which provide various forms of
credit enhancements. These include over-collateralisation, segregated cash reserve funds, subordinated securities, and excess
spread. By providing these enhancements, FCE has entered into transfers (as described in IFRS 9 'Financial Instruments') that
do not qualify for de-recognition of the underlying assets. FCE therefore continues to recognise the carrying value of all securitised
assets within its statements of financial position.
For regulatory reporting, with the exception of the underlying assets in transactions involving central bank liquidity facilities noted
above, these assets are also reported as encumbered. Further details on FCE’s asset encumbrance can be seen in the unaudited
‘Pillar 3 Disclosures’, which starts on page 130.
The Company holds the right to any surplus cash flows generated by these retained interests. The Company's ability to realise
the value of its retained interests depends on the actual credit losses and the prepayment rate on the securitised assets.
Cash available to support the obligations of the SEs as at 31 December 2021 of £242 million (31 December 2020: £330 million)
is included in FCE’s statement of financial position within Note 9 ‘Cash and Cash Equivalents’.
Continuing obligations
The Company generally has no obligation to repurchase or replace any securitised asset that subsequently becomes delinquent
in payment or otherwise is in default. Generally, securitisation investors have no recourse to the Company or the Company's other
assets for credit losses on the securitised assets and have no right to require the Company to repurchase their investments. The
Company does not guarantee any asset-backed securities and has no obligation to provide liquidity or make monetary
contributions or contributions of additional assets to the SEs either due to the performance of the securitised assets or the credit
rating of the Company's short-term or long-term debt. However, as the seller and servicer of the securitised assets, the Company
is expected to provide support to securitisation transactions, which is customary in the securitisation industry.
These obligations include indemnifications, repurchase obligations on assets that do not meet eligibility criteria or that have been
materially modified, and, in some cases, servicer advances of certain amounts.
2021 Financial Statements
Notes to the Consolidated Financial Statements for the
Year ended 31 December 2021
96 FCE Bank plc – ANNUAL REPORT 2021
22 SECURITISATION AND RELATED FINANCING CONTINUED
The table below provides details of the fair value of both the transferred assets that are not derecognised and the associated
liabilities:
Group
2021
2020
As at 31 December
Public
Private
Carrying
Value
Fair Value
Public
Private
Carrying
Value
Fair Value
£ mil
£ mil
£ mil
£ mil
£ mil
£ mil
£ mil
£ mil
Financial assets
2,764
2,230
4,994
5,107
3,535
3,013
6,548
6,727
Financial liabilities
(904)
(534)
(1,438)
(1,435)
(1,238)
(1,654)
(2,892)
(2,885)
Retained interest
1,860
1,696
3,556
3,672
2,297
1,359
3,656
3,842
Transaction structures
The Company utilises both amortising and revolving structures, and in all cases programmes provide for matched funding of the
loans and advances, with securitisation debt having a maturity profile similar to the related loan. The majority of its programmes
also include a contractual commitment to fund existing and future loans and advances subject to conditions described more fully
below.
Revolving structure capacity
£ mil
Balance at 1 January 2021
2,035
Committed capacity matured in 2021
(1,685)
Committed capacity renewed and added in 2021
1,645
Capacity net increase action
-
Exchange differences
(70)
Balance at 31 December 2021
1,925
In amortising structures, which involve the sale of a static pool of assets, the associated funding is repaid only through the
liquidation of the securitised loan and therefore its maturity profile is similar to the related assets.
In revolving structures, the Company may continue to sell new eligible assets originated over an agreed period of time called the
revolving period, and obtain funding from the transaction investors. In the event that a contractual commitment is not renewed at
the end of the revolving period, all loans securitised at the point of non-renewal remain funded, and the related debt is repaid as
the loans liquidate.
Private revolving structures at 31 December 2021 totalled £1.9 billion of committed capacity (2020: £2.0 billion) of which £0.8
billion matures during 2022 and the remaining balance having a maturity date of 2023. At 31 December 2021 £0.4 billion (2020:
£1.1 billion) of the private revolving committed capacity was utilised.
Revolving transactions each contain certain features that could prevent the Company from selling additional pools of assets, and
cause any existing funding to amortise. These include, among others, insolvency of FCE or Ford, credit losses or delinquency
levels on the pool of retail assets exceeding specified limits, payment rates on the wholesale assets falling below agreed
thresholds, and credit enhancements not maintained at required levels. None of these securitisation transactions included cross
default provisions.
2021 Financial Statements
Notes to the Consolidated Financial Statements for the
Year ended 31 December 2021
FCE Bank plc – ANNUAL REPORT 2021 97
23 DEPOSITS
Company
Group
As at 31 December
2021
2020
2021
2020
£ mil
£ mil
£ mil
£ mil
Customer deposits
3,150
3,592
4,986
3,592
Dealer deposits
15
17
15
17
Total deposits
3,165
3,609
5,001
3,609
Current
2,749
2,869
4,127
2,869
Non-current
416
740
874
740
Total deposits
3,165
3,609
5,001
3,609
Total fair value
3,164
3,609
4,999
3,609
‘Customer deposits’ A range of flexible and fixed term savings products and ISAs (UK) are offered. In line with FCE funding
requirements, retail deposits were grown in a controlled manner to £5.0 billion by the 2021 year end. The growth is reflecting the
retail deposits launch to German customers by Ford Bank GmbH in December 2020.
‘Dealer deposits’ include amounts utilised to mitigate exposure concentrations. In the event of default by the counterparty, some
of the deposits may be offset against the amounts due to the Company.
All deposits are available for use in day to day operations.
2021 Financial Statements
Notes to the Consolidated Financial Statements for the
Year ended 31 December 2021
98 FCE Bank plc – ANNUAL REPORT 2021
24 OTHER LIABILITIES AND PROVISIONS
Policy
Provisions are recognised when FCE has a present and legal or constructive obligation as a result of past events, it is probable
that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be
made. Where the effect of the time value of money is material, the provision is discounted.
A provision is made for the anticipated cost of restructuring including employee separation costs, when an obligation exists. An
obligation exists when FCE has a detailed formal plan for restructuring an operation and has raised valid expectations in those
affected by the restructuring by starting to implement the plan or announcing its main features.
For the purposes of measurement of uncertain tax positions, FCE’s unit of measure is by tax authority. Reserves for uncertain
income tax positions are established where they are considered “more likely than not” to materialise. Where a range of outcomes
is possible, FCE applies a single best estimate on a ‘more likely than not’ basis from the range of possible outcomes. More likely
than not in this context means a greater than fifty per cent probability assessment that a position taken in a tax return may not
ultimately be sustained.
Company
Group
As at 31 December
2021
2020
2021
2020
£ mil
£ mil
£ mil
£ mil
Other Liabilities and Provisions
Accrued interest on debt
30
55
31
55
Trade payables
49
46
80
82
Accrued liabilities and deferred income
48
84
96
113
Operating lease subvention
-
-
16
71
Provisions (see table below)
3
3
12
13
Total other liabilities
130
188
235
334
Current
130
188
235
334
Non-current
-
-
-
-
Total other liabilities
130
188
235
334
Company
Group
Restructuring
Restructuring
2021
2021
£ mil
£ mil
Provisions Movement
At 1 January 2021
3
13
Additions
8
10
Used
(6)
(9)
Unused
(2)
(2)
At 31 December 2021
3
12
'Operating lease subvention' relates to supplements and other support payments from related parties provided for operating
leases on vehicles where FCE is the lessor. The amount deferred is recognised in 'Other operating income' over the term of the
lease.
‘Provisions’ relates to restructuring, resulting from various business structure improvements and adjustments announced by the
company for which a separation programme was offered. The associated costs were charged 'Operating expenses'.
2021 Financial Statements
Notes to the Consolidated Financial Statements for the
Year ended 31 December 2021
FCE Bank plc – ANNUAL REPORT 2021 99
25 ORDINARY SHARES AND SHARE PREMIUM
Company and Group
As at 31 December
2021
2020
£ mil
£ mil
Allotted, called up and fully paid at 1 January and 31 December
614,384,050 Ordinary shares of £1 each (2020: 614,384,050)
614
614
Share premium at 1 January and 31 December
352
352
Share Capital
There was no change to the issued share capital of FCE during the year. The share premium account is regarded as permanent
capital of FCE and is not available for distribution. No Director, officer or employee owns or holds shares or owns or holds options
over shares in the Company or its subsidiaries.
The Group's total capital for regulatory purposes is £3.0 billion (2020: £3.3 billion) as described further in the strategic report on
page 6 and 10 and in the unaudited ‘Pillar 3 Disclosures’ on page 130.
Since 1 January 2003 the total issued share capital of FCE has been £614 million comprising of 614,384,050 Ordinary £1 shares.
On the 13 October 2021, 100% of FCSH GmbH's assets and liabilities were distributed to Ford ECO GmbH, an indirectly wholly-
owned subsidiary of FMCC.
Support agreement
Pursuant to a support agreement between FMCC and FCE dated 20 September 2004. FMCC has agreed with FCE to maintain,
directly or indirectly, a controlling interest of not less than 75% of the issued share capital of FCE and to maintain or procure the
maintenance of FCE's net worth of not less than $500 million.
The 5 year agreement provides for the termination date to be extended automatically on 1 February of each year for an additional
one-year period ending on 31 January of the following year. Either party can give a one-month notice to terminate the agreement,
in which case it will terminate as of the termination date set on the last preceding extension date. Neither party has provided
written notice; therefore, the termination date has been automatically extended by one year to 31 January 2028.
26 DIVIDEND PER SHARE
FCE declared an interim dividend of £300m (2020: Nil) from available distributable reserves, to its shareholder FCSH in April 2021.
The shares equated to approximately 48.8 pence per ordinary share.
2021 Financial Statements
Notes to the Consolidated Financial Statements for the
Year ended 31 December 2021
100 FCE Bank plc – ANNUAL REPORT 2021
27 RETIREMENT BENEFIT OBLIGATIONS
Employees in all of FCE’s locations except Hungary and Poland participate in defined benefit and defined contribution pension
plans. The most significant defined benefit arrangements in which FCE participates relate to Ford UK and German pension plans
which are accounted for under IAS 19 ‘Employee Benefits’ as defined benefit plans that share risks between entities under
common control. These plans are final salary pension plans operated by Ford and FCE’s contribution related to its participation
in these plans is determined based on an allocation of current service cost; in no case is the contribution payable determined
based on an allocation of the total net defined benefit cost as measured under IAS19. There is no contractual agreement or stated
policy for charging the net defined benefit cost for the plan to FCE. Therefore, in accordance with IAS 19, FCE accounts for such
plans as defined contribution plans by recognising a cost equal to any contributions payable for the period. FCE does not recognise
the net liabilities or assets associated with the plans in the company or consolidated statement of financial position. Refer to page
X for additional details on pension risk.
The plans in which FCE participates are subject to the regulatory frameworks of the relevant country, which generally require
minimum funding levels. Ford’s policy is to contribute annually, at a minimum, amounts required by applicable laws and regulations.
All plans in which FCE participates had satisfied the minimum funding requirements at 31 December 2021. Each plan is
administered by trustees and pension boards, which have the responsibility for the investment of plan assets.
As at 31 December 2021, for the UK plans, Ford recognised further curtailments as a result of restructuring programmes (gain of
£0.34 million) and an amendment as a result of improvement to funeral benefits (expense of £1.29 million), otherwise there were
no material amendments or settlements recognised by Ford. For FCE, there are no unusual entity-specific or plan-specific risks
associated with the UK and German pension plans.
(i) UK and German Pension Plans Operated by Ford in which the Company’s employees participate
Details of the UK and German plans are set out below, with the information presented for the plans as a whole.
2021
2020
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
£ mil
£ mil
£ mil
£ mil
£ mil
£ mil
£ mil
£ mil
Asset category
Equity
U.S. Companies
1,195
-
-
1,195
1,084
-
-
1,084
International companies
814
29
-
843
799
85
-
884
Total equity
2,009
29
-
2,038
1,883
85
-
1,968
Fixed income
U.S. Government
19
4
-
23
-
26
-
26
Non-U.S. Government
-
7,321
50
7,371
-
6,897
-
6,897
Corporate bonds
-
821
28
849
-
884
21
905
Mortgage/other asset-backed
-
130
6
136
-
194
6
200
Commingled funds
-
35
-
35
-
-
-
Derivative financial instruments
-
10
11
21
1
29
(46)
(16)
Total fixed income
19
8,321
95
8,435
1
8,030
(19)
8,012
Alternatives
Hedge funds (a)
-
-
374
374
-
-
351
351
Private equity (b)
-
-
188
188
-
-
184
184
Real estate (c)
-
-
101
101
-
-
79
79
Total alternatives
-
-
663
663
-
-
614
614
Cash and cash equivalents
and repurchase agreements (d)
(905)
-
-
(905)
(1,037)
-
-
(1,037)
Other (e)
(141)
-
2,991
2,850
(127)
3,634
3,507
Total assets at fair value
982
8,350
3,749
13,081
720
8,115
4,229
13,064
(a) Diversified portfolio of hedge funds pursuing strategies broadly classified as equity long/short, event driven, global macro, relative
value and multi-strategy.
(b) Investments in private investment funds (funds of funds) pursuing strategies broadly classified as venture capital and buyouts.
(c) Investment in private property funds.
(d) Primarily short-term investment funds to provide liquidity to plan investment managers and cash held to pay benefits.
(e) Primarily Ford-Werke GmbH ("Ford-Werke") plan assets with insurance contract valued at £2,991 million (2020: £3,634 million) and
cash related to net pending security (purchases)/sales and net pending foreign currency purchases/(sales).
2021 Financial Statements
Notes to the Consolidated Financial Statements for the
Year ended 31 December 2021
FCE Bank plc – ANNUAL REPORT 2021 101
27 RETIREMENT BENEFIT OBLIGATIONS CONTINUED
The total obligations for the UK and German plans for 2021 were £16 billion (2020: £18 billion).
Assumptions
The significant actuarial assumptions used by Ford to determine the present value of the defined benefit obligation for the most
significant pension plans operated by Ford in which FCE’s employees participate are set out below. These are based upon the
weighted average of the plans’ obligations.
2021
2020
Principal actuarial assumptions at the reporting
date
%
%
Discount rate
1.5
1.0
Future salary increases
2.9
3.0
Future pension increases
1.9
1.8
Future pension increases (discretionary)
NIL
NIL
The average life expectancy in years of a
Years
Years
member retiring at age 65 on the reporting
Male
21.2
21.4
date is as follows
Female
23.7
24.0
The average life expectancy in years of a
member retiring at age 65, 20 years after
Male
23.2
23.4
the reporting date is as follows
Female
25.5
25.8
(i) Retirement plan costs
FCE’s total retirement plan, including contributions to Ford-sponsored plans, expense incurred for FCE’s defined benefit plans
and contributions to defined contribution plans was £22 million (2020: £21 million). Contributions are expected to stay at similar
levels in 2022.
(ii) Defined benefit plans operated by the Company
FCE operates defined benefit plans in Austria, France, and Spain. The total expenses in 2021 was £0.2 million, (2020: £0.5
million), and there was a total deficit of obligations to assets of £1.4 million (2020: £0.9 million).
(iii) Defined contributions plans
Company
Group
As at 31 December
2021
2020
2021
2020
£ mil
£ mil
£ mil
£ mil
Total contributions recognised in year
2
3
3
3
2021 Financial Statements
Notes to the Consolidated Financial Statements for the
Year ended 31 December 2021
102 FCE Bank plc – ANNUAL REPORT 2021
28 CONTINGENT LIABILITIES, FINANCIAL GUARANTEES AND COMMITMENTS
Policy
Contingent liabilities are possible obligations whose existence will be confirmed only by uncertain future events or present
obligations where the transfer of economic benefit is not probable or cannot be reliably measured. Contingent liabilities are not
recognised but are disclosed unless they are remote.
Litigation and other claims
Certain legal actions and claims are pending or may be instituted or asserted in the future against the Group concerning finance
and other contractual relationships. Litigation is subject to many uncertainties, and the outcome of individual litigated matters is
not predictable with assurance. The Group has established provisions for certain of the legal actions and claims where losses are
deemed probable and reasonably estimable. It is reasonably possible that certain claims for which provisions have not been
established could be decided unfavourably to the Group and could require the Group to pay damages or make other expenditures
in amounts or a range of amounts that cannot be estimated at 31 December 2021.
The Group does not reasonably expect, based on internal analysis, that such matters would have a material effect on future
financial statements for a particular year, although such an outcome is possible.
On October 5, 2018, FCE received a notice from the Italian Competition Authority (the “ICA”) concerning an alleged violation of
Article 101 of the Treaty on the Functioning of the European Union. The ICA alleges that FCE and other parties engaged in anti-
competitive practices in relation to the automotive finance market in Italy. On January 9, 2019, FCE received a decision from the
ICA, which included an assessment of a fine against FCE in the amount of about €42 million (£35 million). On March 8, 2019,
FCE appealed the decision and the fine to the Italian administrative court, and on November 24, 2020, the Italian administrative
court ruled in favour of FCE. On December 23, 2020, the ICA filed an appeal of the Italian administrative court’s decision to the
Italian Council of State, and a hearing on the appeal was held on January 13, 2022. On February 1, 2022, the Italian Council of
State dismissed the ICA’s appeal.
Guarantees
Financial guarantee contracts require the issuer of the guarantee to make specified payments under the contract to reimburse the
beneficiary of the guarantee for a loss the beneficiary incurs because a specified party fails to fulfil stipulated obligations when
due, in accordance with the terms of the original agreement.
Company
Group
As at 31 December
2021
2020
2021
2020
£ mil
£ mil
£ mil
£ mil
Guarantees provided on behalf of Ford:
Spanish Ministry of Industry and regional authorities
1
17
1
17
Customs authorities, revenue commissioners and agencies
13
25
13
25
Other guarantees
-
1
-
1
Total guarantees provided on behalf of Ford
14
43
14
43
FBG Deposit Protection Fund
548
-
-
-
Other guarantees provided to third parties
1
1
-
-
Total guarantees
563
44
14
43
'Total guarantees provided on behalf of Ford' include debt and other financial obligations of Ford. Such arrangements are
counter-indemnified by Ford and a fee is payable by Ford for the guarantee.
'Spanish Ministry of Industry and regional authorities' relates to loans and grants provided for investment in the Ford Valencia
plant. These guarantees have been provided on behalf of Ford Espana SL to the Spanish Ministry of Industry and regional
authorities.
'Customs authorities revenue commissioners and agencies' relates to duties and registration taxes on imported vehicles and
components and other taxes provided to various European customs and tax authorities.
2021 Financial Statements
Notes to the Consolidated Financial Statements for the
Year ended 31 December 2021
FCE Bank plc – ANNUAL REPORT 2021 103
28 CONTINGENT LIABILITIES, FINANCIAL GUARANTEES AND COMMITMENTS CONTINUED
‘FBG Deposit Protection Fund’ relates to guarantees to Ford Bank Germany (FBG)'s contribution to the Deposit Protection Fund
(DPF) to support FBG's deposit taking program. The DPF protects depositors for amounts they deposit above €100,000. FCE
would reimburse the DPF in the event of DPF compensating FBG’s depositors.
Commitments
FCE makes offers to lend to retail customers to purchase new and used vehicles and in a limited number of markets, these may
not be cancelled unconditionally. As at 31 December 2021, these non-cancellable offers totalled £495 million (2020 totalled £387
million).
29 CREDIT RISK
As a provider of automotive financial products. FCE's primary source of credit risk is the possibility of loss from a customer's or
dealer's failure to make payments according to contractual terms. FCE could incur a credit loss if the counterparty to an interest
rate or foreign currency derivative with FCE defaults. This is known as counterparty credit risk and, in the case of interest rate
derivatives, is mitigated by the cash collateral that FCE exchanges with most of its counterparties under margin arrangements.
29a) LOANS AND ADVANCES
Management information on the credit quality of FCE's loans and advances is provided by product segment in the following
sections.
Retail
When originating retail and finance leases, FCE uses a proprietary scoring system that measures the credit quality of the related
loan using several factors such as credit bureau information, consumer credit risk scores, customer characteristics, and contract
characteristics.
As explained in Note 13 ‘Allowance for Expected Credit Losses’, under IFRS9 credit loss allowances are measured on each
reporting date according to a three-stage expected credit loss (ECL) impairment model. The ECL model calculates the expected
credit loss for every expected forward period (monthly) in its portfolio’s lifetime. The sum of the expected credit losses for the first
12 forward periods represents the 12 Month expected loss (Stage1); the sum of the expected credit losses for all forward periods
represents the lifetime expected loss (Stage 2 and 3).
Wholesale
FCE uses a proprietary model to assign each dealer a risk rating. The Financial model considers financial information, including
profitability, capital and liquidity at a point in time, as well as other performance factors. This is supplemented by the Judgmental
methodology which provides a structured framework within which additional financial information along with other qualitative and
non-financial key factors are assessed. These other factors, that are considered significant in predicting a dealer's ability to meet
its current and future obligations, include such elements as financial trends, management quality, business/sector risk and
contingent liabilities. The model and methodology are subject to review to confirm the continued business significance and
statistical predictability of the factors and updated to incorporate new factors or other information that improves their predictability.
FCE has a wholesale counterparty limit policy based on levels of exposure and risk ratings. The largest concentrations are
monitored daily and reports by values are prepared monthly and are regularly reviewed at the Credit Policy and Credit Risk
Committee and at the Risk Committee of the Board.
For monitoring and control purposes, each dealer is assigned a Treatment of Account (TOA) rating based on the worse of the
Financial and Judgmental Ratings. These have been grouped in the table below to provide an overview of FCE’s dealer portfolio
risk mix. Dealers are assigned to one of four Groups according to risk ratings as follows:
• Group I - strong to superior financial metrics
• Group II - fair to favourable financial metrics
• Group III - marginal to weak financial metrics
• Group IV - poor financial metrics including dealers classified as uncollectible
2021 Financial Statements
Notes to the Consolidated Financial Statements for the
Year ended 31 December 2021
104 FCE Bank plc – ANNUAL REPORT 2021
29 CREDIT RISK CONTINUED
The credit quality analysis of our dealer financing receivables for the year ended December 31, 2021 and 2020 were as follows:
As at 31 December
2021
2020
Total
Total
£ mil
£ mil
Group I
1,399
1,856
Group II
1,480
2,166
Group III
326
837
Group IV
31
64
Total Dealer Financing Receivables
3,236
4,923
Performing and Non-performing Exposures
Performing exposures are receivables which are not considered to be non-performing and these are reported under IFRS9 Stage
1 and Stage 2 for credit loss provisioning.
Non-performing exposures are reported under IFRS9 stage 3 and are those that satisfy any of the following criteria:
(i) material exposures which are more than 90 days past due
(ii) when the customer is assessed as unlikely to pay its credit obligations in full without realisation of collateral, regardless
of the existence of any past due amount or of the number of days past due
(iii) exposures that are flagged as forborne and which have not been performing i.e. not all payments have been received in
full and on time for more than 12 months from the date that the exposure was flagged as forborne
The aging analysis of FCE’s retail, finance leases and wholesale receivables for the year ended December 31, 2021 and 2020
were as follows:
Company
Group
As at 31 December
2021
2020
2021
2020
£ mil
£ mil
£ mil
£ mil
Performing Exposures
Less than or equal to 30 days past due
6,154
10,451
12,485
15,557
31-90 days past due
11
25
23
31
Total Performing Exposures
6,165
10,476
12,508
15,588
Non-performing Exposures
Less than or equal to 90 days past due
20
129
79
190
91-180 days past due
3
13
5
15
Greater than 180 days past due
6
53
43
57
Total Non-performing Exposures
29
195
127
262
Total Exposures
6,194
10,671
12,635
15,850
Non-performing Loan Ratio a)
0.5%
1.8%
1.0%
1.7%
a) Non-performing Loan Ratio = Total Non-performing Exposures / Total Exposures
2021 Financial Statements
Notes to the Consolidated Financial Statements for the
Year ended 31 December 2021
FCE Bank plc – ANNUAL REPORT 2021 105
29 CREDIT RISK CONTINUED
Collateral
The amount which best represents the maximum exposure to credit risk within loans and advances without taking account of any
collateral held or other credit enhancements as at 31 December 2021 is £12,602 million (2020: £15,804 million) being the value
of loans and advances to customers as disclosed in Note 12 ‘Loans and Advances to Customers’.
The maximum credit risk is reduced through the collateral held which for the majority of retail, leasing and wholesale financing
plans, comprises title retention plans or a similar security interest in the underlying vehicle.
Collateral figures are estimated based on the current market valuation of the underlying assets for the UK and Germany, utilising
reputable external trade guide data and then taking the lower of either the outstanding balance or the trade guide value to calculate
a collateral percentage that is applied to the respective portfolio. For the other markets, historical recovery experience is used
which takes into account the characteristics of each market and the collections strategies employed. The internal measure of past
recovery experience relates predominantly to loss accounts which is, by definition, a conservative approach with the recovery
percentage being applied to the whole portfolio for each market. The only exception to the above approaches is where the market
characteristics mean that retention of title or similar interest is not typically retained by FCE, in these cases, a nil collateral value
is assumed. As at 31 December 2021, the value of collateral is £5,627 million (2020: £6,046 million) in relation to retail and finance
lease and £3,089 million for wholesale (2020: £4,685 million).
The value of the FCE’s retail, finance lease and wholesale receivables considered to be credit impaired at the reporting date is
£127 million (2020 £262 million) and the amount of collateral held on credit impaired receivables at the 31
st
December 2021 is
£84 million (2020: £223 million).
Forbearance and Loan Modifications
Forbearance measures consist of concessions towards a borrower (customer or dealer) who is facing or is about to face difficulties
in meeting their financial commitments. Examples of such concessions include payment holidays and reduced payments for an
agreed term, with the expectation that the customer will settle the loan in full. Days past due for forborne retail and finance lease
customers are determined based on the revised concession terms.
The total net modification gain (or loss) for the years ended December 31, 2021 and 2020 were as follows:
As at 31 December
2021
2020
£ mil
£ mil
Retail
Performing Exposures
37
41
Non-performing Exposures
57
78
Total Retail Forborne Exposures
94
119
Wholesale
Performing Exposures
34
23
Non-performing Exposures
52
157
Total Wholesale Forborne Exposures
86
180
Total Forborne Exposures
180
299
2021 Financial Statements
Notes to the Consolidated Financial Statements for the
Year ended 31 December 2021
106 FCE Bank plc – ANNUAL REPORT 2021
29b) FINANCIAL ASSETS HELD AT FAIR VALUE THROUGH PROFIT OR LOSS
Derivative financial instruments
The majority of FCE's derivative related activities are transacted with financial institutions that have an investment grade rating.
Also, FCE transacts with certain Ford related parties, which are non-rated entities. FCE sets limits for its exposures to financial
institutions that are based on the credit ratings of the institutions.
The aggregate fair value of non-cleared derivative instruments in asset positions at 31 December 2021 is £38 million (2020: £72
million), representing the maximum potential loss at that date if all counterparties failed to perform as contracted. The maximum
potential loss is reduced through master agreements, which would generally allow for netting of certain exposures. ‘Derivative
Financial Instruments and Hedging Activities' for further details.
For details on the valuation of financial assets and liabilities at fair value, refer to Note 10 ‘Derivative Financial Instruments and
Hedging Activities’.
2021 Financial Statements
Notes to the Consolidated Financial Statements for the
Year ended 31 December 2021
FCE Bank plc – ANNUAL REPORT 2021 107
30 VEHICLE RESIDUAL VALUES
The following table considers FCE's existing existing retail and finance lease portfolio, as at 31 December 2021, for which FCE
holds the primary residual value risk. These values are included in 'Loans and advances to customers' and 'Property and
equipment' respectively in the statement of financial position. The table below presents Group and Company combined figures.
Group and Company
As at 31 December
Retail/Finance
Lease residual
values
Operating leases
residual values
2021
2020
£ mil
£ mil
£ mil
£ mil
Year in which the residual value will be recovered
Within 1 year
571
132
703
789
Between 1-2 years
733
-
733
809
Between 2-5 years
961
-
961
1,130
More than 5 years
-
-
-
-
Total residual values
2,265
132
2,397
2,728
Vehicle residual value risk is the possibility that the amount FCE obtains from returned vehicles will be less than the estimate of
the expected residual value for the vehicle.
Residual value provisions are maintained to reflect the level of vehicle residual value risk within the financial statements. For
further details refer to Note 14 ‘Provision for Vehicle Residual Value Losses’.
Retail and Finance Lease residual values
The retail and finance lease residual value figures included in the table above assume that all vehicles where FCE is subject to
vehicle residual value risk will be returned. FCE is subject to vehicle residual value risk on certain retail or finance lease balloon
payment products where the customer may choose to return the financed vehicle to FCE at the end of the contract. Residual
values are established by reference to various sources of independent and proprietary knowledge. Guaranteed Minimum Future
Values ('GMFV's) on retail plans are set below the future market value to protect customer equity and promote Trade Cycle
Management products. In the UK market, the GMFV is referred to as the ‘Optional Final Payment’. FCE’s normal policy is that the
GMFV must be below the future market value and this buffer is increased for terms less than 24 months. This policy is a key factor
behind the annual rate of return (for vehicles financed under retail finance plans where FCE is subject to residual value risk) being
0.26% (2020: 0.35%) of the maturing portfolio.
Operating lease residual values
All operating lease vehicles are subject to return at the end of the lease period unlike retail plans. The most significant operating
lease portfolio remains in Germany which is the main source of FCE’s operating lease residual value risk. Due to an arrangement
with Ford, under which Ford receives the majority of residual value gains and losses arising, vehicle residual value risk from FCE’s
operating lease portfolio is significantly reduced.
Sensitivity analysis
If the residual values of FCE's existing portfolio of retail and finance lease contracts, as at 31 December 2021, due to mature in
2022, were to reduce by 1% of original list price below the current forecast values under a stressed scenario, it is estimated that
the return rate could increase to 3.3% and have an adverse profit impact to the Company of approximately £1.3 million (2020:
£3.1 million under the equivalent stressed scenario). In the event of a 5% reduction, this would increase the forecast return rate
to 6.2% and have an incremental adverse profit impact of £6.6 million (total £7.9 million). Assuming a sustained downturn, the 5%
reduction to list price below current forecast values applied to existing retail and finance leases due to mature in 2023, would have
an additional estimated impact of £7.8 million.
2021 Financial Statements
Notes to the Consolidated Financial Statements for the
Year ended 31 December 2021
108 FCE Bank plc – ANNUAL REPORT 2021
31 MARKET RISK
The objective of FCE’s market risk management is to limit the impact of changes in interest rates and foreign exchange rates on
FCE’s margin and profitability. Interest rate and currency exposures are monitored and managed by FCE as an integral part of its
overall risk management programme, which recognises the unpredictability of financial markets and seeks to reduce potential
adverse effects on operating results.
Derivatives Policy
Exposure to market risk is reduced through the use of interest rate and foreign exchange derivatives. FCE’s derivatives strategy
is designed to mitigate risk; derivatives are not used for speculative purposes.
The key derivative policies are:
• Prohibition of use for speculative purposes
• Prohibition of use of leveraged positions
• Requirement for regular in-depth exposure analysis
• Establish and document accounting treatment at onset of trade
• Clearing of certain derivatives with central clearing counterparties as required through the EMIR regulations
• Posting of collateral with counterparty where derivatives are not centrally cleared
• Established exposure limits (including cash deposits) with counterparties for non-centrally cleared derivatives
• Treasury employees’ remuneration not being linked to individuals’ trading performance
Derivatives Control
Company policies and controls are in place to manage these risks, including derivative effectiveness testing for derivatives
designated in a hedging relationship.
The key derivative controls are:
• Regular management reviews of policies, positions and planned actions
• Transactional controls including segregation of duties, approval authorities, competitive quotes and confirmation
procedures
• Regular review of portfolio mark to market valuations and potential future exposures
• Monitoring of counterparty creditworthiness
• Internal audits to evaluate controls and adherence to policies
• Reporting all derivatives to ESMA approved repository
• Regular portfolio reconciliations with all counterparties
• Timely confirmation of all Over The Counter (OTC) derivatives
The following table provides examples of certain activities undertaken, the related risks associated with such activities and the
types of derivatives used in managing such risks.
Note
Activity
Risk
Type of Derivative
32a)
Investment and funding in
Sensitivity to change
-
Cross currency interest
foreign currencies
in foreign currency exchange
rate swaps
Rates
-
Foreign currency forward contracts
32b)
Funding of shorter dated or
Sensitivity to changes in
-
Pay floating rate and
floating rate assets with
interest rates arising from the
receive fixed rate interest
longer dated fixed rate debt
repricing characteristics of
rate swaps
assets not matching repricing
of liabilities
Funding of longer dated,
Sensitivity to changes in
-
Pay fixed rate and
fixed rate assets with
interest rates arising from the
receive floating rate interest
shorter dated or floating rate
repricing characteristics of
rate swaps
debt
assets not matching repricing
of liabilities
Funding of assets at
Sensitivity of assets
-
Basis Swaps
indices different from
being priced on indices
liabilities
with different tenors to liabilities
2021 Financial Statements
Notes to the Consolidated Financial Statements for the
Year ended 31 December 2021
FCE Bank plc – ANNUAL REPORT 2021 109
32 a) CURRENCY RISK
In addition to the UK the Company operates branches in 8 other European countries and has operating subsidiaries in Czech
Republic, Germany, Hungary, Italy and Switzerland which provide a variety of wholesale and retail financing (see Note 20
‘Investments in Other Entities’). The functional currency of the Group's and Company's operations outside of the UK is the Euro,
with the exception of the Company's branch in Poland and subsidiaries in the Czech Republic, Hungary and Switzerland.
The main operating currencies are therefore Euro and Sterling. As FCE presents its Group and Company financial statements in
Sterling, these will be affected by foreign currency exchange rate movements between the Euro and Sterling. The Company does
not hedge structural foreign currency investments in overseas operations as each investment is considered to be of a long-term
nature. The effect of foreign currency changes on such investments is recognised in equity through the translation reserve. FCE’s
policy is to hold equity in its overseas branches and subsidiaries in order to hedge its capital ratios against movements in exchange
rates.
FCE uses Sterling as its presentation currency in its statements because it is primarily registered and regulated as a bank in the
United Kingdom and has its head office operations in the same country.
FCE's policy is to minimise exposure to operating results from changes in currency exchange rates. Controls are in place to limit
the size of transactional currency exposures. To meet funding objectives, the Company borrows in a variety of currencies.
Exposure to currency exchange rates occurs if a mismatch exists between the currency of the receivables and the currency of the
debt funding those receivables.
Wherever possible, FCE funds loans and advances with debt in the same currency, minimising exposure to exchange rate
movements. When a different currency is used, it is the Company's policy that foreign currency derivatives are executed to convert
substantially all of the foreign currency debt obligations to the local country currency of the loan.
Due to the low levels of net transactional currency exposure, FCE’s sensitivity to changes in currency exchange rates is not
significant in terms of gains and losses recognised in the statement of profit or loss within Other Comprehensive Income.
The net assets of foreign operations which give rise to the unrealised gain or losses recognised in FCE's foreign currency
translation reserves are detailed below with the associated reserves. The significant reduction in Company euro-denominated net
assets is primarily due to the transfer of FCE’s Italian business from its Italian branch to new Italian subsidiary in 2021.
Company
Group
As at 31 December
2021
2020
2021
2020
£ mil
£ mil
£ mil
£ mil
Net assets of foreign operations
Euro
417
1,032
1,539
1,892
Other non-Euro currencies
4
1
97
100
Total
421
1,033
1,636
1,992
Company
Group
As at 31 December
2021
2020
2021
2020
£ mil
£ mil
£ mil
£ mil
Foreign currency translation reserve
Euro
113
391
291
402
Other non-Euro currencies
32
32
54
58
Total
145
423
345
460
2021 Financial Statements
Notes to the Consolidated Financial Statements for the
Year ended 31 December 2021
110 FCE Bank plc – ANNUAL REPORT 2021
32 b) INTEREST RATE RISK
FCE’s asset base consists primarily of fixed-rate retail instalment sale agreements with an average life of approximately 3 years,
and floating rate wholesale financing loans with an average life of approximately 2 months. Funding sources consist primarily of
unsecured and intercompany debt, public and private securitisation and retail deposits. It is FCE's policy to execute interest rate
swaps to change the interest rate characteristics of the debt to match, within a tolerance range, the interest rate characteristics of
FCE’s assets. This matching policy seeks to maintain margins and reduce profit volatility.
As a result of FCE's interest rate risk management processes (utilising hedging derivatives), and as a proportion of assets are
funded by equity, the total level of assets re-pricing is greater than the level of debt re-pricing. Other things being equal, this means
that during a period of rising interest rates, the interest income received on FCE's assets will increase more rapidly than the
interest expense paid on its debt, thereby increasing pre-tax net interest income. Correspondingly, during a period of falling interest
rates, FCE would expect its pre-tax net interest income to initially decrease.
The FCE Asset and Liability Management Committee (ALCO) reviews re-pricing gaps and basis gaps monthly and the interest
rate swaps entered into each month to maintain exposure within the approved thresholds.
To provide a quantitative measure of the sensitivity of pre-tax net interest income to changes in interest rates, FCE uses interest
rate scenarios. These scenarios assume a hypothetical, instantaneous increase or decrease in interest rates of one hundred basis
points across all maturities (a 'parallel shift'), impacting both assets and liabilities, as well as a base case that assumes that interest
rates remain constant at existing levels. These interest rate scenarios do not represent an expectation of future interest rate
movements. The differences in pre-tax net interest income between these scenarios and the base case over a twelve-month
period represent an estimate of the sensitivity of FCE's pre-tax net interest income. The sensitivity of interest income to changes
in interest rates in the 12 months following the year ended 31 December 2021 and 2020 is detailed below.
The sensitivity analysis presented below assumes a one hundred basis point rate change to the year-end yield curve that is both
instantaneous and parallel and impacts the re-pricing of assets and liabilities. In reality, interest rate changes are rarely
instantaneous or parallel and rates could move more or less than the one percentage point assumed. In addition, management
has discretion over the pricing of its new assets, and may re-price assets to a greater or lesser degree than its liabilities re-price.
As a result, the actual impact to pre-tax net interest income could be higher or lower than the results detailed below.
Group
2021
2020
£ mil
£ mil
Net interest income impact of 100 basis point rate change
Euro
11
6
Sterling
10
9
Other
1
1
Increase
22
16
Euro
(11)
(6)
Sterling
(10)
(9)
Other
(1)
(1)
Decrease
(22)
(16)
While the sensitivity analysis presented is FCE's best estimate of the impacts of the specified assumed interest rate scenarios,
actual results could differ from those projected. The model used to conduct this analysis is heavily dependent on assumptions.
Embedded in the model are assumptions regarding the reinvestment of maturing asset principal, refinancing of maturing debt,
and predicted repayment of retail instalment sale and lease contracts ahead of the contract end date. Repayment projections
ahead of contractual maturity are based on historical experience. If interest rates or other factors change, the actual prepayment
experience could be different than projected. FCE has presented its sensitivity analysis on a pre-tax rather than an after-tax basis,
to exclude the potentially distorting impact of assumed tax rates.
2021 Financial Statements
Notes to the Consolidated Financial Statements for the
Year ended 31 December 2021
FCE Bank plc – ANNUAL REPORT 2021 111
33 LIQUIDITY RISK
Liquidity risk is the risk associated with the possibility of being unable to meet present and future financial obligations as they
become due.
For further details on FCE’s strategy and process to mitigate liquidity risk, please refer to the strategic report on page 18.
Basis of liquidity risk analysis
The tables within this note analyses gross undiscounted contractual cash flows from assets and liabilities, with the exception of
derivative financial instruments which are settled net, into relevant maturity groupings based on the criteria detailed in the table
below.
The 'Net liquidity gap excluding unrecognised items' is reported excluding behavioural adjustments for customer early settlements.
‘Unrecognised items’ include available for use unsecured credit facilities, available for use committed securitisation capacity and
callable guarantees. Refer to Note 28 ‘Contingent liabilities’ for further details on guarantees.
The figures assume that the inflows related to retail, leasing and wholesale financing plans and the outflows related to the
repayment of debt each occur on the contractual due dates. Outflows relating to Retail Deposits are based on their earliest possible
contractual due dates. Moreover, balances from fixed-term ISA accounts are reported as on demand according to the earliest
date that FCE could be required to transfer the balance to another provider. However, in practice, their behavioural maturity is
usually in line with their term. Accordingly, FCE's expected liquidity position based on cash inflows and outflows is more favourable
than as presented within this note.
2021 Financial Statements
Notes to the Consolidated Financial Statements for the
Year ended 31 December 2021
112 FCE Bank plc – ANNUAL REPORT 2021
33 LIQUIDITY RISK CONTINUED
Group
0-3
4-12
1-5
5+
Total
As at 31 December 2021
Months
Months
Years
Years
£ mil
£ mil
£ mil
£ mil
£ mil
Assets
Note
Cash and cash equivalents
A
1,822
-
-
-
1,822
Derivative financial instruments
E
5
28
33
-
66
- Retail/Lease
883
2,762
6,302
3
9,950
- Wholesale
480
2,800
-
-
3,280
Loans and advances to customers
B
1,363
5,562
6,302
3
13,230
Operating leases
76
83
-
-
159
Other assets
D
76
25
37
55
193
Total asset inflows
3,342
5,698
6,372
58
15,470
Liabilities
Financial Liabilities
C
1,629
1,017
4,239
364
7,249
Deposits
C
3,656
648
723
-
5,027
Derivative financial instruments
E
3
8
5
-
16
Other liabilities
D
94
14
12
-
120
Total liability outflows
5,382
1,687
4,979
364
12,412
Net liquidity gap excluding unrecognised items
(2,040)
4,011
1,393
(306)
3,058
Cumulative net liquidity gap excluding unrecognised items
(2,040)
1,971
3,364
3,058
Group
0-3
4-12
1-5
5+
Total
As at 31 December 2020
Months
Months
Years
Years
£ mil
£ mil
£ mil
£ mil
£ mil
Assets
Note
Cash and cash equivalents
A
2,048
-
-
-
2,048
Derivative financial instruments
E
11
53
31
-
95
- Retail/Lease
985
3,156
7,453
4
11,598
- Wholesale
684
4,251
55
-
4,990
Loans and advances to customers
B
1,669
7,407
7,508
4
16,588
Operating leases
B
105
206
-
-
311
Other assets
D
713
40
45
115
913
Total asset inflows
4,546
7,706
7,584
119
19,955
Liabilities
Financial Liabilities
C
1,288
3,707
7,497
375
12,867
Deposits
C
2,589
621
444
-
3,654
Derivative financial instruments
E
8
23
14
-
45
Other liabilities
D
86
4
20
-
110
Total liability outflows
3,971
4,355
7,975
375
16,676
Net liquidity gap excluding unrecognised items
575
3,351
(391)
(256)
3,279
Cumulative net liquidity gap excluding unrecognised items
575
3,926
3,535
3,279
2021 Financial Statements
Notes to the Consolidated Financial Statements for the
Year ended 31 December 2021
FCE Bank plc – ANNUAL REPORT 2021 113
33 LIQUIDITY RISK CONTINUED
Company
0-3
4-12
1-5
5+
Total
As at 31 December 2021
Months
Months
Years
Years
£ mil
£ mil
£ mil
£ mil
£ mil
Assets
Note
Cash and cash equivalents
A
776
-
-
-
776
Derivative financial instruments
E
5
25
21
-
51
- Retail/Lease
375
1,270
2,766
-
4,411
- Wholesale
303
1,748
0
-
2,051
Loans and advances to customers
B
678
3,018
2,766
0
6,462
Operating leases
B
0
Other assets
D
521
643
1,683
35
2,882
Total asset inflows
1,980
3,686
4,470
35
10,171
Liabilities
Financial Liabilities
C
1,336
614
3,195
248
5,393
Deposits
C
2,318
559
313
-
3,190
Derivative financial instruments
E
3
8
3
-
14
Other liabilities
D
52
3
12
-
67
Total liability outflows
3,709
1,184
3,523
248
8,664
Net liquidity gap excluding unrecognised items
(1,729)
2,502
947
(213)
1,507
Cumulative net liquidity gap excluding unrecognised items
(1,729)
773
1,720
1,507
Company
0-3
4-12
1-5
5+
Total
As at 31 December 2020
Months
Months
Years
Years
£ mil
£ mil
£ mil
£ mil
£ mil
Assets
Note
Cash and cash equivalents
A
1,143
-
-
-
1,143
Derivative financial instruments
E
10
52
28
-
90
- Retail/Lease
701
2,260
4,719
0
7,680
- Wholesale
690
2,711
62
-
3,463
Loans and advances to customers
B
1,391
4,971
4,781
0
11,143
Other assets*
D
716
340
2,094
89
3,239
Total asset inflows
3,260
5,363
6,903
89
15,615
Liabilities
Financial Liabilities
C
958
2,634
5,907
250
9,749
Deposits
C
2,589
621
444
-
3654
Derivative financial instruments
E
6
18
10
-
34
Other liabilities
D
42
(3)
20
-
59
Total liability outflows
3,595
3,270
6,381
250
13,496
Net liquidity gap excluding unrecognised items
(335)
2,093
522
(161)
2,119
Cumulative net liquidity gap excluding unrecognised items
(335)
1,758
2,280
2,119
2021 Financial Statements
Notes to the Consolidated Financial Statements for the
Year ended 31 December 2021
114 FCE Bank plc – ANNUAL REPORT 2021
33 LIQUIDITY RISK CONTINUED
Available for use credit facilities
Unsecured credit facilities granted by financial institutions to the Group and Company
At 31 December 2021 the Group had £965 million (2020: £1,074 million) contractually committed unsecured credit facilities with
financial institutions, of which £525 million (2020: £64.1 million) was utilised. The remaining undrawn amounts totaling £439 million
(2020: £1,010.2 million) are available for use. The Company had £690 million (2020: £780 million) contractually committed
unsecured credit facilities with financial institutions, of which £500 million (2020: nil) was utilised leaving £190m available for use
(2020: £780 million).
Unsecured credit facilities granted by FMCC to the Group and Company
A €1.5 billion (2020: €1.5 billion) short term revolving facility has been provided by FMCC to the Group which matures on 30
November 2022 or earlier upon 45 days’ notice from FMCC. As at 31 December 2021 no amounts had been drawn under this
facility (2020: nil).
Available committed securitisation capacity to the Group
FCE maintains committed securitisation capacity consisting of agreements with banks and asset backed commercial paper
conduits under which these parties are contractually obligated, at FCE's option, to purchase eligible receivables, or make
advances under asset backed securities. At 31 December 2021, Group had £1,072 million (2020: £549 million) of private revolving
committed securitisation capacity was available. For Company £608 million (2020: £485million) of private revolving committed
securitisation capacity was available.
Central Bank Funding to the Group
FCE holds senior interest in some of its public term securitisation structure as eligible collateral to access Central Bank Liquidity.
As at 31 December 2021 the Group recognised £175 million (2020: £93 mllion) of available liquidity from the ECB and £174 million
available liquidity (2020: nil) from the BoE. The Company only recognises BoE available liquidity. In addition the company holds
additional eligible collateral for participates in the BoE Discount Window Facility (DWF) scheme which can act as an additional
source of liquidity.
Liquid assets of the Group and Company
'Cash and cash equivalents' held by Group is primarily deposits eligible under the Regulatory definition of High Quality Liquid
Assets, £1,499 million (2020: £1,554). The Company holds deposits eligible under the Regulatory definition of High Quality Liquid
Assets of £746 million (2020: 1,068 million) and Ford Bank GmbH holds £753 million (2020: £486 million). This cash is held to
meet both regulatory requirements and to provide liquidity for short-term funding needs and flexibility in the use of other funding
programmes.
Other assets of the Group and Company
Included within Other Assets for the Company are £2,728 million (2020: £2,513 million) notes receivable from affiliates. These
eliminate in Group view.
Note
Cash flows from assets and liabilities are allocated to the appropriate time bands as follows:
A
Based on availability of 'cash and cash equivalents' as follows (Note 9):
• 'Cash and cash equivalents' classified by contractual maturity date.
B
Customer payments are assumed to occur on the latest contractual date and no behavioural adjustments are made
for customer early settlements:
• Retail finance and lease contracts and operating lease vehicles (reported within Note 15 'Property and
equipment') generally require customers to pay equal monthly instalments over the life of the contract.
• Wholesale financing for new and used vehicles held in dealers’ inventory - A bullet repayment schedule is utilised
as the principal is typically repaid in one lump sum at the end of the financing period.
C
Classified based on the earliest possible contractual due date.
D
Classified according to the remaining period to maturity, including ‘Restricted Cash’ which are assumed to be
amounts typically not available for use in day to day operations classified based on the latest possible repayment
date.
E
Forward foreign exchange contracts, cross currency interest rate swaps and interest rate swaps are presented as
settled on a net basis.
2021 Financial Statements
Notes to the Consolidated Financial Statements for the
Year ended 31 December 2021
FCE Bank plc – ANNUAL REPORT 2021 115
34 RELATED PARTY TRANSACTIONS
Parties are considered to be related if they are under common control and if one party has the ability to control the other party or
exercise significant influence over the other party in making financial or operational decisions.
A number of transactions are entered into with related parties in the normal course of business. The Company and its subsidiaries
are separate, legally distinct companies from Ford and Ford's automotive affiliates and transactions are carried out on commercial
terms and at market rates and enforced by FCE in a commercially reasonable manner. In addition to participating in retirement
benefit plans sponsored by Ford subsidiaries (discussed in Note 27 ‘Retirement Benefit Obligations’); the Company has a support
agreement with Ford Credit in regard to Shareholders' funds (detailed in Note 25 ‘Ordinary Shares and Share Premium').
There have been no significant changes in transactions with related parties in the period to 31 December 2021. For further details
refer to the following Company and Group disclosures.
Related parties
FCE has related party transactions with the following categories, described below:
Parent undertakings - this includes FCSH, Ford ECO, FMCC, Ford Credit International (FCI) and Ford. For further information
refer to Note 37 ‘FCE and Other Related Party Information'.
Directors and officers - reported in Note 6 ‘Transactions with Directors’ and Officers’.
Entities under common control – which includes all subsidiaries of Ford except for those entities already reported within
'Subsidiaries of the company' and 'Parent undertakings'. Transactions reported in this category include:
• Provision of approved lines of credit, mortgages, working capital and other types of loans to dealers in which Ford
maintains a controlling interest
• The receipt of interest income from Ford and its related companies arising from loans, interest supplements and other
support costs in regard to a variety of retail, lease and wholesale finance plans
• Guarantees provided on behalf of other related parties of which further details can be found within Note 28 'Contingent
liabilities and financial guarantees'
• Guarantees received from other related parties includes primarily guarantees for future residual value gain or losses
relating to certain operating lease vehicles and also includes guarantees for certain wholesale vehicle finance plans
Due to an arrangement with Ford relating to FCE’s operating lease portfolio, under which Ford indemnifies FCE for the majority
of residual value losses and receives the benefit of the majority of residual value gains, a net payment of £41 million was made
to Ford in the period (2020: £9 million net receipt from Ford).
Certain amounts in relation to UK taxes, including interest where applicable, are payable to Ford Motor Company UK under group
relief arrangements. Amounts payable are recorded within ‘Accounts payable to related undertakings'. For further information, see
Note 21 ‘Financial Liabilities’ and Note 28 ‘Contingent Liabilities, Financial Guarantees and Commitments’.
2021 Financial Statements
Notes to the Consolidated Financial Statements for the
Year ended 31 December 2021
116 FCE Bank plc – ANNUAL REPORT 2021
34 RELATED PARTY TRANSACTIONS CONTINUED
The value of related party transactions, outstanding balances at 31 December, and relating expense and income for the year are
as follows:
Company
Subsidiaries of the
Company
Parent undertakings
Entities under common
control
2021
2020
2021
2020
2021
2020
£ mil
£ mil
£ mil
£ mil
£ mil
£ mil
Accounts receivable
Accounts receivable at 1 January
28
30
1
9
185
46
Additions to accounts receivable during the year
7,280
7,707
14
11
1,370
2,711
Repayments during the year (Footnote 2)
(7,284)
(7,709)
(14)
(19)
(1,548)
(2,572)
Accounts receivable at 31 December
24
28
1
1
7
185
Loans
Loans outstanding at 1 January
2,513
2,639
-
-
425
645
Loans issued during the year
4,903
2,599
-
-
4,459
3,762
Loan repayments during the year (Footnote 2)
(4,688)
(2,725)
-
-
(4,461)
(3,982)
Loans outstanding at 31 December
2,728
2,513
-
-
423
425
Investment in Group undertakings (Note 20)
Cost at 1 January
842
840
-
-
-
-
Additional investments during the year
262
2
-
-
-
-
Cost at 31 December
1,104
842
-
-
-
-
Accounts payable and accrued interest
Accounts payable at 1 January
18
19
7
12
87
88
Additions to accounts payable during the year
2,068
2,129
75
120
20,102
28,176
Repayments during the year (Footnote 2)
(2,074)
(2,130)
(76)
(125)
(20,081)
(28,177)
Accounts payable at 31 December
12
18
6
7
108
87
Senior debt and subordinated loans
Senior debt and subordinated loans at 1 January
-
-
5,040
4,344
16
15
Received during the year
-
-
27
1,364
16
16
Repayments during the year (Footnote 2)
-
-
(2,305)
(668)
(16)
(15)
Senior debt and subordinated loans at 31
December
-
-
2,762
5,040
16
16
Net cash proceeds from the sale of
receivables
Net cash proceeds from the sale of receivables at
1 January
529
2,042
-
-
-
-
Additions during the year
16,229
4,263
-
-
-
-
Repayments during the year
(16,735)
(5,776)
-
-
-
-
Net cash proceeds from the sale of
receivables at 31 December
23
529
-
-
-
-
2021 Financial Statements
Notes to the Consolidated Financial Statements for the
Year ended 31 December 2021
FCE Bank plc – ANNUAL REPORT 2021 117
34 RELATED PARTY TRANSACTIONS CONTINUED
Company
Subsidiaries of the
Company
Parent undertakings
Entities under common
control
2021
2020
2021
2020
2021
2020
£ mil
£ mil
£ mil
£ mil
£ mil
£ mil
Revenue
Interest supplements earned on loans and
advances
-
-
-
-
228
272
Interest income related parties
35
26
-
-
3
10
Supplements relating to operating leases
-
-
-
-
-
2
Expense
Interest expense
-
-
63
75
-
-
Service fees paid/(received) (Footnote 1)
(25)
(17)
16
21
5
4
Guarantees
Guarantees provided (Note 28)
-
-
-
-
14
43
Guarantees received
-
-
-
-
-
-
Dividends received
8
7
-
-
-
-
Derivatives
Derivatives year end positive fair value
-
-
-
-
-
-
Derivatives year end negative fair value
-
-
-
-
1
1
Group
Parent undertakings
Entities under
common control
2021
2020
2021
2020
£ mil
£ mil
£ mil
£ mil
Accounts receivable
Accounts receivable at 1 January
1
9
303
88
Additions to accounts receivable during the year
14
11
2,087
4,238
Repayments during the year (Footnote 2)
(14)
(19)
(2,370)
(4,023)
Accounts receivable at 31 December
1
1
20
303
Loans receivable
Loans receivable at 1 January
-
-
425
645
Issued during the year
-
-
4,409
3,762
Repayments during the year (Footnote 2)
-
-
(4,411)
(3,982)
Loans receivable at 31 December
-
-
423
425
Investment in jointly controlled entity
Investment at 1 January
-
-
-
-
Reduction of investments during the year
-
-
-
-
Investment at 31 December
-
-
-
-
Accounts payable and accrued interest
Accounts payable at 1 January
13
12
122
124
Additions during the year
100
124
31,339
37,015
Repayments during the year (Footnote 2)
(106)
(123)
(31,295)
(37,017)
Accounts payable at 31 December
7
13
166
122
2021 Financial Statements
Notes to the Consolidated Financial Statements for the
Year ended 31 December 2021
118 FCE Bank plc – ANNUAL REPORT 2021
34 RELATED PARTY TRANSACTIONS CONTINUED
Group
Parent undertakings
Entities under
common control
2021
2020
2021
2020
£ mil
£ mil
£ mil
£ mil
Senior debt and subordinated loans
Senior debt and subordinated loans at 1 January
5,703
4,973
16
15
Received during the year
143
1,363
16
16
Repaid during the year (Footnote 2)
(2,630)
(633)
(16)
(15)
Senior debt and subordinated loans at 31 December
3,216
5,703
16
16
Revenue
Interest supplements earned on loans and advances
-
-
344
387
Interest income related parties
-
-
3
10
Supplements relating to operating leases
-
-
139
195
Expense
Interest expense
73
88
-
-
Service fees paid/(received) (Footnote 1)
16
21
6
4
Guarantees
Guarantees provided (Note 28)
-
-
14
43
Guarantees received
-
-
-
-
Derivatives
Derivatives year end positive fair value
-
-
-
-
Derivatives year end negative fair value
-
-
1
1
Footnotes:
1) Service fees received or paid - FCE receives technical and administrative advice and services from Ford and its related companies,
occupies office space furnished and provided by them and its related companies and utilises data processing facilities maintained by
them. The costs of these services are charged to 'Operating expenses'.
2) Repayments include both repayments and the effect of exchange rate changes during the year.
2021 Financial Statements
Notes to the Consolidated Financial Statements for the
Year ended 31 December 2021
FCE Bank plc – ANNUAL REPORT 2021 119
35 SEGMENT REPORTING
Policy
Operating segments are the components of an entity that management uses to make decisions about operating matters. These
are identified on the basis of the internal reports that are regularly reviewed by the entity's chief operating decision maker in order
to allocate resources to the segment and assess performance. An operating segment engages in business activities from which
it may earn revenues and incur expenses for which discrete financial information is available.
For the purpose of these financial statements and in accordance with IFRS 8 'Operating segments' FCE's reportable operating
segments are based around a business unit structure grouped into the various geographic locations of its operations.
Allocation of costs: The main costs which are required to be allocated between operating segments and the basis of allocation
are as follows:
• Central staff costs are analysed by department and type of cost and allocated to the location benefiting from the service.
Various allocation methods are used that ensure an equitable allocation between locations of central staff costs
• In certain of FCE's European branches and subsidiaries funding is obtained by a mixture of local and centrally allocated
funding. The costs of central funding, including derivative costs are, where possible, directly allocated to locations where
transactions can be specifically identified
Income and expense from the allocation of intra and inter-company transactions are eliminated on consolidation.
35A) PERFORMANCE MEASUREMENT FIGURES
UK
Germany
Italy
Spain
France
Other
Total
2021
2021
2021
2021
2021
2021
2021
$ mil
$ mil
$ mil
$ mil
$ mil
$ mil
$ mil
Market income
290
279
154
39
54
49
865
Borrowing costs
(104)
(55)
(38)
(14)
(17)
(30)
(258)
Operating expenses
(92)
(134)
(59)
(20)
(23)
(19)
(347)
Expected credit losses (a)
4
6
(1)
(3)
(1)
3
8
All other
3
(23)
-
-
-
-
(20)
Profit before tax (PBT)
101
73
56
2
13
3
248
Net receivables
6,077
5,448
3,269
825
1,139
885
17,643
UK
Germany
Italy
Spain
France
Other
Total
2020
2020
2020
2020
2020
2020
2020
$ mil
$ mil
$ mil
$ mil
$ mil
$ mil
$ mil
Market income
324
343
153
56
55
84
1,015
Borrowing costs
(149)
(72)
(51)
(17)
(19)
(18)
(326)
Operating expenses
(89)
(119)
(50)
(29)
(33)
(49)
(369)
Impairment losses (a)
(15)
(13)
(21)
(6)
(3)
(2)
(60)
All other
6
(34)
-
-
1
(1)
(28)
Profit before tax (PBT)
77
105
31
4
1
14
232
Net receivables
7,272
7,336
3,842
1,167
1,422
1,560
22,599
(a) In 2020, under US Generally Accepted Accounting Practice (GAAP), implementation of Current Expected Credit Loss (CECL) standard
In line with the focus of management review and the requirements of IFRS 8 'Operating Segments', the performance of the five
major geographical markets (UK, Germany, Italy, Spain and France) is separately reported. The performance of the five major
markets ('Reportable Segments') constitute 95% of external revenues, with all other markets and operations combined under
‘Other’ as detailed below.
‘Other’ represents operations not considered as a major geographical market and individually contributing less than 10% of
external revenue. It includes Central, WWTF, FCE’s branches and subsidiaries in Austria, Czech Republic, Hungary, Ireland,
Poland, Portugal and Switzerland.
2021 Financial Statements
Notes to the Consolidated Financial Statements for the
Year ended 31 December 2021
120 FCE Bank plc – ANNUAL REPORT 2021
35 SEGMENT REPORTING CONTINUED
Segmental data is based on the consolidated statement of profit and loss and other comprehensive income and statement of
financial position as reported to the Executive Committee (‘EC’) in US dollars under US Generally Accepted Accounting Practice
(GAAP) on a Risk Based Equity (RBE) basis excluding fair value adjustments to financial instruments and foreign exchange
adjustments (refer to ‘Definitions’ as detailed on page 165 for a definition of RBE).
The EC assesses performance of FCE’s branches and subsidiaries from a geographical perspective and allocates resources
based on this information. Performance measurement figures include the following:
‘Market income’ represents interest income from retail and wholesale finance receivables, rentals received for operating lease
vehicles less depreciation of motor vehicles held for use under operating leases and net fees and commissions income.
‘Borrowing costs’ represents the costs associated with locally and centrally sourced funding (both unsecured and securitisation)
and is presented on an RBE basis. Central funding and derivative costs, including the costs of holding a liquidity buffer, are
allocated to locations.
‘Operating expenses’ are typically the same as reported for performance measurement and IFRS.
‘Expected credit losses’ are reported under USGAAP, based on lifetime current expected credit loss (CECL) on the finance
receivables.
'All other' represents any gains or losses on residual values and residual value reserve adjustments. This includes operating
leases in Germany, where Ford indemnifies the majority of any residual value loss. Income received from this arrangement is
included in Market income.
'Profit before tax (PBT)' is reported under US GAAP on an RBE basis excluding fair value adjustments to financial instruments
and foreign exchange adjustments.
'Net receivables' are managed on a US GAAP basis excluding the 'provision for expected losses' and 'unearned interest
supplements from related parties' and including FCE's net investment in motor vehicles held for use by FCE as the lessor under
operating leases.
2021 Financial Statements
Notes to the Consolidated Financial Statements for the
Year ended 31 December 2021
FCE Bank plc – ANNUAL REPORT 2021 121
35 SEGMENT REPORTING CONTINUED
35b) IFRS BASIS
UK
Germany
Italy
Spain
France
Central /
Other
Total
2021
2021
2021
2021
2021
2021
2021
£ mil
£ mil
£ mil
£ mil
£ mil
£ mil
£ mil
INCOME STATEMENT
Note
Retail revenue
152
122
92
18
15
16
415
Wholesale revenue
42
34
14
9
15
22
136
Other income
1
2
-
0
-
(1)
2
Fee and commission income
3
17
11
6
2
16
1
53
Income from operating leases
4
-
163
-
-
-
-
163
Total external revenue
212
332
112
29
46
38
769
Inter-segment revenue
(0)
(0)
-
(0)
-
(0)
(0)
Total Revenue
212
332
112
29
46
38
769
Depreciation of property and
equipment
15/16
-
(149)
(0)
(1)
-
(5)
(155)
Amortisation of other intangibles
17
-
-
-
-
-
(6)
(6)
Profit before tax
122
66
42
4
10
(6)
238
ASSETS
Net loans and advances to
customers
12
4,337
3,735
2,408
608
824
690
12,602
Property and equipment
15/16
-
162
-
-
-
17
179
Total assets
4,767
5,333
2,478
695
845
947
15,065
2021 Financial Statements
Notes to the Consolidated Financial Statements for the
Year ended 31 December 2021
122 FCE Bank plc – ANNUAL REPORT 2021
35 SEGMENT REPORTING CONTINUED
35b) IFRS BASIS
UK
Germany
Italy
Spain
France
Central /
Other
Total
2020
2020
2020
2020
2020
2020
2020
£ mil
£ mil
£ mil
£ mil
£ mil
£ mil
£ mil
INCOME STATEMENT
Note
Retail revenue
165
136
87
20
14
27
449
Wholesale revenue
77
60
25
20
19
26
227
Other income
1
(0)
-
-
-
8
9
Fee and commission income
3
15
16
9
1
17
3
61
Income from operating leases
4
-
218
-
-
-
-
218
Total external revenue
258
430
121
41
57
57
964
Inter-segment revenue
0
0
-
-
-
(1)
(1)
Total Revenue
258
430
121
41
57
56
963
Depreciation of property and
equipment
15/
16
(3)
(191)
-
(1)
-
(1)
(196)
Amortisation of other intangibles
17
-
-
-
-
-
(4)
(4)
Profit before tax
71
74
14
2
14
9
184
ASSETS
Net loans and advances to
customers
12
5,113
4,899
2,794
850
1,016
1,132
15,804
Property and equipment
15/
16
1
318
1
1
1
20
342
Total assets
5,663
6,603
3,240
959
1,057
2,012
19,534
IFRS Basis
The table above provides additional segmental information on an IFRS basis which includes fair value adjustments to financial
instruments and foreign exchange adjustments and excludes RBE analytical adjustments. The information produced in 35b is
produced on the basis described as it is deemed impracticable to produce additional IFRS 8 supplementary information on a basis
consistent with the performance measurement results disclosed to the EC.
Transfer Pricing
The Company utilises the transfer pricing methodology in line with the Organisation for Economic Co-operation and Development
(OECD) guidelines. This does not affect the Company’s overall profit before tax and is excluded from performance measurement
results. The profit before tax of individual operating segments as reported on an IFRS basis in 35b reflects the transfer pricing
method.
2021 Financial Statements
Notes to the Consolidated Financial Statements for the
Year ended 31 December 2021
FCE Bank plc – ANNUAL REPORT 2021 123
35 SEGMENT REPORTING CONTINUED
35c) RECONCILIATION BETWEEN PERFORMANCE MEASUREMENT AND IFRS FIGURES
Market
Borrowing
Operating
Expected
Net
Income
Costs
Expenses
Credit Losses
PBT
Receivables
2021
2021
2021
2021
2021
2021
Performance measurement
figures
Mil
mil
mil
mil
mil
Mil
Reportable segments
$
816
(228)
(328)
5
245
16,758
Central operations/other
$
49
(30)
(19)
3
3
885
Total
$
865
(258)
(347)
8
248
17,643
Converted to GBP
£
628
(187)
(252)
6
180
13,088
Presentational differences
Operating leases
£
130
-
-
-
-
(158)
Unearned interest supplements
£
-
-
-
-
-
(294)
Provision for expected losses
£
-
-
-
-
-
(33)
IFRS 16 leases
£
-
-
-
-
-
-
Fees and commission expense
£
8
-
4
-
(1)
-
Residual gains/losses/reserve
£
-
-
-
-
-
-
Other differences and
presentational differences
£
3
6
8
(1)
0
(1)
Adjustments
£
-
-
-
-
-
-
Risk based equity adjustment
£
-
20
-
-
20
-
Other performance adjustments
£
-
(1)
-
-
39
-
Total reconciliation to IFRS
£
769
(162)
(240)
5
238
12,602
Market
Borrowing
Operating
Expected
Net
Income
Costs
Expenses
Credit Losses
PBT
Receivables
2020
2020
2020
2020
2020
2020
Performance measurement
figures
Mil
mil
mil
mil
mil
Mil
Reportable segments
$
931
(308)
(320)
(58)
218
21,039
Central operations / other
$
84
(18)
(49)
(2)
14
1,560
Total
$
1,015
(326)
(369)
(60)
232
22,599
Converted to GBP
£
787
(253)
(287)
(48)
178
16,539
Presentational differences
Operating leases
£
161
-
-
-
-
(311)
Unearned interest supplements
£
-
-
-
-
-
(377)
Provision for incurred losses
£
-
-
-
-
-
(46)
IFRS 16 leases
£
-
-
-
-
(3)
-
Fees and commission expense
£
10
-
4
-
-
-
Residual gains/losses/reserve
£
5
-
-
-
-
-
Other differences
£
1
(4)
8
(1)
(2)
(1)
Adjustments
£
-
-
-
-
-
-
Risk based equity adjustment
£
-
20
-
-
20
-
Other performance adjustments
£
-
20
-
-
(9)
-
Total reconciliation to IFRS
£
964
(217)
(275)
(49)
184
15,804
2021 Financial Statements
Notes to the Consolidated Financial Statements for the
Year ended 31 December 2021
124 FCE Bank plc – ANNUAL REPORT 2021
35 SEGMENT REPORTING CONTINUED
35c) RECONCILIATION BETWEEN PERFORMANCE MEASUREMENT AND IFRS FIGURES CONTINUED
This section commences with the performance measurement figures for FCE’s Reportable Segments plus ‘Central/Other’
operations detailed in 35a and converts the US dollar amounts to Sterling based on the exchange rates as incurred and ‘Net
receivables’ at the exchange rate prevailing on the reporting date. It then provides a reconciliation from the performance
measurement figures to IFRS Statement view, shown in 35b.
Summary of key differences
‘Market Income’ represents total revenue including interest income, fee and commission income, and income from operating
leases.
‘Net receivables’ represent loans and advances to customers.
‘Borrowing costs’ represents interest expense under IFRS.
‘Expected credit losses’ represent expected credit loss (ECL) on the finance receivables.
‘Presentational differences’ represent the differences in reporting within the IFRS financial statements versus the performance
measurement view.
‘Adjustments’ RBE performance adjustment allocates equity based on an assessment of the inherent risk in each location’s
portfolio. Borrowing costs are adjusted versus that reported under IFRS, to reflect the cost impact of changes in the level of debt
that would be required to match the revised equity requirements. The RBE adjustment enables the evaluation of the risk/return of
individual locations.
'Other Performance Adjustments' includes the impact to earnings of fair value adjustments to financial instruments and foreign
exchange adjustments. Primarily related to movements in market rates, these are excluded from EC performance measurement
as FCE's risk management activities are administered on a centralised basis.
2021 Financial Statements
Notes to the Consolidated Financial Statements for the
Year ended 31 December 2021
FCE Bank plc – ANNUAL REPORT 2021 125
36 NOTES TO THE STATEMENT OF CASH FLOWS
Company
Group
2021
2020
2021
2020
£ mil
£ mil
£ mil
£ mil
Cash flows from operating activities
Profit before tax
136
109
238
184
Adjustments for:
Depreciation expense on property and equipment
1
-
1
-
Depreciation expense on operating lease vehicles
-
1
146
190
Depreciation expense on right-of-use assets
4
5
8
6
Effects of foreign currency translation
17
30
18
29
Gross impaired losses on loans and advances
15
63
27
77
Amortisation of other intangibles
6
4
6
4
Fair value adjustments to financial instruments
(25)
(4)
(45)
3
Interest expense
137
193
162
217
Interest income
(339)
(505)
(552)
(679)
Income from leasing and other operating income
(8)
(7)
(164)
(218)
Other non-cash movements
(3)
-
(3)
-
Changes in operating assets and liabilities:
Net increase/(decrease) in accrued liabilities and
deferred income
(62)
43
25
33
Net decrease/(increase) in deferred charges and
prepaid expenses
(70)
(20)
(35)
(21)
Net (increase)/decrease in finance receivables
1,556
2,160
2,649
2,557
Purchase of vehicles for operating leases
-
-
(284)
(640)
Proceeds/(Losses) from sale of operating lease
vehicles
-
(1)
268
467
Net (increase)/decrease in vehicles awaiting resale
32
(4)
110
71
Net (increase)/decrease in accounts receivables
(39)
(76)
(31)
(77)
Net increase/(decrease) in accounts payables
12
(19)
(2)
(18)
Net (increase)/decrease in accounts receivables from
related undertakings
(1)
363
6
82
Net increase/(decrease) in accounts payables to
related undertakings
22
(20)
26
(15)
Cash generated/(used) in operating activities
1,391
2,315
2,574
2,252
2021 Financial Statements
Notes to the Consolidated Financial Statements for the
Year ended 31 December 2021
126 FCE Bank plc – ANNUAL REPORT 2021
36 NOTES TO THE STATEMENT OF CASH FLOWS CONTINUED
Company
Group
2021
2020
2021
2020
£ mil
£ mil
£ mil
£ mil
At beginning of period:
Cash and cash equivalents
1,143
741
2,048
1,453
Balance at 1 January 2021 and 2020
1,143
741
2,048
1,453
At end of period:
Cash and cash equivalents
776
1,143
1,822
2,048
Balance at 31 December 2021 and 2020
776
1,143
1,822
2,048
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
1,143
741
2,048
1,453
Cash and cash equivalents at end of period
776
1,143
1,822
2,048
Net decrease in cash and cash equivalents
(367)
402
(226)
595
Reconciliation of Liabilities Arising from Financing Activities
Company
For the year ended 31 December
2020
Cash flow
Non-Cash Changes
2021
Foreign
exchange
movement
Fair value
changes
Gain /
Loss
Other
£ mil
£ mil
£ mil
£ mil
£ mil
£ mil
£ mil
Debt securities and loans provided by
banks and other financial institutions
4,235
(2,312)
(167)
(13)
-
(9)
1,734
Funds provided by parent and related
undertakings
5,112
50
(89)
122
-
2,275
7,470
Short-term borrowings
2
498
-
-
-
-
500
Deposits
3,609
(444)
-
(32)
-
-
3,133
Derivative financial instruments
(56)
49
1
(3)
2
(26)
(33)
Total liabilities from financing
activities
12,902
(2,159)
(255)
74
2
2,240
12,804
Group
For the year ended 31 December
2020
Cash flow
Non-Cash Changes
2021
Foreign
exchange
movement
Fair value
changes
Gain /
Loss
Other
£ mil
£ mil
£ mil
£ mil
£ mil
£ mil
£ mil
Debt securities and loans provided by
banks and other financial institutions
6,571
(3,240)
(273)
(48)
-
13
3,023
Funds provided by parent and related
undertakings
5,791
(2,216)
(272)
137
-
38
3,478
Short-term borrowings
50
472
(1)
-
-
-
521
Deposits
3,609
1,427
(35)
(189)
-
-
4,812
Derivative financial instruments
(50)
44
1
(3)
2
(41)
(47)
Total liabilities from financing
activities
15,971
(3,513)
(580)
(103)
2
10
11,787
(a) Upon review, restricted cash is not considered liabilities arising from financing activities.
2021 Financial Statements
Notes to the Consolidated Financial Statements for the
Year ended 31 December 2021
FCE Bank plc – ANNUAL REPORT 2021 127
37 FCE AND OTHER RELATED PARTY INFORMATION
Domicile: United Kingdom (UK).
Legal form: The Company is a regulated bank, authorised as a deposit taking, consumer credit and insurance intermediary
business under the Financial Services and Markets Act 2000 and in accordance with the Financial Services Act 2012 and is
authorised by the PRA and regulated by the FCA and PRA.
Country of registration: The Company is a public limited company incorporated and registered in England and Wales.
Registered office: Central Office – Arterial Road, Laindon, Essex, SS15 6EE. Registered in England and Wales no 00772784.
The Company has subsidiaries in Czech Republic, Germany, Hungary, Italy and Switzerland (see Note 20 ‘Investments in Other
Entities’).
Nature of operations and principal activities: FCE's primary business is to support the sale of Ford vehicles in Europe through the
respective dealer networks. A variety of retail, leasing and wholesale finance plans are provided in the markets which FCE
operates.
In European markets, FCE offers most of its products and services under the Ford Credit or Ford Bank brands, refer to ‘European
operating locations’ page 129 for further details. The Company, through its Worldwide Trade Finance (WWTF) division, provides
financing to importers and distributors in countries where typically there is no established local Ford presence. WWTF currently
provides finance in about 70 countries. In addition, there are private label operations in some European markets.
Immediate parent undertaking: All of the 614,384,050 Ordinary £1 shares of FCE are owned by Ford ECO. Ford ECO does not
produce consolidated accounts it being wholly owned by, and consolidated into the accounts of FMCC. For further details refer to
Note 25 ‘Ordinary Shares and Share Premium’.
Ultimate parent undertaking: The ultimate parent undertaking and controlling party is Ford Motor Company (Ford). Ford, FCI and
FMCC are all incorporated in the United States of America. Ford ECO is incorporated in Switzerland.
Copies of the consolidated accounts for FMCC and Ford may be obtained from Ford Motor Company (US), One American Road,
Dearborn, Michigan 48126, United States of America.
2021 Financial Statements
Notes to the Consolidated Financial Statements for the
Year ended 31 December 2021
128 FCE Bank plc – ANNUAL REPORT 2021
38 COUNTRY-BY-COUNTRY
The following table is disclosed according to the Capital Requirements (Country-by-Country) Reporting Regulations 2013
(Statutory Instrument 2013 No. 3118). The regulation requires disclosure of Public Subsidies received (2021: nil).
For prior year comparators please see page 135 of FCE’s 2020 Annual Reports and Accounts.
Name of Branch or Subsidiary
Principal Activity
Average Number of Full
Time Employees
Total
Income
(a)
£ mil
Profit or (loss)
before tax
(b)
£ mil
Corporation tax
paid
£ mil
FCE Bank plc Austria
Bank
-
4
2
0.8
FCE Bank plc France
Bank
57
27
10
2.2
FCE Bank plc Germany
Bank
-
3
3
2.6
FCE Bank plc Ireland
Bank
3
2
1
0.1
FCE Bank plc Italy
Bank
-
20
11
0.0
FCE Bank plc Portugal
Bank
7
2
0
0.3
FCE Bank plc Spain
Bank
70
20
4
(0.3)
FCE Bank plc UK
Bank
792
163
105
6.4
FCE Bank SA Oddzial w Polsce
Bank
10
0
(0)
-
Ford Bank GmbH
Bank
327
288
59
15.1
Ford Bank GmbH Austria Branch
Bank
10
1
0
0.1
FCE Credit s.r.o
Finance company
10
1
(0)
0.0
FCE Credit Hungary Zrt
Finance company
4
1
(0)
0.1
FCE Services Kft
Finance company
0
(0)
0.0
Ford Credit Switzerland GmbH
Finance company
15
9
4
3.8
Ford Credit Italia Spa
Finance company
70
64
31
0.1
(a) Total income is reported above on an IFRS basis at company level and does not include total income of the Structured Entities. It
comprises net interest income plus net fees and commission income plus other operating income.
(b) Profit or (loss) before tax is reported above on an IFRS basis at company level and does not include the profits or losses of the Structured
Entities.
FCE Bank plc UK includes both central office and UK market as per Note 35 ‘Segment Reporting’. For further details on the
country of incorporation for the banks and finance companies, refer to European Operating Locations.
For further details on events after reporting period, refer to Note 39 ‘Events After The Reporting Period’.
39 EVENTS AFTER THE REPORTING PERIOD
There are no subsequent events recognised during the period.
2021 Financial Stataments
European Operating Locations
FCE Bank plc – ANNUAL REPORT 2021 129
The following table details the countries in which FCE operates through a branch or a subsidiary.
Location
Address
The Company's Branch locations
AUSTRIA
Ford Bank Austria Zweigniederlassung der FCE Bank plc, Fuerbergstrasse 51, Postfach 2, A -5020 Salzburg
BRITAIN
FCE Bank plc, Arterial Road, Laindon, Essex SS15 6EE
FRANCE
FCE Bank plc, Succursale France, Immeuble Axe Seine, 1 rue du 1er Mai, CS 90209, 92752 Nanterre
GERMANY
Ford Bank Niederlassung der FCE Bank plc, Henry-Ford-Str. 1, 50735 Köln
IRELAND
FCE Bank plc, Elm Court, Boreenmanna Road, Cork 999937 IE
ITALY
FCE Bank plc, Via del Serafico 89 palazzina D, II piano (second floor) 00142 Roma
POLAND
FCE Bank SA Oddzial w Polsce, Marynarska Business Park, Tasmowa 7, 02-677 Warsaw
PORTUGAL
FCE Bank plc, Estrada Nacional 10, Km 131.200 - Parque Tejo, concelho de Vila Franca de Xira, União de
Freguesias de Póvoa de Santa Iria e Forte da Casa, Portugal
SPAIN
FCE Bank plc Sucursal en España, Calle Caléndula, 13, 28109 Alcobendas, Madrid
The Group: FCE's European subsidiaries
CZECH REPUBLIC
FCE Credit, s.r.o., Nile House, Karolinská 654/2, 186 00 Prague 8
GERMANY (a)
Ford Bank GmbH, Henry-Ford-Str. 1, 50735 Köln
HUNGARY
FCE Credit Hungária Zrt/FCE Services Szolgáltató Kft, 1138 Budapest, Népfürdő utca 22., Hungary
ITALY
Ford Credit Italia S.p.A, Via del Serafico 89 palazzina D, II piano (second floor) 00142 Roma
SWITZERLAND
Ford Credit (Switzerland) GmbH, Geerenstrasse 10, 8304 Wallisellen
(a) The newly launched Austria Branch consolidates into Ford Bank Germany.
130 FCE Bank plc – ANNUAL REPORT 2021
Pillar 3 Disclosures
Unaudited
2021 Pillar 3 Disclosures
Pillar 3 Disclosures
FCE Bank plc – ANNUAL REPORT 2021 131
Index of Pillar 3 Disclosure Requirements by subject area and CRR Article
The following table provides an overview of where information on each Pillar 3 requirement can be found in the Annual Report.
Any disclosure requirement not listed in the table is detailed in the Non applicability statement on page 134.
Pillar 3 disclosure
requirement
Brief description of requirement
Reference
Scope of consolidation:
Article 436
- Any differences in the basis of consolidation for accounting
& prudential purposes
- Disclose if made use of provision allowing individual
consolidation
- 'Pillar 3 Disclosures' - Basis of disclosure; page
134
- N/A. FCE only reports on a Solo &
Consolidated basis
Risk management
objectives and policies:
Article 435
- Risk management & objectives for each risk category
- An approved declaration on risk management adequacy
- An approved risk statement on the risk profile of the
business strategy
- Governance arrangements
- ‘Business Environment’; pages 12 - 20
- ‘Business Environment’; page 20
- ‘Business Environment’; page 12
- 'Governance'; pages 28– 35
Own funds:
Article 437
- Reconciliation to financial statements
- Calculation of Own funds
- Terms & conditions of capital instruments
- 'Pillar 3 Disclosures' – Tables 1 & 2; page 135
- 'Pillar 3 Disclosures' – Table 14; page 151
- 'Pillar 3 Disclosures' – Table 15; pages 152 –
153
Capital requirements:
Article 438
- Approach to assessing internal capital adequacy
- 8% of the risk weighted exposure amounts for each
exposure class of credit risk
- Own funds requirement for foreign exchange risk and
operational risk
- ‘Business Performance’; page 9
- ‘Pillar 3 Disclosures’ – Table 6; pages 139
- ‘Pillar 3 Disclosures’ – Table 5; page 138
Exposure to
counterparty credit risk:
Article 439
- Method used to assign credit limits for counterparty credit
exposures
- Policies for the use of collateral and netting for counterparty
credit exposures
- Measures for counterparty credit risk exposure amounts
- Notional value of credit derivatives and credit derivative
hedges
- Note 29 – Credit risk; page 105
- Note 10 – Derivative Financial Instruments and
Hedging Activities; pages 66 - 67 and Note 31 –
Market risk; page 107
- ‘Pillar 3 Disclosures’ – Table 11; page 145
- N/A. FCE does not use credit derivatives
Capital buffers:
Article 440
- Information in relation to compliance with the counter-
cyclical buffer requirement
- ‘Pillar 3 Disclosures’ – Table 16 & Table 17;
pages 154
Analysis of credit risk
exposures:
Article 442 c) – f)
& Article 444
Each broken down by exposure class:
- Total exposures & average exposures over the period, both
after accounting offsets
- Geographic distribution of exposures
- Exposures split by industry or counterparty type (showing
SMEs separately)
- Exposures split by residual maturity
- ‘Pillar 3 Disclosures’ – Table 6; page 139
- ‘Pillar 3 Disclosures’ – Table 9; page 143
- 'Pillar 3 Disclosures' – Table 8; page 142
- 'Pillar 3 Disclosures' – Table 10; page 144
Credit risk adjustments:
Article 442 a), b), g), h)
& i)
- Accounting definitions used for 'past due' & 'impaired'
- Description of approach for determining specific & general
credit risk adjustments
- Reconciliation of changes in the specific & general credit
risk adjustments
- Impaired & past due exposures, specific & general credit
risk adjustments, and charges to those adjustments during
the period, broken down by counterparty type
- Impaired & past due exposures split by geographical area
- Past Due in ‘Glossary of Defined Terms’; page
165
& Impaired in 'Pillar 3 Disclosures' – Table 13a;
page 147
- ‘Note 13 – Allowance for Expected Credit
Losses; page 74 and ‘Pillar 3 Disclosures’ –
Table 12; page 146
- 'Pillar 3 Disclosures' – Table 12; page 146
- 'Pillar 3 Disclosures' – Table 13a)-d); pages
147 - 150
- 'Pillar 3 Disclosures' – Table 13e); page 150
2021 Pillar 3 Disclosures
Pillar 3 Disclosures
132 FCE Bank plc – ANNUAL REPORT 2021
Unencumbered assets:
Article 443
- Total amount of the balance sheet that is encumbered
- 'Pillar 3 Disclosures' – Tables 3 & 4; pages 136
& 137
Use of External Credit
Assessment Institutions
(ECAIs):
Article 444
- Names of nominated ECAIs
- The exposure classes for which each ECAI is used
- The exposure amounts, including those after credit risk
mitigation, associated with each credit quality step
- The exposure amounts deducted from own funds
- 'Pillar 3 Disclosures' – Table 7; page 141
- 'Pillar 3 Disclosures' – Table 7; page 141
- 'Pillar 3 Disclosures' – Table 7; page 141
- 'Pillar 3 Disclosures' – Table 7; page 141
Exposure to market risk:
Article 445
- Own funds requirement for each risk within market risk
- 'Pillar 3 Disclosures' – Table 5; page 138
Operational risk:
Article 446
- Approaches for assessing own funds requirement that
institution qualifies for
- Description of factors considered in measurement
approach
- ‘Business Environment’; page 17
- ‘Business Environment’; page 17
Exposure to interest
rate risk on positions not
included in the trading
book:
Article 448
- Nature of interest rate risk & frequency of its measurement
- Relevant measure used by management for
upward/downward shocks, broken down by currency
- ‘Business Environment’; page 19
- Note 32b) – Interest rate risk; page 110
Remuneration
Article 450
- Qualitative information on the remuneration for staff who
have been assessed to have a material impact on FCE’s risk
profile
- Quantitative remuneration information (split by Fixed and
Variable elements)
- 'Pillar 3 Disclosures' – Table 22; page 157
Leverage:
Article 451
- The leverage ratio (LR) and how any transitional provisions
have been applied
- A breakdown of the total exposure measure and its
reconciliation to the published financial statements
- Description of the processes used to manage the risk of
excessive leverage
- The factors that had an impact on the LR during the period
to which the ratio refers
- 'Pillar 3 Disclosures' – Table 19; page 155
- 'Pillar 3 Disclosures' – Table 19 & 20; page 155
& 156
- 'Pillar 3 Disclosures' – Table 21; page 156
- 'Pillar 3 Disclosures' – Table 21; page 156
Use of credit risk
mitigation (CRM)
techniques:
Article 453
- Policies & processes for, and the extent to which, on and
off-balance sheet netting is used
- Description of the main types of collateral taken & the main
types of guarantor
- Total exposure amount covered by eligible collateral
- 'Pillar 3 Disclosures' – Table 1; page 135
- N/A. FCE currently only uses on balance sheet
netting for its CRM
Overview
The Basel Committee of Banking Supervision (BCBS) first introduced consistent capital adequacy standards for internationally
active financial institutions in its framework “Basel II” in 2004. This framework is structured around three pillars, which complement
each other and are designed to promote market discipline, ultimately to ensure the safety and soundness of the financial sector.
Pillar 3 specifically aims at enhancing market discipline by requiring financial institutions to disclose the scope of application,
capital adequacy, the capital risk exposures and risk assessment processes, and consequently by making this information
accessible for other market participants. Pillar 3 is supplemented by Pillars 1 and 2, which set out the minimum capital
requirements that firms are required to meet for credit, market and operational risk, and the supervisory review process
respectively.
This chapter contains the remaining Pillar 3 disclosures required by Part Eight of the Capital Requirements Regulation (CRR) not
already disclosed elsewhere in this Annual Report. All of the disclosures are subject to a thorough internal governance process
and those that appear in the Financial Statements have been audited.
2021 Pillar 3 Disclosures
Pillar 3 Disclosures
FCE Bank plc – ANNUAL REPORT 2021 133
Pillar 3 disclosure policy ....................................................................................................................................................134
Basis of disclosure ............................................................................................................................................................134
Non applicability and negative declarations ........................................................................................................................134
Reconciliation to Statement of Financial Position
1 Assets ...................................................................................................................................................................135
2 Liabilities and shareholders’ equity ..........................................................................................................................135
Asset Encumbrance
3a) Encumbered and unencumbered assets .................................................................................................................136
3b) Asset Encumbrance – Collateral received ...............................................................................................................136
3c) Asset Encumbrance – Sources of encumbrance. .....................................................................................................136
4 Asset Encumbrance – Narrative information ............................................................................................................137
Pillar 1 Capital requirements: Total
5 Capital requirement split by risk type .......................................................................................................................138
Pillar 1 Capital requirements: Credit risk (incl. Counterparty credit risk)
6 Credit risk – Total exposure amount and average exposure amount before & after credit risk mitigation (CRM) .........139
7 Credit risk – Exposure amount after credit risk mitigation (CRM) analysed by credit quality step………….. ................141
8 Credit risk – Exposure amount and risk weighted exposure amount by industry type ................................................142
9 Credit risk – Exposure amount and risk weighted exposure amount by geographical area ........................................143
10 Credit risk – Assets by residual maturity ..................................................................................................................144
11 Counterparty credit risk – Exposure amount and notional amount ............................................................................145
12 Credit risk adjustments – Reconciliation of movements ............................................................................................146
13a) Credit quality of forborne exposures ........................................................................................................................147
13b) Credit quality of performing and non-performing exposures by past due days ...........................................................148
13c) Performing and non-performing exposures and related provisions ...........................................................................149
13d) Collateral obtained by taking possession and execution processes ..........................................................................150
13e) Geographical distribution of impaired and past due exposures .................................................................................150
Own funds
14 Calculation of Own funds .......................................................................................................................................151
15 Capital instruments’ main features ..........................................................................................................................152
Capital buffers
16 Geographical distribution of credit exposures relevant for the calculation of the countercyclical capital buffer ............154
17 Amount of institution-specific countercyclical capital buffer.......................................................................................154
Leverage
18 Reconciliation of exposure measure to statement of financial position – Assets (LRSum) .........................................155
19 Breakdown of leverage exposure measure and calculation of leverage ratio (LRCom) ..............................................155
20 Breakdown of leverage exposure measure by exposure class (LRSpl) .....................................................................156
21 Qualitative disclosure on management of leverage ratio ..........................................................................................156
Remuneration
Qualitative information on the remuneration for staff who have been assessed to have a material impact on FCE’s risk profile
22 Quantitative remuneration information (split by Fixed and Variable elements) ...........................................................157
Contents
2021 Pillar 3 Disclosures
Pillar 3 Disclosures
134 FCE Bank plc – ANNUAL REPORT 2021
Pillar 3 disclosure policy
FCE publishes its Pillar 3 disclosures at least annually, and has a policy in place to assess on a regular basis through the year
the need to publish some or all of the disclosures more frequently if there is a significant change in the relevant characteristics of
the business. It has also set a Materiality waiver which has been used in some of these disclosures where the mandatory templates
specified by the EBA contain rows and columns for items that are not applicable to FCE’s business model. Where these have
been removed it is stated in the words accompanying the relevant table. Further waivers regarding the disclosure of non-material,
proprietary or confidential information according to CRR Article 432 have not been applied.
Basis of disclosure
FCE reports on two prudential consolidation bases.
1) Consolidated: There is no difference between the accounting consolidation referred to as ‘Group’ in this report and ‘FCE
Consolidated’.
2) Solo: FCE is also required to report to the regulator on a Solo basis, which is materially similar to the accounting
consolidation referred to as ‘Company’ in this report. Solo excludes FCE’s subsidiaries but includes FCE’s structured
entities . Please see Note 20 ‘Investments in Other Entities’ on page 91 for a full list of FCE’s entities which are required
for the purposes of Solo reporting.
The Pillar 3 disclosures in the Annual Report are shown only on a consolidated group basis. All of FCE’s supervisory reports are
based on UK adopted IFRS.
Non applicability and negative declarations
In principle, FCE observes all requirements stipulated in Part Eight, Titles II and III of the CRR. However certain requirements are
not applicable to FCE and therefore are not disclosed in this report. In the interest of the clarity and transparency of this report, all
requirements which are not applicable to FCE and the underlying reasoning are specified below along with negative declarations
(in order of occurrence in the CRR):
• At FCE there is currently no material impediment to transfer own funds or liabilities between parent & subsidiaries,
therefore Article 436 (c) does not apply
• All of FCE’s subsidiaries are included in the consolidation, therefore Article 436 (d) does not apply
• At FCE there are currently no restrictions to the calculation of own funds, therefore Article 437 (1e) does not apply
• All capital ratios are calculated by FCE using own funds determined only on the basis laid down in the CRR, therefore
Article 437 (1f) does not apply
• FCE calculates all of its capital ratios based on the standardised methods, therefore all Articles of the CRR referencing
Internal Methods do not apply to FCE. This refers to, amongst others, the Internal Rating Based Method (IRB) for Credit
Risk, the Internal Models Approach (IMA) for Market Risk and the Advanced Measurements Approach (AMA) for
Operational Risk, and respectively Articles 438, 449, 452, 454-455 of the CRR
• FCE does not have any exposure to wrong way risk, therefore Article 439 (c) does not apply
• FCE’s portfolio does not include any credit derivative exposures, therefore Article 439 (g-i) do not apply
• FCE has not been classified as a globally systemically important institution, therefore Article 441 does not apply
• FCE does not calculate its risk weighted exposure amounts in accordance with Articles 243, 337 & 338, because there
is no significant risk transfer on securitisation transactions and FCE does not hold a trading book. Therefore Articles
444(c), 445 and 449 do not apply for the same reasoning.
• FCE only uses the standard associations regarding external ratings as published by the EBA, hence Article 444 (d) does
not apply
• FCE has no derecognised fiduciary items in accordance with Article 429 (11), hence Article. 451 (1c) does not apply
• FCE applies credit risk mitigation techniques as described on page 135. This does not result in market or credit risk
concentrations, therefore Article 453 (e) does not apply
2021 Pillar 3 Disclosures
Pillar 3 Disclosures
FCE Bank plc – ANNUAL REPORT 2021 135
1 RECONCILIATION TO STATEMENT OF FINANCIAL POSITION - ASSETS
Own funds elements
GROUP / CONSOLIDATED
As at 31 December 2021
ASSETS
Statement of
financial
position
£ mil
Deductions
from CET1
£ mil
Tier 2 (T2)
Items
£ mil
Credit Risk
Mitigation (On
Balance Sheet
Netting)
£ mil
Subject to
Credit Risk
£ mil
Cash and cash equivalents
1,822
-
-
-
1,822
Derivative financial instruments
63
-
-
-
63
Other assets
320
-
-
-
320
Loans and advances to customers
12,602
-
-
(640)
11,962
Property and equipment
162
-
-
-
162
Right-of-use assets
17
-
-
-
17
Intangible assets
38
(38)
-
-
-
Income taxes receivable
6
-
-
-
6
Deferred tax assets
35
(20)
-
-
15
Investment in other entities
-
-
-
-
-
TOTAL ASSETS
15,065
(58)
-
(640)
14,367
The table above provides a reconciliation of the assets in FCE’s Statement of Financial Position on page 48, to assets subject to
credit risk prior to risk weighting. FCE’s only form of Credit Risk Mitigation (CRM) is the use of on balance sheet netting where
loans from parent entities are used to mitigate the exposures to Ford Motor Company and to some dealers.
2 RECONCILIATION TO STATEMENT OF FINANCIAL POSITION – LIABILITIES AND SHAREHOLDERS’EQUITY
Own funds elements
GROUP / CONSOLIDATED
As at 31 December 2021
LIABILITIES
Statement of
financial position
£ mil
Common Equity Tier 1
(CET1) Items
£ mil
Tier 2 (T2)
Items
£ mil
Financial liabilities
6,987
-
310
Lease liabilities
17
-
-
Deposits
5,001
-
-
Derivative financial instruments
16
-
-
Other liabilities and provisions
235
-
-
Income taxes payable
40
-
-
Deferred tax liabilities
27
-
-
TOTAL LIABILITIES
12,323
-
310
SHAREHOLDERS' EQUITY
Ordinary shares
614
614
-
Share premium
352
352
-
Retained earnings
1,776
1,776
-
TOTAL SHAREHOLDERS' EQUITY
2,742
2,742
-
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
15,065
2,742
310
2021 Pillar 3 Disclosures
Pillar 3 Disclosures
136 FCE Bank plc – ANNUAL REPORT 2021
3 a) ENCUMBERED AND UNENCUMBERED ASSETS
Template A
CONSOLIDATED
For the year ended 31 December 2021
Carrying
amount of
encumbered
assets
Column 010
£ mil
Fair value of
encumbered
assets
Column 040
£ mil
Carrying
amount of
unencumbered
assets
Column 060
£ mil
Fair value of
unencumbered
assets
Column 090
£ mil
010
Assets of the reporting institution
4,757
Not Required
10,730
Not Required
020
Loans on demand
37
Not Required
1,551
Not Required
100
Loans and advances other than loans on demand
4,720
Not Required
8,533
Not Required
120
Other assets
-
Not Required
646
Not Required
3 b) ASSET ENCUMBRANCE – COLLATERAL RECEIVED
Template B
CONSOLIDATED
For the year ended 31 December 2021
Fair value of encumbered
collateral received or own debt
securities issued
Column 010
£ mil
Unencumbered
Fair value of collateral received or
own debt securities issued
available for encumbrance
Column 040
£ mil
250
TOTAL ASSETS, COLLATERAL RECEIVED AND
OWN DEBT
4,757
Not Required
3 c) ASSET ENCUMBRANCE – SOURCES OF ENCUMBRANCE
Template C
CONSOLIDATED
For the year ended 31 December 2021
Matching liabilities, contingent
liabilities or securities lent
Column 010
£ mil
Assets, collateral received and
own debt securities issued other
than covered bonds
and ABSs encumbered
Column 030
£ mil
010
Carrying amount of selected financial liabilities
1,753
4,757
120
Other sources of encumbrance
-
-
170
TOTAL SOURCES OF ENCUMBRANCE
1,753
4,757
The tables above have been prepared according to the EBA’s technical standards on asset encumbrance disclosure using their
published templates, but with certain rows and columns omitted to reflect FCE’s Materiality waiver. The amounts shown are the
median of the values reported as at each quarter end during the year.
2021 Pillar 3 Disclosures
Pillar 3 Disclosures
FCE Bank plc – ANNUAL REPORT 2021 137
4 ASSET ENCUMBRANCE – NARRATIVE INFORMATION
Template D
CONSOLIDATED
As at 31 December 2021
Asset encumbrance arises from securitisation programmes that
generally include the transfer of loans and advances through a
variety of programmes and structured entities. Such receivables
have typically been sold for legal purposes to consolidated
structured entities. Securities issued by the structured entity are,
from time to time, purchased by FCE and used as collateral for
financing received from central banks. The underlying assets in
these transaction are considered unencumbered if they are not
being used as security for central bank funding. Securitisation
continues to represent an important portion of FCE’s funding
structure and it monitors the mix of its secured and unsecured
funding sources within its funding plan seeking the benefits of
diverse funding sources. As FCE is not fully isolated from the risks
and benefits of securitisation transactions, it continues to recognise
the carrying value of the transferred assets.
2021 Pillar 3 Disclosures
Pillar 3 Disclosures
138 FCE Bank plc – ANNUAL REPORT 2021
5 PILLAR 1 CAPITAL REQUIREMENT SPLIT BY RISK TYPE
As at 31 December
2021
2020
CONSOLIDATED
Risk type
Approach
Risk exposure
amount
£ mil
Capital
requirement
£ mil
Risk exposure
amount
£ mil
Capital
requirement
£ mil
Credit risk (excl. Counterparty credit risk)
Standardised
10,238
819
13,491
1,079
Counterparty credit risk
Mark to Market
56
5
92
7
Total credit risk
10,294
824
13,583
1,086
Credit valuation adjustment (CVA) risk
Standardised
33
3
82
7
Market risk (Foreign exchange risk)
Standardised
170
14
491
39
Operational risk
Standardised
930
74
933
75
Total all risk types
11,427
915
15,089
1,207
The table above uses the following terms.
‘Risk exposure amount’ for credit risk and counterparty credit risk is the risk weighted exposure amount.
‘Capital requirement’ for credit risk and counterparty credit risk is 8% of the risk weighted exposure amount.
For the remaining Pillar 1 risk types, the capital requirement value is calculated directly by the method prescribed in the CRR.
Minimum Requirement for Own Funds and Eligible Liabilities (MREL)
FCE has a Total Capital Requirement (TCR) that covers both Pillar 1 and Pillar 2 risk types. FCE’s TCR as at 31 December 2021
was 11.1% (2020: 11.2%).
FCE is under the Bank of England’s Special Resolution Regime and as such the Bank of England has set FCE’s preferred
resolution strategy as a modified form of insolvency procedure, taking into account the scale of its operations, business model
and strategy. The Bank of England has set FCE’s MREL as equal to its TCR.
2021 Pillar 3 Disclosures
Pillar 3 Disclosures
FCE Bank plc – ANNUAL REPORT 2021 139
6 CREDIT RISK – TOTAL EXPOSURE AMOUNT AND AVERAGE EXPOSURE AMOUNT BEFORE AND AFTER CREDIT
RISK MITIGATION (CRM)
CONSOLIDATED
As at 31 December
Exposure amount
after credit
conversion factors
Capital Requirements
Exposure amount
after credit
conversion factors
Capital Requirements
Exposure class
2021
2020
On balance sheet
exposures
Year end
£ mil
Average
£ mil
RWEA
£ mil
Capital
required
£ mil
Year end
£ mil
Average
£ mil
RWEA
£ mil
Capital
required
£ mil
Corporates
3,656
4,155
3,656
292
5,704
6,652
5,704
456
Retail
8,522
9,051
6,075
486
9,824
9,806
7,018
562
of which: SME
1,777
1,834
1,016
81
1,961
1,981
1,121
90
Public sector entities
35
38
35
3
40
39
40
3
Central governments or
central banks
1,599
1,216
-
-
2,046
1,627
-
-
Institutions
326
447
71
6
490
494
99
8
Exposures in default
96
118
144
11
216
261
324
26
Other items
21
23
21
2
32
35
31
2
Items below threshold for
capital deduction
-
-
-
-
-
-
-
-
Central governments or
central banks (DTA)
15
20
37
3
37
35
93
7
Institutions: (Investments)
-
-
-
-
-
-
-
-
Total on balance sheet
14,270
15,068
10,039
803
18,389
18,949
13,309
1,064
Off balance sheet
exposures
Corporates
13
25
13
1
38
38
38
3
Retail
247
213
186
15
193
145
144
12
Total off balance sheet
260
238
199
16
231
183
182
15
Total credit risk (excl.
counterparty credit risk)
14,530
15,306
10,238
819
18,620
19,132
13,491
1,079
Derivatives
Corporates
20
18
20
2
4
7
4
-
Institutions
154
171
36
3
270
310
88
7
Total counterparty
credit risk
174
189
56
5
274
317
92
7
Total credit risk
14,704
15,495
10,294
824
18,894
19,449
13,583
1,086
2021 Pillar 3 Disclosures
Pillar 3 Disclosures
140 FCE Bank plc – ANNUAL REPORT 2021
6 CREDIT RISK – TOTAL EXPOSURE AMOUNT AND AVERAGE EXPOSURE AMOUNT
BEFORE AND AFTER CREDIT RISK MITIGATION (CRM) Continued
The Credit Risk exposures depicted in Table 6 on page 139 have all been calculated according to the standardised method.
The table uses the following terms:
‘Corporates’ relates to exposures to corporates where no credit assessment is available.
‘SME’ relates to exposures to small or medium sized enterprises within the Retail exposure class as defined in the CRR.
‘Central governments or central banks’ relates to exposures to EU member states and the UK, denominated and funded in
Euros and Sterling respectively and are risk weighted at 0%.
‘Institutions’ relates to exposures of varying residual maturities.
‘Items below threshold for capital deduction’ relates to the items ‘Deferred tax assets that arise from temporary differences’
and ‘Significant investments’ which fall below the threshold for deduction from capital and are therefore risk weighted at 250%.
‘Averages’ are the mean of the amounts reported as at each quarter end during the year being reported.
‘Risk Weighted Exposure Amount (RWEA)’ is calculated by multiplying the exposure amount by the appropriate risk weight
percentage. For exposure to SMEs, the SME supporting factor is applied.
‘Capital required’ is 8% of the risk weighted exposure amounts for each exposure class.
Additional information: In addition to the exposure classes shown in tables 6-10, FCE also has an exposure in the “Equities”
exposure class but only when reporting on a Solo basis. As all of the Pillar 3 disclosures are provided only on an FCE Consolidated
basis, that class is not shown and Article 447 (a-e) is therefore not applicable.
2021 Pillar 3 Disclosures
Pillar 3 Disclosures
FCE Bank plc – ANNUAL REPORT 2021 141
7 CREDIT RISK – EXPOSURE AMOUNT AFTER CRM ANALYSED BY CREDIT QUALITY STEP
CONSOLIDATED
Exposure amount- After credit conversion factors
As at 31 December
2021
2020
Credit Quality Step
On balance sheet exposures
Public
Sector
Entities
£ mil
Institutions
£ mil
All other
Exposure
Classes
£ mil
Total
£ mil
Public
Sector
Entities
£ mil
Institutions
£ mil
All other
Exposure
Classes
£ mil
Total
£ mil
Credit Quality Step (CQS) 1
-
1
-
1
-
2
-
2
Credit Quality Step (CQS) 2
-
263
-
263
-
387
-
387
Credit Quality Step (CQS) 3
35
47
-
82
40
80
-
120
Credit Quality Step (CQS) 4
-
-
-
-
-
2
-
2
Uniform regulatory treatment
-
15
13,909
13,924
-
19
17,859
17,878
Total on balance sheet
35
326
13,909
14,270
40
490
17,859
18,389
Off balance sheet exposures
Uniform regulatory treatment
-
-
260
260
-
-
231
231
Total off balance sheet
-
-
260
260
-
-
231
231
Total credit risk (excl.
counterparty credit risk)
35
326
14,169
14,530
40
490
18,090
18,620
Derivatives
Credit Quality Step (CQS) 1
-
-
-
-
-
-
-
-
Credit Quality Step (CQS) 2
-
52
-
52
-
91
-
91
Credit Quality Step (CQS) 3
-
17
-
17
-
80
-
80
Uniform regulatory treatment
-
85
20
105
-
99
4
103
Total counterparty credit risk
-
154
20
174
-
270
4
274
Total credit risk
35
480
14,189
14,704
40
760
18,094
18,894
Under the Standardised approach, defined exposure classes are risk weighted by first defining the relevant Credit Quality Step
(CQS) of the counterparty. Where the counterparty is known to be rated by an External Credit Assessment Institution (ECAI), FCE
uses the rating of Standard & Poor’s (S&P) to determine which CQS to apply and then calculates the subsequent risk weighting.
The risk weightings for all other exposure classes are calculated without applying the credit quality step. These are shown in the
rows labelled ‘Uniform regulatory treatment’ in the tables.
2021 Pillar 3 Disclosures
Pillar 3 Disclosures
142 FCE Bank plc – ANNUAL REPORT 2021
8 CREDIT RISK – EXPOSURE AMOUNT AND RISK WEIGHTED EXPOSURE AMOUNT BY INDUSTRY TYPE
CONSOLIDATED
As at 31 December 2021
Exposure class
Ford
dealers
£ mil
Other
corporates
(incl. FMC
owned)
£ mil
SMEs
£ mil
Private
customers
£ mil
Credit
institutions
£ mil
Central
governments
or central
banks
£ mil
Other
£ mil
Total
£ mil
Corporate
2,754
935
-
-
-
-
-
3,689
Retail
-
-
1,777
6,992
-
-
-
8,769
Public sector entities
-
-
-
-
-
-
35
35
Central governments or
central banks
-
-
-
-
-
1,614
-
1,614
Institutions
-
-
-
-
480
-
-
480
Exposures in default
50
-
34
12
-
-
-
96
Other items
-
-
-
-
-
-
21
21
Total credit risk
2,804
935
1,811
7,004
480
1,614
56
14,704
-
-
-
-
-
-
-
-
RWEA
2,829
935
1,066
5,264
107
37
56
10,294
As at 31 December 2020
Exposure class
Ford
dealers
£ mil
Other
corporates
(incl. FMC
owned)
£ mil
SMEs
£ mil
Private
customers
£ mil
Credit
institutions
£ mil
Central
governments
or central
banks
£ mil
Other
£ mil
Total
£ mil
Corporate
4,282
1,464
-
-
-
-
-
5,746
Retail
-
-
1,961
8,056
-
-
-
10,017
Public sector entities
-
-
-
-
-
-
40
40
Central governments or
central banks
-
-
-
-
-
2,083
-
2,083
Institutions
-
-
-
-
760
-
-
760
Exposures in default
156
-
17
43
-
-
-
216
Other items
-
-
-
-
-
-
32
32
Total credit risk
4,438
1,464
1,978
8,099
760
2,083
72
18,894
RWEA
4,515
1,464
1,146
6,107
187
93
71
13,583
2021 Pillar 3 Disclosures
Pillar 3 Disclosures
FCE Bank plc – ANNUAL REPORT 2021 143
9 CREDIT RISK – EXPOSURE AMOUNT AND RISK WEIGHTED EXPOSURE AMOUNT BY GEOGRAPHICAL AREA
CONSOLIDATED
Exposure amount
As at 31 December 2021
Exposure class
UK
£ mil
Germany
£ mil
Italy
£ mil
Spain
£ mil
France
£ mil
Other
£ mil
Total FCE
£ mil
Corporate
844
1,305
337
158
459
586
3,689
Retail
3,140
2,646
2,011
459
384
129
8,769
Public sector entities
-
-
35
-
-
-
35
Central governments or
central banks
323
1,194
23
64
-
10
1,614
Institutions
221
15
5
18
19
202
480
Exposures in default
5
15
66
1
4
5
96
Other items
16
3
-
-
-
2
21
Total credit risk
4,549
5,178
2,477
700
866
934
14,704
RWEA
3,219
3,214
1,884
503
750
724
10,294
CONSOLIDATED
Exposure amount
As at 31 December 2020
Exposure class
UK
£ mil
Germany
£ mil
Italy
£ mil
Spain
£ mil
France
£ mil
Other
£ mil
Total FCE
£ mil
Corporate
1,357
2,028
557
310
624
870
5,746
Retail
3,441
3,167
2,148
561
431
269
10,017
Public sector entities
-
-
40
-
-
-
40
Central governments or
central banks
691
900
373
69
-
50
2,083
Institutions
273
23
18
28
83
335
760
Exposures in default
10
52
130
6
-
18
216
Other items
20
7
1
1
3
-
32
Total credit risk
5,792
6,177
3,267
975
1,141
1,542
18,894
RWEA
4,006
4,370
2,345
744
960
1,158
13,583
2021 Pillar 3 Disclosures
Pillar 3 Disclosures
144 FCE Bank plc – ANNUAL REPORT 2021
10 CREDIT RISK – ASSETS BY RESIDUAL MATURITY
The tables within this note present the gross undiscounted contractual cash flows by FCE asset class with the equivalent exposure
classes shown in brackets.
CONSOLIDATED
As at 31 December 2021
Assets
Note
0-3
Months
£ mil
4-12
Months
£ mil
1-5
Years
£ mil
5+
Years
£ mil
Total
£ mil
Cash and cash equivalents (institutions, central banks)
A
1,822
-
-
-
1,822
Derivative financial instruments (institutions, corporates)
C
5
28
33
-
66
- Retail/Lease (retail)
B
883
2,762
6,302
3
9,950
- Wholesale (corporates)
B
480
2,800
-
-
3,280
Loans and advances to customers
B
1,363
5,562
6,302
3
13,230
Operating leases (corporates)
B
76
83
-
-
159
Other assets (corporates, central governments, other items)
D
76
25
37
55
193
Total asset inflows
3,342
5,698
6,372
58
15,470
CONSOLIDATED
As at 31 December 2020
Assets
Note
0-3
Months
£ mil
4-12
Months
£ mil
1-5
Years
£ mil
5+
Years
£ mil
Total
£ mil
Cash and cash equivalents (institutions, central banks)
A
2,048
-
-
-
2,048
Derivative financial instruments (institutions, corporates)
C
11
53
31
-
95
- Retail/Lease (retail)
B
985
3,156
7,453
4
11,598
- Wholesale (corporates)
B
684
4,251
55
-
4,990
Loans and advances to customers
B
1,669
7,407
7,508
4
16,588
Operating leases (corporates)
B
105
206
-
-
311
Other assets (corporates, central governments, other items)
D
713
40
45
115
913
Total asset inflows
4,546
7,706
7,584
119
19,955
Note
Cash flows from assets are allocated to the appropriate time bands as follows:
A
Based on availability of 'cash and cash equivalents' as follows (Note 9 ‘Cash and Cash Equivalents’ in the Financial Statements):
• ‘Cash and cash equivalents’ classified by contractual maturity date.
B
Customer payments are assumed to occur on the latest contractual date and no behavioural adjustments are made for customer
early settlements:
• Retail finance and lease contracts and operating lease vehicles (reported within Note 15 'Property and equipment') generally
require customers to pay equal monthly instalments over the life of the contract.
• Wholesale financing for new and used vehicles held in dealers’ inventory - A bullet repayment schedule is utilised as the
principal is typically repaid in one lump sum at the end of the financing period.
C
Forward foreign exchange contracts, cross currency interest rate swaps and interest rate swaps are presented as settled on a net
basis.
D
Classified according to the remaining period to maturity, including ‘Restricted Cash’ which are assumed to be amounts typically not
available for use in day to day operations classified based on the latest possible repayment date.
2021 Pillar 3 Disclosures
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FCE Bank plc – ANNUAL REPORT 2021 145
11 COUNTERPARTY CREDIT RISK - EXPOSURE AMOUNTAND NOTIONAL AMOUNT
As at 31
December
2021
2020
CONSOLIDATED
MTM
Potential
future
exposure
Total
exposure at
default
Notional
amount
MTM
Potential
future
exposure
Total
exposure at
default
Notional
amount
£ mil
£ mil
£ mil
£ mil
£ mil
£ mil
£ mil
£ mil
Interest rate
contracts
51
66
117
14,411
66
131
197
22,143
Foreign exchange
contracts
12
8
20
825
27
5
32
527
Total contracts
63
74
137
15,236
93
136
229
22,670
Memo:
2021
2020
£ mil
£ mil
Collateral held / (posted)
(5)
14
Initial margin posted
37
45
FCE’s exposure to counterparty credit risk is through interest rate and foreign exchange derivatives. The exposure amounts in
the table above are calculated in line with the CRR mark-to-market (MTM) method.
With regards to Art. 439 (d), there would be no material impact to collateral requirements of existing contracts in the event of a
deterioration of FCE’s credit rating.
Please refer to Note 31 ‘Market Risk’ for further details of FCE’s Derivatives policies and controls.
The table above uses the following terms.
‘Initial margin posted’ is the value of Initial Margin cash collateral FCE has posted to a Qualifying Central Counterparty (CCP)
in respect of clearing arrangements.
‘Collateral held / (posted)’ is the total net value of variation margin cash collateral received by FCE from the margining of
derivative contracts.
2021 Pillar 3 Disclosures
Pillar 3 Disclosures
146 FCE Bank plc – ANNUAL REPORT 2021
12 CREDIT RISK ADJUSTMENTS – RECONCILIATION OF MOVEMENTS
As at 31 December
2021
2020
CONSOLIDATED
Reconciliation of movements
Total
£ mil
Total
£ mil
Opening balance
46
21
Write Offs
(38)
(54)
Recoveries
31
28
Allowance for expected credit losses
(5)
49
FX movement
(1)
2
Closing balance
33
46
Income statement
Charges - (Increase) / decrease
(26)
(77)
Recoveries
31
28
Total charged to income statement
5
(49)
The credit risk adjustments shown in the table all meet the regulatory definition of ‘Specific credit risk adjustments’ and equate to
the value of FCE’s allowance for expected credit losses at 31 December. See Note 13 ‘Allowance for Expected Credit losses’ for
further information.
2021 Pillar 3 Disclosures
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FCE Bank plc – ANNUAL REPORT 2021 147
13 a) CREDIT QUALITY OF FORBORNE EXPOSURES
Tables 13a) – 13d) use the standard 4 templates issued by the EBA to show the values of forborne and non-performing exposures
for banks who have an NPL ratio below the 5% threshold. FCE’s Materiality waiver has then been used to omit certain rows and
columns in those standard templates.
A
b
c
d
e
f
g
h
CONSOLIDATED
As at 31 December 2021
Gross carrying amount/nominal amount of
exposures with forbearance measures
Accumulated impairment,
accumulated negative
changes in fair value due
to credit risk and
provision
Collateral received and
financial guarantees
received on forborne
exposures
Performing
forborne
Non-performing forborne
On
performing
forborne
exposures
On non-
performing
forborne
exposures
Of which
collateral and
financial
guarantees
received on
non-performing
exposures with
forbearance
measures
Of which
defaulted
Of which
impaired
£ mil
£ mil
£ mil
£ mil
£ mil
£ mil
£ mil
£ mil
1
Loans and Advances
71
109
109
109
-
(2)
131
74
6
Non-financial
corporations
42
77
77
77
-
(2)
84
49
7
Households
29
32
32
32
-
-
47
25
8
Debt securities
-
-
-
-
-
-
-
-
9
Loan commitments
given
-
-
-
-
-
-
-
-
10
Total
71
109
109
109
-
(2)
131
74
CONSOLIDATED
As at 31 December 2020
1
Loans and Advances
64
235
48
235
-
(2)
252
202
6
Non-financial
corporations
32
169
46
169
-
(2)
183
156
7
Households
32
66
2
66
-
-
69
46
8
Debt securities
-
-
-
-
-
-
-
-
9
Loan commitments
given
-
-
-
-
-
-
-
-
10
Total
64
235
48
235
-
(2)
252
202
‘Impaired’ for accounting purposes is a loan where, based on current information and events, it is probable that FCE will be
unable to collect all amounts due (i.e. principal, interest and other related income) according to the contractual terms of the loan
agreement.
FCE defines a default to have occurred in respect of any borrower (consumer and non-consumer) when the borrower satisfies
at least one of the following default criteria in respect of the amount owed by the borrower to FCE:
• Primary Criterion: Unlikely to pay the total amount owed
• Secondary Criterion: More than 90 days past due in respect of a material amount owed, if not already meeting the
primary criterion
Please also refer to Note 29 ‘Credit Risk’ for more details on FCE’s forborne exposures.
2021 Pillar 3 Disclosures
Pillar 3 Disclosures
148 FCE Bank plc – ANNUAL REPORT 2021
13 b) CREDIT QUALITY OF PERFORMING AND NON-PERFORMING EXPOSURES BY PAST DUE DAYS
a
b
c
d
e
f
g
h
i
j
k
l
CONSOLIDATED
As at 31 December 2021
Gross carrying amount/nominal amount
Performing exposures
Non-performing exposures
Not past
due or
past due
≤ 30 days
Past
due >
30
days ≤
90
days
Unlikely
to pay
that are
not past
due or
are past
due ≤ 90
days
Past
due >
90
days
≤ 180
days
Past
due >
180
days
≤ 1
year
Past
due >
1
year
≤ 2
years
Past
due >
2
years
≤ 5
years
Past
due >
5
years
≤ 7
years
Past
due >
7
years
Of
which
de-
faulted
£ mil
£ mil
£ mil
£ mil
£ mil
£ mil
£ mil
£ mil
£ mil
£ mil
£ mil
£ mil
1
Loans and Advances
12,508
12,485
23
127
79
5
14
29
-
-
-
127
6
Non-financial corporations
4,863
4,858
5
86
47
2
8
29
-
-
-
86
7
Of which SMEs
1,678
1,673
5
34
25
1
8
-
-
-
-
34
8
Households
7,645
7,627
18
41
32
3
6
-
-
-
-
41
9
Debt securities
-
-
-
-
-
-
-
-
-
-
-
-
15
Off-balance-sheet
exposures
262
Not Required
-
Not Required
-
20
Non-financial corporations
46
-
-
21
Households
216
-
-
22
Total
12,770
12,485
23
127
79
5
14
29
-
-
-
127
CONSOLIDATED
As at 31 December 2020
1
Loans and Advances
15,588
15,557
31
262
190
15
50
4
3
-
-
72
6
Non-financial corporations
6,595
6,588
7
185
126
9
43
4
3
-
-
59
7
Of which SMEs
1,839
1,832
7
17
14
2
1
-
-
-
-
3
8
Households
8,993
8,969
24
77
64
6
7
-
-
-
-
13
9
Debt securities
-
-
-
-
-
-
-
-
-
-
-
-
15
Off-balance-sheet
exposures
244
Not Required
-
Not Required
-
20
Non-financial corporations
42
-
-
21
Households
201
-
-
22
Total
15,832
15,557
31
262
190
15
50
4
3
-
-
72
The gross Non-performing Loan ratio (NPL) as calculated from the values shown in the table above is 1.0% (2020: 1.7%). The
non-performing exposure is £127 million as at 31
st
December 2021 (2020: £262 million) with the decrease primarily due to higher
rescheduled dealers.
Please also refer to Note 13 ‘Allowance for Expected Credit losses’ and Note 29 ‘Credit Risk’ for more details on FCE’s definitions
of Performing and Non-performing. Please refer to the Glossary of Defined Terms for FCE’s definition for accounting purposes of
‘past due’.
2021 Pillar 3 Disclosures
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FCE Bank plc – ANNUAL REPORT 2021 149
13 c) PERFORMING AND NON-PERFORMING EXPOSURES AND RELATED PROVISIONS
a
b
c
d
e
f
g
h
i
j
m
n
o
CONSOLIDATED
As at 31
December 2021
Gross carrying amount/nominal amount
Accumulated impairment, accumulated
negative changes in fair value due to
credit risk and provisions
Accumu-
lated
partial
write-off
Collateral and
financial
guarantees
received
Performing Exposures
Non-performing
exposures
Performing exposures
- accumulated
impairment and
provisions
Non-performing
exposures -
accumulated
impairment,
accumulated negative
changes in fair value
due to credit risk and
provisions
On
perfor-
ming
expo-
sures
On
non-
perfor
-ming
expo-
sures
Of which
Of which
Of which
Stage 1
Stage 2
Stage 2
Stage 3
Stage 1
Stage 2
£ mil
£ mil
£ mil
£ mil
£ mil
£ mil
£ mil
£ mil
£ mil
£ mil
£ mil
£ mil
£ mil
1
Loans and
Advances
12,508
12,355
153
127
-
127
(31)
(30)
(1)
(2)
(38)
8,632
84
6
Non-financial
corporations
4,863
4,782
81
86
-
86
(10)
(9)
(1)
(2)
(18)
3,939
54
7
Of which
SMEs
1,678
1,802
76
34
-
34
(8)
(7)
(1)
-
(18)
900
4
8
Households
7,645
7,573
72
41
-
41
(21)
(21)
-
-
(20)
4,693
30
9
Debt
securities
-
-
-
-
-
-
-
-
-
-
-
-
-
15
Off-balance-
sheet
exposures
262
262
-
-
-
-
-
-
-
-
Not
Required
-
-
20
Non-financial
corporations
46
46
-
-
-
-
-
-
-
-
-
-
21
Households
216
216
-
-
-
-
-
-
-
-
-
-
22
Total
12,770
12,617
153
127
-
127
(31)
(30)
(1)
(2)
(38)
8,632
84
CONSOLIDATED
As at 31
December 2020
1
Loans and
Advances
15,588
14,504
1,084
262
-
262
(43)
(34)
(9)
(3)
(54)
10,508
223
6
Non-financial
corporations
6,595
6,231
364
185
-
185
(20)
(15)
(5)
(3)
(24)
5,422
171
7
Of which
SMEs
1,839
1,569
270
17
-
17
(10)
(8)
(2)
-
(19)
896
11
8
Households
8,993
8,273
720
77
-
77
(23)
(19)
(4)
-
(30)
5,086
52
9
Debt
securities
-
-
-
-
-
-
-
-
-
-
-
-
-
15
Off-balance-
sheet
exposures
244
244
-
-
-
-
-
-
-
-
Not
Required
-
-
20
Non-financial
corporations
42
42
-
-
-
-
-
-
-
-
-
-
21
Households
201
201
-
-
-
-
-
-
-
-
-
-
22
Total
15,832
14,748
1,084
262
-
262
(43)
(34)
(9)
(3)
(54)
10,508
223
The collateral and financial guarantees received is £8,716 as at 31
st
December 2021 (2020: £10,731m). The decrease is due to
the reduction in Wholesale Receivables whereby lower collateral is held against a lower receivable base. Refer to the footnotes
in Table 13b) for further details.
2021 Pillar 3 Disclosures
Pillar 3 Disclosures
150 FCE Bank plc – ANNUAL REPORT 2021
13 d) COLLATERAL OBTAINED BY TAKING POSSESSION AND EXECUTION PROCESSES
Table 13d) shows the value of the repossessions that FCE has undertaken.
13 e) GEOGRAPHICAL DISTRIBUTION OF IMPAIRED AND PAST DUE EXPOSURES
The tables below show amounts by geographical area based on the location of the FCE branches and subsidiaries.
a
b
c
d
e
f
g
h
i
j
k
l
CONSOLI-
DATED
As at 31
December
2021
Gross carrying amount/nominal amount
Performing exposures
Non-performing exposures
Not
past
due or
past
due ≤
30 days
Past
due >
30 days
≤ 90
days
Unlikely
to pay
that are
not past
due or
are past
due ≤
90 days
Past
due >
90 days
≤ 180
days
Past
due >
180
days ≤
1 year
Past
due > 1
year ≤ 2
years
Past
due > 2
years ≤
5 years
Past
due > 5
years ≤
7 years
Past
due > 7
years
Of which
impaired
£ mil
£ mil
£ mil
£ mil
£ mil
£ mil
£ mil
£ mil
£ mil
£ mil
£ mil
£ mil
1
UK
4,331
4,325
6
16
13
1
2
-
-
-
-
16
2
Germany
3,719
3,714
5
21
18
1
2
-
-
-
-
21
3
Italy
2,342
2,335
7
75
38
1
7
29
-
-
-
75
4
Spain
607
605
2
4
3
1
-
-
-
-
-
4
5
France
821
819
2
6
3
-
3
-
-
-
-
6
6
Other
688
687
1
5
4
1
-
-
-
-
-
5
7
Total
12,508
12,485
23
127
79
5
14
29
-
-
-
127
As at 31
December
2020
1
UK
5,098
5,086
12
29
20
4
5
-
-
-
-
29
2
Germany
4,847
4,842
5
62
60
1
1
-
-
-
-
62
3
Italy
2,671
2,663
8
134
85
8
41
-
-
-
-
134
4
Spain
843
840
3
10
9
1
-
-
-
-
-
10
5
France
1,014
1,013
1
5
2
-
3
-
-
-
-
5
6
Other
1,115
1,113
2
22
14
1
-
4
3
-
-
22
7
Total
15,588
15,557
31
262
190
15
50
4
3
-
-
262
2021
2020
a
b
a
b
Collateral obtained by taking possession
Collateral obtained by taking possession
Value at initial
recognition
Accumulated
negative changes
Value at initial
recognition
Accumulated
negative changes
£ mil
£ mil
£ mil
£ mil
1
Property, plant and equipment (PP&E)
-
-
-
-
2
Other than PP&E
3
-
4
-
Movable property (auto)
3
-
4
-
8
Total
3
-
4
-
2021 Pillar 3 Disclosures
Pillar 3 Disclosures
FCE Bank plc – ANNUAL REPORT 2021 151
14 CALCULATION OF OWN FUNDS
The table below uses the standard template issued by the EBA to show the composition of FCE’s own funds but with certain rows
and columns omitted to reflect FCE’s Materiality waiver.
CONSOLIDATED
As at 31 December
Common Equity Tier 1 (CET1) capital: instruments and reserves
2021
£ mil
2020
£ mil
1
Capital instruments and the related share premium accounts
966
966
of which: share capital and share premium
966
966
2
Retained earnings
1,559
1,706
3
Accumulated other comprehensive income (and other reserves, to include unrealised
gains and losses under the applicable accounting standards)
217
331
6
Common Equity Tier 1 (CET 1) capital before regulatory adjustments
2,742
3,003
Common Equity Tier 1 (CET1) capital: regulatory adjustments
8
Intangible assets (net of related tax liability) (-)
(38)
(33)
10
Deferred tax assets that rely on future profitability excluding those arising from
temporary differences (net of related tax liability where the conditions in Article 38 (3)
(20)
(22)
28
Total regulatory adjustments applied to Common Equity Tier 1 (CET1)
(58)
(55)
29
Common Equity Tier 1 (CET1) capital
2,684
2,948
45
Tier 1 capital (T1= CET1 + Additional Tier 1 (AT1) capital)
2,684
2,948
Tier 2 (T2) capital: instruments and provisions
46
Capital instruments and the related share premium accounts
248
250
48
Qualifying own funds instruments included in consolidated T2 capital issued by
subsidiaries and held by third parties
62
89
58
Tier 2 (T2) capital
310
339
59
Total capital (TC = T1 + T2)
2,994
3,287
60
Total risk weighted assets
11,427
15,089
Capital ratio and buffers
2021
%
2020
%
61
Common Equity Tier 1 (as a percentage of total risk exposure amount)
23.49
19.54
62
Tier 1 (as a percentage of total risk exposure amount)
23.49
19.54
63
Total capital (as a percentage of total risk exposure amount)
26.20
21.79
64
Institution specific buffer requirement (as a percentage of total risk exposure
amount)
2.50
2.50
65
of which: capital conservation buffer requirement
2.50
2.50
66
of which: countercyclical buffer requirement
0.00
0.00
68
Common Equity Tier 1 available to meet buffers (as a percentage of total risk
exposure amount)
15.15
10.63
*
Amounts below the thresholds for deductions
2021
£ mil
2020
£ mil
73
Direct and indirect holdings of the CET1 instruments of financial sector entities where
the institution has a significant investment in those entities (amount below 10%
threshold and net of eligible short positions)
-
-
75
Deferred tax assets arising from temporary differences (amount below 10% threshold,
net of related tax liability where the conditions in Article 38 (3) are met)
15
37
* Restated
2021 Pillar 3 Disclosures
Pillar 3 Disclosures
152 FCE Bank plc – ANNUAL REPORT 2021
15 CAPITAL INSTRUMENTS’ MAIN FEATURES
As at 31 December 2021
Capital Instruments: Main features
Main features
Tier 1
Tier 2
Issuer
FCE Bank Plc
FCE Bank Plc
FCE Bank Plc
FCE Bank Plc
Ford Bank GmbH
Ford Bank GmbH
Unique Identifier (e.g. CUSP,
ISIN, or Bloomberg identifier for
private placement)
N/A
N/A
N/A
N/A
N/A
N/A
Governing law(s) of the
instrument
England and Wales
England and Wales
England and
Wales
England and
Wales
Germany
Germany
Regulatory treatment
Transitional CRR rules
Common-Equity Tier
1
Tier 2
Tier 2
Tier 2
Tier 2
Tier 2
Post-transitional CRR rules
Common-Equity Tier
1
Tier 2
Tier 2
Tier 2
Tier 2
Tier 2
Eligible at solo/(sub-)
consolidated /solo & (sub-)
consolidated
Solo &
Consolidated
Solo & Consolidated
Solo &
Consolidated
Solo &
Consolidated
Consolidated
Consolidated
Instrument type (types to be
specified by each jurisdiction)
Ordinary Shares
Subordinated
Debt
Subordinated
Debt
Subordinated
Debt
Subordinated Debt
Subordinated
Debt
Amount recognised in regulatory
capital (Currency in million, as of
most recent reporting date)
£966m (includes £352m
share premium)
£165m
£50m
£33m
£79m
£37m
Nominal amount of instrument
£1 per share
£165m
£50m
€40m / £33m
€95m / £79m
€44m / £37m
Issue price
100%
100%
100%
100%
100%
100%
Redemption price
N/A
100%
100%
100%
100%
100%
Accounting classification
Shareholder's Equity
Liabilty
Liabilty
Liabilty
Liabilty
Liabilty
Original date of issuance
11th October
1963
6th October
2000
30th
December
2016
22nd
December
2017
1st July
2018
26th February
2019
Perpetual or dated
Perpetual
Dated
Dated
Dated
Dated
Dated
Original maturity date
N/A
18th March
2030
18th March
2030
18th March
2030
1st July
2028
26th February
2029
Issuer call subject to prior
supervisory approval
No
No
No
No
No
No
Optional call date, contingent
call dates and redemption
amount
No
No
No
No
No
No
Subsequent call dates, if
applicable
N/A
N/A
N/A
N/A
N/A
N/A
Coupons / dividends
Fixed or floating dividend/coupon
Floating
Floating
Floating
Floating
Floating
Floating
Coupon rate and any related
index
N/A
Sonia Compounded
over 3 mo + 3.91%
Sonia
Compounded
over 3 mo +
3.91%
3 m Euribor +
3.33%
3 m Euribor +
3.33%
3 m Euribor +
3.33%
Existence of a dividend stopper
N/A
No
No
No
No
No
Fully discretionary, partially
discretionary or mandatory (in
terms of timing)
Fully discretionary
Fully discretionary
Fully
discretionary
Fully
discretionary
Fully discretionary
Fully discretionary
Fully discretionary, partially
discretionary or mandatory (in
terms of amount)
Fully discretionary
Fully discretionary
Fully
discretionary
Fully
discretionary
Fully discretionary
Fully discretionary
Existence of step up or other
incentive to redeem
No
No
No
No
No
No
Noncumulative or cumulative
Noncumulative
Cumulative
Cumulative
Cumulative
Cumulative
Cumulative
Convertible or non-convertible
Non-convertible
Non-convertible
Non-convertible
Non-convertible
Non-convertible
Non-convertible
If convertible, conversion
trigger(s)
N/A
N/A
N/A
N/A
N/A
N/A
If convertible, fully or partially
N/A
N/A
N/A
N/A
N/A
N/A
If convertible, conversion rate
N/A
N/A
N/A
N/A
N/A
N/A
If convertible, mandatory or
optional conversion
N/A
N/A
N/A
N/A
N/A
N/A
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FCE Bank plc – ANNUAL REPORT 2021 153
15 CAPITAL INSTRUMENTS’ MAIN FEATURES CONTINUED
As at 31 December 2021
Capital Instruments: Main features
Main features
Tier 1
Tier 2
Convertible or non-convertible
If convertible, specify instrument
type convertible into
N/A
N/A
N/A
N/A
N/A
N/A
Write-down features
No
No
N/A
N/A
No
No
If write-down, write-down
trigger(s)
N/A
N/A
N/A
N/A
N/A
N/A
If write-down, full or partial
N/A
N/A
N/A
N/A
N/A
N/A
If write-down, permanent or
temporary
N/A
N/A
N/A
N/A
N/A
N/A
If temporary write-down,
description of write-up
mechanism
N/A
N/A
N/A
N/A
N/A
N/A
Position in subordination hierarchy
in liquidation (specify instrument
type immediately senior to
instrument)
Subordinated debt
Unsecured debt
Unsecured debt
Unsecured debt
Unsecured debt
Unsecured debt
Non-compliant transitioned features
No
No
No
No
No
No
If yes, specify non-compliant
features
N/A
N/A
N/A
N/A
N/A
N/A
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154 FCE Bank plc – ANNUAL REPORT 2021
16 GEOGRAPHICAL DISTRIBUTION OF CREDIT EXPOSURES RELEVANT FOR THE CALCULATION OF THE
COUNTERCYCLICAL CAPITAL BUFFER
CONSOLIDATED
Credit Exposures
Own Funds Requirements
As at 31 December 2021
010 Breakdown by Country
Exposure amount
for SA
Column 010
£ 000
Own funds
requirements
Column 070 & 100
£ 000
Own funds weights
Column 110
Countercyclical
capital rate
Column 120
Bulgaria
445
36
0.000
0.500%
Czech Republic
48,142
3,351
0.004
0.500%
Hong Kong
8,500
680
0.001
1.000%
Luxembourg
146
8
0.000
0.500%
Slovakia
3,021
242
0.000
1.000%
All other countries
12,515,647
804,787
99.995
0.000%
020 Total
12,575,901
809,104
100.000
0.003%
CONSOLIDATED
Credit Exposures
Own Funds Requirements
As at 31 December 2020
010 Breakdown by Country
Exposure amount
for SA
Column 010
£ 000
Own funds
requirements
Column 070 & 100
£ 000
Own funds weights
Column 110
Countercyclical
capital rate
Column 120
Bulgaria
9
1
0.000
0.500%
Czech Republic
64,230
5,138
0.005
0.500%
Hong Kong
4.383
351
0.000
1.000%
Luxembourg
85
7
0.000
0.250%
Norway
1
-
0.000
1.000%
Slovakia
2.153
172
0.000
1.000%
All other countries
13,192,564
1,055,405
99.995
0.000%
020 Total
13,263,425
1,061,074
100.000
0.003%
The tables above use the standard template issued by the EBA to show the distribution of relevant credit exposures for the
calculation of an institution’s countercyclical capital buffer (CCyB), with certain rows and columns omitted to reflect FCE’s
Materiality waiver.
The tables show only the countries that had CCyB rates recognised by the Financial Policy Committee (FPC) in the UK at above
zero, and FCE had exposures to those countries as at the reporting date of each table.
17 AMOUNT OF INSTITUTION-SPECIFIC COUNTERCYCLICAL CAPITAL BUFFER
CONSOLIDATED
As at 31 December
2021
£ mil
2020
£ mil
010 Total risk exposure amount
11,427
15,089
020 Institution specific countercyclical capital buffer rate
0.00%
0.00%
030 Institution specific countercyclical capital buffer requirement
-
-
The table above uses the standard template issued by the EBA to show the value and rate of a firm’s institution-specific
countercyclical capital buffer requirement and shows FCE’s value and rate as at 31 December 2021 and 2020.
2021 Pillar 3 Disclosures
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FCE Bank plc – ANNUAL REPORT 2021 155
18 RECONCILIATION OF THE LEVERAGE EXPOSURE MEASURE TO STATEMENT OF FINANCIAL POSITION – ASSETS
The leverage tables on the pages which follow show the values as calculated under the leverage ratio delegated regulation,
adopted by the European Commission in January 2015 and subsequently onshored into UK legislation following the UK’s exit
from the EU.
All tables have been prepared using the standard templates issued by the EBA with certain rows and columns omitted to reflect
FCE’s Materiality waiver.
The table below provides a reconciliation of FCE’s assets as shown in the Statement of Financial Position on page 47 to the
exposure measure used in the calculation of the leverage ratio.
Applicable Amounts
LRSum
CONSOLIDATED
As at 31 December
2021
£ mil
2020
£ mil
1 Total assets as per published financial statements
15,065
19,534
4 Adjustments for derivative financial instruments
74
136
6
Adjustment for off-balance sheet items (i.e. conversion to credit
equivalent amounts of off-balance sheet exposures)
753
589
7 Other adjustments
(58)
(55)
8 Total leverage ratio exposure
15,834
20,204
19 BREAKDOWN OF LEVERAGE EXPOSURE MEASURE AND CALCULATION OF LEVERAGE RATIO
CRR leverage ratio exposures
LRCom
CONSOLIDATED
As at 31 December
2021
£ mil
2020
£ mil
On balance sheet exposures (excluding derivatives & SFTs)
1
On-balance sheet items (excluding derivatives, SFTs and fiduciary
assets, but including collateral)
15,002
19,441
2
(Asset amounts deducted in determining Tier 1 capital)
(58)
(55)
3
Total on balance sheet exposures (excluding derivatives &
SFTs)
14,944
19,386
Derivative exposures
4
Replacement cost associated with all derivatives transactions (i.e.
net of eligible cash variation margin)
63
93
5
Add-on amounts for PFE associated with all derivatives
transactions (mark-to-market method)
74
136
11
Total derivative exposures
137
229
Other off-balance sheet exposures
17
Off-balance sheet exposures at gross notional amount
5,423
3987
18
(Adjustments for conversion to credit equivalent amounts)
(4,670)
(3398)
19
Other off-balance sheet exposures
753
589
Capital and total exposures
20
Tier 1 capital
2,684
2,948
21
Total leverage ratio exposures
15,834
20,204
22
Leverage ratio
16.95%
14.59%
FCE’s leverage ratio as at 31st December 2021 is 16.95% (2020: 14.59%), well above the regulatory expectation of 3.25%
applicable to Banks of FCE’s size and business model for periods after 1st January 2022.
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156 FCE Bank plc – ANNUAL REPORT 2021
20 BREAKDOWN OF LEVERAGE EXPOSURE MEASURE BY EXPOSURE CLASS
CRR leverage ratio exposures
LRSpl
CONSOLIDATED
As at 31 December
2021
£ mil
2020
£ mil
EU-1
Total on-balance sheet exposures (excluding derivatives, SFTs
and exempted exposures), of which:
15,002
19,441
EU-2
Trading book exposures
-
EU-3
Banking book exposures, of which:
15,002
19,441
EU-5
Exposures treated as sovereigns
1,634
2,105
EU-6
Exposures to regional governments, MDB, international
organisations & PSE NOT treated as sovereigns
35
40
EU-7
Institutions
362
535
EU-9
Retail exposures
8,522
9,824
EU-10
Corporate
4,296
6,656
EU-11
Exposure in default
94
216
EU-12
Other exposures (e.g. equity, securitisations and other non-
credit obligation assets)
59
65
The table above gives a breakdown by exposure class of the on balance sheet element of the leverage exposure measure as
shown in Table 19.
21 QUALITATIVE DISCLOSURE ON MANAGEMENT OF LEVERAGE RATIO
LRQua
CONSOLIDATED
As at 31 December 2021
1
Description of the process used to manage the risk of
excessive leverage
The capital position and leverage ratio are managed within FCE's Risk
Appetite Framework and monitored by the Asset and Liability Management
Committee (ALCO). This committee monitors the compliance and
performance of the Leverage ratio to the long-term plan on a monthly basis.
Management actions are recommended to the ALCO to prevent the Group
from being excessively leveraged and to seek to ensure that capital ratios
remain in excess of minimum capital requirements in normal circumstances
and in stress. If the leverage ratio declines beneath internal minimum
thresholds, then plans to return the leverage ratio to minimum thresholds
would be implemented immediately.
2
Description of the factors that had an impact on the
leverage ratio during the period to which the disclosed
leverage ratio refers
The leverage ratio is primarily affected by the level of Tier 1 capital and
exposures. In 2021 the semi-conductor shortage has led to a reduction in
exposures.
2021 Pillar 3 Disclosures
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FCE Bank plc – ANNUAL REPORT 2021 157
22 REMUNERATION DISCLOSURE
Introduction
This section includes information which is required to be disclosed in accordance with Pillar 3, as defined by the Capital
Requirements Regulation Article 450. It relates to those staff whose professional activities have a material impact on the firm’s
risk profile (Material Risk Takers). A total of 58 individuals were categorised as being Material Risk Takers in 2021. FCE (the
Bank) confirms that it meets the requirements of the regulators Remuneration Code in all its aspects.
Background
FCE seeks to deploy pay and benefit programmes which support the achievement of its objectives, reflecting its status as a
regulated bank and its commitment to operate within its prescribed risk tolerances. In doing so, the Remuneration Committee
(RemCo) adopts the Shareholder’s remuneration policy where it is consistent with the Bank’s status in respect of the Remuneration
Code. Where the RemCo judges the remuneration policy to be contrary to the Bank’s interests, or requires revision to meet legal
or regulatory requirements, the RemCo will raise the matter with the Board, to enable discussions with the Shareholder to resolve
the matter.
In this respect, the RemCo’s approach to remuneration policy sits within the same legal and fiduciary context as the Board’s
responsibilities for other business matters. The overall governance of FCE’s remuneration policy lies with the RemCo.
Responsibility for the individual application of FCE’s remuneration policy rests with its Executive Directors, with oversight by the
RemCo.
Overview of Approach to Remuneration in FCE
The RemCo regularly reviews its remuneration to ensure it is affordable and competitive over the long term, attracts talent,
incentivises high performance and good behaviours, and retains talent in a competitive market. It also benchmarks blue-chip
companies across automotive and general industry, financial services and other sectors on pay and benefits.
The Bank is mindful of its banking status and its regulatory and compliance responsibilities in respect of its remuneration policy.
Remuneration practices are based on robust performance management processes, which themselves involve assessing
management behaviours, particularly as they relate to key Bank priorities such as lending risk, compliance and ethical business
values. Conflict of interest is avoided by ensuring performance ratings and compensation decisions are made by a committee
comprising managers at least one grade more senior than the grade of the employee being evaluated.
The Bank has a strong commitment to Diversity, Inclusion and Equal Opportunity. Ensuring compliance with equal pay legislation
is a core element of its compensation philosophy
2021 Pillar 3 Disclosures
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158 FCE Bank plc – ANNUAL REPORT 2021
22 REMUNERATION DISCLOSURE CONTINUED
Governance and Decision Making
Remuneration matters in FCE are overseen by a Remuneration Committee (RemCo) of the Board of Directors. The committee is
formed of the Non-Executive Directors. No employee is permitted to participate in discussions or decisions which directly relate
to their own remuneration.
FCE’s Remuneration Policy is reviewed annually and most recently was approved at the Bank’s Remuneration Committee meeting
on 8th June 2021.
As detailed above, the Bank's remuneration policy reflects the global policy of its Shareholder. The intent of the RemCo is to adopt
the Shareholder's remuneration policy, within the context of the Board’s legal and regulatory responsibilities. The Legal Affairs
Director, Executive Director Chief Risk Officer and the Human Resources Director provide subject matter expertise to the RemCo
in its consideration of the Bank's remuneration policy.
The RemCo draws on the experience and knowledge of the independent Non-Executive Directors from their professional
experience and remuneration oversight roles in other firms. The RemCo receives regular reports from the Risk function during the
year which includes risk exposure against agreed limits, and reviews financial data which includes forecast remuneration. This is
done to ensure that remuneration is consistent with sound risk management. The RemCo ensures that the remuneration actions
do not negatively impact the Bank's capital adequacy requirements.
The RemCo undertakes the following role:
• Reviews the applicable compensation structures and processes in that they remain aligned with FCE's business
requirements, financial position and are within the Board’s established Risk Appetite.
• Reviews and provides feedback on the individual objectives of FCE Executives.
• Ensures that FCE is complying with the necessary regulatory requirements and that remuneration does not encourage
inappropriate risk-taking.
• Provides an independent forum for the independent Non-Executive Directors to reflect on and provide feedback on the
performance of FCE’s Material Risk Takers.
• The RemCo has the delegated approval from the Board to approve the structure of awards made to FCE Material Risk
Takers.
• Reviews the proposed compensation awards for FCE Material Risk Takers to ensure that they remain within tolerance
of agreed compensation programme structures.
• Performs malus and clawback reviews as required.
• Risk Adjustment of the FCE Bonus Pool in line with FCE Risk Appetite framework.
Material Risk Takers, (as defined in the PRA Rulebook and applicable as a UK Bank), are employees whose professional activities
could have a material impact on the risk profile of the firm. The remuneration of Material Risk Takers is subject to the remuneration
principles of the Remuneration Code.
The RemCo comprises four independent Non-Executive Directors. Support is provided by the Human Resources Director. The
Chief Executive Officer and Chief Risk Officer are invited to attend when appropriate. The Chair of the Committee is a Non-
Executive Director.
The Committee members are:
• N Ceeney: Independent Non-Executive Director & RemCo Chair
• J Reed: Senior Independent Non-Executive Director
• T Ferreira: Independent Non-Executive Director
• B O’Connor: Independent Non-Executive Director
The Link between Pay and Performance
The Bank uses a robust Objective Setting process to ensure alignment of individual objectives to support the achievement of
business strategy and goals across and through the organisation. The Bank uses a sound Performance Evaluation Process which
includes a "balanced scorecard" approach to set individual short term, and longer-term objectives. Objectives are set, and
assessed against, both financial and non-financial objectives, including compliance, risk management and leadership behaviours
such as integrity.
2021 Pillar 3 Disclosures
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FCE Bank plc – ANNUAL REPORT 2021 159
22 REMUNERATION DISCLOSURE CONTINUED
Appraisals are conducted annually by an employee's people leader by ensuring a fair and accurate performance evaluation based
on what was accomplished during the performance year and how it was achieved through the lens of our Ford Truths. To ensure
an accurate account of work and behaviours, feedback from work partners is considered, and peer calibration discussions are
held where appropriate.
As part of our annual compensation planning process, within predetermined budgets, people leaders make compensation
decisions based on their employee’s accomplishment against objectives and how their behaviours modelled our Ford truths.
The Bank’s performance management and compensation philosophies, including its bonus programme, are structured to support
the achievement of the Bank's ongoing business objectives by rewarding achievement of objectives linked directly to its strategic
business priorities as identified in its Business Plan. These strategic priorities are cascaded through annualised objectives and
policy deployment.
Conflict of interest is avoided by decisions on performance and remuneration being validated by peer calibration meetings (where
appropriate) comprising employees at a more senior level than the employees being evaluated. All people leader compensation
award decisions require next level people leader approval. Awards made under the Bank’s variable pay programme for senior
managers (Annual Incentive Compensation Plan) and Long-Term Incentive Programme are reviewed and approved by the Bank’s
Remuneration Committee, ensuring inputs from Risk and Compliance are factored into employee compensation awards.
Robust control frameworks within the Bank ensure that business is conducted within planned risk appetites and the RemCo
receives regular updates on risk and compliance. The impact of variable remuneration is included in the regular financial planning
reviews presented to the RemCo and the Board throughout the year.
Composition of Remuneration Programmes
Variable compensation comprises:
• Cash bonus (Employees in Leadership Level 5 and above are eligible for AICP, Germany Leadership Level 6 are eligible
for a local bonus plan)
• Time Based Restricted Stock Units which vest pro rata over 3 years (Employees in Leadership Level 5 and above)
• Performance Based Restricted Stock Units which vest over 3 years, and are linked to corporate performance (for the
most senior of Management – Leadership Level 3 and above)
Awards for Material Risk Takers include malus and clawback provisions which may be applied in the event of employee
misconduct or where the business has suffered a material failure of risk management. Remuneration is delivered to Material Risk
Takers in a way which is compliant with the requirements of the Regulator’s Remuneration Code.
The Remuneration Policy applies the same overarching principles and practices to all employees, though the exact structure and
quantum of individual packages varies by business, geography and role.
Communication
The Bank is committed to clear and timely communication of its compensation policy and practices. This includes clarity on which
business behaviours will positively affect awards, and which will not. The Bank reviews, as required, the content and method of
communication in order to increase employee understanding and engagement.
Key Remuneration Elements
The following remuneration elements are discretionary. Programmes may be cancelled if business circumstances require it.
Discretionary awards may be withdrawn if the relevant employee is found to have behaved in a manner contrary to the interests
of the Bank. The individual’s variable remuneration is based on performance to objectives and behaviours and is subject to
appropriate limits, (capped at 2:1 variable to fixed ratio for UK employees), as approved by the shareholder on 1st January 2014.
Base Pay Adjustments: Pay for Performance Programmes
For the majority of the Bank’s employees, base pay is the most significant element of total remuneration; they do not have any
variable remuneration. Pay for Performance is fundamental to the Bank’s remuneration philosophy and applies to the base pay
increases for all employees, and variable pay where it is in place. We reward individuals for performance and contribution to
business success.
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160 FCE Bank plc – ANNUAL REPORT 2021
22 REMUNERATION DISCLOSURE CONTINUED
Pay for Performance programmes are considered annually, taking into account factors including business results, affordability,
external competitiveness, mandated/negotiated increases and inflation. Pay for Performance programmes make base pay
adjustments and are typically effective April 1 and communicated in the first quarter. The Bank has the discretion to defer or cancel
awards depending on business circumstances.
Individual base pay increases are based on performance against balanced scorecard objectives, including behaviours, and will
also be influenced by an employee’s position in the salary range.
Annual Incentive Compensation Plan (Bonus)
AICP is a global incentive programme designed to align Ford Motor Company and business unit performance on key business
metrics in a way which enables it to operate profitably, finance its business plan and improve the overall balance sheet.
Managers at mid-level and above participate in the Annual Incentive Compensation Plan (AICP) of the Ford Motor Company. The
awards are made on a discretionary basis and based upon performance of the business. The awards are made for performance
across a calendar year, and pay-out is made the following year, dependent on achievement of targets. The bonus programme is
fully flexible and may be cancelled if business targets are not met.
Eligible employees at this level amount to 5% (December 2021) of the Bank’s total employees.
Under AICP, the Shareholder sets annual monetary target awards based on assumed 100% pay-out percentage for each
employee based on their respective management level and the competitive market practices of his/her respective country. The
sum of the target amounts across all employees, multiplied by the AICP pay-out percentage, represents the overall cost of the
programme.
The AICP pay-out percentage is dependent on the overall performance of the Shareholder and calculated on a predetermined
formula. A minimum level of performance is required on all metrics. This means that achievement is required across the entire
AICP scorecard to generate a bonus.
The AICP programme makes payments as a cash bonus, share programmes are detailed separately within this section. For 2021
performance year, the following Ford Global performance metrics and respective weightings are used as the basis for determining
FCE incentive award pay-outs.
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FCE Bank plc – ANNUAL REPORT 2021 161
22 REMUNERATION DISCLOSURE CONTINUED
The actual pay-out is based upon the individual performance assessment and compensation planning process, (details of which
are contained in the section “Link between pay and Performance” above).
The Remuneration Committee has the authority to reduce AICP if it determines that Risk Adjustments should be applied to the
Bonus Pool, (for further details see “Bonus Pool Risk Adjustments”).
Bonus Pool Risk Adjustments
In order to ensure that FCE’s remuneration is consistent with sound risk management, on an annual basis, the RemCo will conduct
a Bonus Pool risk adjustment review, in order to determine if there has been any material or persistent breach of its Risk Appetite.
This review includes the following types of risk:
• Financial (Earnings)
• Capital and Liquidity
• Operational and Infrastructure
• Business Conduct & Reputational
•
In line with the PRA / FCA guidelines, FCE defines its bonus pool as the sum of all the potential bonus awards within FCE following
the application of the shareholder pay-out percentage.
In the event of a Bonus Pool reduction being required, an additional FCE Risk Adjustment Factor will be applied to individual
bonus targets prior to determining individual bonus awards. Employees will be notified in the event such an adjustment is made.
Long-Term Incentive Plan
Managers at mid-level and above participate in a global equity–based long-term incentive programme comprising time-based and
performance-based restricted stock units. This is known as the LTI Plan. As above, participating employees amount to 5%
(December 2021) of the Bank’s total employees.
The Plan is designed to reward and incentivise LL5+ leaders for sustaining high performance over time. The Bank considers the
LTI Plan an important retention tool for key skills.
• Time based restricted stock units (TB-RSUs) vest over a three-year period, 33% after the first year, 33% after the second
year, and 34% after the third year. The restriction period adds a longer-term element to focus behaviour and decision-
making beyond the present year.
• Executive level Managers receive both TB-RSUs and performance based restricted stock units (PB-RSUs). Performance
is measured through a mix of internal and external financial metrics over a three-year period, at which point the RSU’s
vest.
Dividends that may be awarded would normally be awarded as additional shares.
The Shareholder sets US dollar initial awards for each management level. The number of Restricted Stock Units (RSUs) awarded
to an employee is determined based on the Fair Market value of Ford Motor Company common stock on the date of grant.
Specifically, the dollar value of the RSU grant is divided by the Fair Market Value on the grant date to determine the number of
RSUs awarded to the employee.
Individual awards are discretionary and are adjusted based upon an assessment of multiple factors, including performance versus
peers over time, expertise & critical skills, feedback & behaviours, and potential for advancement & impact to the business in the
future. Vesting is subject to malus, and prudent financial control provisions are in line with the Remuneration Code.
2021 Financial Statements
Pillar 3 Disclosure
162 FCE Bank plc – ANNUAL REPORT 2021
22 REMUNERATION DISCLOSURE CONTINUED
Variable compensation for MRTs subject to remuneration code pay-out rules
As a proportionality level 2 firm, some employees may be subject to remuneration code pay out rules which include; bonus
deferrals, payments in shares/instruments, malus and clawback provisions.
For the few senior managers for which these rules apply, the Total Variable pay that would otherwise be awarded through AICP
and LTIP programmes, is restructured in order to meet the requirements of the remuneration code. Employees are advised by the
Company in the event this is applicable.
Other Benefits
The Bank develops benefits in line with its overall strategy and philosophy on offering competitive employee remuneration
packages in each home market. Benefit packages will vary by role, differ between countries and may include pension schemes,
healthcare, death-service and car benefits.
Key Remuneration Data
The following data reflects base pay delivered in the performance year of 2021, and variable pay relating to performance in 2021,
(delivered in 2022). The bank is not structured in such a way to breakdown the data by business area.
During the year, no Material Risk Taker received total remuneration in excess of 1 million Euros, which was confirmed to the
Regulator as part of the High Earners reporting process.
2021 Performance
2020 Performance
(2022 Pay-out)
(2021 Pay-out)
£ mil
£ mil
Number of
staff
Fixed
(Base)
Variable
(AICP)
Variable
(LTIP)
Number of
staff
Fixed
(Base)
Variable
(AICP)
Variable
(LTIP)
Remuneration
Total Aggregate Remuneration
58
5.0
0.8
0.6
98
8.4
0.5
0.7
Senior Managers
4
0.7
0.4
0.4
4
0.6
0.2
0.2
Material Risk Takers
54
4.3
0.5
0.2
94
7.8
0.3
0.5
FCE Bank plc – ANNUAL REPORT 2021 163
Other Information
2021 Financial Statements
Glossary of Defined Terms
164 FCE Bank plc – ANNUAL REPORT 2021
2021 Annual Report-FCE’s consolidated annual financial statements as at and for the year ended 31 December 2021.
Average net loans and advances to customers-The balance of net loans and advances to customers at the end of each month
divided by the number of months within the reporting period.
CET1 Capital-Common Equity Tier 1 capital as defined in the Capital Requirements Regulation. This is the top quality capital tier
within Own Funds.
CET1 Capital Ratio-Common Equity Tier 1 capital divided by the end of period risk exposure amount.
Company-Means FCE Bank plc including all its European Branches, but excluding its subsidiaries and SEs.
CRR-The Capital Requirements Regulation (EU/575/2013).
Dealer or Dealership-A wholesaler franchised directly by Ford, to provide vehicle sales, service, repair and financing.
EMTN European Medium Term Note Programme launched by FCE for the issue of Notes, including retail securities, to both
institutional and retail investors listed. FCE has 2 EMTN Programmes, one listed on the Luxembourg’s Stock Exchange (launched
in 1993, with issuance limit of €15 billion) and one on the Irish Stock Exchange (launched in 2021, with issuance limit of €10
billion).
Europe-The 12 markets where FCE provided financial services. These were: Austria, Britain, Czech Republic, France, Germany,
Hungary, Ireland, Italy, Poland, Portugal, Spain, and Switzerland.
FCA-The Financial Conduct Authority is the statutory body responsible for conduct regulation and supervision of UK authorised
firms (from 1 April 2013), also the prudential regulator for financial services firms not prudentially regulated by the PRA.
FCI-Ford Credit International LLC, a company incorporated under the laws of Delaware USA and a direct subsidiary of Ford Credit.
FCSH-FCSH GmbH a limited liability company incorporated under the laws of Switzerland and a direct subsidiary of FCI.
Ford ECO-Ford ECO GmbH a limited liability company incorporated under the laws of Switzerland and a direct subsidiary of FCI.
Ford Credit or FMCC-Ford Motor Credit Company LLC, a limited liability company organised under the laws of Delaware USA
and an indirect wholly owned subsidiary of Ford.
Ford-Ford Motor Company, a company incorporated under the laws of Delaware USA and the Group’s ultimate parent company.
In some cases, this term may mean Ford Motor Company and all or some of its affiliates.
Full Service Leasing or FSL-Fixed monthly vehicle rental for customers, including ongoing maintenance and disposal of vehicle
at the end of the hire period. Typically FCE retains responsibility for marketing and sales, for which it receives a fee income, and
externalises the finance, leasing, maintenance and repair services for current and future portfolios of commercial operating leases
to a preferred third party under the ‘Ford Lease’ or 'Ford Business Partner' brand.
Guaranteed residual value - refers to the 10% residual value guarantee by Ford Werke.
Gross loans and advances to customers-Total payments remaining to be collected on loans and advances to customers (refer
to Note 12 'Loans and advances to customers').
Group or FCE-Means the Company and its subsidiaries and SEs.
IAS-International Accounting Standards.
ICAAP-Internal Capital Adequacy Assessment Process. FCE’s annual process, as defined in PRA regulation, by which is
assesses the level of capital that is adequate to cover the risks to which it is or might be exposed, incorporating stress testing,
scenario analysis and consistent with its risk appetite.
IFRS-International Financial Reporting Standards.
ILAAP-Internal Liquidity Adequacy Assessment Process. FCE’s annual process, as defined in PRA regulation, by which it
identifies, measures, manages and monitors liquidity and funding risks under stress scenarios and across different time horizons,
consistent with its risk appetite.
2021 Financial Statements
Glossary of Defined Terms
FCE Bank plc – ANNUAL REPORT 2021 165
Net loans and advances to customers-Loans and advances to customers as reported in the balance sheet representing 'Gross
loans and advances to customers' including any deferred costs/fees and less provisions and unearned finance income and
unearned interest supplements from related parties.
Operating lease- Contracts where the assets are not wholly amortised during the primary period and where the lessor may not
rely on rentals for his profit but may look for recovery of the balance of his costs and of his profits from the sale of the recovered
asset at the lease end. Contract hire is a variation of operating lease.
Own Funds-The own funds of an institution is the sum of its Tier 1 and Tier 2 capital.
Past Due- Is where any amount of principal, interest or fee has not been paid at the date it was due. The exposure value is the
whole carrying amount.
Pillar 1-The part of the Basel framework which sets the minimum capital requirements for institutions to hold.
Pillar 2-Supervisory Review Process where regulators evaluate the activities and risk profiles of individual institutions to determine
whether they should hold higher levels of capital than the minimum capital requirements of Pillar 1.
Pillar 3-The pillar of the Basel framework which focuses on the public disclosures of institutions with the aim of enhancing
transparency for all stakeholders.
PRA-The Prudential Regulation Authority is the statutory body responsible for the prudential regulation of banks, building societies,
credit unions, insurers and major investment firms in the UK (from 1 April 2013). The PRA is a subsidiary of the Bank of England.
Public / Private securitisation-Public transactions relate to the asset-backed securities which are publicly traded and private
transactions relate to sales directly to an individual, or small number of, investor(s).
Retail-The part of FCE's business that offers vehicle financing and leasing products and services to individual consumers, sole
traders and businesses introduced through a Dealer or Dealership that has an established relationship with FCE.
Risk Based Equity or RBE- For segment performance measurement, FCE assigns RBE based on an assessment of the inherent
risk in each location’s portfolio. Aligned with this, location borrowing cost is adjusted versus that reported under IFRS, to reflect
the cost impact of changes in the level of debt that would be required to match the revised equity requirements.
Risk Exposure Amount-For credit risk, (including counterparty credit risk), the risk exposure amount is the risk weighted
exposure amount. For Credit Valuation Adjustment, (CVA risk), market risk and operational risk, the Pillar 1 capital requirement
is calculated initially according to the rules contained in the CRR and the risk exposure amount derived from that (by applying a
factor of 12.5).
Risk Weighted Exposure Amount or RWEA-For credit risk, (including counterparty credit risk), the risk weighted exposure
amount is the value of the exposures multiplied by the appropriate percentage risk weighting of the relevant exposure class as
defined in the CRR.
Securitisation-A technique for raising finance from income-generating assets such as loans by redirecting their cash flow to
support payments on securities backed by those underlying assets. Legally the securitised assets generally are transferred to and
held by a bankruptcy-remote SE. FCE normally would be engaged as a servicer to continue to collect and service the securitised
assets. FCE also engages in other structural financing and factoring transactions that have similar features to securitisation and
also are referred to as 'securitisation' in this report.
Structured Entities or SE-a bankruptcy-remote entity whose operations are limited to the acquisition and financing of specific
assets (which may include the issue of asset backed securities and making payments on these securities) and in which FCE
usually has no legal ownership or management control.
Tier 1 Capital-As FCE has no additional Tier 1 capital, its Tier 1 capital is the same as its CET1 capital and comprises shareholder
funds net of certain deductions.
Tier 2 Capital-FCE’s Tier 2 capital comprises of subordinated debt.
Total Capital Ratio-FCE's Own Funds divided by the end of period risk exposure amount.
Wholesale-The part of FCE's business that offers financing of a wholesaler's inventory stock of new and used vehicles, parts and
accessories. May also be known as dealer floor-plan or stocking finance. May also include other forms of financing provided to a
wholesaler by FCE such as capital or property loans, improvements in dealership facilities and working capital overdrafts.
2021 Financial Statements
Website addresses
166 FCE Bank plc – ANNUAL REPORT 2021
Additional data and web resources, including those listed below, can be obtained from the following web addresses:
Additional data
Website addresses
FCE Bank plc.
• ‘Annual Report’
• ‘Pillar 3 Disclosures (remuneration)’ Footnote 1
• ‘Pillar 3 Disclosures (excl. Remuneration)’ Footnote 1
• Management Statement
http://www.fcebank.com/investor-center
Ford Motor Company (Ultimate Parent Company) including:
• ‘Quarterly Reports’
• ‘Annual Reports’
• ‘SEC Filings’ Footnotes 2 and 3
http://corporate.ford.com/investors.html
To access from the above link click on ‘Reports and
Filings’ within the ‘Investors’ menu.
Ford Motor Credit Company including:
• ‘Company Reports’ Footnote 3
• ‘Company Events’
• ‘Asset-Backed Securitisation’ Footnote 4
http://credit.ford.com/investor-center
Luxembourg’s Stock Exchange which includes
• Euro Medium Term Note Base Prospectus (refer to Note
21 ‘Financial Liabilities’)
https://www.bourse.lu
To access search for ‘FCE’
Irish Stock Exchange which includes
• 2021 Euro Medium Term Note Base Prospectus (refer to
Note 21 ‘Financial Liabilities’)
https://www.centralbank.ie/regulation/industry-market-
sectors/securities-markets/prospectus-
regulation/prospectuses
To access search for ‘FCE’
Financial Reporting Council
• The UK Corporate Governance Code
https://www.frc.org.uk/Our-Work/Codes-
Standards/Corporate-governance.aspx
Additional information
Footnote 1: From 2015, FCE’s Pillar 3 disclosures (excluding Remuneration) are included in the Annual Report. From 2020,
FCE’s Pillar 3 disclosures (remuneration) are included in the Annual Report. For prior years, separate documents were
produced.
Footnote 2: Securities and Exchange Commission (SEC)
Footnote 3: SEC filings include both SEC Form 10-K Annual Report and SEC Form 10-Q Quarterly Reports
Footnote 4: ‘Asset-Backed Securitisation’ incorporates European retail public securitisation data including the following report
types:
• Prospectuses
• Monthly Investor Reports