New Capability and Innovation Fund – 17/20

17th October 2017

 Introduction

As part of the restructuring of RBS, HM Treasury has published guidelines on the creation of a new Capability and Innovation fund, to be administered by what will be called the Independent Body. The fund comprises of a total of £425 million, divided into four pools, with segments of those funds available as grants to eligible firms. The purpose of the Capability and Innovation Fund is to encourage eligible bodies to:

  1. develop and improve their capability to compete with RBS in the provision of banking services to SMEs; and
  2. develop and improve the financial products and services which are available to SMEs

The four pools of funding, commensurate with the above aims are as follows:

  • Pool A  (1 x £120 million, 1 x £100 million, 1 x £60 million) –  To facilitate the development of more advanced business current account offerings and ancillary product sets by banks with existing and substantive business current account capability
  • Pool B (1 x £50 million, 2 x £15 million) – To facilitate the modernisation of existing business current account offerings or (in the case of eligible bodies without existing business current account offerings) the development of new propositions
  • Pool C (4 x £10 million) – To facilitate the development of new and existing SME lending and payments businesses with a particular focus on facilitating the deployment of new technology to the relevant markets
  • Pool D (5 x £5 million) – To facilitate the commercialisation of financial technology that is relevant to SMEs

This regulatory briefing will focus on Pools C & D, as these pools concern firms that are not currently deposit-takers.

 

The Independent Body

An independent company (the “Independent Body”) will be established to administer the Capability and Innovation Fund.

The primary responsibilities of the Independent Body will be:

  • responding to queries from applicants and other interested parties in respect of the Capability and Innovation Fund
  • managing and disbursing the Capability and Innovation Fund to eligible bodies
  • administering dowry payments to eligible bodies
  • monitoring the compliance by eligible bodies with the terms of the agreements governing the use of funds
  • reporting publicly on the scheme and how funding has been applied

The Independent Body will be independent from both RBS and the UK Government. It will be governed by an independent board of directors, with neither RBS nor HM Treasury having ownership or control rights over the Independent Body. The performance of the Independent Body will be overseen by an independent monitor.

 

Eligibility

In order to be eligible for funding, firms must fall within one of the aforementioned Pools.

A firm will fall into Pool C where:

  • its ultimate parent (or if not a member of a group, the principal firm) at the time of application is domiciled in the UK, EU, EEA or Switzerland
  • It derives the majority of its revenue from the provision of financial services to individuals and businesses
  • It offers, or has expressed an intention to expand its business offering to include, lending or payment services to SMEs in the UK or international payments services to SMEs (relevant business).

A firm will fall into Pool D where:

  • Its ultimate parent (or if not a member of a group, the principal firm) at the time of application is domiciled in the UK, EU, EEA or Switzerland
  • Either:

(a) It provides or develops financial products of services predominantly to or for SMEs in the UK; OR

(b) It provides products or services to the businesses described in (a)

  • It has raised capital of at least £1,000,000 in the three years prior to the date of submission of its Business Case

 

The Application Process

The Independent Body will have absolute discretion as to whom is awards funding, and may request of applicants any additional information it may deem necessary for its decision-making process.

Applicants must submit a business plan (known as a “Business Case”) along with its completed application form by the deadline yet to specified by the Independent Body.

For Pool C Bodies, its Business Case must:

  • set out the amount of funding requested;
  • outline how it intends to develop the relevant business and how the funding applied for would assist in doing this;
  • provide details of the way in which, and purposes for which, any funding received would be used;
  • demonstrate how its proposals for funding improve (i) customer outcomes for SMEs and/or mid-corporates; and/or (ii) the current products or services offered to SMEs and/or mid-corporates;
  • comply with any relevant legal or regulatory requirements (including any rules and guidance made by the FCA and/or PRA);
  • set out the amount (if any) of its own funds that the firm is proposing to invest in relation to the proposals outlined in the Business Case; and
  • set out whether the firm commits to purchasing innovative financial services from SMEs and, if so, how such purchases would contribute to the commercialisation of such services.

For Pool D Bodies, its Business Case must:

  • set out the amount of funding requested;
  • describe the product or service (FinTech Product or Service) that it intends to develop using any funds received from the Capability and Innovation Fund;
  • provide details of the way in which, and purposes for which, any funding received would be used;
  • comply with any relevant legal or regulatory requirements (including any rules and guidance made by the FCA and/or PRA); and
  • set out the amount (if any) of its own funds that the firm is proposing to invest in relation to the proposals outlined in the Business Case.

 

Use of Funds

Pool C Bodies may use funding received from the Capability and Innovation Fund to cover capital or operating expenditures in relation to the following:

  1. the development of systems and/or infrastructure required to expand its relevant business;
  2. the recruitment and payment of employees in order to expand and/or operate its relevant business;
  3. the marketing of products related to its relevant business;
  4. the acquisition or leasing of premises required to expand its relevant business
  5. any other purpose which is consistent with the Pool C eligibility criteria

Pool D Bodies may use funding received from the Capability and Innovation Fund to cover capital or operating expenditures in relation to the following:

  1. the development of systems and/or infrastructure required to expand its relevant business;
  2. the recruitment and payment of employees in order to expand and/or operate its relevant business;
  3. the marketing of the Fintech Product or Service; or
  4. any other purpose which (in the opinion of the Independent Body) furthers the development, improvement, operation, expansion and/or commercialisation of the FinTech Product or Service.

 

Next steps

The Independent Body that will administer the Capability and Innovation Fund has yet to be established. Pending its creation, the applicable deadlines for eligible firms will become available and eligible firms will be able to apply. Application forms should be made available in due course.

Pool D firms are expected to eligible to apply in the first half of 2018, with Pool C firms eligible 3-6 months later. CPA Audit are ready and able to assist firms in applying for funding from the Capability and Innovation fund. Contact us to discuss your firm’s needs.

Download this article