Funding Circle Holdings plc  ### Funding Circle Holdings plc ## Our mission ## BUILD THE PLACE ## WHERE SMALL ## BUSINESSES GET ## THE FUNDING THEY ## NEED TO WIN. ## How we do it ## WE DELIVER AN AMAZING ## EXPERIENCE FOR SMALL BUSINESSES ## POWERED BY MACHINE LEARNING ## AND TECHNOLOGY. ## Our story so far ## £14BN >120,000 £4.5BN #1 lent through our plat- SMEs helped since 2010 loans under SME loans platform form since 2010 management in the UK ### Highlights STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS ## Our year in brief Contents Strategic report A year supporting SMEs as Resilient funding and loan 01 Highlights they drive the economic performance 02 Funding Circle at a glance recovery X £2.5 billion investor capital raised in 03 Investment case X £2.3 billion originated to over 27,000 2021 to lend to UK and US SMEs 04 Chair’s statement SMEs across the UK and the US X All investor cohorts expected to 06 Chief Executive Officer’s statement X Small businesses accessed Funding deliver positive returns in the UK and 08 Chief Executive Officer’s Q&A Circle finance through our core loan the US 10 Our market product, marketplace offering and the government-guaranteed loan Profitable in 2021 12 Technology and data schemes in the UK and the US 16 New products and capabilities X Group: £91.8 million AEBITDA, £64.2 million operating profit 20 Strategic priorities We continued to reinvent 22 Our model X UK: £61.9 million AEBITDA, small business lending  24 Our people through our technology 28 Sustainability X US: £28.4 million AEBITDA, X 70% of applications in the UK now 38 Engaging our stakeholders  receiving instant decisions 42 Key performance indicators X Application in six minutes, decision 44 Financial review Culture and diversity are in as little as nine seconds and fundamental to our success 51 Risk management money in borrower’s account in 24 X 86% would recommend Funding 55 Principal risks and uncertainties hours Circle as a place to work 64 Viability statement X Beta launched new product X We recorded our highest-ever  employee engagement score of 73% Corporate governance  in our annual employee survey 67 Chair’s introduction small business problems X 34% of senior leadership positions 68 Board of Directors X Launched an Application are held by women and our gender 70 Corporate governance report Programming Interface (“API”) that pay gap is now at its lowest level 77 Division of responsibilities enables UK partners to seamlessly  78 Board effectiveness offer Funding Circle loans to SMEs  within their own website 80 Audit, risk and internal control 81 Report of the Nomination Committee 85 Report of the Audit Committee 91 Report of the Risk and ## Our performance  93 Report of the ESG Committee Statutory financial 96 Directors’ remuneration report Total income Profit before tax 106 Annual report on remuneration 120 Report of the Directors 123 Statement of Directors’ responsibilities ## £206.9M £64.1M in respect of the financial statements | 2020: £222.0m | 2020: £(108.1)m | | | --- | --- | --- | | APM | | Financial statements | | AEBITDA | | 125 Independent auditors’ report | 132 Consolidated statement of comprehensive income ## £91.8M 133 Consolidated balance sheet 2020: £(63.8)m 134 Consolidated statement of changes  Operational 135 Consolidated statement of cash flows Loans under management Originations 136 Notes forming part of the consolidated financial statements 182 Company balance sheet ## £4.5BN £2.3BN 183  2020: £4.2bn 2020: £2.7bn 184 Company statement of cash flows 185 Notes forming part of the Company financial statements The Strategic Report was approved by the Board on 10 March 2022. 193 Glossary Lisa Jacobs Chief Executive Officer 194 Shareholder and Company information Annual Report and Accounts 2021 01 Strategic report ### Funding Circle at a glance ## We help solve small ## business problems ## At Funding Circle we deliver an amazing customer experience for ## small businesses using machine learning, technology and data. A great customer experience is built This feedback loop has resulted in This in turn, creates a virtuous circle  strong customer satisfaction scores that ensures we continue to meet the seamless technology. and high repeat rates, enabling us to borrowing and business finance needs grow alongside our small businesses. of hundreds of thousands of SMEs. Over the past decade, we’ve built a technology platform that is revolutionising As we get bigger and help more small SME lending. Thanks to our instant businesses access the finance they decision capabilities, small businesses need, we’re building a stronger can complete a loan application in  minutes and receive a lending decision competitive advantage.  and at an affordable rate. Today, as a leading global platform for small business loans, we’ve helped New More  products customers £14 billion. This finance is helping to create jobs and power the economy. A virtuous circle drives innovation, improvements andcompetitive advantage More More operating Our technology platform enables us data leverage    Better We innovate and iterate in a continuous Better machine customer feedback loop, committed to driving learning experience improvements in machine learning, models technology and data. ## 100,000 £7BN <2% 1 | jobs supported by UK SME | | | UK GDP contribution | SME lending as a share | | | | --- | --- | --- | --- | --- | --- | --- | | | | 1 | | | | 2 | | | borrowers | | | | of bank balance sheets | | 1. Source: Funding Circle’s 2021 impact, Oxford Economics, March 2022. 2. Source: Bank of England, US Federal Reserve, FDIC. Funding Circle Holdings plc02 ### Investment case STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS ## WHAT MAKES FUNDING ## CIRCLE UNIQUE ## 3.5% 70% ## UK market share of UK applications now ## getting instant decisions Proven business model and World class technology that delivers strong positioninthe UK superior customer experience Largest UK lending platform with ten Technology and data science system delivering years’ experience. instant decisions and personalised journeys to customers – a first globally. Read more on Read more on ## P10 P12 ## £91.8M £305BN ## Group AEBITDA Total addressable market ## in the UK and US Strong financials with healthy balance sheet Significant addressable market Profitable in 2021 and expect to be SMEs are underserved by traditional lenders AEBITDA profitable going forward. and represent a significant addressable market. Read more on Read more on ## P44 P20 Annual Report and Accounts 2021 03 Strategic report ### Chair’s statement ## Continuing support for ## SMEs and consolidating our ## gains as the market begins ## to normalise | A decade of R&D now | Thanks to the team | | --- | --- | | comingto fruition | In the past couple of years, we’ve taken | | 2020 triggered a seismic shift in demand | huge steps forward during a period of | | for online services and products, | ongoing challenges and uncertainty. | | including online borrowing. This trend | None of this would have been possible | | persisted in 2021, as SMEs continued to | without the commitment and dedication | | search for and access finance online. | of our team of Circlers. Last year, I said | | Small business owners have now come | how humbling it was to see the | |  | commitment of every Circler as we | Andrew Learoyd borrowing; one that relies on technology responded to the immediate challenge Chair rather than face-to-face meetings   I continue to be hugely impressed by the unwavering passion and energy of the Following a decade of investment in our team. On behalf of the Board, I want to technology platform, we’re now able to congratulate and thank every single Last year, I reported on an extraordinary meet these demands by offering loans Circler within the Company. 2020. It started well for our business, a  period of deep uncertainty and challenge whereas other lenders can take weeks CEO transition and the Board then followed, yet it ended with Funding  As our Company evolves, so too does Circle established as a leading player in ongoing investment in machine learning,  the provision of funding for SMEs in the 70% of our loan applications in the UK Samir Desai has stepped back from the UK and the US economies. receive an instant decision. Already, day-to-day running of the Company and more than two-thirds of our customers In 2021, the advantages we have in our continues as a Non-Executive Director. can receive funds into their account online operating model and technology It’s a testament to the succession without having to speak to a member continued to result in a significantly planning work of the Nomination  enhanced market share for Funding Committee and the Board that we’ve branch. At the same time, we continue Circle in the distribution of small   business loans. In our core UK market,  customers able to speak to our teams we successfully transitioned from one  should they prefer. government-guaranteed loan product leading our UK business, and I believe as (CBILS) to another (RLS), while These developments are an astonishing CEO she will take Funding Circle to the re-introducing our core loan product. achievement when you consider how next level in this exciting new phase for  things used to be: business owners the Company. RLS and PPP, Funding Circle has played spending considerable time and effort During the pandemic, the Board has had a leading role in helping small companies trying to convince a bank manager to step up in what has been an incredibly drive the economic recovery both in the  dynamic environment, while managing a UK and the US. The pandemic has technology is also getting the risk number of changes at Board level. I’m accelerated our evolution and I’m balance right; we’re helping more and hugely thankful to all who have served confident that the strengths we have more borrowers while delivering during this period. We’ve successfully shown and the position we have gained consistently positive returns to steered a constant and steady path will be maintained as the market begins  towards fulfilling our Company mission to normalise. while maintaining a happy, loyal team and strong business culture. Funding Circle Holdings plc04 STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Entering an exciting SUPPORTING BUSINESSES newphase Last year, I ended my statement by referring to four core Funding Circle strengths that have been highlighted by the pandemic: our business and financial model; government commitment supporting SMEs; customer loyalty; and the ability of our team to deliver. This year, I will end by stating that those four strengths are still valid, but made more ambitious by our recently launched medium-term plan. Within this plan, our core strengths are enhanced by new products and capabilities in both the UK and the US. Starting with FlexiPay, our new short-term finance product for SMEs, I’m confident we will supplement the growth of our core product for many ## years to come. FROM STRENGTH Today, our business is the strongest it has ever been, yet clearly we remain ## misunderstood by some in the public TO STRENGTH markets. This is disappointing, especially given everything we’ve achieved over the past two years. We’ve proven our business model, significantly increased ## Mark Robinson our market share, moved to profitability at least a year ahead of expectation, and ## Just Strong we’re generating cash with a robust ## balance sheet. We will continue to Women’s “athleisure” brand Just Strong manage the business for the long-term. ## was launched by personal trainer And we will continue to deliver on the ## value of the operational and financial MarkRobinson from his garage in 2017. leverage that is now so obviously within ## Agovernment-backed Funding Circle reach. I hope and expect that ## achievement of these goals will result in loan helped Mark take his business to increased recognition and appreciation ## thenext level.  success story. Back in 2017, Mark Robinson noticed how gym-goers were particularly loyal to small American brands. And inspired by UK A final word on the situation unfolding in phenomenon Gymshark, he decided to enter the fashion industry, Ukraine, by which I am deeply shocked printing and packing “athleisure” clothes from his home in Yorkshire. and saddened by. It seems that the week I draft my reflections on Funding Circle’s In 2021, as more women began wearing “gym gear” while working | past year has a habit of coinciding with a | from home, orders began to accelerate. But to meet increased | | --- | --- | | period of pivotal uncertainty: in 2019 |  | | Brexit, and in 2020 the pandemic. These |  | | events are put into perspective by the | benefit from a Funding Circle loan through the Recovery Loan | | very human tragedy of what is now | Scheme (“RLS”). | happening in eastern Europe. Our  thoughts and hopes are with the people Strong increase capacity and drive up sales. The company now of Ukraine. The security of their safety  and future is far more important than  whatever economic winds blow our way Strong’s turnover doubled, with the company reaching a landmark as a result. 200,000th order in just four years. The label also benefited from invaluable support on social media, including more than 350,000 Andrew Learoyd  Chair 10 March 2022 Annual Report and Accounts 2021 05 Strategic report Chief Executive Officer's statement # Funding Circle was founded during a crisis to help SMEs and power the economy ![img-0.jpeg](img-0.jpeg) Samir Desai Outgoing Chief Executive Officer The pandemic has proven that our platform is an effective way of delivering funds to small businesses during a crisis – the very circumstance in which we started Funding Circle 12 years ago. I'm incredibly proud that, during the pandemic, we were able to provide support to SMEs when they needed it most, as the third-largest CBLS lender in the UK and through PPP in the US. In 2021, as the UK shifted from crisis to recovery, SMEs continued to seek finance from Funding Circle, but this time with a view to growing their businesses and powering the economy. In the UK alone, our small business customers unlocked 100,000 jobs and contributed £7 billion to GDP – a huge impact. We provided support to these customers through a combination of core loans and government-guaranteed loan schemes. It was a monumental effort that wouldn't have been possible without the hard work and dedication of our Circlers. ## Financial and operational overview 2021 was the year in which we proved the efficiency and profitability of our platform, with our market-leading technology enabling us to process high volumes of applications at speed. We originated £2.3 billion to over 27,000 small businesses across the UK and the US. We also continued to deliver resilient returns through the cycle and attracted record levels of capital – £2.5 billion – to the platform. This led to a total income of £206.9 million and loans under management of £4.5 billion. Our focus for the past two years has been on profitable growth, and I am pleased to report that in 2021 we exceeded guidance and delivered AEBITDA of £91.8 million and operating profit of £64.2 million. We also ended the year with net assets of £288.0 million and a strong cash pile of £224.0 million. At the same time, we laid the foundations for the next stage of our exciting multi-product, multi-channel future. So, overall a very satisfying year for Funding Circle. ## We've continuously evolved our tech infrastructure and it's revolutionising the way we operate Funding Circle has spent the last decade in R&D, building a technology platform and advanced machine learning risk models, which have now been trained through a recession. This investment is beginning to reap rewards, the flexibility of our platform has enabled us to evolve our core term product while simultaneously developing new products and capabilities for our customers. Our focus now is on embedding Funding Circle into the everyday lives of SMEs and helping them in more ways. We're working to achieve these goals through the launch of FlexiPay. As our first short-term finance product, FlexiPay gives greater flexibility to SMEs and has received extremely positive feedback so far. We've also started to embed our services into partners' environments – a major development that's generating a lot of excitement here at Funding Circle. In the UK, we've created an API where partners can natively embed Funding Circle into their own websites, while in the US we're developing our Lending as a Service (LaaS) proposition. These developments will enable us to get closer to those spaces and moments in which our customers are organically transacting, providing increased opportunities for them to access our funding products and services. ## Stepping back from day-to-day activities and handing over the reins to Lisa After 12 years as CEO and Founder, and with the business in the strongest position it has ever been, in September 2021 I decided the time was right to take a step back. I'm convinced in the strength of the business, the exciting opportunities ahead of us, and, most importantly, in Lisa's abilities to take Funding Circle to the next level. I've worked with Lisa for almost ten years now, and I know she's the right person to take over as CEO and guide the business through its next phase. 06 Funding Circle Holdings plc STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS SUPPORTING BUSINESSES ## GROWTH PLANS ## Our focus now is on DISTILLED ## embedding Funding ## Circle into the ## everyday lives of Alex Jungmayr and Ellen Wakelam ## SMEs and helping In The Welsh Wind Distillery ## them in more ways. ## Founded in 2018, In The Welsh Wind ## Distillery, owned by couple Alex ## Jungmayr and Ellen Wakelam, ## implemented expansion plans following ## Looking ahead, I’ll no longer be the lifting of Covid-19 restrictions. overseeing day-to-day activities at In The Welsh Wind Distillery in Tan-y-groes – a hamlet north of Funding Circle, but will continue to use Cardigan on the west coast of Wales – took off after opening for my experience and knowledge to business in 2018. But plans for growth had to be put on hold as the support the business. I’ll continue to be pandemic hit. involved as a Non-Executive Director, focusing on our new multi-product With the lifting of restrictions, founders Alex and Ellen used a Funding proposition and assisting the Global Circle loan to make their dreams a reality. They hired 15 people and Leadership Team and fellow Board began to expand their “grain-to-grass” ethos, using only grain grown members. I have full confidence in within 10 miles to make their whisky. Able now to implement their   we’re taking. providing training and jobs and opening up local opportunities. It’s been a great journey so far, and Despite the increase in online shopping, the couple recognises the  value of purchasing face to face from small businesses. And by   enhanced technological capabilities, shaping a positive narrative that links to the local landscape 2022 will be the start of a new, dynamic  and transformative period in Funding Circle’s evolution. I think everyone across the business would agree, the future is very exciting. Samir Desai Outgoing Chief Executive Officer 10 March 2022 Annual Report and Accounts 2021 07 Strategic report ### Chief Executive Ocer’s Q&A ## MEET THE CEO ## Lisa Jacobs became Funding Circle’s CEO on 1st January 2022. ## Now in her ninth year at the Company, Lisa has extensive ## experience first as Chief Strategy Officer and then running the ## UK business, the largest division within the Group. In this Q&A, ## Lisa explains how she will be taking Funding Circle to the next ## level in this exciting phase for the Company. ## What first attracted you to ## Q FundingCircle? As the daughter of SME owners, I’ve always been a very passionate small business advocate and acutely aware of the challenges that small businesses can face. When I joined Funding Circle nearly a decade ago, I was attracted to a purpose-driven business of brilliant people focused on using the latest technology to make small businesses’ lives easier. Fast forward ten years and that is still true today. We have grown from 40 people to over 800, but we continue to invest   businesses and the broader economy win. In 2021,    ## What will you bring to the ## Q CEOrole? It is a privilege to be stepping into this role to lead Funding Circle and our incredible Circlers. As a part of the leadership team for nearly a decade, I know the business very well. As Chief Strategy Officer, I led our capital raising and international expansion and launched our first institutional investor loan product in the UK. As UK Managing Director, I led the UK business through the Covid-19 pandemic, supporting our customers, becoming accredited under the government loan schemes and executing against our strategic plan. I am hugely proud of what we’ve achieved and the impact we’ve had so far. We have supported over 120,000 small ## Lisa Jacobs businesses and provided over £14 billion of funding. This has New Chief Executive Officer been down to the incredible dedication of our team of Circlers and the drive of Samir and the rest of the leadership team. Read Lisa Jacobs’ bio p68  Funding Circle Holdings plc08 STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS These are the guiding principles behind how we behave and ## How have you approached your  ## Q first three months in the role? modelling these. I’ve spent the first three months listening and speaking to I have ambitious goals and high expectations but I lead by stakeholders internally and externally, building my knowledge example. That means I’m not afraid to get stuck in and get my of certain areas of the business, and refining and launching hands dirty, but I also aim to create an environment that our new medium-term strategy. empowers those around me to do their greatest work. Having been with the business for over a decade and coming ## So corporate culture is an important from the UK MD role, I was already very close to the UK ## business, so I’ve spent time with our US Circlers in Denver and Q area of focus for you? with the teams that are core to delivering our medium-term Ours is a mission-led business and I believe culture is one of strategy as well as gaining some valuable external perspectives. our most important assets. In an age of remote working, I have launched our new medium-term plan to the business employees have a huge amount of choice in how and where recently and look forward to leading the team to deliver they work and culture becomes hugely important. Funding against it. Circle is a place where people genuinely enjoy working every day and are motivated by what we’re trying to achieve. During ## What is the pandemic, in particular, as our customers struggled, I was humbled by their passion, dedication, talent and hard work. ## Q your strategy?  Over the last twelve years, we have invested in our technology ## and data infrastructure to revolutionise SME lending. As a result What was it like leading the UK of this we have a product that our customers love, consistently ## Q business during the pandemic?  ## lending to more than 120,000 businesses. We have also reached What were your biggest learnings?  It was a challenging period for us, like many of our customers Our strategy is to continue our profitable growth, building on and businesses around the world. However, it was also an these core foundations to deliver three customer-focused opportunity to show the power of our platform. We pivoted pillars – attracting more businesses, saying yes to more  businesses and being number one in new products. lending under the government loan schemes. The speed and agility we have paid off as we were able to scale our monthly We will attract more businesses through our direct channels, volumes to double pre-Covid levels. Alongside this, we proved building on the tailwinds of further digitisation in the SME lending the effectiveness of our risk modelling and servicing with market and we will embed our instant decision lending resilient investor returns. technology into partners’ environments, enabling them to deliver the same superior customer experience to their customers. ## What are you most proud of as a We will say yes to more businesses by creating personalised ## Q Company in 2021? journeys and propositions; expanding our set of products to serve more businesses and deepening our marketplace When Funding Circle first started in 2010, it typically took three integrations with other lenders to support more businesses months for borrowers to get a loan. We announced our arrival with different products. by reducing that wait time to three weeks. A decade later, we’ve been able to bring our technology and data analytics to Finally, building on our core platform, we will launch new provide instant decisions for borrowers. This is a remarkable product categories for our customers. These products will achievement in itself but also one that provides important deepen our engagement with our customers, allowing us to foundations for us to build upon over the medium-term.  solving some of their most difficult challenges enabling them ## What are you most excited about to focus on running their businesses. ## Q going into 2022? This strategy is underpinned by the continued focus on our foundations. We will continue our technology and data While we’ve made significant progress in leveraging our investment to enable innovation at pace; build scalable technology and data, we’re just getting started. We are at the products and processes and high-performing teams who early stages of what we can do. I’m personally most excited  about the opportunity we have to become the small business lending platform where a customer can not only borrow, but pay ## How would you describe your and spend as well. Key to this is the rollout of FlexiPay, and the ## Q leadership style? feedback we’ve had from customers so far is really encouraging. With our new products and capabilities, our customer journey I’m very passionate about what we do at Funding Circle. It’s a to 2024 will see hundreds of thousands of SMEs using special place to work. We are mission-led, values-driven, Funding Circle to meet their borrowing and business finance inclusive and supportive and that enables our Circlers to get on needs through a rich ecosystem of solutions. As such, I’m and do what they do best – innovating and executing. In the early really excited about our next phase of growth and I believe our years of Funding Circle, I co-created our values – think smart, best is yet to come. make it happen, be open, stand together and live the adventure. Annual Report and Accounts 2021 09 Strategic report ### Our market ## Small businesses are driving ## the economic recovery, but ## remain underserved ## SMEs are vital to the global economy, creating jobs, stimulating ## growthand driving innovation. They account for 70% of private sector ## employment and 50–60% of the economic value created across the ## OECD region. But despite the crucial role they are playing in the ## post-pandemic recovery, SMEs continue to be underserved by traditional ## lenders and typically represent less than 2% of banks’ balance sheets. | The economic recovery | and had to borrow in order to cover cash | Thrivers are those SMEs that continued | | --- | --- | --- | | gathered pace in 2021 | flow shortfalls – typically through the | to grow their business and adapt to | | | Bounce Back Loan Scheme (“BBLS”) in |  | 2021 was another challenging year for the UK. This group has reduced as the businesses in this group have taken small businesses. In the UK, it started with recovery gathered pace, with the share  a third national lockdown, and ended with of SMEs in the UK reporting significant through government-guaranteed loan cost pressures building on the horizon. decreases in turnover halved. Similarly schemes in the UK to support their However, yet again, SMEs demonstrated in the US, the share of SMEs reporting growth plans and build for the future. their resilience and ability to adapt, playing earning less than $500 per month is This group has grown in size and the an integral role in driving the UK economic 1 now more than four times smaller. share of SMEs in the UK planning to recovery as restrictions eased. grow has doubled since Q2 2020 and Hedgers are those SMEs that have been During the pandemic, we saw the has now returned to pre-pandemic only lightly impacted by the pandemic. emergence of three broad groups of  They have borrowed under the SMEs which we’ve identified as  government-guaranteed loan schemes Survivors, Hedgers and Thrivers. These pandemic had little or no effect on their  groups were impacted by, and have business overall, and 9% experienced confidence amongst SMEs increased responded to, the disruption and 4  throughout 2021, the share of SMEs  holding cash reserves has started to Markets began to normalise decrease. The proportion of UK SMEs Survivors, Hedgers In the UK, while 2020 saw an injection of happy to use finance to meet their andThrivers new lending, primarily through BBLS, in growth aspirations is also at its highest Survivors are those SMEs that were 2 2021 a similar amount was lent to SMEs level since 2016. And around 40% of most affected by lockdown restrictions as in 2019. However, this lending was  and social distancing rules. For example, weighted towards the first half of 2021  those businesses in the retail, hospitality 3 as the tail-end of the government-  and leisure sectors that have struggled guaranteed loan schemes concluded. Small businesses are underserved by traditional lenders 5 ## SME loans as a % of banks’ balance sheets <2% 6 ## SMEs as a % of GDP and employment 50–70% 1. Source: United States Census Bureau’s Small Business Pulse Survey. 4. Source: United States Census Bureau’s Small Business Pulse Survey. 2. Source: BVA BDRC. 5. Source: Bank of England, US Federal Reserve, FDIC. 3. Source: Funding Circle’s 2021 impact, Oxford Economics, March 2022. 6. Source: OECD SME and Entrepreneurship Outlook 2019. 10 Funding Circle Holdings plc STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTSCORPORATE GOVERNANCE FINANCIAL STATEMENTS With lending in the second half of the We’re also seeing increased appetite year lower than its pre-pandemic    before the market fully normalises. particularly among SMEs that accessed finance for the first time during the The end of the Coronavirus Business pandemic and are now more Interruption Loan Scheme (“CBILS”) in comfortable with borrowing to support March 2021 enabled lenders, including their business plans. 60% of UK SMEs Funding Circle, to reintroduce their core that took a Funding Circle loan in 2021 loan product offerings alongside were first-time users of online finance. Recovery Loan Scheme (“RLS”) loans. We were pleased to be the first lending In addition, Funding Circle is benefiting platform to receive accreditation under from heightened expectations around RLS. customer service and ease of access, driven by SME online adoption. Over Similarly in the US, having supported  14,000 businesses through the ## borrowers say they will come back to A NEW CHAPTER Paycheck Protection Program (“PPP”), the platform first in future. We anticipate we re-introduced our core loan product ## borrower demand to accelerate in 2022. IN BUSINESS and expanded our marketplace lending |  | The increased need among small | DEVELOPMENT | | --- | --- | --- | | 2021. |  | | | | relationships with lenders has opened | David Wavre | | The pandemic has | up new opportunities, shaping the | | ## A Great Read | permanently changed how | development of new Funding Circle | | | --- | --- | --- | | SMEs access finance | products and capabilities (see page 16). | David Wavre worked in publishing | | While we expect the UK and the US | | before launching A Great Read in | |  | SME success remains vital | 2007, taking inspiration from book | |  | tothe economic recovery | clubs and the growth in e-commerce. | | as they were before. The pandemic has | Access to finance will continue to be | David took out a Funding Circle loan | |  | critical for SMEs as they look to invest | to help meet growing demand. | | from which Funding Circle continues to | and grow. | | As bored Brits looked for distraction benefit. | | In the UK, we will continue to operate | during the lockdowns of 2021, family | | --- | --- | --- | | The events of the past two years have | our core loan product and originate | business A Great Read saw an | | triggered a seismic shift in online |  | opportunity for growth. Taking out a | | adoption, with 40% of SMEs increasing | to roll out our new products and | Funding Circle loan, it set about | | their use of online banking services | capabilities and expand our marketplace | improving its premises, expanding | | across the OECD region. This trend | offering. In the US, we will continue to | marketing, ramping up technology | | persisted in 2021, as SMEs continued | expand our core loan product and our |  | |  | marketplace offering. | | As the name might suggest, A Great  We look forward to supporting new and Read originally sold books. But as the as the economic recovery began. 68% existing SME customers, whose future pandemic took hold, it diversified into  success continues to be vital to the board games, jigsaw puzzles and  global economic recovery. colouring books for children and adults. going forward. The company, based in Wiltshire, also increased its range of educational books to support home schooling. And with telephone support staff favoured over automation, A Great Read enabled customers to have “proper ## 68% 40% conversations” with real people. of SMEs are looking to manage of SMEs expect to require finance Despite fierce competition from the more of their business via digital in the next 12 months, primarily for online behemoths that dominate the channels going forward growth or investment market, A Great Read has seen its website turnover rise by 139%. In 2021, leveraging its Funding Circle loan, the company took over a large vacant ## 96% 60% warehouse to accommodate growth volumes, increasing capacity to almost of SMEs wait over two weeks of SMEs that took a Funding Circle   loan in 2021 were first-time users the company hit more than one million of online finance sales and saw turnover skyrocket. Annual Report and Accounts 2021 11 Strategic report ### Technology and data ## Small business lending ## powered by machine learning, ## technology and data ## At Funding Circle, we’re reinventing small business lending ## through machine learning, technology and data. By making ## sure we have the technology to help our customers win, ## we’realso helping to power the economies in which we work. SMEs struggle to get money Reinventing small way we operate. And today, through a from traditional sources businesslending fully automated process that caters for loans of any size and any risk, we’re Lending to small businesses is Over the past ten years, we’ve built the reinventing small business lending. complicated. The small business capability for any SME in the UK to population is diverse, presenting receive an automated decision – a first Thanks to our pioneering instant wide-ranging and complex risks and globally in SME term lending. When we decision lending capabilities, 70% of significant credit exposures. SME risk started in 2010, we were reliant on   publicly available data only and our This means borrowers can apply for a fragmented and not easy to predict.  loan in six minutes, receive a decision in time, we’ve accumulated significant  Historically, banks have managed these amounts of data and gained extensive their account in 24 hours. This challenges by focusing on specific insights on small businesses. By technology is world class. We’ve segments and traditional banking constantly evolving our technology achieved this while retaining a human solutions – for example, targeting larger infrastructure, we’ve revolutionised the touch for borrowers who need it. companies with more available data, lending to existing bank customers  underwriting. This has led to poor outcomes for small businesses, with restricted access to finance, high Our unique capabilities are shaped by: decline rates, limited loan sizes, and cumbersome application processes – months of waiting and mountains of paperwork. Around 96% of SMEs that went to a bank first waited over two weeks to receive a lending decision. ### 10+ years of £14bn lent >900,000 ### As a result, SMEs have struggled experience toSMEs applications    funding they need to win, one that leverages technology and machine ### 8th learning to make a real difference. ### 26m ### generation ### businesses 2bn data ### UK risk ### in our data points ### models ### lake Funding Circle Holdings plc12 STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS We know that some businesses still Our 4D system Together, these components integrate  to help us gather, manage and leverage Our success is based on an end-to-end example, regarding sophisticated cases data to enhance our decision-making technology system that forms a key part or complex business structures. capabilities. We call it our “4D” system of our overall technology platform. It is and it forms a deep moat around our made up of four key components: By offering a variety of ways for business. This moat is fully defensible customers to interact with us, we X Data accumulation and very difficult to replicate, as we’ve ensure we deliver the right experience X Data engineering  for the right business at the right time. SME data over ten years of innovation X Data science and investment. X Decision Engine platform ## Our 4D system ## Data Data ## accumulation engineering ## Decision Engine Data ## platform science Annual Report and Accounts 2021 13 Strategic report ### Technology and data continued | Here’s how the 4D | workable, digitised information. This |  | | --- | --- | --- | | systemworks: | process involves stitching together | likelihood of a customer responding to | | | individual pieces of data we gather from | an offer or accepting a loan. They help | Data accumulation different sources – P&Ls, balance us decide who we should accept from a Our system begins with learning, which sheets and bank statements – to create risk perspective, which enhances our we achieve through data collection and a precisely structured database from customer targeting. creation. This data is a combination of which our data scientists can work. publicly available data and bespoke data Decision Engine platform we generate through customer Data science The brain of our platform, the Decision engagement and analysis. Leveraging Funding Circle data scientists analyse Engine, is the culmination of our this accumulated data, we’ve created a our data in order to understand its technology systems and processes. It  patterns and characteristics, carrying enables us to leverage our predictive with information about customer out the following core activities: models to make accurate and optimised engagement and their behaviours decisions, in real time. The Decision X Diagnostic analysis around taking on and repaying loans. Engine is the bridge between our This vital evidence underpins and X Pattern analysis machine learning and the borrower, informs our technology developments X Predictive analysis helping us utilise the insights we’ve and decisions.  X Scenario simulations best software and solutions. Data engineering X Decision optimisation To make accurate risk decisions, a huge Taking the complexity out of the X Back-testing amount of data needs to be ingested, borrower experience, it determines what X Validation cleaned, managed and maintained. the borrower needs to see in order to Thanks to our data engineering systems X Monitoring interact with Funding Circle. The and tools, we’re able to do this at speed, Decision Engine generates bespoke These activities help us make sense of   the data we’ve accumulated and time, and channelling it into our data truly personalised customer journey. develop accurate statistical and lake. We then convert this data into predictive models. These models, ## Data science AI-powered decisions Data lake ## Accurate statistical and ## predictive models Pattern analysis ## Predictive analysis Enhance our ## Back-testing customertargeting Validation ## Personalised ## experience Funding Circle Holdings plc14 STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Driving value and deepening This world-class system powers the today than it has ever been. With our new engagement Funding Circle flywheel which drives technology platform, we now have the innovation, improvements and a capability to build three to four different Through the transformation of our tech competitive advantage. product propositions concurrently. This infrastructure and systems, we’ve   For borrowers, this means we provide a data, which helps reduce the time it takes than any other platform lender. This seamless experience, enabling speed, our engineers to get completed code into information means we can conduct  production, in turn, accelerating granular customer risk analysis, leading increased customisation. The feedback development and deployment. to improved risk models, better loop results in strong customer understanding of credit performance satisfaction scores and higher repeat Investing in our technology and smarter decisions. In addition, our rates. capabilities and culture 4D system allows us to gather, manage For investors, this mean we provide In 2021, we continued to invest in our and leverage data to enhance our positive and secure returns. And it also technology capabilities. We grew our decision making. helps us to grow alongside our tech teams to ensure we can meet the customers, all part of a virtuous circle needs of SMEs across multiple so that we can continue to meet the products and channels. Specifically, we finance needs of hundreds of thousands focused on bringing in senior Together, these processes of SMEs. technology leaders to drive our scaling and components lead to: activities, honing our engineers’ Scalability, agility and speed capabilities and tools, and investing in Marketing optimisation At Funding Circle, we’ve built our data engineering. We also embedded technology systems to be scalable, site reliability engineers into our delivery flexible and fast. We use our Decision groups to enhance the testing and Engine and machine learning capabilities delivery of code. Predictive models lead to accurate to operate multiple automated customer What’s really exciting is that we’re still at targeting and relevant offers; this and product journeys via decision tree the early stages of what we can do with ensures our marketing is effective configurations. The system interrogates this technology. Our journey to 2024 will and efficient, so we don’t waste the data at each step of the process to see hundreds of thousands of SMEs time, energy or money. determine the next step for the customer. using Funding Circle to meet their This means we can handle a wide range borrowing and business finance needs, of existing customers, while leveraging through a rich ecosystem of solutions. Increased conversion rates our platform to create completely new Our multi-product proposition will cater types of funding products.  Our technology infrastructure also different depths of interaction and provides us with the flexibility to experience (see page 16). Targeted offers, informed by constantly test new ideas and ways of predictive analysis, increase the In 2022, we will invest further in data working. We learn, pivot and adapt to likelihood of converting leads analysts, scientists and strategists, help solve more funding problems for  while also making significant small businesses, innovating in a investments in data security. Above continuous feedback loop to drive  Strong investor returns improvements in all areas. commitment of building a genuine And while we’ve always been a fast- technology and data-focused culture, moving organisation, the pace of not just within our tech teams but innovation at Funding Circle is faster across the Company as a whole. Through careful customer  we’re able to ensure a good return on investment. Long-term customer engagement ## 80–90 NPS By personalising the customer in the UK and the US experience, we increase the likelihood of repeat borrowing and product use, leading to deeper and longer-term relationships. Annual Report and Accounts 2021 15 Strategic report ### New products and capabilities ## CREATING NEW PRODUCTS ## TOHELP SOLVE MORE ## FUNDING PROBLEMS FOR ## SMALL BUSINESSES ## We’re constantly innovating and developing our technology to deliver easy, ## fast and flexible funding solutions to small businesses. In 2021, we beta ## launched an exciting new product, FlexiPay, and new capability enabling ## partners to offer Funding Circle loans within their own website via an API. Our new short-term finance product, three months, with the initial payment interaction, helping us build deeper FlexiPay, and embedded finance made upfront on their behalf. It gives relationships on a “borrow-pay-spend” solution are part of our strategic shift SMEs greater flexibility to negotiate with basis – relationships that should towards a multi-product, multi-channel suppliers, deal with unexpected payments encourage higher repeat rates over time. proposition. Our ambition is to offer a and cover ad-hoc business costs. We launched FlexiPay in beta in broader set of products that cater to September 2021 to a selection of our  Flexibility and control existing customers in the UK. Following depths of interaction and experience. Businesses can apply within minutes for hugely positive feedback, at the end of a credit facility of between £2,000 and We see a future whereby we’re able to be 2021 we expanded our efforts to make £50,000. Approved customers can a more meaningful part of our the product available to more existing access their funds almost immediately, customers’ lives – supporting them customers. Early this year we launched to make payments to suppliers of £100 daily, weekly and monthly as they FlexiPay in beta to new customers and and over. borrow, pay and spend. plan to roll the product out further in 2022.  ## FlexiPay 3% flat fee on each transaction, with no FlexiPay Card interest or uncertainty about what they  As the next stage of the FlexiPay roll-out  than ever before. Increasingly, they need in the UK, we’re also developing a suppliers are confidential and made in to transact at much shorter notice and business charge card, to help the business’ name, so there’s no sign of engage with lenders on a just-in-time businesses settle monthly payments external assistance. basis. They also need to manage and and meet daily expenditure needs. Helping to smooth expenses into cash control their cash flow and adapt to FlexiPay Card will enable small flow, FlexiPay can help businesses changing and challenging businesses to spend money for up to 30 obtain discounts with their suppliers for circumstances – as seen during the days interest free, with 1% cashback for timely or early payments and, in some pandemic, which created a wave of those which repay their balance at the cases, ultimately lower the overall costs. purchases, investments and capital end of the month. Card bills can also be And unlike a term loan, it can be used as, deployments among SMEs. rolled over into a three-month FlexiPay when and how a customer wants. FlexiPay, the first short-term finance credit, providing an additional layer of product offered by Funding Circle in the flexibility. We opened the FlexiPay Card A closer customer relationship UK, is designed to meet these evolving wait list in late 2021. We expect to FlexiPay creates a more intimate  launch the product to a selection of our relationship between the customer solution that empowers small businesses existing customers by the end of 2022,  to control their own payments on any following the roll-out of FlexiPay in the expense, anywhere. Putting us closer to the actual first half of the year. transaction needs of small businesses, FlexiPay enables businesses to spread  any UK invoice or supplier payment over Funding Circle Holdings plc16 STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS ## PAY ## BORROW ## SPEND ## I applied for FlexiPay because customers were paying ## me late, which meant I was short on cash flow. I like the ## product as it helps me pay suppliers on time, keep a good ## reputation and manage cash flow. The application ## process was straightforward and it only took a few ## minutes to complete. I’d be happy to recommend ## FlexiPay toothers. Carl Whetstone-Veitch,  Annual Report and Accounts 2021 17 Strategic report ### New products and capabilities continued ## I signed up to FlexiPay as I had a payment due to a supplier and it ## allowed me to buy extra supplies which I needed. FlexiPay is one of ## the best ideas for small businesses and I will definitely be using it on ## an ongoing basis and telling people about it. It is really clear how ## repayments work and how much I owe. Paul Teather, Director of P&W Waste Solutions ## Embedded finance solution | Funding Circle is at the stage of maturity | The business finance platforms Funding | Increased reach and range | | --- | --- | --- | | now where we can enable external | Options and Capitalise.com were the | The embedded finance solution enables | | partners to tap into our technology and | first to integrate with the new Funding | Funding Circle to shift from being a | | machine learning for the benefit of their | Circle API, providing a blueprint for |  | | customers. As a sign of our confidence in | additional partnerships expected in | those places where our customers | |  | 2022 and beyond. | organically transact. In this way, it helps | | strength of our technology platform, in | | to ensure we’re offering the right product | And in the US, we will be launching our December 2021 we launched a new to the right business at the right time. Lending as a Service (“LaaS”) partnership embedded finance solution in the UK. Via  programme with banks and other large a newly created Application referral proposition to more SME providers who are looking to leverage Programming Interface (“API”), partners online-driven partnerships. our technology platform to provide small can now natively embed Funding Circle business loans to their customers. By expanding our offer through partner into their own websites, providing Enabling a myriad of use cases and platforms, we’re extending Funding customers with fast and seamless integrations, this pipeline will form part of Circle’s reach and exposing more access to small business loans. This new  customers to a broader range of solution provides partners’ customers embedded finance that’s predicted to services, giving them the just-in-time with a frictionless way to apply for a loan  digital interactions they desire, and of up to £500,000 in minutes, receive a 1  . The market is expected helping them access the funds they decision in seconds, and have money in to experience significant growth due to the need to win.  increasing availability of APIs and their  New products New capabilities ## FLEXIPAY: FLEXIPAY EMBEDDED Enables businesses to spread ## CARD: FINANCE: any UK invoice or supplier | payment over three months, with | Enables businesses to pay | | Enables partners to offer | | --- | --- | --- | --- | | a one-off 3% fee, interest free. |  | |  | | | |  |  | Businesses can apply  The card gives one month of Businesses can apply     set-up fees.  almost immediately. almost immediately. Businesses can apply online within minutes.  Funding Circle Holdings plc18 STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS SUPPORTING BUSINESSES ## DECORATIVE ## DETAIL ## Kai Price and Amanda Nelson ## Att Pynta ## Att Pynta is a Scandinavian-inspired homeware brand ## founded by Kai Price and Amanda Nelson, who used a ## government-backed Funding Circle loan to boost their ## working capital. Founded in 2014, Att Pynta curates homeware collections from makers, designers and artisans from across Scandinavia and the UK. The focus is on pieces that are timeless, sustainably produced and made to last a lifetime. In addition to a showroom in London,  Despite the initial challenges of lockdown, as people started working remotely their  Pynta and the business had to adapt, outsourcing to a warehouse and scaling operations. The homeware brand also started offering appointments over FaceTime to talk through customer needs and showcase items from the showroom. Att Pynta is now using a  looking to maintain growth and leverage momentum. Annual Report and Accounts 2021 19 Strategic report ### Strategic priorities ## A new period ## of transformation ## In 2021, we continued to deliver on our mission of ## building the place where small businesses get the funding ## they need to win. To support this mission and our next ## phase of growth, during the year we developed our new ## medium-term plan. We’ve achieved great things over the The new medium-term plan is based on ## Strategic pillars past ten years, building the capability for three strategic pillars: any SME in the UK to receive an instant The strategic pillars are the three X Attract more businesses lending decision – a first globally. But  X Say yes to more businesses  we’re always looking at what we can do next to delight our customers and help X #1 in new products them to keep on winning. Attract more businesses And is underpinned by three core Strengthen direct and indirect Despite our strong position, there foundations: channels, and embed natively in more  X Technology and data to enable partner environments to attract explore further – namely, expanding innovation at pace businesses at the right time.  X Scalable products and processes conversion rates and deepening We’re working on a number of areas, customer engagement. X High-performing teams executing including growing and improving our brilliantly existing distribution channels, and  leveraging our market-leading medium-term plan is designed to help By delivering on our strategic priorities, technology. We’re particularly excited us grasp these opportunities. Our most we will transform Funding Circle into a about embedding our services into ambitious plan to date, it defines our multi-product, multi-platform Company. partners’ environments in both the UK strategic priorities and marks the start and the US. of a new and transformative period for Funding Circle. In the UK, we’ve created a new capability to enable partners to seamlessly offer Funding Circle loans to  We are in a strong position | | Consistently | | | 70% of UK | Market | | Increase in | | Strong and | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | highcustomer | | applications now | | leadership | online adoption | | diverse funding | | | satisfaction with | | | receiving instant | | position in | and new data | | | relationships | | market-leading | | | | decisions | the UK | | sources | | | | | | NPS | | | | (Open Banking) | | | | Funding Circle Holdings plc20 STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS the US, we’re developing our Lending as a Service (“LaaS”) proposition. I n d n n s o a y u v t l p a Through these developments, we’re t s n e t e r i e c i o f u i c r a deepening key relationships and d f t s o f e t r e c t increasing our distribution potential. It’s p s h h e e a r l s n o  a s d u c e g ### S c Attract more d h extend our reach and attract more o a r t ### p businesses a businesses in the UK and the US. Say yes to more businesses Develop a broader set of solutions, personalised to customers’ needs, so we can support more businesses. We aim to enable deeper and broader ### market integrations to deliver the right Say yes ### #1 in new ### product to each applicant. We’re tomore ### products creating an expanded set of Funding ### businesses Circle term loans, supported by a diversified funding base including banks and asset managers. We’re also expanding our marketplace offering, connecting borrowers with other lenders in the market, offering further products beyond our current range, such as larger loans, asset finance and E x e i t h c u t l y w e b r i l l i a n t invoice finance. h i g h m s - p e r t e a f o r m i n g #1 in new products Empower small businesses to not only borrow, but to pay and spend as well. In 2022, we will continue the roll-out of FlexiPay, which enables businesses to spread any UK invoice or supplier payment over three months. It will be right tooling to enable advanced analytics. High-performing teams that made available to all existing customers Simultaneously, we will enhance our execute brilliantly and new business prospects in the UK. automation by increasing support for On our journey to 2024, we will continue We will also launch FlexiPay Card in the data producers and analysts, ensuring to attract, retain and develop high- UK to help SMEs settle monthly they can curate and leverage data to performing teams that have the payments and meet daily expenditure optimise value for customers. knowledge and skills to enable fast needs. We expect to launch to a delivery for our customers. We want to selection of our existing customers by Scalable products and ensure we have the right talent and the end of 2022, following the roll-out of processes capabilities to deliver on our strategic FlexiPay in the first half of the year. Our aim is to lend, service, partner and goals, while continuing to maintain our innovate at scale for our customers.  ## Core foundations Over the next three years, we will process will involve: The core foundations are the primary continue to focus on putting the right X Building for the future: ensuring our enablers that will drive the delivery of processes and capabilities in place organisational structure works and our strategic pillars:  supports our future multi-product at scale efficiently, while remaining model Technology and data to enable   X Building skills for success: defining, innovation at pace  Through ongoing investment in These efforts will ensure we deliver the and capabilities to deliver our technology, we aim to continually medium-term plan with improved cost  improve our capacity to develop management, increased operational X Building the Incredible: evolving our  agility, enhanced predictability and compelling Circler proposition to execute our strategic priorities. greater, more efficient scaling potential. ensure we successfully compete for We will also continue to develop our and retain top talent data-centric culture and invest in the Annual Report and Accounts 2021 21 Strategic report ### Our model ## How we create value ## We continue to demonstrate the resilience of our ## unique model and remain the preferred way for ## SMEs to access finance. ## Borrowers Small businesses can access fast, affordable finance through our core loan product and new product, FlexiPay. Our borrower base is highly diversified across regions and industries, which helps to deliver stable returns and mitigates the effects of adverse economic conditions. See page 16 for more on our new products. New More products customers More More operating data leverage Typical businesses thatborrow through Better theplatform: Better machine X 11 years’ trading history customer learning experience X Eight employees models X ~£1 million revenue X ~£80,000 loan size X 50 months’ average term X Six-minute application and  Marketplace borrowers By connecting borrowers with other lenders in the market, we offer further products beyond our ## C.120,000 current range, such as larger loans, asset finance and invoice finance. borrowers globally since 2010 Funding Circle Holdings plc22 STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS | Investors | Value created | | --- | --- | | Investors can earn resilient returns | For borrowers | | Our original innovation ten years ago opened up the SME | We provide SMEs with fast, flexible, | | asset class to investors. The platform model enables |  | | investors to make incremental investments, and our | customer experience using machine learning, | | investor base is deep, diverse and stable, including a | technology and data. This means they are free | | wide range of institutions and public bodies: |  | | X 48% asset managers | business while contributing to the local | community and economy. X 35% banks X 8% bond programme For investors X 5% retail funds We provide investors with access to an X 3% national entities attractive asset class, previously mostly held  X 1% funds importance to economies. For employees ## £2.5BN Our employees have the opportunity to  investor capital raised in2021 impact on a huge societal issue. To help them achieve this, we’ve created a culture dedicated to learning and the personal growth of everyone ## Funding Circle who works here. How we make money As a company, Funding Circle makes money in two principal ways: Operating income ## £14BN X Transaction fee income from the fees we lent to businesses charge borrowers X Servicing fee income from the fees we charge investors ## 5.0–6.0% Investment income expected investor returns for loans X The net interest income on loans invested originated in the UK in 2021 within Funding Circle’s investment vehicles ## 86% would recommend Funding Circle asaplace to work Annual Report and Accounts 2021 23 Strategic report ### Our people ## Building an incredible place ## towork and learn, together ## In 2021, the working lives of employees around the world continued to be ## impacted by the pandemic restrictions. We therefore continued to prioritise ## the health, safety and welfare of our Circlers. By listening to our people and ## responding to their needs, we introduced a “best of both” hybrid working ## model to support life in the “new normal” at Funding Circle. Funding Circle Holdings plc24 STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS We continue to invest in our people, Protecting the mental health Gender breakdown focusing in particular on creating a safe, and wellbeing of Circlers as at 31 December 2021 open and inclusive working environment In 2021, we continued to enhance our where everyone can be themselves. people promise, Build the Incredible. All Circlers We’re extremely grateful for our Having seen the power of culture and employees’ unwavering commitment community during the pandemic, we felt during the challenges of the past two it was important to maintain and years. Their efforts and achievements strengthen who we are. In particular, we have helped us understand more than 2020: realised that supporting mental health ever that our culture is one of our greatest 41% Female and wellbeing is critical as the assets. We’re stronger together. It’s boundaries between work and life certainly something our Circlers believe,   become blurred. as they showed in our 2021 annual ##    engagement survey, which recorded the We therefore offered increased support highest scores we’ve ever seen. to Circlers, including a professional Senior Management mental health and wellbeing service. Introducing a new  hybridmodel for working – our management population. And we ran thebestofboth panel discussions with senior leaders Throughout the year, we considered about their own wellbeing journey, 2020: what the post-pandemic world might helping to break down the barriers 33% Female mean for our people, and for life at  Funding Circle. In keeping with our   More broadly, ensuring our managers values, we did not pretend to have all the ##     answers and engaged directly with they need to look after their teams is Circlers to elicit their views on the future crucial. To this end, we continued to of work. Employee ideas and opinions Global Leadership Team develop our manager programme, with were therefore central to the new modules to support hybrid working. development of our new working model, We also delivered our first-ever leadership just as they are critical to our Circler development programme. The three- proposition, Build the Incredible. | | month scheme, designed to hone | | | 2020: | | | --- | --- | --- | --- | --- | --- | | From the surveys and feedback | leadership capabilities, was devised | | 38% Female | | | | sessions we conducted, it was clear | using direct feedback from our leadership | | | | | | Circlers wanted more flexibility in their | population and deployed through | | | |   | | working lives. At the same time, views | one-to-one coaching, training, peer |  | | |   | | on the pros and cons of remote working | learning and informal leadership “cafés”. | | | | | were evenly split. While many said they We’re very proud of our managers and Group Board appreciated the advantages of working leaders at Funding Circle. Their centrality remotely, others placed great value on to our culture and success is reflected the creative and collaborative in the consistently high leadership interaction that occurs in our offices. scores we receive in our Circler We therefore set out to combine the 2020: engagement surveys. “best of both” in our new working model. 20% Female The new model empowers each Circler Enhancing diversity, equity to work flexibly in a way that delivers the   andinclusion ## best of both for themselves    We want to ensure our Company is a professionally and personally, and the place where everyone feels they belong best of both for Funding Circle too. Our and can give their best. In particular, Pay gap physical workspaces remain important we’re committed to promoting gender % to us, but we want Circlers to work  dynamically in a way that makes sense our gender pay gap is now at its lowest Mean pay gap for them and their team. Our time is now level to date. Our mean pay gap has also split between remote and office fallen to 18.5% and the median to 27.1%. 2020 21.4% working, in whatever way works best for We focus on recruiting and retaining both Circlers and their teams in any senior female talent, as evidenced by the given week. 2021 18.5% increased proportion of women in senior Empowering flexibility is at the heart of leadership positions, which is now at 34%. We also place a strong emphasis Median pay gap this model, a model we’ll continue to on developing our internal talent. We test, iterate and evolve during 2022. believe these commitments are key to 2020 32.2% driving long-term change across the industry, given the historical under- representation of women in this area. 2021 27.1% Annual Report and Accounts 2021 25 Strategic report ### Our people continued Enhancing diversity, equity andinclusion continued At Funding Circle, we want our Company to be as diverse as the small businesses we serve and the communities in which we operate, both of which are at the heart of what we do. Over the past two years, we’ve come  culture can be. By taking steps to support our culture, we know we can realise our potential. One of the biggest developments has been the further empowerment of our  and Inclusion (“DEI”) team, they have been a major driving force for positive change in the Company. We currently have five main Circler-led groups engaging and delivering initiatives they believe are important. In 2021, such initiatives included educational sessions on LGBT+ rights and prejudice at work, celebrations of Black History Month and Pride Month, and a stem cell donor initiative, to name but a few. We also continued our mentorship programme for schoolchildren with Future Frontiers. In addition, all groups collaborated on a series called “Open Circle”, a discussion OUR VALUES ## Think smart Challenge assumptions, seek insights and make informed OUR CULTURE decisions. Everyone has a voice,  ## Make it happen ## BUILDING A Be courageous and take ownership. Take small steps fast and commit to ## LEARNING CULTURE seeing it through. One of the key goals of our Circler promise is to embed a learning mindset across the ## Be open business and create a “career accelerator” for our people. We believe everyone should have the opportunity to learn, grow, develop and pursue the skills and careers Treat everybody with respect and be they want. To support this goal, we provide best-in-class training to all Circlers honest with each other. Transparency through our internal learning platforms and our peer-to-peer network, FC Academy. and integrity build trust. Circlers also receive an annual learning allowance, enabling them to pursue training ## and development opportunities, alongside our formal professional training policy. Stand together In addition, it’s important our working environment cultivates and nurtures a learning Listen, understand and support each mindset. Circlers join us at different stages of their careers. For many, this is their first other. Win or lose as one. professional role, while others have been working for several years. As a result, ## Circlers are given the opportunity to gain valuable experience from each other and to Live the adventure learn on the job. We also have an active apprenticeship programme to provide young Bring your passion with you every people with alternative routes to employment. morning and have fun. Funding Circle Holdings plc26 STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS forum with diversity champions where OUR DEI STATEMENT panels openly discuss challenging   Our policy for the employment of  opportunities to develop skills and secure roles relevant for them and their career ambitions. This includes making reasonable adjustments to the workplace to support this. Our recruitment process ensures all applications, including those from disabled persons, are treated  CIRCLER-LED GROUPS ## Women @FC We’re here to Build the Incredible at Funding Circle. We know we can only achieve this To help Funding Circle be the best through an inclusive and diverse culture where Circlers of all backgrounds feel FinTech company for women to confident in bringing their whole selves to work, where they can contribute their ideas,  have opportunities to be successful and their talents nurtured. Through empowering our people we are not only building something incredible for our customers, but an ## Let’s talk about Race incredible place to work too. To break the silence and remove the We live by our Company values and cherish our diversity, whether that relates to taboos about Race. culture, gender, race and ethnicity, sexual orientation, gender identity and expression, disability, marital status, age, nationality, religion, thought, belief, experience or ## Circle of Pride expression. We Stand Together, as one. To champion an inclusive workplace for all through an LGBT+ lens. ## GROWING DEI ## FC Impact ## To come together and give back. FROM WITHIN ## Parents @FC Fanni Vilmanyi, ## To provide a safe space and a Learning & DEI Lead network for parents. ## at Funding Circle We’re incredibly proud of the inclusive environment we’ve created. Our Circlers I’m lucky enough to have watched Funding Circle grow from a young start-up feel the same: 86% believe people from to the exciting company it is today, while keeping its tight-knit, inspiring   opportunities to succeed at Funding  Circle, with 83% telling us they feel respected and can be themselves at DEI can often be viewed as a box-ticking exercise; all too often this results in it work. We also reported 73% engagement becoming PR focused, rather than an intentional effort to foster inclusivity and in 2021, the highest ever reported at progress. So it’s a breath of fresh air to see Funding Circle genuinely growing DEI Funding Circle. from within, with our Circlers taking a grassroots approach. We believe our culture and talent are Three and a half years ago, I joined the People Operations team not recognising true differentiators and while there is within myself the need to champion marginalised communities. I soon always more we can do, we remain fully discovered the magic of our Circler-led groups and I’ve never looked back. I committed to building an incredible craved to make an impact through these groups both inside and outside of place to work and learn. Funding Circle. Over time, volunteering, fundraising, educational awareness and building an inclusive workplace with Funding Circle became so integral to my everyday life that I turned these activities into my professional career!  be their authentic selves at work, new Circler groups popping up full of driven people who want to drive positive change, and all our leaders backing our efforts wholeheartedly. I’m proud to say I belong at Funding Circle. Annual Report and Accounts 2021 27 Strategic report ### Sustainability ## Building a sustainable business ## The integration of a robust environmental, social and governance ## (“ESG”) framework within Funding Circle’s business is key to ## achieving our mission and strategic objectives. We continue to ## strengthen our ESG best practices to improve stakeholder support ## and increase shareholder value. We acknowledge the need for urgency ESG framework framework in 2020, formalising our in addressing ESG-related issues in approach to ESG integration within our In 2019, our Board established the Funding society. But we are also conscious of ERMF and in our day-to-day operations. Circle ESG framework to determine how the inherent complexity of these issues Our efforts to implement our ESG we could contribute to the creation of a and the challenges of putting in place framework are focused around four key sustainable low-carbon economy, and to robust practices to deliver positive areas: carbon strategy; social impact; continue establishing a more diverse and outcomes. We will continue to pursue  inclusive working environment. The Board such outcomes through our ESG governance and risk management. approved the expansion of the ESG framework, while reviewing our goals and performance on an annual basis. In 2021, we began to implement our approach to ESGrisk management, made progress on our carbon strategy, added Funding Circle’s corporate culture and toour voluntary membership commitments to help inform our values, strong governance practices ESG practices and began to build on our approach to supporting and robust Enterprise Risk Management positive and sustainable social impact. As part of this process, we: Framework (“ERMF”) drive our approach to ESG. In 2021, we focused on developing our climate reporting to the XBegan to implement our XConducted employee standards set out by the Task Force on approach to ESG Risk engagement surveys Climate-related Financial Disclosures Management regarding our social (“TCFD”), specifically our reporting impact programme related to governance, strategy, risk • Integrated ESG components management, metrics and targets and into our risk taxonomy social impact. As part of our carbon strategy, for the first time ever we offset • Conducted a preliminary XBecame a signatory our operational carbon footprint – ESG risk assessment inFebruary 2022 to the relating to our 2020 CO emissions – 2 UN Global Compact to • Established baseline internal through carbon credit projects. We also formalise our alignment ESG management continued to enhance our diversity, with the Compact’s information and reporting  TenPrinciples on humanrights, labour, theenvironment and XBecame a signatory to the anti-corruption UN-supported Principles for Responsible Investment (“PRI”), focusing in particular on XProgressed our carbon private debt strategy, gaining support from a leading climate industry expert, | XBegan a strategy review | progressing our journey | | --- | --- | | to better understand the | to understanding our full | | commercial landscape for | carbon footprint and | | ESG-related products and | offsetting our operational | | customer-facing | emissions for the first | | initiatives | time for 2020 | Funding Circle Holdings plc28 STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Task Force on Climate-related OUR ESG ROADMAP Financial Disclosures (“TCFD”) Funding Circle remains committed to the full implementation of the TCFD | 2019 | | recommendations, with the goal of | | --- | --- | --- | | | X Board established the Funding Circle | enhancing our understanding of the | | |  | risks and opportunities presented by | climate change and of keeping our 2020 stakeholders fully informed about such X  risks and opportunities. In addition to framework and set up Board-level ESG Committee the TCFD disclosure included in this | X Our carbon strategy includes plans for achieving |  | | --- | --- | | carbon neutrality for our operational boundary | recently announced by the UK | | emissions by 2023 and net zero by 2030 | Government, from 2022 Funding Circle | intends to produce an annual carbon transition plan mapping our journey to net zero by 2030. Our strategy sets | 2021 | | ambitious but achievable goals designed | | --- | --- | --- | | | X Began to implement our approach to ESG risk | to address our environmental impacts, | | | management and focused on developing our | including through targeted carbon | | | climate reporting to the standards set out by the | reduction and offsetting strategies | | | Task Force on Climate-related Financial | across our value chain, which we plan to | | | Disclosures (“TCFD”) | develop further in 2022 as part of our | | | X Became signatory to the Principles for | carbon transition plan. | Responsible Investment (“PRI”) X Carbon strategy: started work with external provider to support the verification of our Scope 1 and 2, and Scope 3 (business travel and waste) GHG emissions, with the aim of reaching carbon neutrality for our operational boundary emissions by 2023 X Carbon strategy: for the first time we offset our operational carbon footprint (relating to our 2020 emissions for Scope 1 and 2, and Scope 3 (business travel and waste), through carbon credit projects (for 900 tCO e) 2 X Social impact: conducted employee engagement  X    2022 and beyond X  X Intention to produce an annual carbon transition plan mapping our journey to net zero by 2030 Other X Women in Finance Charter: signatory since 2018 X Member of FTSE4Good Index Annual Report and Accounts 2021 29 Strategic report ### Sustainability continued Task Force on Climate-related Financial Disclosures (“TCFD”) continued The following table sets out Funding Circle’s current TCFD disclosure, including those areas in which we will look to more consistently align with the TCFD recommendations during 2022 and beyond. Governance Disclosure Describe the Board’s The Board retains ultimate responsibility for providing the strategic focus, support and oversight of the implementation of the oversight of climate- Group’s ESG strategy, including climate change-related risks and opportunities. related risks and The Board delegates certain matters to the ESG Committee, including management and oversight of the Group’s ESG strategy opportunities   Committee member Board champion. These Board champions work with the Global Leadership Team (“GLT”) and other senior leaders in the business to progress the Group’s ESG strategy and framework. The Board and the ESG Committee have substantial and varied experience with ESG related issues, and climate change in particular. Within the ESG Committee, Matthew King is the Board champion in connection with our carbon strategy and brings experience as a Non-Executive Director of other more resource intensive industries where climate-change is of critical focus. Within the wider Board, Eric Daniels has been on the Advisory Board of the Smithsonian Tropical Research Institute (“STRI”) for the past ten years. STRI is recognised as one of the premier scientific institutions in the fields of tropical life sciences and sustainability. Eric Daniels has also been an active supporter of the Atkinson Center for Sustainability at Cornell University. Geeta Gopalan currently also serves as Non-Executive Director and Chair of the risk committee for Virgin Money plc where she has gained substantial experience in respect of ESG related risk management, including climate related risk in the banking sector. We have also sought expert advice on our carbon management strategy and provided presentations to the ESG committee through internal and external providers to increase their awareness and understanding of our carbon strategy as well as more technical topics such as carbon foot printing and offsetting. The Board has reviewed and approved our ESG framework and a formal carbon strategy. Please also see “Risk management” on pages 51 to 54, “Principal risks and uncertainties” on pages 55 to 56, the report of the Risk and Compliance Committee on page 92 and the report of the ESG committee on page 93 for more information on Board oversight of climate-related risks, the ESG Committee of the Board, and incorporation of these risks in Principal Risks within our Enterprise Risk Management Framework (“ERMF”). Describe management’s The GLT is responsible for implementing our ESG framework, with direct management responsibility held by our General role in assessing and Counsel. ESG risks are directly supervised and managed by the leadership team of each Business Unit and reviewed at the managing climate- Executive Risk Committee. A working group of senior leaders and other Circlers is responsible for the implementation of our related risks and environmental and carbon strategy on a day-to-day basis. opportunities In late 2021, we began a strategy review to better understand the commercial landscape for ESG-related products and customer-facing initiatives, including business opportunities related to climate change. Please also see “Remuneration” on page 96 for more information on how climate-related factors are considered as a component of executive compensation. Strategy Describe the climate- In 2021, we carried out a risk assessment of climate-related risks and opportunities over the short (one year or less), related risks and  opportunities the  organisation has  identified over the short,  medium and long-term  X Reputation:  X  products, or increases in carbon offset or transition costs may adversely impact the business X   X Credit:   X Credit:  X   acute or chronic adverse environmental events Opportunities (short to medium-term) X  X    neutrality and net zero, in 2022 we also will develop a carbon transition plan that will look at opportunities related to a reduction   Funding Circle Holdings plc30 STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Strategy continued Describe the impact of To date, the impact of climate-related risks and opportunities on our business and strategy has been limited and our efforts in climate-related risks and this regard are at an early stage and limited in scope. opportunities on the The financial impact on our business of climate-related risks and opportunities has been limited, as has the budgeting and organisation’s financial planning impact. The financial impact primarily relates to fees and costs linked to carbon foot-printing and businesses, strategy verification, neutrality certification, offsetting and reporting. These costs are likely to increase in future (in particular in and financial planning respect of emissions reductions or offsets related to Scope 3 emissions), however, we do not believe they will be material in the short to medium-term and we have yet to carry out a detailed forecasting of these costs. We are in the process of carrying out a commercial strategy assessment in respect of climate-change related opportunities, which we expect to complete in 2022; however, to date climate-change related opportunities have not been considered a material opportunity in respect of business strategy or financial planning, and we do not expect such opportunities to form a material component of the business strategy in the short to medium-term. We assessed the materiality of climate change related impacts to Funding Circle using a risk classification matrix to prioritise, classify and escalate risks and issues. The matrix assesses risks by evaluating the likelihood and impact. It assesses controls by evaluating design and effectiveness. The classification matrix is applicable to all risk types and risk issues with a detailed methodology for the score computation. Ultimately, risk exposure is reduced by the control sufficiently such that residual risk is considered to be within risk appetite. This methodology ensures a consistent approach to rating and prioritising key risk exposures across the Company. We applied a simple rating of low, medium or high in regard to materiality, impact and likelihood to cause an actual or potential material negative impact on Funding Circle’s financial performance or reputation. To date, our materiality assessment of   Describe the resilience We have not yet carried out a detailed climate-related scenario analysis. We have started to engage with external advisers of the organisation’s regarding market practice and standards related to such scenario analysis and will continue to review this during 2022. strategy, taking into Qualitatively, we believe our strategy should be resilient under different climate-related scenarios, including a 2°C or lower consideration different scenario. Given the nature of our business, we believe that the longer-term risks identified in connection with more severe climate-related climate-related risk scenarios are not currently material considerations for the business in light of our relatively short to scenarios, including a medium-term time horizons. Our online platform model allows us to have a limited physical presence, and our relatively 2°C or lower scenario short-term and data-driven products allow us to implement changes to our products, credit strategy, marketing and  or assist in the transition of, impacted industries. Our loan products are relatively short in duration (with a maximum term of up to six years and, given the effects of portfolio composition by term, loan size, defaults and prepayments, our portfolio of loans under management has a weighted average life of approximately 10 to 24 months, varying by product type and vintage year of origination). In addition, our loan products are unsecured; therefore, we do not currently focus on certain longer-term climate-related risks, including physical risks that could adversely affect various forms of security, such as real estate, or which are currently beyond our strategic or risk planning time horizon. Our SME borrower customer base is comprised of a large number of borrowers in connection with loans of relatively small size (i.e. is highly granular), broadly distributed by industry sector and geography, and largely not in industries considered as significantly affected by transition risk or physical risks. Given this lack of concentration risk, except in extreme scenarios, our overall borrower portfolio should be resilient to transition risks, such as increased costs or regulation, or the localised or regional impacts of physical risks. Lastly, we draw on a diverse pool of investors to fund our loan products and we are able to  Risk management Describe the Our ERMF describes our risk management approach and supports clear accountability for managing risk across the organisation’s Company. A core principle of our ERMF is that all Circlers are accountable for identifying, escalating and debating the risks processes for we face. Currently, ESG-related risks, including climate-related risks, are incorporated in our ERMF as a strategic risk, owned identifying and by the CEO, and adhere to the “evaluate, respond and monitor” format described on page 54. In 2021 we reviewed our ERMF assessing climate- risk appetite statement and risk taxonomy regarding environmental risks. We identified climate-related risks within our related risks existing principal risk areas, primarily related to funding, strategy, reputation, and credit risk. We conducted working sessions to assess the risks and opportunities that could impact the business in the short, medium and long-term. These sessions helped to inform our views on the applicable materiality for each impacted category, and to align with relevant ESG disclosure standards, in particular TCFD. Describe the We are at a relatively early stage in our management of climate-related risks. As an initial step, we have formalised Board organisation’s ownership of the overall ESG risk agenda, including climate-related risks, and are clarifying ownership of ESG related risks processes for managing directly supervised and managed by the leadership team of each Business Unit and reviewed at the ERC. We have also climate-related risks developed a carbon strategy that includes plans for achieving carbon neutrality in respect of our operational emissions by  strategic actions related to ESG practices including related to short to medium-term climate related risks and opportunities.  As part of our ERMF review we identified a number of areas for further development, which we intend to progress in due course including: X Further embedding ESG and climate-related risks and opportunities into day-to-day practices and first line teams X Updating our risk appetite statement to specifically identify climate-related risks and opportunities X Training for Circlers in climate-related risks and ESG generally X  In 2022, we will develop a carbon transition plan to address near, medium and long-term goals for the reduction and offsetting of our various sources of emissions. See also “Risk Management” in this Annual Report for more information about the integration of ESG related risks, including climate-related risks. Annual Report and Accounts 2021 31 Strategic report Sustainability continued # Task Force for Climate-related Financial Disclosures (TCFD) continued | **Risk Management continued** | | | --- | --- | | Describe how processes for identifying, assessing and managing climate-related risks are integrated into the organization's overall risk management | In 2021, we began to incorporate climate-related risks into our ERMF, with a view to identifying, measuring and monitoring these risks within our business. The Enterprise Risk Management team reports to the Board and GLT on this subject. Additional work is needed to integrate climate-related risk management into our final and second-line teams, for example by embedding climate-related risks into our product development, strategy and training. In respect of our loan products, we have started work to understand methodologies for identifying and assessing climate-related risks in respect of loan products, our borrowers and our investors. Prior data quality or absence of data related to the impact of climate change on our business customers presents a significant challenge in managing and addressing certain climate-related risks with respect to our loans under management or in respect of new product offerings. In particular, emissions data linked to SMEs and goods and services, and data on investor climate risk mitigation measures are generally lacking or limited in quality. In 2022, we intend to continue to develop our understanding of available data sources in respect of borrowers and related loan products, and improve and deepen the integration of climate-related risks into our processes and overall risk management in respect of the business more generally. | | **Metrics and targets** | | | Disclose the metrics used by the organization to assess climate-related risks and opportunities in line with its strategy and risk management process | In 2021, we began to identify and to unlimited extent monitor climate-related intensity metrics for our loans under management by industrial classification code, which provides only limited information. It is too early for us to draw any meaningful conclusions from this data, but we believe it will help to inform our understanding of climate-related risks and opportunities as more and better data becomes available. We do expect to continue to develop further metrics during the course of 2022 to monitor climate-related risks and opportunities in respect of our loans under management. However, we believe this will be part of a longer-term process as more and better data hopefully becomes available and our understanding and sophistication with this data improves. In respect of our general business operations, we anticipate developing further metrics and targets in respect of our own operations emissions and reductions plans during the course of 2022 (in particular in connection with our carbon transition plan). The identified climate-related risks and opportunities will be monitored and assessed in line with our standard ERMF practices. Our energy and GHG emission metrics are disclosed on pages 33 to 34. | | Disclose Scope 1, Scope 2, and, if appropriate, Scope 3 greenhouse gas ("GHG") emissions and related risks | Our 2021 Scope 1 and 2, and limited Scope 3 (business travel and waste) GHG emissions are disclosed on page 33. | | Describe the targets used by the organization to manage climate-related risks and opportunities and performance against targets | In 2021, we began our journey to net zero by 2030. Currently our targets are more qualitative than quantitative, including a goal to carbon neutrality or identify but quickly. We have not yet set specific targets related to climate-related risks and opportunities, which we plan to do during 2022 in connections with the development of our carbon transition plan. In 2022, as part of our wider Scope 3 emissions reporting and carbon transition plan, we expect to better understand the climate-related risks and opportunities we face. We will also begin to set more specific targets around reducing emissions, improving our data collection, and engaging with more strategic initiatives. Funding Circle's carbon strategy was out our approach to climate-related risks and opportunities in our business. It includes the following short, medium and long-term goals: - Achieve carbon neutrality by 2023 and net zero by 2030. We are on track with our carbon neutrality goal in respect of our Scope 1 and 2 (and limited Scope 3) emissions for our operational boundary, with wider Scope 3 emissions work to be progressed in 2022 - Offset difficult to reduce Scope 1 and 2 emissions starting in 2021. This goal was partially achieved as we offset our 2030 direct Scope 1 and 2 (and limited Scope 3) emissions during the year and intend to offset 2021 Scope 1 and 2 (and limited Scope 3) emissions during 2022 - We have begun to measure and verify Scope 3 emissions, and hope to complete this process during 2022 - Offset difficult to reduce Scope 3 emissions, starting in 2023 at the latest | 32 Funding Circle Holdings plc STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Our climate impact conversion factors for company In line with our environmental reporting reporting (published by BEIS) in our criteria, we report on all significant This section includes our mandatory calculations. For CE electricity sources of GHG emissions from our reporting of greenhouse gas emissions in emissions we have used the business that are under our operational line with The Companies Act 2006 International Energy Agency (“IEA”) control. Our emissions disclosure (Strategic Report and Directors’ Report) international conversion factors for methodology remains largely consistent Regulations 2013 and the Streamlined location-based measures and AIB with 2020; however, we have added Energy and Carbon Reporting (“SECR”) Residual Emissions Mix for market- additional fields to more closely track under the Companies (Directors’ Report) based measures. For US emissions we relevant guidance. We did not undertake and Limited Liability Partnerships (Energy have used regional data from any specific measures to reduce our and Carbon Report) Regulations 2018. Environmental Protection Agency e-Grid emissions during 2021; however, we did  ® and Green-e Residual Mix Emissions begin to address GHG emissions within have determined that the most Rates. The selected boundary includes our ESG framework, and our 2021 appropriate for our business is tonnes of | | | | Funding Circle’s Scope 1, Scope 2 and | footprint is the chosen baseline for our | | --- | --- | --- | --- | --- | | CO |  | e) per £m of total | | | | | 2 | 2 | | | | | | | Scope 3 categories, covering waste | carbon neutrality commitment. | income. Our GHG emissions reporting generated in operations and business  travel. In accordance with the SECR, we is aligned with our financial reporting year. report our emissions data using an The GHG accounting follows the operational control approach to define methodology set out by the WRI/ our organisational boundary in respect WBCSD Greenhouse Gas Protocol. of the energy consumption and  emissions for which we are responsible. Global GHG emissions data for period | | 2021 | | 2020 | | 2019 | | | --- | --- | --- | --- | --- | --- | --- | | 1 January to 31 December | tCO | e | tCO |  4 | tCO | e  | | | | 2 | | 2 | | 2 | Scope 1¹ 129 132 147 2 Scope 2 – location based 300 378 493 2 Scope 2 – market based 371 437 — 3 Scope 3 (business travel and waste) 112 222 — Total gross emissions (Scope 1 and 2) – location based 429 509 640 – market based  569 — Total gross emissions (Scope 1, 2 and 3) – location based  731 — – market based 612 790 — Full-time employee (“FTE”) (average over the applicable reporting period) 904 1,002 — Total income (£m) 206.9 222.0 177.3 Intensity ratio (Scope 1 and 2): tCO e/ FTE – location based 0.47 0.51 — 2 – market based  0.57 — 6 Intensity ratio (Scope 1 and 2): tCO e/ £m – location based 2.07 2.29 3.61 2 6 – market based 2.42 2.56 — Intensity ratio (Scope 1, 2 and 3): tCO e/ FTE – location based 0.60 0.73 — 2 – market based 0.68 0.79 — 6 Intensity ratio (Scope 1, 2 and 3): tCO e/ £m – location based 2.62 3.29 — 2 6 – market based 2.96 3.56 — 1. Scope 1 includes combustion of fuels and operation of facilities, principally natural gas related to our leased office space. 2. Scope 2 includes electricity purchased for use in connection with our leased office space. 3. Scope 3 includes business travel and waste generated in operations. No waste data was available for our San Francisco office, however, this is not considered to be material given the office size and very low occupancy during 2021. 4. Following a review of our emissions data and calculation methodologies in 2021, we identified a small number of inaccuracies in the data provided or calculations applied to the data in our 2020 Annual Report, which we have updated in the figures shown in this report, which we do not believe are material to the overall information provided. 5. Limited emissions data was collected and reported prior to 2020; information for 2019 has been provided for comparison to most recent reporting period not subject to Covid-19 impacts.   2  2 e”) per £m of total income. Annual Report and Accounts 2021 33 Strategic report ### Sustainability continued Regional breakdown of energy consumption data for period 1 January to 31 December Scope 1 Scope 2  2021 2020 2 2019 1 2021 2020 2 2019 1 Region UK  349,552 380,719  326,315 954,078 US 79,469 295,981 421,159 469,443 686,193 855,662 3  3   3 CE (Germany and Netherlands)  NA NA NA 72,132 132,506 Total  645,533 801,878 829,081 1,084,640 1,942,246 1. Limited emissions data was collected and reported prior to 2020; information for 2019 has been provided for comparison to the most recent reporting period not subject to Covid-19 impacts. 2. Following a review of our emissions data and calculation methodologies in 2021, we identified a small number of inaccuracies in the data provided or calculations applied  3. Information was not available 2019 and 2020, and we ceased to hold office space in Germany from the end of 2020 and in the Netherlands during 2021 (although the office  Our climate impact continued As part of our more in-depth review of our  emissions data in 2021, we also reviewed decreased compared to 2020, largely as In 2021 we continued to engage with our 2020 emissions data; however, we  industry experts to accurately measure  moving to a smaller space during 2021, and verify our in-scope emissions and emissions and we felt that 2020 was and the termination of leases for our to develop strategies to reduce or offset   these emissions. We are working with a the reduction in office use and business  leading climate change advisory firm to travel due to Covid-19 safety measures.  measure, verify and certify our 2021 Although we have chosen not to seek providers. Our business air travel Scope 1 and Scope 2 emissions, as well verification for this data, we have offset increased in 2021 compared to 2020, as limited Scope 3 emissions (related to those emissions through the purchase although it remained lower than waste and business travel) in | | of carbon credits for 900 tCO | e in two | pre-pandemic activity, and we expect | | --- | --- | --- | --- | |  | | 2 | | | | emissions avoidance and removal | | this item to increase as international | ISO 14064 in order to support a projects that are independently audited business travel becomes more statement of carbon neutrality in and validated, and verified to recognised normalised going forward. Overall, data respect of our operational boundary global standards: Mississippi Valley  (excluding our wider Scope 3 Reforestation, USA (ACR), and Solar Water  emissions), which we hope to complete Heating, India (CDM and Gold Standard). lack of standardised processes to capture  this data from third parties suppliers our baseline year for purposes of In 2021, the ongoing pandemic   restrictions led to a substantial  reduction efforts. Our aim is to reach a reduction in the use of our offices,  solid understanding of our material resulting in overall lower carbon  emissions for the business compared 2022. In late 2021, we also began the  process to measure and verify our full The majority of our people continued Scope 3 emissions, including Scope 3  emissions related to our loan products gradually returning to the office in early (for example pursuant to certain 2022, but with typically limited numbers industry standard methodologies of days in the office. We have not yet currently being developed in the banking measured or calculated employee home industry). working within our Scope 3 emissions, which we intend to undertake in 2022. Funding Circle Holdings plc34 STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Social impact Public policy and In both the UK and US, Funding Circle responsiblelending supported businesses during the In addition to the positive economic pandemic by providing loans through impact of our SME lending activities, we Our aim is for Funding Circle to continue government SME guarantee are working to drive more positive social to be a trusted and reputable Company, programmes and a variety of outcomes through our Company and working with government, regulators forbearance measures. In the UK, employees. Despite the limitations and industry to uphold the highest  imposed by the pandemic, in 2021 industry standards. To this end, we   actively engage with local, national, the financial services sector, and the causes and initiatives in each of our federal and supra-national government Confederation of British Industry, a geographies. Please see Our people on agencies, legislators, policy makers and broader business advocacy group.  industry groups. This engagement helps Through our membership of industry to offer Circlers two paid volunteer us develop insight and policy leadership body Innovate Finance, we also helped “Impact Days” a year to positively on issues affecting small businesses, to amplify the important role FinTech contribute to issues they feel investors and the wider FinTech plays in the UK. passionately about. industry. We also submit position papers and participate in expert In 2021, we began a review of our social hearings, consultations and other impact strategy to identify ways for the  business to continue to support Circler-led initiatives and also explore areas where we can contribute positively as a business in our communities. As described above, social impact forms a core component of our ESG framework, with Board ownership and oversight through the ESG Committee. As with our carbon strategy, there is a dedicated Board champion for social impact and we  strategy, which we hope to expand on  employee survey to better understand drivers to employee engagement and to inform our social impact programme, and we also began an ESG strategy review to better understand the commercial landscape for ESG-related products and customer-facing initiatives, including in respect of our social impact programme. Annual Report and Accounts 2021 35 Strategic report ### Sustainability continued Public policy and rights, labour, the environment and responsiblelending continued anti-corruption. We look forward to FINANCIAL INCLUSION integrating the UNGC principles into In the US, Funding Circle is a member our ESG programme and leveraging  US criminal decline this framework to help guide our Coalition (“RBLC”), a network of referralprogramme efforts in the future non-profit and for-profit lenders, In the US, people with criminal investors and small business advocates. X We are a signatory to the Principles records, especially people of colour, Members of the Coalition share a for Responsible Investment (“PRI”), face major barriers when commitment to innovation and which we believe is an important reintegrating into society. responsible behaviour in small business signal to our investors and Entrepreneurship can decrease the lending. We are also a signatory of the shareholders and we hope will drive likelihood of recidivism, but most Small Business Borrowers’ Bill of Rights positive engagement and outcomes small business lenders have policies (“BBOR”), the first cross-sector with these and other stakeholders that prohibit lending to applicants consortium supporting the rights of with criminal histories. Human rights small business, and we are a member of X We respect and promote human In 2021, Funding Circle launched a the Innovative Lending Platform rights through our employment  Association (“ILPA”). Finally, in 2021 we policies and practices Association of Enterprise Opportunity were appointed to the US Consumer (“AEO”) in the US. Through this Financial Protection Bureau (“CFPB”) X We apply these policies and initiative, we refer US loan applications Small Business Regulatory Enforcement  declined on criminal grounds to AEO Fairness Act advisory review panel. works at, or is part of, Funding Circle and its Community Development Modern slavery Financial Institution (“CDFI”) partners. Other commitments X We have a zero-tolerance approach These partners underwrite the loans As part of our broader commitments as to modern slavery and human using R3Score, a new platform that a responsible Company, we have made trafficking assesses the risks of lending to a number of voluntary commitments applicants with a criminal record. AEO X We have published a Modern Slavery and take a stand on the following will analyse the repayment data on Act Transparency Statement in issues: loans made through CDFI, with a view compliance with section 54 of the X We have joined the UN Global Modern Slavery Act to shaping more enlightened lender Compact to formalise our alignment decline policies. with its Ten Principles on human Funding Circle Holdings plc36 STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS X As part of our procurement process Anti-money laundering, anti-corruption Data protection and information we ask suppliers for their Modern and anti-bribery security Slavery Statement X We recognise that our reputation X As an online lending platform,   Code of Conduct  data protection, data privacy and X We are dedicated to implementing information security, and we seek X We uphold all laws relevant to and maintaining the highest  countering bribery and corruption standards of behaviour, ethics and protection laws  integrity among our workforce accordance with our global X All employees complete data X We have created a culture where anti-bribery and corruption policy protection, data privacy and adherence to these standards is information security training at least X Circlers are trained and evaluated recognised and rewarded once a year, and extra training may annually on bribery and X Our Code of Conduct establishes   these standards and addresses  subjects such as integrity, conflicts sensitive data of interest and non-discrimination. Procurement Employees are trained annually on our Code of Conduct rules X  share their environmental policies X We have whistleblowing policies   corporate social responsibility with whistleblowing officers in each responses factored into the overall  supplier rating Annual Report and Accounts 2021 37 Strategic report ### Engaging our stakeholders ## We actively engage with ## allourstakeholders ## We are committed to building open and constructive relationships with ## all our stakeholders. Our shared mission with borrowers, investors and ## our people is to ensure that a vital, historically underserved part of our ## economy can access the funding it needs to win. ## In 2021, we engaged with our stakeholders in a variety of ways to ensure ## they continued to feel connected and supported at all times. ## Borrowers Investors SMEs are the growth engine of the economy, and it is our Providing resilient returns to a wide range of investors mission to help them fulfil their ambitions.  How we engage How we engage X Constant monitoring of customer feedback, including X We provide bi-annual reporting on loan performance customer satisfaction surveys including on our website. This is updated in line with our  X Regular focus groups with SME borrowers around product changes and new marketing campaigns X We provide information and support to retail investors  X The Board reviews strategy and monitors performance in engagement, in 2021 our Chief Risk Officer provided light of customer feedback, with the aim of meeting the  needs of borrowers more effectively  X Throughout 2021, we provided regular email updates and X Active engagement with investors on their direct lending communications, including on the launch of our new and investment products, as well as engagement with products, the reintroduction of our core term loan product  and our accreditation under RLS Outcomes of engagement Outcomes of engagement X We onboarded a number of new institutional investors, X We achieved a NPS of 80–90 for borrowers in the UK and including banks and asset managers, further diversifying the US our investor base and funding sources X £2.5 billion investor capital raised in 2021 Funding Circle Holdings plc38 STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS SUPPORTING BUSINESSES ## FLOURISHING ## THROUGH FUNDING ## Flower Station ## Leading UK florist Flower Station creates lovingly hand-crafted bouquets. ## ItsDirector and Founder, David Cohen, used his Funding Circle business ## loantolaunch new brands and grow his business. David set up Flower Station over 20 years ago as a drive-through florist at a disused petrol station. He now runs several flower  During lockdown, with his stores having to close, David pivoted the company’s operations online. As a result, business  online operations and branched out into new services, such as weddings and office plant contracts. He also began providing guaranteed same-day delivery on orders up to 6p.m. in London. The company used a Funding Circle loan to support these expansion activities and develop new brands – for example, the new Love Rose website, which sells high-end preserved roses, and Letterbuds, a subscription service for home-delivered budded flowers. The funds also enabled the completion of an online flower school, which provides video lessons on flower arranging. Business is blooming. Annual Report and Accounts 2021 39 Strategic report ### Engaging our stakeholders continued Section 172(1) statement The Directors recognise that they have a duty to promote the success of the Company in accordance with s.172(1) of the Companies Act 2006. Further details on how the Board operates and the way in which it reaches decisions, including the matters discussed and debated during the year, are set out in the Governance section on pages 67 to 79. Some examples of how the Directors have had regard to the factors set out in section 172(1)(a)–(f) when discharging their duties are on pages 75 and 76. ## Shareholders Circlers We maintain transparent and open engagement with our Our people are our business. We are committed to creating shareholders. This enables the Board to clearly a culture where Circlers thrive and share in our mission, communicate its strategy, provide updates on our values and ambition. performance and receive regular feedback. How we engage How we engage X Regular shareholder communications such as full and X Regular all-hands meetings for all Circlers, including our half-year results, and ad-hoc trading statement updates weekly Local and monthly Global Gatherings, and our bi-annual Full and Half Circle events. These meetings X Analyst and investor meetings and presentations/investor provide an opportunity for Circlers to share information roadshows, as well as ad-hoc meetings and events with  larger shareholders and prospective shareholders Company’s performance X 2021 AGM was once again open to shareholders, as we X  returned to in-person, business-as-usual shareholder engagement Non-Executive Director, and employee engagement. Our proposed Remuneration Policy was groups. Employee representatives provide updates on approved, following open engagement with major those meetings to the Board and, in turn, update Circlers shareholders  X The Chair, Chief Executive Officer, Chief Financial Officer X Circler group FC Impact coordinates our internal and Director of Investor Relations regularly communicate volunteering and charity initiatives  provide regular reports to the Board on shareholder X Regular culture surveys, with results shared with the Board, interactions along with diversity reports and updates on diversity and inclusion initiatives X Announcement in September that our CEO and Founder, Samir Desai, would be stepping back from his day-to-day Outcomes of engagement activities and transitioning to a Non-Executive Director role  X We further embedded our new Circler promise, Build the  Incredible. We also recorded our highest ever employee be succeeding Samir as CEO. Following this news, Samir engagement score of 73% in our annual employee survey and Lisa met with all key shareholders to discuss the transition Outcomes of engagement X Incorporated our shareholders’ opinions throughout the year into the shaping of Company strategy and other key developments Funding Circle Holdings plc40 STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS ## Communities Government and regulators The SMEs we serve are at the centre of our communities. Our goal is for Funding Circle to always be known as a We are passionate advocates of charitable causes and trusted and reputable Company, and to work with regulators issues related to social impact and community engagement. and industry to ensure best practice. How we engage How we engage X Continual development and implementation of our X Engagement with local, national, federal and supra-national  government agencies, including regulators, legislators, understanding of, and priorities for, engagement with policy makers and industry groups. These interactions  provide insight and leadership on policy and rulemaking related to issues affecting SME borrowers, investors or X Regular meetings with investors including discussions lending in the FinTech industry regarding their ESG investment criteria as they apply to  X Contribution to the discourse and debate on industry issues, including submitting position papers and participating X Circler group FC Impact coordinates our internal in expert hearings, consultations, forums and other policy volunteering and charity initiatives engagement initiatives X Our charitable and community engagement activities X Board ensures it uses the results of the above engagement, resumed in 2021 following a pause during the first year    Outcomes of engagement Outcomes of engagement X Progressed our new ESG strategy, which sets out a formal X Worked with the British Business Bank in the UK to become framework for operating as a responsible business and is the first lending platform to be accredited under RLS. We overseen by our ESG Committee. As part of our carbon also worked with industry and the UK Government to help strategy, for the first time ever we offset our operational shape the scheme, as well as priority areas of The Kalifa carbon footprint – relating to our 2020 CO emissions 2 Review of UK FinTech to maintain our industry’s global – through carbon credit projects. These projects have a reputation positive community impact and contribute to the UN Sustainable Development Goals (“UN SDGs”) X In the US, we continued to participate in PPP and launched the forgiveness portion of the programme with more than X Became a signatory to the UN Global Compact, expressing 70% of PPP loans facilitated by us fully forgiven by the end  of 2021  corruption X Held a combination of virtual and in-person initiatives through the FC Impact team. These included holding employment skills training sessions for young adult wheelchair users, a Christmas toy drive for children’s hospitals and a canal-clean up, as well as raising money  Annual Report and Accounts 2021 41 Strategic report ### Key performance indicators ## How we measure ## ourperformance ## Financial | Statutory Total income (£m) Profit/(loss) before tax (£m) Basic earnings/(loss) pershare (pence) ## £206.9m £64.1m ## 17.4p | 2019 |  | 2019 2019 |   | | | | --- | --- | --- | --- | --- | --- | | 2020 |  | 2020 2020 |   | | | | 2021 |  | 2021 2021 |  | |  | | Definition | | Definition | | Definition | | | The Group generates total income | | Profit/(loss) before tax is defined as | | Basic earnings/(loss) per share is | | | principally from: transaction fees earned | | net income after taking into account | | defined as the profit/(loss) for the year | | | from originating loans with borrowers; | | all operating expenses and finance | | attributable to ordinary equity holders | | | servicing fees from servicing of loans | | income, costs and share of profit/(loss) | |  | | | under management; and investment | |  | | weighted average number of ordinary | | | income net of investment expense | | | |  | |   Links to strategy: Links to strategy: Links to strategy: ## Operational | Loans under management (£m) | | Originations (£m) | Marketing costs (%) | | --- | --- | --- | --- | | £4,457m | | £2,296m | 28% | | 2019 2019 2019 | 3,731 2,350 42 | | | | 2020 2020 2020 | 4,214 2,742 30 | | | | 2021 2021 2021 | 4,457  28 | | | | Definition | | Definition | Definition | | This represents the total value of | | This represents the monetary value | This represents the total cost of | | outstanding principal and interest | |  | third-party marketing expenditure | |  | | platform or through marketplace |  | |  | |  |  | |  | | key driver of both transaction fees and |  | | through marketplace referrals to | | future expected servicing fees and | | |  | |  | | | Links to strategy: | | Links to strategy: | Links to strategy: | 42 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS ## Financial | Alternative performance measures (“APMs”) | Adjusted EBITDA (£m) | Free cash flow (£m) | | | --- | --- | --- | | £91.8m | £82.8m | | | 2019 2019 | |  | | 2020 2020 | |  | | 2021 2021 | |  | | Definition | Definition | | |  |  | | | operating profit/(loss) before |  | | | depreciation and amortisation, share- |  | | | based payments and associated social | assets, property, plant and equipment, | | | security costs, foreign exchange gains/ |  | | |  |  | | | is the principal profit measure used | securitisation financing and funding | | |  |  | | |  | a key liquidity measure and is the net | | |  | amount of cash used or generated | |   Links to strategy: Links to strategy: Focus areas relevant to our KPIs Attract more businesses and say yes to more businesses #1 in new products Technology and data to enable innovation at pace Scalable products and processes and high-performing teams that execute brilliantly Annual Report and Accounts 2021 43 1 2 3 4 1 2 3 4 2 3 1 4 Strategic report ### Financial review ## Our performance was ## aboveexpectations ## The financial year has seen significant growth in net income and ## operating profit compared to the previous year. The Group’s operating ## profit of £64.2 million compared to a loss of £106.3 million in 2020. 2021 overview     continued to provide loans through   guaranteed scheme introduced   X  to cease in June 2022 and we will  transition to operating solely our core   with applications received by that Oliver White also relaunched our core product for date continuing to be processed until Chief Financial Officer   As a result of these schemes running X The Paycheck Protection Program through 2021, originations for the year  were weighted towards the first half of     continued growth quarter on quarter  Originations | | | 2021 | | | 2020 | | --- | --- | --- | --- | --- | --- | |  |  | FY |  |  |  | | £m | £m | £m | £m | £m | £m |  1,381  1,972 662  2,111  247  316 410 171 581  7 1 8 40 10 50 1,635 661 2,296 1,112 1,630 2,742 The loans under each of the government  schemes have different characteristics, No principal repayments were    borrowers pay the interest and  X   this scheme, the British Business principal repayments were required   guarantee to lenders, should the pay the interest and principal loan default, in exchange for a fee    the origination fees on behalf of borrowers together with the interest 44 STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS X  fees, interest and repayments and  the BBB continued to provide a   guarantee to lenders to ensure that  X  there was sufficient availability from by the strong origination performance PPP scheme have very different lenders to support small businesses,   again in exchange for a fee from the       originated loans continued to repay by the SBA but there are no servicing  during the year and borrowers who had   taken out PPP loans were applying for is because borrowers are allowed   to apply for the loans to be forgiven the loan amounts and fee being by the SBA if the funds are used to  pay eligible expenses such as payroll   similar to the core loan product with borrowers paying the origination Loans under management | 31 December | |  | | | --- | --- | --- | --- | | | 2021 | | 2020 | | | £m | | £m  |  3,944 3,271   425    88 184  4,457 4,214  Annual Report and Accounts 2021 45 Strategic report ### Financial review continued Geographic highlights 2021 2020 United United Developing    Kingdom States Markets Total  States Markets Total Net income/(loss) £m £m £m £m £m £m £m £m  137.7 25.1 2.7 165.5     Net investment income 21.7 19.7 — 41.4   —  Total income 159.4 44.8 2.7 206.9      10.5 18.1 — 28.6   —  Net income/(loss) 169.9 62.9 2.7 235.5     2021 2020 United United Developing    Kingdom States Markets Total  States Markets Total Segment profit £m £m £m £m £m £m £m £m Adjusted EBITDA 61.9 28.4 1.5 91.8      (9.7) (4.1) (0.1) (13.9)     Share-based payments and social security costs (7.6) (1.3) — (8.9)      (0.3) (0.6) — (0.9) — — — — Exceptional items — (3.9) — (3.9) —    Operating profit/(loss) 44.3 18.5 1.4 64.2     1  29.7 (9.4) 1.5 21.8      1  32.2 37.8 — 70.0   —     | United Kingdom |  | through our marketplace (referral) | | --- | --- | --- | |  |  | model for which we earned reduced | |  |  |  | | with loans under management growing |  | origination in 2021 totalled £316 million | |  | | compared to £581 million in 2020, | Marketing costs remained at similar    2020, in line with originations, the strong remained at consistent levels to 2020 at income, with other costs remaining growth in loans under management   drove higher servicing fees and resulted     vehicles continued to amortise down  | |  |  | | --- | --- | --- | |  |  |  | | 2020, driven by the continuing paying | |  | United States down of loans in the investment vehicles Together these led to investment    of trading in 2021 as it continued to loans held within its warehouse vehicle,  originate PPP loans before reverting  to its core product in June 2021 as The improved economic outlook in paying off the bank debt associated      The SME loans that are held in the strength and resilience of our borrowers,  investment vehicles are carried on led to material improvements in fair    although PPP was paused between improved actual performance and   prospects for small businesses, as the   economy has opened up, compared to (being investment income and fair    when the country was still under a full   lockdown, the fair value of the loans has to be undertaken with funds coming  improved materially resulting in a   that date, all PPP lending was done 46 STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS     incentives paid in the early stages of in loss was also impacted by a stronger operations, downsizing the premises  pound with the average $:£ exchange  million and an improvement in the      Finance review Overview   The drivers for this are strong originations, record loans under management, cost actions and the quality of our underwriting    Profit and loss 2021 2020 Before Before exceptional Exceptional exceptional Exceptional items items Total items items Total £m £m £m £m £m £m Transaction fees 115.0 — 115.0  —  Servicing fees 47.0 — 47.0  —  Other income 3.5 — 3.5  —  Fee income (“operating income”) 165.5 — 165.5  —   53.7 — 53.7  —   (12.3) — (12.3)  —  Total income 206.9 — 206.9  —   28.6 — 28.6  —  Net income 235.5 — 235.5  —  People costs (77.7) — ( 77.7 )    Marketing costs (46.9) — (46.9)  —    (13.9) (3.9) (17.8)     0.1 — 0.1  —  Other costs (29.0) — (29.0)    Operating expenses (167.4) (3.9) (171.3)    Operating profit/(loss) 68.1 (3.9) 64.2    | Total income, which consists of | X Transaction fees, being the fees |  | | --- | --- | --- | | operating income and investment |  |  | | income less investment expense, |  | use of the PPP liquidity facility to | |  |  | originate loans directly rather than | |  | reduction reflects the seven months | referring them to our partners for | | principally due to the reduced net |  | a referral fee; and ii) following the | |  |  | extension of the programme, PPP | | | five months during 2021 up until | loans in 2021 were generally lower | Operating income, which includes  value loans which attracted a higher transaction fees, service fees and         Annual Report and Accounts 2021 47 Strategic report ### Financial review continued Finance review continued Profit and loss continued X Servicing fees, being the annual Net investment income represents the underlying SME loans including principal fees for servicing loans under investment income, less investment and interest repayments, prepayment management, increased to expense, on loans invested within rates and expected levels of defaults     No new loans were originated in the   securitisation vehicles during the year lockdown with significant uncertainties  and the net investment income earned   has continued to reduce as loans paid Since then, there has been an overall   improved view of the economic outlook accelerated following the monetisation X Other income represents a fee and accordingly there has been a of the warehouse vehicles through premium we receive from certain more favourable view on the expected selling of the loans and the repayment institutional investors in respect of default levels and recoveries with  buying back defaulted loans under a consequential improvements to the historical loan purchase commitment Fair value gains/(losses) represent the valuation of the loans held on balance together with collection fees where   we are able to charge a fee to investments in SME loans held on  investors for recovering monies balance sheet that are carried at fair    Net income, defined as total income  discounted cash flows that take into after fair value adjustments, was account projected cash flows from the  Operating expenses    People costs     2021 2020  £m £m  People costs 85.9    (8.2)   People costs net of CDS 77.7    929 1,002   979 863  | Marketing costs, which consist of | Loan repurchase charges relate to the | Other costs, which include cost of sales, | | --- | --- | --- | | online and direct mail, TV and brand |  |  | | campaigns and broker commissions, |  |  | | remained flat year-on-year with overall | buy back certain defaulted loans from |  | |  | certain financial institutions under a | cost of sales and investor incentives | |  |  | that were required in 2020 in the early | | | the business received a fee premium | stages of the PPP programme but were | Depreciation, amortisation and   impairment costs    impairments of the right-of-use accounted for under the expected credit        reflecting the increased likelihood that  there would be further defaulted loans caused by the downsizing of the San    48 ## Balance sheet and investments Following the strong trading performance during the year, coupled with improvements in the economic outlook for SMEs compared to those expected at 31 December 2020, the net asset of the Group have increased from £217.6 million to £288.0 million. With the monetisation of the warehouses in the UK and US during the year, the Group now holds £224.0 million of cash, of which £24.6 million is restricted in use, principally as it is held within the securitisation SPVs. Additionally the Group has £70 million of net equity in the remaining investment vehicles. The following table sets out the split of the Group's net equity: | | 31 December 2021 | | | | | | 31 December 2020 | | --- | --- | --- | --- | --- | --- | --- | --- | | | Operating business £m | Investment in trusts and co-investments £m | Securitisation SPVs £m | PPP loans £m | Other investments £m | Total £m | Total £m | | Investment in SME loans | 5.8 | 39.1 | 148.1 | 71.6 | 9.2 | 273.8 | 558.8 | | Cash | 208.3 | — | 14.4 | 1.3 | — | 224.0 | 103.3 | | Other assets/(liabilities) | — | — | (0.8) | 0.3 | — | (0.5) | 11.1 | | Borrowings/bonds | — | — | (140.3) | (73.2) | — | (213.5) | (489.8) | | **Cash and investments** | **214.1** | **39.1** | **21.4** | **—** | **9.2** | **283.8** | **183.4** | | Other assets | 67.9 | — | — | — | — | 67.9 | 109.0 | | Other liabilities | (63.7) | — | — | — | — | (63.7) | (74.8) | | **Equity** | **218.3** | **39.1** | **21.4** | **—** | **9.2** | **288.0** | **217.6** | Our investment in the securitisation SPVs is split between two types i) The vertical tranches where we are required by regulation to retain a 5% equal participation in all classes of bonds issued. These have continued to pay down and are now valued at £6 million (2020: £12 million). As part of our participation in the CBILS and RLS programmes we are required to co-invest c.1% alongside institutional investors. As the underlying SME loans are 60% guaranteed our exposure is limited. The growth in these investments has been driven by the strong originations during the year. ii) The horizontal tranches – once loans are securitised, we held the residual horizontal tranches with the intention to sell once seasoned. These tranches have the potential to earn the greatest returns, but they also absorb losses first. As the loans are valued at fair value using discounted cash flow forecasts, improved economic assumptions have increased the value of the horizontals and they are now valued at £16 million (2020: £4 million). Annual Report and Accounts 2021 49 STRAITISIC REPORT COMPOSITE SUSTAINABLE FINANCIAL STATEMENTS Strategic report ### Financial review continued Finance review continued Cash flow              2021 2020 £m £m Adjusted EBITDA 91.8   (28.6)  Purchase of tangible and intangible assets (9.4)  Net payment of lease liabilities (7.9)    36.9  Fee cash flow 82.8  Net investment in associates 3.9  Net investment in trusts and co-investments (18.8)  Net investment in warehouses 63.8  Net investment in securitisations (10.4)  Other (1.5)  Effect of foreign exchange 0.9  Movement in the year 120.7   103.3  Cash and cash equivalents at the end of the year 224.0  Subsequent events Changes to retail lending:      50 ### Risk management STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS ## Our customers know there’s ## noreward without risk | |  | pandemic is being contained, and we | | --- | --- | --- | | |  | will maintain a very focused and prudent | | |  | approach to credit risk management | | |  |  | | |  | experience in 2021, we are confident | | | suggest that our investors will earn | that our products and processes are | | | a positive net return on every cohort | resilient and adapted to continuously | | | of loans we historically originated, | supporting small businesses through | | |  |  | | Jerome Le Luel |  | | Beside the intense activities involved Global Chief Risk Officer of small business entrepreneurs, this in managing credit risk, we have also success reflects the credit quality of the been able in 2021 to make further loan portfolio we originated before the progress with the strengthening of our crisis, as well as the trusted relationship broader risk management and control we have built with our customers and environment, notably: the effectiveness of our collections  X we implemented a new technology platform for loan originations that   improves the borrower experience an uncertain macroeconomic  whilst enabling further automation of  proven to be highly adaptable to the lending decisions and key controls;  changes in the credit environment and X enhanced quality controls were experienced several waves of public to the evolution of the government- also implemented in our loan restrictions affecting their business backed lending programmes, with issuance department to ensure full operations and modifying the multiple adjustments in product compliance with government-backed  features and credit parameters lending programmes, translating programmes supporting small implemented within days, enabling   us to support small businesses accepted so far; |  |  | | | --- | --- | --- | | evolved rapidly, with various effects | portfolio of government-backed loans | X we continued to strengthen our | |  | originated since 2020 shows very low | defences against cyberattacks | |  | levels of fraud incidence and credit risk |  | |  |  | | X we remained vigilant on client money feared a surge in business bankruptcies As we restarted core lending outside controls and reporting; and adverse financial performance government-guarantees in 2021, we X we continued to monitor and  have also originated loans that are strengthen financial crime controls   and ensured compliance with anti- demonstrates that our risk models and  money laundering and sanctions fraud defences continue to perform The vast majority of customers who regulation; and and adapt through a crisis and that requested payment plans in 2020 at X we have continued to implement our change management and testing    repayments and gradually cured evaluating and monitoring ESG  The credit environment is likely to risk within our Enterprise Risk lockdowns and trading challenges, we remain uncertain and volatile in 2022,  have also not seen any new spike in with gradual improvements as the  Annual Report and Accounts 2021 51 Strategic report ### Risk management continued As we head into 2022, there are Risk management overview Our approach to risk management significant headwinds and uncertainty consists of: Risk management sits at the heart in the macroeconomic environment  X putting our culture at the heart of that may be further exacerbated by effective management of all key everything we do;  risks is critical to meet our strategic X investing in robust risk capabilities, does not have any direct exposure to objectives and to achieve sustainable including advanced data and risk   analytics; and  need to be identified, understood and  X doing the right thing for our customers, appropriately addressed to protect our in monitoring the macroeconomic   environment and will adjust our  As part of the second line of   defence, the Risk team oversees risk Overall, we are proud of the good work   accomplished in 2021 across the  regardless of their position, play organisation to keep our employees,  their part in managing risk within the borrowers and investors safe and our first line of defence colleagues in  contribute to supporting society and  us to manage the risks inherent in our  example by providing training and business activities seamlessly, every future is still uncertain, but we are expert support for centralised risk day, through the active participation of confident we can successfully navigate information management or complex  some level of uncertainty with focus    common approach to risk management, Risk culture with clear roles and responsibilities, and provides the foundations for a strong   open and strong risk culture encourages ethical behaviour and professional  ## Three lines of defence FC BoardFC CEO ## FirstSecondThird Global Europe MD US MD CFO Global CRO General Counsel Direct access to FC Board Credit Data and US CROEurope CRO ERM quality analytics Compliance European US monitoring compliance compliance  Audit 52 STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS part of our ongoing effort to reinforce  a guideline for shaping business  responsible for providing assurance strategies and defining the level of  to the Board that the principal risks   are appropriately managed and that basis for ongoing dialogue between employees, environment, community  management and the Board with    evolving risk profile, allowing strategic Board role Risk management policies and financial decisions to be made on The Board is responsible for setting   the strategy, corporate objectives and risk management policies defining  mandatory requirements to mitigate the Risk governance responsibility for reviewing the principal risks that we face, with clear  effectiveness of the risk management risk limits and requirements to monitor framework that is documented in framework to the Board Risk and       these policies and controls to verify  the level of risk acceptable under each compliance and to adapt to changes in framework includes delegations of principal risk category, whilst providing   oversight to ensure there is an adequate  Risk appetite framework in place for reporting and  Our risk appetite is defined as the  level of risk that we, as a company, are  Chief Risk Officer and the prepared to accept whilst pursuing our model across all markets in which we Risk function core business strategy, recognising   a range of possible outcomes as  leads the Risk function, which is  structure have been designed to independent from the business and has Board sets the risk appetite and reviews manage our principal risks in a   consistent manner across the Group, responsible for developing, maintaining   ## Risk governance structure ## Board Committees Funding Circle Holdings Board Funding Circle Holdings Board Funding Circle Holdings Board Funding Circle Ltd Board Environmental, Social and Governance Audit Committee Risk and Compliance Committee Committee ## Group Committees Balance Sheet Management Disclosure CommitteeExecutive Risk Committee Committee ## Business Unit Committees Regulatory, Reputation and Credit Risk Operational Risk Technology Security and Risk Conduct Risk Committee Committee Committee Sub-Committee Annual Report and Accounts 2021 53 Strategic report ### Risk management continued Risk culture continued ## Risk assessment framework Risk governance continued A standard risk assessment framework is used to evaluate risks at both the    assessments are carried out by those individuals, teams and departments that are   comprising the members of the Global   committees focused on each principal   Executive Risk Committee 1. Evaluate ### 1 X   X Set risk appetite  environment, social and governance X Assess adequacy of existing controls risks are managed by the leadership X Estimate residual risk   2. Respond Balance Sheet X  Enterprise risk Management Committee X Prioritise remediation work and management assign responsibilities The Balance Sheet Management  3. Monitor of funding risk and Group balance X   risk appetite ### 3 2 Credit Risk X Report, analyse and escalate risk incidents Management Committee X   X Track delivery of agreed control  improvements   Regulatory, Reputation and Conduct Risk Committee The Regulatory, Reputation and  Evaluate X stop the existing activity/do not start on the management of regulatory, the proposed activity to remove As part of its responsibilities under reputation and conduct risks, and the risk; or   recognised a series of risks that are X continue the activity and transfer the   Operational Risk Committee   Monitor  is to ensure that operational controls   are effective and that operational and  organised under a consistent and financial crime risks are adequately  simple taxonomy with a hierarchy   of risk categories, which facilitates report no less than three times a year Disclosure Committee  detailing the risks facing the Group and The Board has delegated to the The management of these risks is   assigned to designated business  overseeing the disclosure of information owners who formally assess on a and regular reports about the activities  regular basis the level of these risks, the   adequacy of controls and the need for   Risk assurance  Respond Assurance on the management of  The appropriate risk response ensures      risk responses:   X accept the risk; auditors in various geographies in which X take mitigation actions (such  as additional risk controls) to reduce the risk; 54 ### Principal risks and uncertainties STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS ## The Board confirms that throughout 2021 a robust assessment of the ## principal risks facing Funding Circle was completed. A comprehensive ## list of Group-wide risks and emerging risks was reviewed and monitored ## throughout the year. The most significant risks and uncertainties faced by ## Funding Circle are listed in the table below, categorised by principal risk: ## Strategic risk Strategic risk is defined as the failure to build a sustainable, diversified and profitable business that can successfully adapt to environment changes due to the inefficient use of Funding Circle’s available resources. Risk appetite business that can successfully adapt to environment changes including in connection with environmental, social and governance   Key risks Management of risk Change in risk in year Strategic risk The risk that Funding  Circle does not achieve strategic planning process based on risk appetite, its key business financial considerations, strategic themes and  objectives and maintain  and there is a higher level of SME market its competitive advantage manage strategic risk by: uncertainty that may lead to fluctuations and business operations.  X performing an in-depth business strategy review Additionally, there are potential changes at least once a year; in borrower behaviour and preferences X reviewing financials, strategic plans for new in the wake of the government guarantee products/initiatives, and other management schemes and the broader adoption information;  X reviewing the strategic risk implications of new of uncertainty in the interest rate products, business expansion, entry into new environment and from inflation, which  may affect investor return expectations  X in addition, the Board provides oversight of strategic risk and approves business strategic    performance and demand may be   carefully and is continuously adjusting product offerings to fit market conditions  Annual Report and Accounts 2021 55 Strategic report ### Principal risks and uncertainties continued ## Strategic risk continued Key risks Management of risk Change in risk in year Economic environment Financial risk that  is associated with portfolios and perform stress test simulations to macroeconomic or help ensure that investor returns remain resilient in  political factors that may  losses has been moderate so far, the crisis affect Funding Circle’s include (but are not limited to): continues to be a high risk to the overall financial and/or credit economy with new variants causing X annual stress testing of loan portfolios in performance.  each market;  X resilient credit strategy and continuous tuning of  risk and pricing parameters to correct for possible  deviations in returns; levels, but new risks have emerged, X independent validation and continuous with higher inflation and supply chain monitoring of the performance of credit  risk models;  X monthly monitoring of internal and external adjusting our credit strategies and using  government guarantees when available to  minimise downside risks, whilst gradually X agile capability to rapidly deploy pricing and credit  strategy adjustments deemed necessary; Overall, we are satisfied with the credit X experienced in-house collections and recoveries performance experienced so far on loans capabilities with built-in scalability; and  X with regard to government-backed programmes, The current inflationary environment may controls and audits of scheme guarantee    our institutional investors, to ensure that pricing and returns of loan originations  Environmental, social and governance risk Environmental, social X Our approach to managing ESG is outlined in our and/or governance  characteristics could  X  cause an actual or  with direct responsibility for setting the strategic potential material   negative impact   on Funding Circle’s X ESG risks are identified, evaluated and monitored in  financial performance   X   Climate Change Risk   formally recognised as part of our enterprise risk management framework and is assessed as part of  As a first step, the Board has reviewed and approved  but achievable goals to align our business to The Paris Agreement goals to target carbon reduction and offsetting strategies for our full value chain in line with the science based target level of decarbonisation   56 STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS ## Funding and balance sheet risk Funding and balance sheet risk is defined as the risks associated with platform funding (matching borrower demand and investor cash supply), capital commitments and corporate liquidity through normal and stress scenarios. Risk appetite  Key risks Management of risk Change in risk in year Funding risk The risk that demand  from borrowers for loans platform that efficiently matches the supply of cannot be met when   and where they fall due experienced good demand from  or can only be met at  an uneconomic price. X building long-term relationships with investors This demonstrates the trust our funding This risk varies with the and developing a forward-looking pipeline of new partners place in the soundness of our economic attractiveness investors; risk management, and the experience of Funding Circle loans they had with previous investments that X actively managing concentration risk and as an investment, the delivered positive returns despite the diversifying sources of funding; level of diversification  X  of funding sources and whether through direct lending capacity,  the level of resilience of securitisation capacity or investment fund  these funding sources lending vehicles;  through economic cycles. X monitoring a broad range of management our future funding needs are well covered information and key performance indicators at    and Board level; and  X    Balance sheet risk The risk that Funding  Circle investment X  positions reduce in value Our overall approach to having a robust sheet exposures and following a set of agreed or cannot be exited balance sheet and prudent management investment principles to guide capital allocation; at an economically  X maintaining a prudent level of liquidity to cover viable price. unexpected outflows to ensure that we are able Some investment positions held by The risk that Funding  to meet financial commitments for an extended Circle liabilities cannot at an economically viable price, reducing period, including under stress scenarios; be met when and our balance sheet risk exposure and X considering a broad range of management where they fall due or  information and key performance indicators at can only be met at an  More cash was generated through uneconomic price.   X leveraging a dedicated and experienced Balance   cover our liquidity needs, including when  Annual Report and Accounts 2021 57 Strategic report ### Principal risks and uncertainties continued ## Credit risk Credit risk is the risk of financial loss to an investor should any borrower fail to fulfil their contractual repayment obligations. Credit risk management is the sum of activities necessary to deliver a risk profile at portfolio level in line with Funding Circle management’s expectations, in terms of net loss rate, risk-adjusted rate of return and its volatility through economic cycles. Risk appetite attention to deliver credit performance and returns in line with expectations Key risks Management of risk Change in risk in year Credit risk Borrower acquisition  Credit performance portfolios that generate positive returns for investors and returns of new   loans can deviate from improvement in the performance of  | expectations due to | | our loan portfolio following the initial | | --- | --- | --- | | several factors: changes | X formulating credit risk policies (covering credit |  | | in credit quality of | assessment and risk grading, portfolio monitoring | returns on our historical loan portfolios | | incoming applications, | and reporting, collections and recoveries) and | trended better in 2021 than originally | | calibration of risk models | ensuring adherence to these policies; |  | or strategy parameters, X recruiting, training and managing expert risk Also, early risk read on loans originated and control gaps professionals with the adequate skills, objectives during the pandemic shows performance in processing loan and capacity;  applications. X establishing the formal mandates and of focus was placed on ensuring Portfolio risk authorisation structure for setting risk compliance with government-guarantee management parameters and approving loans; loan scheme rules, which so far has led to Credit performance high pay-out ratios of claims filed in the X performing independent quality control of and returns of existing   portfolio can deviate X limiting concentration risk to counterparties  from expectations  a strong position from a credit risk due to several factors: X actively monitoring the performance of the standpoint, with proven risk tools and deterioration of credit   environment, increased affect performance; from enhanced in-house collections competition driving capabilities: higher prepayment rates, X implementing adequate procedures and effectiveness of portfolio controls for model risk (including the X adequately staffed and well trained monitoring, collections independent validation and monitoring of credit  and recoveries. scoring models); department; X performing annual stress tests with high-quality X forbearance tools and policies fully standards; and integrated in the customer life cycle X with regards to government programmes, tightly management; and  X robust controls and customer-oriented culture (vulnerable people process, treating customers fairly, complaints management and other customer-  58 STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS ## Regulatory, reputation and conduct risk Regulatory, reputation and conduct risk is defined as engaging in activities that detract from Funding Circle’s goal of being a trusted and reputable company with products, services and processes designed for customer success and delivered in a way that will not cause customer detriment or regulatory censure. Risk appetite services company with products, services and processes designed for customer success and delivered in a way that will not  Key risks Management of risk Change in risk in year Regulatory risk The risk that Funding X  Circle’s ability to our business and we engage with policy makers effectively manage its  There is continued regulatory attention regulatory relationships and resources in external relations, including regarding the viability of firms and the possible is compromised or educating policy makers, regulators and other  diminished, that the influencers on the features, benefits and impact Prolonged pause of retail investor product and Group’s governance and  resulting level of client money held continue controls framework is X   not satisfactory given practices and controls focused on regulatory risk, investment continues to be perceived as business growth, or including controls designed to comply with the  that there is business  interruption by reason  X  of non-compliance  governance and controls, and continue to train with regulation or the all employees in such matters as are relevant to Proactive engagement with the introduction of business-   impacting regulation. X  ESG-related risk is an area of expected  increased regulation, for example in the form we have hired an ESG Project Manager and of mandatory disclosures (including on net are working with a service provider to assist  with emissions foot printing, verification Proactive monitoring continues as this   Reputation risk | Operational or |  | | | --- | --- | --- | | performance failures | practices and controls focused on reputation | | | could lead to negative | management, including: |  | | publicity that could | | 2020 continue to operate in 2021, and have | X  adversely affect our  products and initiatives; brand, business, results, Quality assurance testing and training X engaging fully with regulators in relation to any operations, financial  such new or iterated products and initiatives that condition or prospects. and Recoveries department, enabling might impact on customer outcomes;  X undertaking specific projects to address identified risk topics and issues; and X updating and refining our approach to issue and  Conduct risk/treating customers fairly Funding Circle’s X  activities (or the failure performance is reported and additional oversight to satisfactorily perform   its activities) could regulations and ensuring positive customer X  impact the delivery of fair outcomes continue to be fundamental  customer outcomes.  X    monitoring of employees and controls in X  a remote/hybrid environment, we do not embedded and a Business Support function has   Annual Report and Accounts 2021 59 Strategic report ### Principal risks and uncertainties continued ## Operational risk Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. Risk appetite significant and non-anticipated operational risk losses Key risks Management of risk Change in risk in year Process risk Failure to originate and  service loans in line X continuing to automate key controls; with Funding Circle  X performing robust first line quality assurance and technology platform for loan originations internal policies, investor secondary checks on manual processes;  guidelines and third party loan guarantees X monitoring and testing of key controls;  (e.g. the British Business loan originations has improved the X reviewing key risk indicators as part of the Bank and Small Business borrower experience and lending process  Administration) may  X reporting, reviewing and resolving result in Funding Circle  operational errors; repurchasing loans from associated with the platform migration and X performing independent quality control checks the introduction of new processes as we investors. and ensuring highlighted issues are resolved;  The risk of operational X implementing adequate policies and procedures; incident could impact  X providing training and education on risk culture outsourced selective functions which the ability to originate and risk management; and  new loans or the ability to service loans through X performing supplier due diligence and  collections from undertaking ongoing performance monitoring of management framework in place that borrowers and return of  ensures adequacy of suppliers and money to investors.   independent quality checks to ensure that all loans originated (unsecured and government schemes) are compliant with         The report was unqualified with only two  well established control environment over  60 STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS ## Operational risk continued Key risks Management of risk Change in risk in year Information security Failure to protect the X  confidential information responsible for managing information security of Funding Circle’s   borrowers, investors  we transition back to hybrid office/home and IT systems may security threats before they disrupt operations;  lead to financial loss, responding to alerts; and ensuring we have the  reputational damage and   regulatory censure. X  processes as part of our vulnerability  management programme and have we maintain in-depth defence with a multi-layered conducted a ransomware table top  exercise to assess our cyberattack X  readiness, with identified findings being the Board via the Technology Security and Risk     security improvement programme to  further enhance our control environment  to build preventative, detective and procedural controls through technology, people and process improvements  Technology risk Failure of the technology X  platform could have a place with direct oversight for technology risk to material adverse impact  Technology risks did not materially on Funding Circle’s  increase as a result of moving to a remote business, results of  workforce, since the capability to do so operations, financial  was already largely in place before the condition or prospects.  X  reliance on technology with remote infrastructure to ensure that the platform is    roadmap during 2021, and at the same   lending schemes and the introduction  we made extra investments in the reliability and maintainability of our  Annual Report and Accounts 2021 61 Strategic report ### Principal risks and uncertainties continued ## Operational risk continued Key risks Management of risk Change in risk in year Data risk Failure in our ability to X Our data risk management framework is aligned acquire, use secure and  transform our data assets X   could result in adverse   material impacts across  will continue to invest in technology to Funding Circle. X  systematically measure the quality of our    our data governance framework and organisational structure to manage all  Financial crime Risk of regulatory X  breach, financial loss designed to counter money laundering, terrorist or reputational damage financing, corruption and bribery is fundamental  arising from a failure  government-backed loan schemes, to adequately manage roll-out there is heightened industry risk X The Board has adopted policies to address or prevent money that fraudsters could attempt to exploit financial crimes that have been implemented laundering, terrorist   financing, bribery   and corruption, or to X   comply with sanctions team within the first line of defence that is continued to undertake rigorous fraud, regulations. advised, challenged and monitored by the second      in sections of programmes that could   So far, we have not identified a material proportion of loan defaults that would be related to fraudulent applications   62 STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS ## Operational risk continued Key risks Management of risk Change in risk in year Client money risk Failure of Funding Circle  to adequately protect and investors in segregated client money bank accounts segregate client money   may lead to financial loss,  control environment in relation to reputational damage and payment creation, payment authorisation, X  regulatory censure. reconciliation review and monthly focused on providing oversight and challenge  regarding the effectiveness of client money | controls, making decisions in relation to client | New controls were created in 2020 | | --- | --- | | money and reviewing management information | for the money flows related to trust | | and regulatory returns, as well as reviewing risks |  | | and mitigating controls when introducing new |  | | product cash flows into client money framework; | and these controls have been embedded | and applied to additional trust structures X  needed for participation in the new including an Annual Report and quarterly  management information, prepared for and approved by the Senior Manager with To assist borrowers through the  pandemic we also increased our   and highlights key risks and steps to mitigate;  X specific compliance monitoring activity;  enhancements required for our payment X periodic internal audit reviews covering systems to process partial payments governance and control over client assets; and from borrowers on payment plans were X  deployed in Q4 2020, with new controls  implemented and monitoring continuing throughout the period to ensure a robust   assets continued during 2021 and the considerations given to the published  increased client money balances and adequate client asset arrangements,   to be made with our retail investors to create awareness of funds available to withdraw to reduce the balance held  Annual Report and Accounts 2021 63 Strategic report ### Viability statement ## In accordance with the UK Corporate Governance Code (the “Code”), ## the Directors have assessed the future prospects and viability of ## the Group for a period significantly longer than 12 months from the ## approval of the financial statements. Assessment of prospects X continue to invest in data analytics X expected yields on loans originated and technology leading to innovation, and service fee charges which drive  expanded datasets, enhanced credit fee income;  models, better customer experience constitutes an appropriate period over X interest income receipts and and a greater conversion rate which to perform the assessment as: interest expenses related to our  investment vehicles which drive net X  investment income;  medium-term planning process;  X costs across geographies with X it represents a period over which  specific focus on fixed costs and there is a reasonable degree process involves a detailed review of those that fluctuate with income of confidence in the reliability  such as marketing costs; and accuracy of forecasts  X headcount consideration across notwithstanding the disruption to  functions and departments given it is SME businesses and to the lending of regional and functional leaders,  of our core loan products caused together with a review and discussion at  X an assumption of continued  | stimulus programmes due to end | |  | | --- | --- | --- | | during 2022; and | The strategic plan starts with the | infrastructure and its product set | | |  | but with the expectation of no | X periods beyond this point in a subject to reforecasting periodically    infrastructure or major data loss;  extended into the second and third year  X an orderly transition in 2022 away  from government-backed products  drivers and expected growth rates  business model, as set out on pages  lending products; and 20 to 23, are fundamental in driving the Progress against the financial budget X  growth of the business and therefore and forecasts is then reviewed each stress into 2022 and therefore tighter    that are likely to affect the future and reported to, and challenged by, prospects of the Group, aside from   macroeconomic factors, include the  ability to: we expect that the economy and SMEs Key assumptions will recover from the current market X transition away from the current The key assumptions underpinning  government stimulus packages and the strategic plan (before severe but does not result in long-lasting negative the recommencement of our core plausible scenarios) include:  lending products; X levels of marketing spend, the X develop and introduce new  number of applications, conversion lending products; government stimulus packages over rates, average loan sizes and mix the medium term, although longer- X  of product channels which drive term stimulus packages would likely  originations and loans under  businesses to our platforms;  further given the move to online that the X diversify and increase funding from X levels of repayments, prepayments,  a variety of investors in order to meet defaults and recoveries which drive future borrower demand; and  64 STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Assessment of viability   expected that: above, with appropriate management The output of the medium-term plan actions, the scenarios were controllable  X there would be a short-term period in  of the future prospects of the Group over year 1 where there would be limited liquidity for the broader assessment of  transaction fees earned as the Group  moves to only originating core loan   The shorter-term projections within the have considered and carried out a  robust assessment of the principal X following a further severe global   downturn there would again be a  They have also considered the potential significant increase in the number of the Group had net assets of £288 million, impact of the risks on the viability  together with unrestricted cash of of the Group with specific focus on and our invested capital cash flows;  shorter-term liquidity needs and its X the returns for investors would be capital, some of which could be monetised availability, including liquidity currently negatively affected resulting in a  tied up in investment products, noting withdrawal of funding; and during the assessment, and after stress that there has been a large amount of X this in turn would reduce the level scenarios are modelled, the Group monetisation of these products in 2021 of originations below pre-pandemic  such that the Group now holds almost levels unless higher incentives  The Group has financial covenants were offered to investors to with institutional investors for servicing The financial plan was then subject to  agreements for which there are differing scenarios to assess those risks A further subset of risks, including the unrestricted cash, tangible net worth and quantify the financial impact on the reduction in trust from both borrowers   and investors, has also been considered  and capital guardrails that it monitors  and after stress scenarios, the Group which are of particular importance in the   The mitigating actions that would be taken by management include a There may be significant uncertainty The scenario that represented the reduction in the overall marketing in the macroeconomic environment most severe but plausible scenario spend, a tightening of the credit   models to improve the levels of return  sensitivity took into account the likely for investors and increased costs of    crisis may have indirect implications for scenario is hypothetical and severe but  designed to stress the business model Links to principal risks and incoporated into the stress scenario  uncertainties above, the impact of the crisis is not X Strategic risk Severe but plausible scenario considered to impact the conclusions X  A severe global downturn impacts regarding the going concern or viability  X     that there would not be additional Going concern and viability have a reasonable expectation that government intervention as this would The stress testing confirmed that the the Group will be able to continue in   operation and meet its liabilities and as in that instance we would expect to remained positive and that none of the obligations as they fall due over the be originating loans under government scenarios would threaten the viability of   the Group over the assessment period for at least the next 12-month period    Annual Report and Accounts 2021 65 ## CORPORATE ## GOVERNANCE 67 Chair’s introduction 68 Board of Directors 70 Corporate governance report 77 Division of responsibilities 78 Board effectiveness performance evaluation 80 Audit, risk and internal control 81 Report of the Nomination Committee 85 Report of the Audit Committee 91 Report of the Risk and Compliance Committee 93 Report of the ESG Committee 96 Directors’ remuneration report 106 Annual report on remuneration 120 Report of the Directors 123 Statement of Directors’ responsibilities in respect of the financial statements Funding Circle Holdings plc66 Corporate governance ### Chair’s introduction STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS ## A robust and pro-active ## system of governance | this strong culture, which is led from | Committee, which was successfully | | --- | --- | | the top and supported by a robust | demonstrated in 2021 with a | | governance and control framework, | smooth CEO transition, successful | | provides a strong foundation for a | appointments to the Board and changes | | successful, sustainable business that | to the GLT. We officially welcomed | | benefits all our stakeholders. | Helen Beck and Matthew King as | independent Non-Executive Directors During the pandemic, the Board and to the Board and both have brought a its Committees have had to adapt wealth of knowledge and invaluable to constant change, new challenges Andrew Learoyd insight to the work of the Board and and demands. The Board’s role as Chair its Committees this year. Ensuring it emerges from the pandemic is to Board appointments and succession oversee and challenge the Group’s I am pleased to introduce Funding planning at the highest levels align with medium-term plan, with a focus Circle’s Corporate Governance Funding Circle’s culture is crucial, and on long-term sustainability, taking Report for the financial year ended the Committee continues to focus on into account the interests of all our  promoting diversity of gender, social stakeholders. We understand that and ethnic backgrounds, cognitive In this report you will find further for the Company to be successful and personal strengths across senior information on our corporate it is important that it continues to appointments. For full details on the governance arrangements including strengthen its engagement with all changes to the Board, please see the structure of our Board and its stakeholders, giving consideration our Nomination Committee report Committees and how we have applied to their needs and interests in the on page 81. | the UK Corporate Governance Code | decision making process. In this report | | | --- | --- | --- | | 2018. The Board practices high | we explain how the directors have | For the first half of 2022, the Board will | | standards of corporate governance | considered various stakeholder groups | be focused on supporting Lisa Jacobs | | to support the Group in the way it | when making decisions and in doing | as she takes up the mantle as CEO from | | conducts its business and to ensure | so, complied with their duties under | Samir Desai. Following a successful | | decisions have a positive impact on | section 172 of the Companies Act 2006. | transition period since September | | the wider community. We believe | Reports from the Chairs of each of our | 2021, the Board are confident that | | that good governance is not simply a | Board Committees provide further detail | Lisa will bring exceptional leadership | | matter of regulatory compliance but | on their delegated responsibilities and | strength in her new role as previously | | about instilling the right behaviours and | how they work together with the Board | demonstrated in her role as UK | | culture throughout the organisation. | to generate value and fulfil Funding | Managing Director. Furthermore, the | | | Circle’s purpose. | Board is looking forward to continuing | In my time as Chair, Funding Circle to benefit from Samir’s knowledge, has truly embraced the value and Last year I reported that the Board passion and energy as he takes up importance of building a strong decided to establish an ESG Committee a Non-Executive Director seat at the corporate culture and is firmly focused to ensure that we had a dedicated forum Board table. | on the pursuit of inclusion and diversity | for agreeing, setting and implementing | | | --- | --- | --- | | at all levels. It is important to the Board | our ESG goals. New to our corporate | The Board and I are excited to see | | that we continue to invest in Circlers | governance section this year is our ESG | what the next phase planned for the | | and nurture an environment where | Committee report which details the | Company is going to bring and I would | | everyone can be themselves. Culture | progress made towards ensuring our | like to thank the Board and all of our | | remains one of the Company’s greatest | ESG strategy is closely aligned to the | Circlers for their work and contribution | | assets and I am proud to see that this | Company’s purpose, values and culture. | during 2021. | | has shone through in Funding Circle’s | There is more to be done on this in 2022 | | Andrew Learoyd | annual engagement survey this year | and I look forward to reporting on our | | | --- | --- | --- | | which recorded the highest scores | progress with ESG in our 2022 report. | Chair | | that the Company has ever seen. For | | 10 March 2022 | I have been impressed with the full details please see the Our people effectiveness of our succession section on page 24 and the engagement planning, led by the Nomination with Circlers on page 40. I believe that Annual Report and Accounts 2021 67 Corporate governance ### Board of Directors 1. Andrew Learoyd 3. Samir Desai CBE Chair of the Board Founder, Non-Executive Director (as at 1 January 2022) Term of office: Appointed to the Board as a Non-Executive Director in Term of office: Samir co-founded Funding Circle in 2010, and was February 2010 and became Chair of the Board in May 2016. appointed to the Board as Chief Executive Officer in January 2010.  Independent: On appointment.  Skills and experience: Andrew spent 23 years working in investment Independent: No. banking as a research analyst, in corporate finance, equity capital markets and finally as Chief Operating Officer of the Equities Division in Europe Skills and experience: Prior to founding Funding Circle, Samir was of Goldman Sachs. He retired as a Managing Director of Goldman Sachs a Management Consultant at the Boston Consulting Group and an in 2006. Andrew has been involved as an angel investor, Non-Executive Investment Executive at Olivant, a private equity firm that invests in Director and consultant to several start-up businesses. financial services businesses in Europe, the Middle East and Asia. In 2015, Samir was awarded a CBE for services to financial services. External appointments: Andrew is also an independent Non-Executive Director of Funding Circle Ltd. He is currently a Non-Executive Director of External appointments: None. Threshold Sports Limited, which creates and delivers outdoor events for the public, corporate and charity sectors. Andrew is also a director of WLG Learning Ltd which provides educational services for children with special learning disabilities. 2. Lisa Jacobs 4. Oliver White Chief Executive Officer Chief Financial Officer Term of office: Lisa was appointed to the Board as Chief Executive Officer Term of office: Oliver was appointed to the Board as Chief Financial on 1 January 2022. Officer on 15 June 2020. Independent: Not applicable. Independent: Not applicable. Skills and experience: Lisa joined funding circle in 2012 and was Skills and experience: Oliver has spent the majority of his 30 years’ previously UK Managing Director, responsible for the overall strategic experience working in financial services, payments and lending. He joined direction and day-to day operation at Funding Circle UK. She has from Vanquis Bank where he served as Chief Financial Officer. He was also previously held the role of Chief Strategy Officer, where she was formerly the Chief Financial Officer at Barclaycard, where he managed a responsible for developing and launching new product propositions, global business with combined assets of £40 billion, £5 billion of revenues international expansion and incubating new business areas. Prior to and £1.6 billion of profits. Oliver is a chartered management accountant Funding Circle, Lisa worked as a consultant, both independently and for and holds an MBA from Warwick Business School. the Boston Consulting Group. She has advised national and multinational External appointments: None. companies, from a variety of industries, on strategic and operational initiatives covering growth, new product development, reorganisation and transformation, amongst others. In addition, she has worked for NGOs in Tanzania and India. External appointments: None. Funding Circle Holdings plc68 ### 10 11 D D R D N E 1 4 2 3 9 5 6 7 8 ## 5. Eric Daniela Non-Executive Director Term of office: Eric was appointed to the Board as a Non-Executive Director in September 2016. He became Chair of the Risk and Compliance Committee in September 2018. Independent: Yes Skills and experience: Eric was previously Group Chief Executive Officer of the Lloyds Banking Group, the FTSE 100 listed banking group, retiring in 2011. Prior to joining Lloyds in 2011, he spent 25 years with Citigroup in a range of management positions. Eric broke a Master of Science in Management from the Massachusetts Institute of Technology and a Bachelor of Art in History from Cornell University. External appointments: Eric currently holds a range of appointments which include as a Non-Executive Director of Russell Reynolds Associates and membership on the Advisory Board of the Smithsonian Tropical Research Institute. He also advises on a number of private companies. ## 6. Geeta Gopalan Senior Independent Director Term of office: Geeta was appointed to the Board as a Non-Executive Director in November 2018. She became Chair of the Audit Committee in November 2018. Geeta was appointed as Senior Independent Director to succeed Bob Steel when he stepped down at the AGM in May 2021. Independent: Yes Skills and experience: Geeta has over 25 years of experience of financial services and retail banking, particularly payments and digital innovation. Geeta was formerly Executive Chair of Montreal Europe. Among the many roles in her career, Geeta was Director of Payment Services with HBOS plc and previously Managing Director, UK Retail Bank and Business Development Head SME at Citigroup. She is a chartered accountant. External appointments: Geeta serves as Non-Executive Director of Virgin Money UK PLC (formerly CVBG plc) (where she is Chair of the risk committee), Wipnik Bank S.A. (where she is Chair of the risk committee) and Ultra Electronic Holdings plc (where she is Chair of the remuneration committee). Geeta is also a Trustee for the Old Vic Theatre. ## 7. Hendrik Nelis Non-Executive Director Term of office: Hendrik was appointed to the Board as a Non-Executive Director in September 2013. Independent: No Skills and experience: Hendrik joined Accecin 2004 and focuses on software, forfeits and consumer internet companies. He led Accec's investments in KANIA (NASDAQ: KVAK, acquired by Prioritine), Showcomputer (EPA: SRP), FundingCircle (LON: FCH), Callagot, Celoma, CHEDX24, Instana, Mini and WorldRemit. Hendrik started his career in Silicon Valley as an engineer at Hewlett-Packard before founding a venture-facted software company. He is from the Netherlands and graduated from Harvard Business School and Delft University of Technology. External appointments: Hendrik serves as Manager, Partner Director and/or Member at a number of Accec entities, as well as a Director of supervisory board member of several other companies. ## 8. Neil Rimer Non-Executive Director Term of office: Neil was appointed to the Board as a Non-Executive Director in March 2010. Independent: No Skills and experience: Neil is a Co-Founder and Partner of Index Ventures. Before starting Index Ventures, he spent four years with Montgomery Securities in San Francisco. Neil was previously a Director of Photobox Holdco Limited, Supercell Oy and The Climate Corporation. External appointments: Neil is currently a Director on various boards of companies based in the UK, Europe, the Cayman Islands and the US including Prodigy Investments Limited, Navon GmbH, Navitink SA, Pitch Software GmbH, Sofia Holdings Limited, Toufix GmbH and Typeform S.L. He scales the Co-Chair of Human Rights Watch. ## 9. Helen Beck Non-Executive Director Term of office: Helen was appointed to the Board as a Non-Executive Director in June 2021. Independent: Yes Skills and experience: Helen has over 25 years of experience in financial services, particularly in remuneration design, regulation and human resources. Helen was formerly a Partner at Deloitte and, among her previous roles in her career, Helen was Global Head of Reward at Standard Bank, Head of VALLagan Europe (part of Aco) and held roles in human resources at Fidelity International. External appointments: Helen serves as Non-Executive Director of Ashmore Group PLC (where she is Chair of the remuneration committee), Governor of the University of Bedfordshire, Court Governor of the John Wringff Foundation and independent member of the remuneration committee for The British Olympic Association. ## 10. Matthew King Non-Executive Director Term of office: Matthew was appointed to the Board as a Non-Executive Director in May 2021. Independent: Yes Skills and experience: Matthew has over 26 years of experience in financial services. Having qualified as a solicitor with Slaughter and May, Matthew held a number of risk management positions with HSBC over a 15-year period across Asia, Australia, the Americas and Europe. External appointments: Matthew is also the Chair of FundingCircle Ltd's Board. Matthew is currently a Non-Executive Chair of Savannah Resources plc, an AIM-based mining and exploration company. ## 11. Lucy Vernall Company Secretary, General Counsel and Chief People Officer Term of office: Lucy was appointed Company Secretary in July 2014. Independent: Not applicable Skills and experience: Lucy is responsible for the Legal, Compliance and People functions of the business, in addition to being Company Secretary. Prior to joining Funding Circle, Lucy was one of the founder members of Kemps, the LLP, a technology focused City law firm. She was managing partner of the firm from 2009 until 2011, when she became Morgan's first General Counsel. External appointments: Lucy serves on the Board of the chairlets Bardhan Research and Education Trust of Rotherham and The Emerson Trust. ## Board Committees - Audit Committee - Remuneration Committee - Nomination Committee - Risk and Compliance Committee - ESG Committee - Market Disclosure Committee - Committee Chair Annual Report and Accounts 2021 69 FINANCIAL REPORT COMPANIES GOVERNANCE FINANCIAL STATEMENTS Corporate governance Corporate governance report ### Corporate governance code compliance The Board believes that a robust corporate governance framework is essential to deliver the high standards of governance and long-term investment that the Company needs to thrive and fulfil its purpose to help small business win. With that in mind, the Board applies the principles and provisions of the UK Corporate Governance Code 2018 (the 'Code') available at www.frc.org.uk. The Board utilises the associated guidance to help it achieve long-term sustainable success and its wider objectives. During the financial year ended 31 December 2021, the Company has applied the principles and believes it has complied with the provisions of the Code. In this report we have explained the following areas where we recognise that there may be views that are not universally accepted or that will not be compliant in 2022: Provisions 9 and 19 – Chair's independence and tenure: Although the Board has always considered that Andrew's tenure should react on IPO, it recognises this is not a view that is universally accepted, details are set out in Chair's performance and tenure in the Nomination Committee Report on page 83. Provision 11 – At least half of the Board excluding the Chair should be independent. The Company complied with this provision as at 31 December 2021, however, the Board recognises that from 1 January 2022 this will no longer be the case. The Board has explained its position in Board composition and independence in the Nomination Report on page 82. Below we have provided some examples of how the spirit of the Code has been applied, with cross-references to other sections of this Annual Report. ### Board leadership and Company purpose As highlighted throughout the Annual Report, the Board complied with Provision 5 through the appointment of a designated Non-Executive Director. This role is now held by Hellen Beck and has proven effective in improving engagement with the workforce as demonstrated through the results of employee engagement surveys. Please see our People on page 24 and Engaging with our Stakeholders on page 40 ### Division of responsibilities The Board was delighted to make several new independent Director appointments in 2021 as well as the appointment of Gretta Gopalan as Senior Independent Director, giving due consideration to the requisite principles and provisions of the Code. A document detailing the role of each of the Chair, CEO and Senior Independent Director can be found on our website here: https://corporate.fundingcircle.com/who-we-are/corporate-governance/board-responsibilities/ ### Composition, succession and evaluation The Nomination Committee demonstrated the success of its work on succession planning especially in relation to the smooth transition of the CEO appointment. The strategic approach that the Committee took has proven that its members take Board composition seriously, ensuring that the Board works efficiently and effectively with the right level of experience and diversity. For further details, see succession planning and changes to the Board in the Nomination Committee Report on page 82 ### Purpose, values and culture Our purpose is to help small business win. When small businesses succeed, they create jobs, support local communities and drive the economy forward, which is why we focus on helping them to win. Our borrowers are at the centre of everything we do and our employees work together to build the next chapter. We have defined our values to deliver our purpose, which will guide the decisions we take. Our values define what it means to be part of Funding Circle and represent who we are and how our team behaves. The five values Circlers live by can be found in the Our people section on page 26. We consider our employees and culture fundamental to the success of our business and in 2021 we continued to invest in our people by ensuring a safe, open and inclusive working environment where people feel they belong and can be themselves. Our team consists of a talented group of individuals who have a strong alignment with our mission and share the same drive and passion as our customers. We believe that creating the right culture is crucial for both retaining and attracting talent. In 2021 we continued to enhance our people promise. Build the Incredible, having realised the value of culture and community during the first year of the pandemic. Supporting mental health and wellbeing became even more important in a hybrid working environment where the boundaries between work and life are increasingly blurred. Through our employee share plans, all Circlers have the opportunity to become shareholders in the Company, which helps to ensure they are aligned with our mission, vision and objectives. Our 'Equity for All' share plan, which operates as a share incentive plan and was launched in 2020, had an 89.5% take-up in 2021. The Board regularly receives reports on people-related matters, including results from our culture, engagement and wellbeing surveys, which have enabled the Board to monitor employee engagement, satisfaction and wellbeing, as well as to understand how our employees have adapted to hybrid working. The Directors also spend time with employees, for example by participating from time to time in our local and global gatherings or as part of the workforce engagement programme run by Hellen Beck in her role as the designated Non-Executive Director for workforce engagement. For more details on the Board's engagement with the workforce, please see the Engaging our stakeholders section on page 40. Significant progress was made with the new ESG strategy led by the ESG Committee. The Committee carried out its first full year cycle of meetings dedicated to ensuring the Group operates responsibly from an environmental, social and governance perspective and remains on track with commitments to offsetting/reducing our operational carbon footprint. Directors continue to complete training, along with other Circlers, covering issues such as unconscious bias. For further information relating to our commitment to sustainability and ESG work, please see pages 28 and 93. 70 Funding Circle Holdings plc STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Matters reserved for the Board and role of the X Financial reporting Committees X Internal controls and risk management The Board has adopted a formal schedule of matters reserved X Material contracts and expenditure for its approval and delegated other specific responsibilities X Certain shareholder communications to the Committees. The matters reserved for the Board are X Board membership and other appointments reviewed annually and include: X Corporate governance matters X Group strategy, which is reviewed by the Board and X Remuneration of Directors and the Global Leadership Team management regularly during the year X The Group’s environmental, social and governance policy, X The Group’s annual operating budget framework and reporting X Major investments, acquisitions and capital projects Each Board Committee has written Terms of Reference defining its role and responsibilities as summarised in the table below, which are   also available on the Group’s corporate website: corporate.fundingcircle.com/investors/governance. …… Nomination Committee Key objectives Principal responsibilities Reviewing the structure, size and composition of X Leads the process for Board appointments and makes the Board, responsible for succession planning recommendations to the Board and making recommendations on appointments X Reviews the structure, size and composition of the Board and makes to the Board. recommendations to the Board about any changes Membership X Considers plans and makes recommendations to the Board for Andrew Learoyd (Chair) orderly succession for appointments to the Board and the Global Geeta Gopalan Leadership Team Helen Beck X Keeps the Executive and Non-Executive leadership needs of the Group under review Nomination Committee Report – page 81 X Evaluates the combination of skills, knowledge, experience, independence and diversity on the Board X Reviews the results of the Board performance evaluation process, where they relate to the composition of the Board X Makes recommendations to the Board about the re-election of Directors Audit Committee Key objectives Principal responsibilities Overseeing the financial and corporate X Monitors the integrity of the Company’s financial statements reporting and internal financial controls of the X Reviews and reports to the Board on significant financial reporting Group, managing internal and external audit issues and judgements procedures and reviewing and overseeing the X Assesses the effectiveness of the Group’s financial reporting procedures Group’s procedures in relation to whistleblowing, X Monitors and keeps under review the adequacy and effectiveness of the bribery, fraud, money laundering and other Group’s internal financial controls and (in conjunction with the Risk and financial crime. Compliance Committee) internal control and risk management systems Membership X Reviews and approves the role and mandate of the Group’s Internal Audit Geeta Gopalan (Chair) function and monitors and reviews the effectiveness of its work Eric Daniels X Oversees the relationship of the Company with the external auditors, Matthew King recommends their appointment and reviews their effectiveness, fees, Audit Committee Report – page 85 terms of engagement and independence and approves the provision of non-audit services by the external auditors Annual Report and Accounts 2021 71 Corporate governance ### Corporate governance report continued Matters reserved for the Board and role of the Committees continued Risk and Compliance Committee Key objectives Principal responsibilities Reviewing and making recommendations to X Assesses the emerging and current principal risk exposure of the Group the Board in relation to the Group’s internal and advises the Board on those risk exposures and future risk strategy control and risk management systems X Advises the Board on the Group’s overall risk appetite, tolerance and and compliance with the Group ERMF, the strategy for the purpose of achieving its long-term strategic objectives Group’s compliance with legal and regulatory X Reviews the Group’s capability to identify and manage new risk types requirements and policies and the effectiveness X Monitors and keeps under review the adequacy and effectiveness of the and appropriateness of the Group’s corporate Group’s internal control and risk management systems, in conjunction with governance framework. the Audit Committee Membership X Considers and approves the remit and effectiveness of the Risk Eric Daniels (Chair) Management and Compliance functions Hendrik Nelis X Provides advice and challenge necessary to embed and maintain a Geeta Gopalan supportive risk and compliance culture throughout the Group Risk and Compliance Committee Report – page 91 X Monitors and keeps under review the policies and overall process for identifying and assessing strategic, platform funding and liquidity, operational, credit and regulatory, reputational and conduct risks and managing their impact on the Group X Considers and approves the annual compliance monitoring and testing plan Remuneration Committee Key objectives Principal responsibilities Determining the remuneration of the Directors X Determines the remuneration of the Chair, the Executive Directors and and the Global Leadership Team and determining the Global Leadership Team (the “Executive Group”) the policy for the Executive Directors as well X Considers, monitors and reviews the ongoing appropriateness and relevance as monitoring and reviewing its ongoing of the Remuneration Policy (including its level and structure) and consults appropriateness and relevance. with significant shareholders and other stakeholders as appropriate Membership X Promotes long-term shareholdings by Executive Directors that support Helen Beck (Chair) alignment with long-term shareholder interests and develops a formal Andrew Learoyd policy for post-employment shareholding requirements encompassing Geeta Gopalan both unvested and vested shares X Considers, determines and approves the provisions of the service Directors’ Remuneration Report – page 96 agreements of the Executive Group and ensures that any payments that may be made under such provisions are fair to the individual and the Company, or the relevant member of the Group (as appropriate) X Reviews workforce remuneration and related policies and the alignment of incentives and rewards with culture and takes these into account when determining the remuneration of the Executive Group X Reviews and approves the policy for authorising claims for expenses from the Directors X Reviews the design of any new share incentive schemes for approval by the Board and, as required, the Company’s shareholders Market Disclosure Committee The Board has delegated to the Market Disclosure Committee responsibility for overseeing the disclosure of information by the Company to meet its obligations under the Market Abuse Regulation, the Financial Conduct Authority’s Listing Rules and the Disclosure and Transparency Rules. The Market Disclosure Committee is chaired by the Company Secretary and comprises the Chair of the Board, the Chair of the Audit Committee, the CEO, the CFO and the CRO. The Committee has at least three scheduled meetings a year and meets more frequently on an as needed basis. In 2021, the Committee met six times. ESG Committee The Board has delegated to the ESG Committee responsibility for overseeing and monitoring the implementation of the Company’s environmental, social and governance policy and framework, as approved by the Board. The Committee also oversees the Board’s workforce engagement in conjunction with the designated workforce engagement Non-Executive Director. The Committee is chaired by the Chair of the Board, who is joined by Helen Beck (Workforce Engagement Director), Neil Rimer and Matthew King. See the ESG Committee Report on page 93. Funding Circle Holdings plc72 ## Global Leadership Team Day-to-day management of the Group, including the implementation of the Group's business plan and strategy, is delegated by the Board to the Global Leadership Team, chaired by the CEO. The Global Leadership Team is responsible for managing the business, delivering the strategy, managing risk, ensuring regulatory compliance, establishing financial and operational targets and monitoring performance against those targets. The table below sets out attendance at Board meetings in 2021, including the strategy meeting held in October 2021. The Company Secretary attended all of the Board meetings in 2021. The attendance for the Committee meetings are detailed in each of the Committee reports. | Director | No. of meetings | Attendance | | --- | --- | --- | | Andrew Learoyd | 7/7 | 100% | | Samir Desai | 7/7 | 100% | | Oliver White | 7/7 | 100% | | Eric Daniels | 7/7 | 100% | | Geeta Gopalan | 7/7 | 100% | | Hendrik Naka | 7/7 | 100% | | Neil Rimer | 6/7 | 86% | | Helen Beck (appointed 1 June 2021) | 4/4 | 100% | | Matthew King (appointed 19 May 2021) | 5/5 | 100% | | Cath Keiers (resigned 19 May 2021) | 2/2 | 100% | | Bob Steel (resigned 19 May 2021) | 2/2 | 100% | | Ed Wray (resigned 19 May 2021) | 2/2 | 100% | The Board and Board Committee meeting schedule for 2022 has been approved by the Board and the Committees and the Board will meet formally at least six times during the year, including a Board strategy meeting. Ad hoc meetings may be called as and when appropriate, as was the case in 2021. The Audit Committee will continue to hold four meetings as in 2021 to ensure the Committee continues to provide appropriate oversight of the Group's control environment and evolving business with additional products. ## Board activity Board meetings are planned around the key events in the corporate calendar, including the half-year and full-year results and the Annual General Meeting ("AGM"), and a strategy meeting is held each year. The Board also receives a monthly management financial report. The Chair and Non-Executive Directors have had the opportunity to have regular discussions without Executive Directors present. The Board's activities throughout the year are underpinned by our external reporting calendar and our internal business planning processes. A rolling annual agenda ensures that all important topics receive sufficient attention. Standing items provide an anchor to the strategy and provide the Board with a consistent view of progress during the year, whilst sessions on priority topics allow deeper insight. A summary of the Board's key activities during 2021 is set out on the next page. In addition, some examples of key decisions taken by the Board in 2021, in the context of its section 172 duties, are set out on page 75. STRATEGIC REPORT CORPORATE GROWTH FINANCIAL STATEMENTS Annual Report and Accounts 2021 73 Corporate governance ### Corporate governance report continued 2021 Board activities | Q1 2021 | Q2 2021 | | --- | --- | | X Full-year results announcement | X UK business deep dive | | X Annual Report and Accounts | X Growth initiatives and | technology platform X US business deep dive X People/employee engagement X Balance sheet strategy X Investor relations X 2021 forecast X ESG Committee update and X Investor relations Terms of Reference established X Review of key policies X Appointment of Matthew King X Evaluation of the Chair and Helen Beck to the Board X Board effectiveness X Approval of restricted share X Succession planning awards to Executive Directors X AGM X Appointment of Geeta Gopalan as Senior Independent Director Q4 2021 Q3 2021 X Strategy meeting X Appointment of Geeta Gopalan to the Remuneration Committee X Investor relations X Half-year results X Medium-term plan discussion and approval X CEO transition X 2022 budget and plan X FlexiPay deep dive In addition, at each Board meeting the standing agenda includes: X Approval of minutes (circulated to all Directors in advance for comment) and review of outstanding actions X Corporate governance and Committee reports X Report from the CEO, including key developments in the Group’s business and trading updates X Financial and operational review Agendas and accompanying papers are distributed to the Board and Committee members well in advance of each Board or Committee meeting. These include reports from Executive Directors, other members of senior management and external advisers, as appropriate. All Directors have direct access to senior management should they require additional information on any of the items to be discussed. The Audit Committee and the Risk and Compliance Committee receive further regular and specific reports to allow the monitoring of the adequacy of the Group’s systems of internal controls (described in more detail in the Audit Committee Report on page 85 and the Risk and Compliance Committee Report on page 91). Funding Circle Holdings plc74 ## Board decision making and Section 172 duties As set out in the Section 172(1) Statement on page 48, the Directors are fully aware of their section 172 duties (and receive training on their duties on an annual basis). In discharging these duties, the Directors have regard to the factors set out in section 172(1)(a)-(f) of the Companies Act 2006, as well as to other factors which they consider relevant to the decision being made (for example, the views of regulators). While the Board accepts that not every decision it makes will result in a positive outcome for all of the Company's stakeholders, by considering the Company's purpose, mission and values together with its strategic priorities and having a process in place for decision making, the Directors aim to make sure the Board's decisions are consistent and predictable. Some examples of how the Directors have had regard to the matters set out in section 172(1)(a)-(f) when discharging their duties during the year are set out below. | Principal decision | Key stakeholders considered | Board's decision making process | | --- | --- | --- | | Becoming an accredited lender under RLS | Borrowers Investors Community Government | Having ensured that Funding Circle was able to use its unique position to support as many small businesses as possible during the first year of the pandemic through facilitating CBILS lending in the UK and PPP in the US, the Board made sure that the Group was able to continue this support into 2021, becoming the first FinTech lender to be accredited for the Recovery Loan Scheme. The Board (in conjunction with the Risk and Compliance Committee) carefully considered proposals to reintroduce core lending to lower risk borrowers in both the UK and the US, oversaw the transition from CBILS to RLS and continued to oversee the implementation of robust controls and continued monitoring of the government guaranteed loans. | | Supporting Circlers through the pandemic and return to office and hybrid working | Employees | Ensuring a continued focus on the health and wellbeing of Circlers remained of critical importance to the Board as the pandemic continued to impact ways of working. The Board received updates on the results of wellbeing and engagement surveys and direct feedback from workforce engagement sessions and considered plans for the implementation of return to office and hybrid working. | | Balance sheet strategy | Investors Shareholders | In order to promote long-term success of the Company for the benefit of shareholders and other stakeholders, the Board reviewed its previous balance sheet strategy coupled with the experience of Covid-19 and approved management's proposal of investment principles and provided feedback on the application of the proposed principles. The Board considered how balance sheet investment fit within the wider funding strategy and governance with the proposed principles identifying a clear framework within which to operate to strengthen the platform and benefit shareholders. As part of its ongoing review of investments held for sale by Funding Circle, the Board approved sales of portfolios of loans held in US and UK warehouses which reduced investment income but significantly improved the Group's cash position. | | Appointment of Matthew King and Helen Beck to replace retiring Non-Executive Directors | Borrowers Investors Community Employees | Following the decision of Bob Steel, Ed Wray and Cath Keers to step down from the Board at the Annual General Meeting on 19 May 2021, the Board agreed that it was in the best interests of the Group and its stakeholders to appoint two independent Non-Executive Directors. Following a thorough recruitment process (for full details see our 2020 Annual Report and 2021 Nomination Committee Report on page 81) it was agreed that the appointment of Matthew King and Helen Beck was in the best interests of the Company's employees and investors and necessary to maintain the high standards of business conduct at Funding Circle and promote the success of the Company in the long-term. | | ESG Committee Terms of Reference and strategy approved | Community Borrowers Investors Employees Regulators | The Board is committed to ensuring the impact of the Company's operations on the community and the environment is a positive one. The Board approved a new ESG framework in December 2020, the implementation of which was delegated to the ESG Committee. In 2021, the ESG Committee completed its first full year cycle of meetings which included the creation of Terms of Reference and an ESG strategy that would address environmental, social and governance as well as diversity, equity and inclusion ('DEF') issues effectively. For more information relating to the work of the ESG Committee see page 93. | FINANCIAL REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Annual Report and Accounts 2021 75 Corporate governance ### Corporate governance report continued Board decision making and Section 172 duties continued Key stakeholders Principal decision considered Board’s decision making process Appointment of Lisa Community The Nomination Committee had delegated responsibility for overseeing a CEO Jacobs as CEO Borrowers succession planning project which came to fruition in 2021 following Samir’s Investors decision to step back from the day-to-day activity of running Funding Circle. Suppliers Following an extensive process to appoint a successor, the Board decided to Employees appoint Lisa Jacobs as Chief Executive Officer of Funding Circle effective from Regulators  2021 and worked alongside Samir to ensure a smooth CEO transition process. The Board’s decision to appoint Lisa Jacobs as CEO was made with regard to the interests of the Company’s employees and the Company’s business relationships with suppliers, customers and others. Lisa demonstrated the core strengths and qualities that the Board was looking for and had the benefit of understanding Funding Circle well. Appointment of Community In addition to appointing Lisa Jacobs as Samir’s successor, the Board also made Samir Desai as Non- Borrowers the decision to appoint Samir as a Non-Executive Director to the Funding Circle Executive Director Investors Board with effect from 1 January 2022. More information regarding the terms Employees of Samir’s appointment to the Board can be found in the Nomination Committee Regulators Report on page 81. As a major shareholder and founder, Samir’s appointment as Non-Executive Director to the Board will help to support a smooth transition of leadership and was in the best and long-term interests of all stakeholders. Medium-term plan Community A medium-term plan was prepared for Board discussion with the objective approved with strategy Borrowers of providing a baseline set of financials for 2022 – 2025, ensuring the plan is set up to 2024 Investors appropriate for the Group, to set direction and targets for the 2022 budget, develop Employees KPIs and further strategic discussion. Furthermore, the decision to approve the Regulators medium-term plan and strategy took into consideration the desirability of the Company maintaining a reputation for high standards of business conduct and the likely long-term consequences and success of the Company. Monitoring the Community Enhancing our offerings to our borrowers is a key area of priority for the Board. progression of our Borrowers Following a strategic decision to diversify Funding Circle’s product set to introduce instant decision making Investors FlexiPay at the end of 2020 (made possible by the development and roll-out of our capabilities and the roll Suppliers new technology platform), the Board continued to review and monitor its roll-out out of FlexiPay Employees taking into account the interests of all stakeholders. The Board discussed the Regulators development of the FlexiPay product and the proposal for the FlexiPay product at meetings and strategy sessions during the year, providing challenge and insight on aspects of the proposition and approving guard rails for the initial launch of FlexiPay to subsets of existing borrowers. The Board focused particularly on the interests of customers, ensuring that borrower feedback was sought and considered throughout the development of the product. 76 Funding Circle Holdings plc ### Division of responsibilities STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS ## How we are organised ## There is a clear division of responsibilities between the Chair and the ## CEO (which has been set out in writing and approved by the Board) ## and these responsibilities, as well as the role of the Senior Independent ## Director and other members of the Board, are set out below: ### Chair Chief Executive Officer Senior Independent Director Responsible for: Responsible for: Responsible for: X The leadership and overall X Leadership of the Global Leadership X Being available to shareholders if they effectiveness of the Board and for Team in the executive management have concerns, which contact through upholding high standards of corporate of the Group the normal channels of the Chair, CEO governance throughout the Group and or other Executive Directors has failed X The delivery of the Group’s strategy particularly at Board level to resolve  X Setting the Board agendas with the X Attending meetings with and listening X The development of the annual budget Company Secretary and CEO and the to the views of major shareholders and business plans and commercial recommendation of an annual Board as required objectives with the Board and Committee meeting schedule X Providing a sounding board for the X Setting an example and X Promoting a culture of openness and Chair and acting as an intermediary communicating to the Group’s debate, in particular by facilitating the  employees the expectations of the effective contribution of Non-Executive Board in relation to the Group’s culture, X Meeting other Non-Executive Directors Directors, and ensuring constructive values and behaviour without the Chair present once a year relations between Executive and Non- to appraise the Chair’s performance X Ensuring appropriate, timely and Executive Directors accurate information is disclosed X Ensuring effective communication with  shareholders, including in relation to X Managing the Group’s risk profile in governance, remuneration and strategy line with the extent of risk identified as acceptable by the Board and ensuring appropriate internal controls are in place. ### Chief Financial Officer Non-Executive Directors Company Secretary Responsible for: Responsible for: Responsible for: X All aspects of finance including X Providing objective and constructive X Being available to all Directors to financial planning, tax, treasury and challenge to management provide advice and assistance on procurement  X Assisting with the development X Investor relations  X Advising Directors on their duties X Working with the CEO to develop X Scrutinising and monitoring financial X Ensuring compliance with the Board’s and implement the Group’s strategic and operational performance and the procedures and with applicable laws objectives, annual budget and Group’s risk management framework and regulations business plan X Ensuring effective financial compliance and control Annual Report and Accounts 2021 77 Corporate governance ### Board eectiveness performance evaluation ## Board eectiveness ## performance evaluation The Board takes its continuous improvement and development very seriously and, at the end of 2021, conducted an internal effectiveness review. A thorough questionnaire was devised and distributed to all Directors on the Board and the Company Secretary. The Company Secretarial team consulted with the Chair to determine the topics covered by the questionnaire and, as the neutral party, oversaw the process of collecting responses and analysing and presenting the outcomes. Effectiveness reviews for the Committees of the Board were also conducted and details of these evaluations are provided in the Committee reports as follows: Nomination Committee on page 84, Remuneration Committee on page 107, Audit Committee on page 90 and Risk and Compliance Committee on page 92. In compliance with the Code, the evaluation asked respondents to consider the Board’s composition and diversity and how effectively members work together to achieve objectives. Having identified some areas in need of review, the questionnaire was developed to comprise eight sections covering the following areas: lessons learned from the past 12 months, leadership and purpose, division of responsibility and composition, meeting process, boardroom behaviours, development and support, risk and controls, and stakeholders and culture. A summary of what each section covered and the outcomes agreed by the Board can be found below: Section 1 – The past 12 months This section required respondents to provide comments regarding the Board’s learning from the past 12 months and to reflect on how the Board could use the experience of the past 12 months to improve effectiveness. Section 2 – Leadership and purpose The questions in this section asked respondents to evaluate how the Board complies with statutory obligations in regard to section 172 of the Companies Act 2006, the effectiveness of the existing combination of executive and Non-Executive Directors, the effectiveness of the Chair’s leadership, Commitment of Board members to their roles and challenge in the boardroom. Section 3 – Division of responsibility and composition This section asked respondents to assess the composition of the Board in relation to whether it reflects sufficient diversity of gender, social and ethnic backgrounds and cognitive and personal strengths. The combination of skills, experience and knowledge of Board members was also evaluated. Section 4 – Meeting process Questions addressed the quality and timeliness of information received by the Board, the appropriateness of the length of Board meetings to discuss substantive matters and the quality of debate and the effectiveness of existing processes to inform the Board of material matters between meetings. Section 5 – Board behaviours Respondents were asked to evaluate boardroom behaviours which included rating the extent to which the Board embodies the purpose, vision, values and desired culture of Funding Circle and whether individual Board members arrive prepared for meetings. Funding Circle Holdings plc78 STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Section 6 – Board development and support This section reviewed the quality of support provided by the Company Secretarial team and the quality of reporting from Committees up to the Board. Non-Executive Directors were also asked to evaluate the support and training opportunities provided to them and whether this was sufficient for them to carry out their roles. Section 7 – Risk and controls Questions intentionally addressed the requirement of Principle O of the Code and asked Board members to evaluate the appropriateness of the Board’s focus on risk and risk management, the framework of controls used by the Board to assess and manage risk and the Board’s strategy for dealing with and reporting on principal and emerging risks. Section 8 – Stakeholders and culture This section evaluated the extent to which the Board understood the views of the Company’s stakeholders, the consideration of ESG issues, workforce policies and practice and whether the Company’s mission, values and strategy were aligned with the Company’s culture. Outcomes There were good ratings across all sections of the evaluation, demonstrating confidence that the Board was working effectively with strong Company Secretarial support in place and Board members demonstrating behaviours that embodied and reflected the purpose, mission, values and desired culture at Funding Circle. In regard to risk and controls, there was confidence that the Board had good procedures and frameworks in place. In addition, the evaluation identified some areas for improvement which the Board has committed to addressing in 2022, which include but are not limited to: X CEO and Chair to review the Board agenda plan for 2022, including the length of meetings to optimise the Board meeting time and ensuring the right amount of time is spent on contentious and critical areas. Carry out a continual review throughout the year to confirm effectiveness X Identify actions that the Board can take in 2022 to improve engagement with all stakeholders X Further discuss Board composition and determine whether additional skills are required on the Board X Ensure sufficient time for Committee reports and for Non-Executive Directors to meet without management present External evaluation The Board recognises the value of an externally facilitated evaluation in helping to recognise its strengths and weaknesses      Annual Report and Accounts 2021 79 Corporate governance ### Audit, risk and internal control ## Audit, risk and ## internal control | The Board has delegated to the Audit | operate. This includes ensuring that an | Members of the Global Leadership | | --- | --- | --- | | Committee responsibility for overseeing | appropriate system of risk governance | Team are responsible for the application | | the financial and corporate reporting | is in place throughout the Group. To | of the ERMF, for implementing and | | and internal financial controls of the | discharge this responsibility, the Board | monitoring the operation of the systems | | Company and its subsidiaries. This | has established frameworks for risk | of internal control and for providing | | includes reviewing the content of the | management and internal control using | assurance to the Risk and Compliance | | Annual Report and Accounts and | a “Three Lines of Defence” model and | and Audit Committees and the Board. | | advising the Board on whether, taken | reserves for itself the setting of the | Risk management and compliance | | as a whole, it is fair, balanced and | Group’s risk appetite. In 2021, the Board | constitute the second line of defence | | understandable. Details of this process | and management completed a Three | in the “Three Lines of Defence” model. | | and the focus of the review and of the | Lines of Defence exercise which was | The Risk Management function is | | Audit Committee’s role, activities and | effective in ensuring alignment between | accountable for the quantitative and | | relationship with the external auditors | management and the Board. For further | qualitative oversight and challenge | | are on pages 85 to 90 of the Report of | details on the Three Lines of Defence | of the identification, measurement, | | the Audit Committee. | model, please see page 52. | monitoring and reporting of principal | risks and for developing the ERMF. The Board oversees the Group’s risk Responsibility for preparing The Compliance function supports management and internal control the Annual Report and Accounts and advises the business on the system and is responsible for reviewing The Board is responsible for maintaining identification, measurement and its effectiveness. During the year, the adequate accounting records and seeks management of its regulatory and Board carried out a robust assessment to ensure compliance with statutory and conduct risks. It is accountable for of the principal risks and uncertainties regulatory obligations. An explanation maintaining the compliance standards facing the Group, which are described from the Directors about their and framework within which the Group in more detail on pages 55 to 63 of responsibility for preparing the financial operates, and monitoring and reporting the Strategic Report and the Reports statements is on page 123 in the on its compliance risk profile. The of the Risk and Compliance and Statement of Directors’ Responsibilities. third line of defence is Internal Audit,  | The Company’s external auditors | | which is provided by an in-house | | --- | --- | --- | | explain their responsibilities | The Board retains ultimate responsibility | team led by an experienced Head of | | on page 130. | for the Group’s systems of internal | Internal Audit, with co-source specialist | | | control and risk management but has | support from Deloitte as required. | | Risk management and | delegated in-depth monitoring of the | The Internal Audit function provides | | internalcontrol systems | establishment and operation of prudent | independent and objective assessment | | | and effective controls in order to assess | on the robustness of the ERMF and | The Board is responsible for promoting and manage risks associated with the the appropriateness and effectiveness the long-term success of the Company Group’s operations to the Risk and of internal controls to the Risk and for the benefit of shareholders, while Compliance and Audit Committees. Compliance and Audit Committees taking into account the interests of The Risk and Compliance Committee and the Board. More information on the our other key stakeholders including also monitors compliance with the Internal Audit function is set out in the our people, borrowers, investors in our ERMF. More information on the ERMF is Audit Committee Report on page 89. loans and the communities in which we provided on page 54. Funding Circle Holdings plc80 ### Report of the Nomination Committee STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS ## Report of the ## NominationCommittee Members and attendance Member Meetings Attendance Andrew Learoyd (Chair) 4/4 100% Geeta Gopalan (appointed 19 May 2021) 3/3 100% Helen Beck (appointed 1 June 2021) 3/3 100% Bob Steel (resigned 19 May 2021) 1/1 100% Andrew Learoyd Chair of the Nomination Committee Cath Keers (resigned 19 May 2021) 1/1 100% | On behalf of the Board, I am pleased to | assessed the suitability of Lisa | Matthew was also recommended | | --- | --- | --- | | present the Nomination Committee’s | Jacobs succeeding Samir as CEO | to be appointed as a member of | | Report for the year ended 31 | and on 9 September 2021, we |  | | December 2021. | announced her succession to the | of the ESG Committee. He continues | | | role with effect from 1 January 2022. | to serve as the Chair of our regulated | 2021 has been a year of change and UK board, Funding Circle Ltd X Following the decision of Bob the Committee has had the opportunity (“FCL”), the FCL Audit Committee, Steel to retire from the Board, the to demonstrate the importance of and the FCL Risk and Compliance Committee recommended the robust succession planning, having Committee. As Chair he holds the appointment of Geeta Gopalan as overseen a smooth CEO transition and Senior Management Function and Senior Independent Director. changes to the independent Non- spends a significant amount of time Executive Directors. The Committee X Ed Wray and Cath Keers also retired with the UK business. met frequently to ensure that all areas from the Board leaving vacancies for under its remit have been properly two additional independent Non- 2022 priorities carried out in accordance with the Executive Directors. Having carefully X Oversee the appointment of Lisa Committee’s Terms of Reference and considered potential candidates for Jacobs as CEO and supporting her that appointments to the Board and the role (as detailed in our Annual as she takes on her new role. | changes to the Global Leadership Team | Report 2020) the Committee | | | --- | --- | --- | | have been carefully considered before | recommended the appointment | X Refresh and developing the Board, | | recommending to the Board. | of Helen Beck as an independent | GLT and senior management | | | Non-Executive Director to the Board | succession plans in light of the | | 2021 highlights | and as Chair of the Remuneration | CEO transition and growth plans | | | Committee on 1 June 2021. Helen |  | X After 12 years as CEO, Samir Desai | decided to step back from day-to-day | was also appointed as a member of | X Continue to review the structure, | | --- | --- | --- | | activities. The Committee reviewed | the Nomination Committee and ESG | size and composition of the | | Samir’s suitability to continue on the | Committee and replaced Andrew | Board, taking into account the | | Board as a Non-Executive Director | Learoyd as the designated Non- | skills and qualities required for | | and recommended his transition |  | the Board and its Committees to | | to this role with effect from 1 | X The Committee reviewed the | deliver the Company’s long-term | | January 2022. | suitability of Matthew King as an | strategy, considering the external | | | independent Non-Executive Director | environment, and to allow continual | X In line with the Committee’s to the Board and recommended refreshing of the Board. succession plan, the members his appointment on 19 May 2021. Annual Report and Accounts 2021 81 Corporate governance ### Report of the Nomination Committee continued Role of the Committee were fully vested. Prior to listing, the governance structure to support and Company granted options to some oversee the implementation of diversity For information regarding Non-Executive Directors under the goals. As part of this work, Helen Beck the Committee’s role and key Company’s share option plans but no also took over the role of dedicated responsibilities, please see page 71 of options have been granted to them Non-Executive Workforce Director. For the Corporate Governance Report and since IPO and all options held by Non- further information on the progress the Terms of Reference on our website Executive Directors have vested. It is of our work on DEI and sustainability at corporate.fundingcircle.com/who- the Board’s position that the historical please see pages 27, 28 and 95. we-are/corporate-governance/board- granting of options does not impair the committees/. The Committee recognises the benefits independence of those Non-Executive of having a diverse Board in its broadest Board composition and Directors. For further details regarding sense and when reviewing the structure, independence the Chair’s independence, please see size and composition of the Board, the section on Chair’s performance and As at 31 December 2021, the Directors as well as making appointments to tenure below. considered the Board to be compliant the Board, the Committee takes into with the UK Corporate Governance For further information on the roles of account diversity in its widest sense. Code 2018 (the “Code”) in respect of the Board please see page 77 of the The Committee is particularly pleased Director independence with all Non- Corporate Governance Report. that the Board currently exceeds the Executive Directors, other than Hendrik targets in the Parker review on ethnic Nelis and Neil Rimer, being considered Diversity and inclusion diversity and that the recruitment independent. However, the Committee This year, the Company has made of Helen Beck and Lisa Jacobs has recognises that from 1 January 2022, huge strides in ensuring it provides improved female representation on the with Samir moving to a non-executive and maintains a diverse and inclusive Board. As at 31 December 2021, the role and Lisa joining the Board, this will culture, free from discrimination of any Board had 22% female representation. no longer be the case. The Committee kind. Diversity, equity and inclusion With Lisa joining the Board from believes that the current composition (“DEI”) is a priority which extends across 1 January, the representation has of the Board, despite technical the Company at all levels to ensure all increased to 30%. The Committee non-compliance with the Code, is individuals feel represented, treated recognises that this does not meet appropriate to provide consistency fairly with equality of opportunity and the Hampton Alexander review target and support to the management included. To ensure this, we have a of 33% and will continue to review team following the CEO transition and Group-wide diversity policy and a and improve female representation considers that the non-independent Company DEI statement which extends on the Board. The Committee plans Non-Executive Directors bring to Board appointments. The policy to maximise the opportunity for significant knowledge and expertise to sets out the Company’s commitment potential Board candidates from diverse the Board which is currently positive that all candidates are considered backgrounds by ensuring short lists for the Company and its stakeholders. fairly regardless of gender, race, age, include those from diverse gender, However, the Committee plans to sexual orientation and academic or social and ethnic backgrounds that continue to review the composition professional background. The Company reflect the diversity at Funding Circle of the Board alongside the existing ensures all Circlers receive diversity and and the wider community. balance of skills and knowledge inclusion training, as well as the Board Furthermore, the Company still plans and focus on succession planning and the FCL Board. to achieve its target of 40% female to enable it to meet both diversity DEI is a key component of the ESG representation across senior levels by and independence expectations to framework which was approved by the 2025. For further information about our discharge its responsibilities and Board in 2020 and rolled out this year Women in Finance target and current support the Company’s medium-term alongside a new diversity and inclusion figures on senior female leadership plan and future development. engagement plan to help ensure the representation please see the Our The Committee reviewed Directors’ delivery of our objectives. A full cycle of People section on page 25. independence in 2021 which included ESG Committee meetings took place looking at share options held by in 2021 to monitor the implementation Andrew Learoyd and Eric Daniels and delivery of the framework and the that had been awarded pre-IPO and Nomination Committee provided further Funding Circle Holdings plc82 STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Succession planning and Samir decided to step back from his Chair’s performance changes to the Board executive role as CEO. It was of critical and tenure importance to the Committee and The Committee continues to develop the Board that the right successor and maintain a succession plan for be appointed to the CEO role and so Board and senior management roles As explained in our 2020 report, Egon Zehnder completed some work that promotes diversity of gender, social Andrew was appointed to the Board to identify suitable external candidates and ethnic backgrounds and cognitive alongside internal candidates that had in 2010 and took on the role of and personal strengths. The succession been identified by the Committee as Chair in May 2016 prior to Funding plans for Executive Directors and senior appropriate successors. Following Circle going public. As set out in management roles are prepared on both extensive candidate mapping and previous reports, the Board has short and long-term bases, whilst those in-depth executive development plans always considered that Andrew’s for Non-Executive Directors reflect the for the potential internal candidates, need to refresh the Board regularly. tenure, for the purposes of the Code, it was determined by the Committee should reset on IPO. The Board The succession plan for independent that the internal candidates were also recognises that this view is not Non-Executive Director replacements stronger and therefore it would be in one that is universally accepted and for Bob Steel, Cath Keers and Edward the best interests of the Company to Wray was implemented following the thus the requirement of a maximum recommend them for consideration Annual General Meeting (“AGM”) in tenure of nine years as prescribed by by the Board. The succession plan May with the appointment of Matthew the Code may not be fulfilled. The was then implemented and used to King and Helen Beck to the Board. The Directors strongly believe that it is develop the terms of the CEO transition appointments were approved following to ensure an organised changeover critical and in the best interests of the a rigorous process (as detailed in of leadership. This culminated in the Company and its stakeholders that our 2020 report) to ensure they were Committee’s decision to recommend Andrew remains as Chair to provide aligned with the desired composition of the appointment of Lisa Jacobs, continuity and stability of leadership the Board. The decision was also made, who had demonstrated exceptional and support throughout the CEO following the resignation of Bob Steel, to leadership strength as UK Managing transition and to deliver the medium- appoint Geeta Gopalan as his successor Director, particularly throughout the term plan as the Company emerges to the role of Senior Independent Director. pandemic, to the role of CEO and to from the pandemic. In the meantime, the Board with effect from 1 January Ongoing discussions by the Committee the Committee will continue to 2022 and to recommend the transition throughout the year have acknowledged of Samir Desai to a non-executive develop a suitable succession plan that there could be consideration role (subject to the standard NED for the Board, including the role of further changes to the Board to appointment terms) with effect from of the Chair, with support from a improve diversity and ensure additional  third party (as it did for the CEO independence as well as to enhance the skills and knowledge around the succession plan) in due course. The Committee was also required to Board table. The review by the Board of the implement the succession plan for the role of UK Managing Director to replace Chair, which was facilitated by me as Most significantly, the transition of Lisa Jacobs. The Committee consulted Senior Independent Director, was  with Egon Zehnder to evaluate internal very positive and Andrew was as CEO and the transition of Samir candidates alongside external ones to Non-Executive Director have recognised for very ably steering the and a thorough and rigorous evaluation demonstrated the effectiveness of Company through arguably and interview process was followed to the Committee’s development and challenging times. The Committee identify the right successor for the role. implementation of the succession recommended unanimously that Following this process, the Committee plan for the role of CEO. As mentioned Andrew continue in post as Chair of made a recommendation to the Board in previous Annual Reports, the the Board at this critical time. The to appoint an internal candidate, Committee engaged with Egon Zehnder Alexander Allen, to the role of UK Board supports this recommendation in regard to long-term planning for a Managing Director. and is satisfied that Andrew diverse pipeline of talent which included continues to demonstrate objective succession planning in the event that judgement, promote constructive challenge amongst other Board members and actively seeks counsel of other independent Non-Executives”. Geeta Gopalan Senior Independent Director Annual Report and Accounts 2021 83 Corporate governance ### Report of the Nomination Committee continued | Commitment and interests | Committee effectiveness | | --- | --- | | The Committee reviewed the | The Committee undertook an | | commitment of all Directors to the | effectiveness review for 2021 | | Board both in regard to dedication to the | by completing a self-assessed | | role and time available to carry out their | questionnaire which had been created | | duties, which included consideration | by the Secretariat to enable the | | of existing directorships. It concluded | Committee to compare and contrast | | that all Directors were dedicated and | its performance with the previous | | able to commit appropriate time to their | year. The questions evaluated the | | roles and that none of the Directors’ | constitution, composition and set-up | |  | of the Committee, the process of the | | conflict of interest. | meetings including whether there was | sufficient time dedicated to discussions Board induction and training and the core focus of the work of Both Matthew King and Helen Beck  received comprehensive induction Overall, the outcomes of the programmes on appointment which effectiveness review were positive and took place over several months to showed improvement from the previous help them familiarise themselves year which, in part, was attributed to with the business. Director induction the new composition of the Committee. programmes are designed to provide The questionnaire revealed that the Directors with a mixture of written succession plan for both the Board material (through a dedicated Board and senior management was good and portal) and face to face interaction with would continue to be developed in 2022. key members of staff. The process of setting and meeting | In addition to a comprehensive | diversity objectives and strategies | | --- | --- | | induction programme, Directors are also | for Funding Circle alongside the ESG | | asked to complete e-learning (which | Committee was working seamlessly | | includes annual refresher training) on | and Committee members were pleased | | key topics to keep their knowledge | with the progress made. The evaluation | | current and enhance their experience, | also highlighted the value of completing | | such as training on their duties and | a deeper dive on succession planning | | responsibilities as directors of a listed | for senior management over the next 12 | | company and on diversity, equity and | months in light of the changes due to | | inclusion. During the year the Board was | take place in 2022. | also given various presentations by the Company’s advisers, brokers and senior Re-election management. Directors who are also The position of each Board member appointed to the Board of Funding Circle was closely reviewed during the year as Ltd (“FCL”), an FCA regulated entity, also part of the consideration of succession undertake training on the protection of arrangements and the Board and client assets and money (CASS) and Committee evaluation process. The the Senior Managers and Certification Committee is satisfied that there is a Regime (“SMCR”). good balance of skills and experience on the Board to support the Company’s The Committee, with the support of future development and, accordingly, the Company Secretary, considers the recommended to the Board that each development areas and training needs Director stand for re-election at the of Directors that are relevant to the forthcoming AGM. business, including those that arise out of the year-end evaluations. Andrew Learoyd Chair of the Nomination Committee 10 March 2022 Funding Circle Holdings plc84 ### Report of the Audit Committee STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS ## Report of the ## AuditCommittee Members and attendance Member Meetings Attendance Geeta Gopalan (Chair) 4/4 100% Eric Daniels 4/4 100% Ed Wray (resigned 19 May 2021) 1/1 100% Matthew King (appointed 19 May 2021) 3/3 100% Geeta Gopalan Chair of the Audit Committee | In 2021 with the pandemic not yet | environment on valuation of loan | X The Committee evaluated the | | --- | --- | --- | | abated the Company’s financial process | assets and bond liabilities, expected | effectiveness of the Group’s in-house | | and controls were tested with systems | credit losses, liquidity, financial | Internal Audit team which completed | | and processes having to adapt rapidly. | covenants and the Group’s ability | its first full 12-month cycle of internal | | Together with learnings from 2020, the | to continue as a going concern, | audits. The evaluation assessed the | | Company continues to be managed well | together with its viability disclosures. | team’s independence, objectivity, | | with the control environment maturing | | reporting and overall effectiveness | X The Committee discussed and suitably. The Committee has been and concluded that the function was challenged the appropriateness busy ensuring that as the business well managed and effective. of the accounting treatment of evolves with new product launches, and significant transactions, including X The Committee recommended platform and technology developments disposals, along with scrutinising the the reappointment of the external designed to help our customers win, valuation of the Group’s assets. auditors to the Group Board. they are done so with appropriate X The Committee closely monitored X The Committee discussed, evaluated focus on risk-based controls. The key the impact of Covid-19 on key and approved the scope of the highlights of the Committee’s work this accounting matters and judgemental External Auditors’ non-audit services year can be found below. areas of focus for the Company. including the approval of the non- X The Committee received audit service fees in line with the Key highlights 2021 and discussed reports from Group’s policy. X The Committee has reviewed the the Internal Audit team, with X The Committee reviewed the integrity of financial statement particular focus on any control adequacy and security of the Group’s reporting for both the Half Year weaknesses identified and control whistleblowing arrangements which and Annual Report and Accounts,  included additional signposts to ensuring that they were fair, balanced approved and monitored delivery of, Circlers highlighting the importance and understandable, taking into and changes to, the 2021 Internal of speaking up and speaking account significant accounting Audit plan and reviewed and out. The Committee received judgements, estimates and approved the 2022 Internal Audit regular whistleblowing updates disclosures, the impact of the macro- plan and financial budget. and provided reports to the Board  Annual Report and Accounts 2021 85 Corporate governance ### Report of the Audit Committee continued | Key highlights 2021 continued | | Committee composition, skills | Operating rhythm | | --- | --- | --- | --- | | | X The Committee reviewed and | and experience | ofthe Committee | | | oversaw (in conjunction with the Risk | The Audit Committee complies with | The Committee met four times during | | | and Compliance Committee) the | the Code’s Provision 24 in regard | 2021 and the attendance is detailed in | | | Group’s procedures and policies for | to requirements for a minimum | the table at the beginning of this report. | | | detecting and preventing fraud and its | membership of two independent | Meetings are also attended by invitation | | | systems and controls for preventing | Non-Executive Directors that does | by representatives of the external | | | bribery and money laundering. | not include the Chair of the Board. | auditors, the Head of Internal Audit, | | | | All members of the Committee have | the CFO, the CEO, the Chair and, when | X The Committee also considered the relevant financial experience across deemed appropriate, other members practical implications of the BEIS banking and financial services. To of the senior management team. The consultation “Restoring trust in audit keep up to date with the Company’s Committee received information on and corporate governance: proposals evolving business and regulatory a timely basis and meetings were on reforms”. news, the Committee receives regular scheduled to allow members to have updates from senior management and the appropriate discussions on the 2022 priorities the External Auditors. All Committee agenda items. X Continue to assess accounting members demonstrate competency judgements and estimates, As Funding Circle Ltd (“FCL”) is relevant to the sector in which Funding particularly in relation to valuations authorised and regulated by the Circle operates. of loans associated with SMEs which Financial Conduct Authority, it has its are heavily impacted by the prevailing own Audit Committee, chaired by the Role of the Committee macroeconomic environment and Chair of the FCL Board, Matthew King. For information regarding the accounting treatment in respect The FCL Audit Committee meets at the Committee’s role and key of the new loan products as new the same time as the Committee and responsibilities, please see page 71 of lending schemes are rolled out and Matthew King attends in his capacity the Corporate Governance Report and core lending restarts. as both member of the Committee and the Terms of Reference on our website X Continue to review the Group’s Chair of the FCL Audit Committee. at corporate.fundingcircle.com/who- internal financial controls and we-are/corporate-governance/board- The external auditors and the Head of control systems to ensure these committees/. Internal Audit attended all Committee are developed to reflect the Group’s meetings in the year and the Committee evolving business, including the At the end of each Committee meeting, also met with them separately without impact of hybrid working on the the Committee members have an management present. control environment, the extension opportunity to privately discuss matters of government-guaranteed loans, the with the External and Internal Auditors continuation of term loan products without management present. and controls on balance sheet and funding management. X Oversee, in conjunction with the Risk and Compliance Committee and the Internal Audit team, activities to further mature the Group’s Enterprise Risk Management Framework and IT general control environment. X Continue to oversee the performance and independence of the Internal and External Audit teams. Funding Circle Holdings plc86 STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Significant issues considered in relation to the financial statements The Committee assessed the quality and appropriateness of, and adherence to, the Group’s accounting policies and principles. It reviewed whether the accounting estimates and judgements made by management were appropriate. The significant issues and accounting judgements considered by the Committee in respect of the half year ended 30 June 2021 and year ended 31 December 2021 are set out below. Reporting issue Audit Committee action Principal risks and viability The Committee reviewed reports from management that set out its As a listed company, the Directors must satisfy view on both the shorter-term going concern and longer-term viability of themselves, and make a statement in the Annual the Group. These included: Report, on the going concern and viability of the Group. X Reviewing the Group’s principal risks as set out on pages 55 to 63 The period over which the Directors have determined X Assessing and reviewing the adherence to the risk appetite set by the viability assessment is three years. The continued the Risk and Compliance Committee to track the Group’s capital, impact of Covid-19 on the macroeconomic environment liquidity and exposures of its funding products and the uncertainty it has created have led to increased X Reviewing the Group’s short and medium-term plan, its cash, capital importance of clear disclosure and transparency with and liquidity  X Reviewing the outcomes of stress testing after applying a severe but plausible scenario aligned to the principal risks X Reviewing the risk, going concern and viability disclosures with regard to the clarity surrounding scenarios, uncertainties, sensitivities  Having challenged and considered the outcomes of management’s assessment, the Committee concluded to recommend the Viability Statement to the Board for approval and considers that related disclosures are sufficiently clear and transparent. Valuation of financial instruments The Committee received and reviewed papers from management that The Group holds significant levels of financial  instruments at fair value on its balance sheet. These  instruments are valued using valuation estimation The Committee also considered the views of the external auditors on techniques including discounting cash flow analysis the valuation approach and the assumptions, including benchmarking and valuation models and these values are sensitive to the assumptions with the external auditors’ internal valuations team. the assumptions underpinning the cash flows leading The Committee considered the disclosures within the Annual Report to increased estimation uncertainty. and after due challenge concluded that the valuations were reasonable and the disclosures were appropriate. Carrying value of investments in the Parent Company As members of the Board, all Committee members received updates The Group considered the carrying values of the on the financial performance of the Group and its medium-term plan as investments in subsidiaries held in the Parent part of the 2022 budget process. Company for indicators of impairment. The Committee also reviewed papers from management during the In the previous year following a strategic reset of the US year which set out the key assumptions underpinning the impairment business, along with an update to the Group’s income assessment and the level of headroom and sensitivity to those and cost forecasts, the underlying projected cash flows assumptions, the financial projections of which were based on the of the US business cash-generating unit were insufficient medium-term plan. to cover the carrying value of the Parent Company’s The Group’s external auditors provided their view of the assessment investment in the US and it was significantly impaired. to the Committee, including their challenge of the discount rates and The Parent Company’s investment in the US business management’s medium-term plan assumptions. was assessed for impairment again in the year. After due challenge and discussion, the Committee was comfortable that It was concluded there remained sufficient headroom in the there remained sufficient levels of headroom over the carrying values Parent Company accounts in respect of the investments. of the assets associated with the cash-generating units and that the remaining investments in the Parent Company accounts were supportable. Annual Report and Accounts 2021 87 Corporate governance ### Report of the Audit Committee continued Significant issues considered in relation to the financial statements continued Reporting issue Audit Committee action Exceptional items The Committee received papers from management setting out the The Group has a defined accounting policy for the analysis of the exceptional items and the rationale for their inclusion. treatment and presentation of non-recurring and The Committee received the views of the external auditors on the items material items as exceptional. These exceptional that management had included within these costs. items are also presented in a columnar fashion on the consolidated statement of comprehensive income The Committee considered and challenged the appropriateness of in order to increase transparency and understanding presenting the impairment separately from other costs. for readers. It noted that the disclosure as exceptional was consistent with the The impairment of the right-of-use asset and the Group’s accounting policy and with prior year presentations, and associated fixed assets in the US, following the sublet concluded that the amounts and this presentation were appropriate. of the San Francisco lease, totalling £3.9 million has been disclosed as an exceptional item. This follows the restructuring of the US and European businesses in 2020 for which exceptional items totalled £18.7 million, of which £13.7 million was in respect of impairment of goodwill and right-of-use assets and £5.0 million was for other restructuring costs. Alternative performance measures (“APMs”) The members of the Committee, also being Board members, received The Group uses APMs in its reporting of adjusted management and operational information about the Group’s underlying EBITDA for the Group. These measures are defined performance which included these key measures. within the segmental information note on page 151 The Committee considered the other measures used by the Group,  including loans under management and originations, and agreed that The Group uses these measures as they provide these were significant drivers of fees earned by the Group and, in turn, an insight into the underlying performance of the its financial performance and as such required sufficient disclosure to business and how it is managed. They also provide a explain the revenue performance. closer approximation to cash generation which is key The Committee considered the appropriateness of these APMs in to the business. providing meaningful information about the underlying performance of the business and obtained the view of the use of these APMs from the external auditors. The Committee concluded that these APMs should continue to be used in the Group’s external reporting, noting that these had not been given undue prominence relative to statutory measures and that an appropriate reconciliation to statutory measures was provided. Fair, balanced and understandable reporting At the request of the Board, the Committee has assessed the The Board is required to report as to whether the information contained within the Annual Report. This assessment contents of the 2021 Annual Report and Accounts, when included discussions with management on the underlying financial taken as a whole, is fair, balanced and understandable. processes, and confirmation from the management team that the information contained within the Annual Report is fair, balanced and understandable. The Committee also discussed the contents of the Annual Report with the external auditors. Having considered all of the available information including previously published information about the business and press releases through the year, it has concluded that, in its judgement, the 2021 Annual Report and Accounts, when taken as a whole, is fair, balanced  Funding Circle Holdings plc88 STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Internal controls X Balance sheet management A separate assessment confirmed that governance and stress testing there was good alignment between Throughout the year the Committee Internal Audit arrangements and the best has monitored and kept under review X Enterprise data governance practice recommendations contained the adequacy and effectiveness of the In addition to the assurance work in the Institute of Internal Auditors’ Group’s internal controls, by receiving highlighted above, the Head of Internal publication “Guidance on Effective regular reports from management, Audit facilitated a “three lines” review Internal Audit in Financial Services”. Internal Audit and External Audit and challenge session, giving Directors on matters in relation to control The outcomes of the evaluation were helpful insights regarding overall including the effectiveness and testing, discussed by the Committee along assurance activities across the Group. discussing and challenging the same. with the Head of Internal Audit where The Internal Audit plan for 2022 actions and objectives were agreed The Committee receives updates was approved by the Committee in for the forthcoming year. Overall, on the findings of Internal Audit’s December 2021 and aligns to areas the Committee was satisfied that investigations at each meeting; see of highest inherent risk and continued the Internal Audit team remained “Internal Audit” below for more details of strategic, operational and regulatory independent, objective and effective, the reviews that took place in the year. focus, including: with sufficient resources available to PwC tested internal controls over the provide the necessary assurance across X Credit model build, test and ongoing loan servicing processes of FCL for the the Group. validation year ended 30 September 2021. This is X Sales team operational and part of the annual International Standard Whistleblowing conduct controls on Assurance Engagements (ISAE) 3402 The Company takes whistleblowing Controls Report which is shared with X Transaction and loans under seriously and wants all employees institutional investors. management fee calculation and to feel able to raise concerns freely. application The scope of the report was expanded This year, the Committee reviewed X FlexiPay operational scaling and approved the whistleblowing to include the new Recovery Loan and control policy. The Code of Conduct for all Schemes (“RLS”) as part of the overall whole and partial loan services. The X IT asset management employees which was adopted in report was unqualified with only 2020, emphasises the importance of X Anti-money laundering control two exceptions reported as a result employees speaking up and speaking frameworks of FCL’s well established control out. The Committee will continue to The Committee approved the Internal review the policy annually to ensure it environment over those services. Audit 2022 financial budget and is in line with legal requirements and The Audit Committee reviewed and reviewed the adequacy of Internal expectations. was kept informed of the progress Audit team capacity and the capability of this report which was released The whistleblowing process is well and use of external expertise  advertised to all employees, who are where required. made aware of the importance of it. Internal audit An effectiveness review was conducted There was one potential whistleblowing Throughout 2021 the Internal Audit by the Committee to evaluate the incident that was investigated in 2021 plan was regularly reassessed to performance of the in-house Internal and it was concluded that there were ensure it remained focused on the Audit team after the first full year cycle no areas of regulatory violation that Group’s key risks and priorities. All of in-house internal audits since the required reporting. proposed audit plan adjustments were team was created. reviewed, challenged and approved The review evaluated the overall by the Committee. Areas reviewed effectiveness of the Internal Audit by the Internal Audit team during team including: understanding of the 2021 included: business, governance processes, X RLS originations control framework risk environment and internal control X IT general controls framework; quality of reporting; interaction with the Committee and X Enterprise Risk Management other areas of the business; support of Framework maturity strategic priorities; and independence X Borrower interest and repayment and objectivity. calculations Annual Report and Accounts 2021 89 Corporate governance ### Report of the Audit Committee continued External auditors Non-audit services PwC are prohibited from providing certain non-audit services to safeguard First appointed: 2015. The engagement of the External Audit auditor objectivity and independence, firm to provide non-audit services to the Length of tenure: six years. including but not limited to internal Group can impact on the independence audit work, valuations work and tax- PwC were appointed as External assessment, and the Company has, related work. Auditors in 2015 following a formal therefore, adopted a policy which tender process. The lead audit partner, requires Committee approval for non- Audit fees payable to PwC for the Nick Morrison, has held the position for audit services. This policy is in line with year ended 31 December 2021 three years. PwC’s internal policies and the FRC’s  Revised Ethical Standard, and gives me, The Committee is of the opinion that PwC have confirmed to the Committee as Chair of the Committee, delegated the independence and objectivity of the that they remained independent authority from the Committee to External Auditors and the effectiveness during the year. approve individual non-audit services of the audit process are safeguarded items of up to £50,000 per service. and remain robust. The Committee Committee effectiveness has taken into account the assurances All fees paid to PwC for non-audit The Committee completed an provided by the auditors confirming services have been approved by the effectiveness review for 2021. A that all their partners and staff involved Committee or the Chair (in accordance questionnaire was distributed to all the with the audit are independent. The with the non-audit services policy), members of the Committee and the Committee last undertook a formal with a summary of all non-audit CFO and the answers were analysed by assessment of PwC’s effectiveness services being provided at each the Company Secretarial team to create during 2020 and it will carry out its next Committee meeting. a report that provided the Committee assessment in Q2 2022. | | During the year ended 31 December | with recommendations for actions and | | --- | --- | --- | | The Committee recommends that | 2021, PwC were engaged to provide non- | objectives in 2022. | | PwC be reappointed as the Company’s | audit services relating to the following: | | The questionnaire addressed the External Auditors for the financial year Description £000 composition and set-up of the ending 31 December 2022. A resolution Committee, the timeliness and quality of recommending the appointment of PwC Interim review of half year the papers, the work of the Committee as External Auditors of the Company results announcement 135 and whether it sufficiently reviews and will be put to shareholders at the CASS reporting 90 challenges the activities and findings of Company’s AGM in June 2022. The the internal and External Auditors. The external audit contract will be put out to ISAE 3402 controls questionnaire also assessed whether tender at least every ten years post-IPO assurance 115 the Committee sufficiently safeguarded in accordance with the Competition Other 3 auditor independence and objectivity. and Markets Authority order and  Total 343 Overall, the results of the evaluation were positive with the Committee The Committee confirms that the Group agreeing that the composition and The Audit Committee concluded that it is in compliance with The Statutory set-up of the Committee and meetings was in the best interests of the Group Audit Services for Large Companies were satisfactory and there was good to purchase these services from PwC Market Investigation (Mandatory Use support from the Company Secretarial on the basis that they were able to of Competitive Tender Processes and team. The Committee agreed that, provide them more efficiently than an Audit Committee Responsibilities) amongst other things, it would give alternative provider (or, in some cases, Order 2014. further focus to changes required in they were required to be performed by annual reporting for 2022. the External Auditors). Geeta Gopalan Chair of the Audit Committee 10 March 2022 Funding Circle Holdings plc90 ### Report of the Risk and Compliance Committee STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS ## Report of the Risk and ## Compliance Committee Members and attendance Member Meetings Attendance Eric Daniels (Chair) 3/3 100% Geeta Gopalan 3/3 100% Hendrik Nelis 2/3 66% Eric Daniels Chair of the Risk and Compliance Committee On behalf of the Board, I am pleased Highlights from 2021 X The Committee approved further to present the Report of the Risk and progression through milestones X The Committee closely monitored Compliance Committee for the year established for further development the risks relating to Covid-19 ended 31 December 2021. of the technology platform. The including strategic risk, reputational Committee has kept tight guardrails risk, operational risk and credit risk, The Committee has continued to carry on this project to manage risk ensuring that they were managed out its role of monitoring and reviewing prudently and the continued and mitigated appropriately. risk for the Group including the nature automation of processes and Following unprecedented activity and extent of principal and emerging execution of the plans is a key in collections, the Committee risks against an uncertain macro highlight for the year. oversaw a transformation plan for environment. For in-depth information the Collections, Recoveries and X The Committee oversaw the relating to the Group’s approach to Litigation team, receiving updates successful launch of the trial of the risk and identification of principal and on how Funding Circle monitored, FlexiPay product and will continue emerging risks for 2021, please refer to managed and mitigated risk, with to monitor and mitigate the risks the Strategic Report on page 51. a focus on forbearance, borrower associated with this product I have been very happy to see the outcomes and feedback and throughout 2022 as it grows. continued development of the Group’s vulnerable borrowers. X Initial integration of ESG risk into the risk management capabilities and X The Committee approved ERMF and development of a forward the overall control environment, updates to the Enterprise Risk looking view of emerging risks. with a number of material changes Management Framework (“ERMF”) X The Committee received regular successfully navigated including the and improvements to the controls reports on information security and transition to the Recovery Loan Scheme library, which all contributed to technology risk with the Group’s move and the relaunch of core lending in both an increasingly robust control into a multi-product environment. the US and the UK. environment. In 2021, the Group X The Committee oversaw further achieved a “mature” level of use improvements in model risk of the ERMF. Commitment to management with continued demonstrating further integration enhancements made to of the framework will be model controls. continued in 2022. X The Committee approved a new balance sheet stress scenario with updated risk appetite limits as stress test assumptions were revisited and updated. Annual Report and Accounts 2021 91 Corporate governance ### Report of the Risk and Compliance Committee continued | Highlights from 2021 continued | | risks are managed appropriately. | Other matters | | --- | --- | --- | --- | | | X The Committee participated in a | X The Committee will continue to | Committee effectiveness | | | Three Lines of Defence exercise | develop and monitor emerging risks, | An effectiveness review of the | | | which evaluated the effectiveness | including in relation to inflation and | Committee’s performance was | | | of the Group’s approach to risk | increase in interest rates. | completed at the end of the year. | | | management and enhanced | | The review comprised an extensive | X The Committee will apply further alignment between management questionnaire that evaluated the scrutiny to information security and the Board on risk for the Group Committee’s overall performance, and technology risk and ensure as a whole. composition and set-up and, vulnerabilities are flagged and X Further clarity on government prioritised quickly. importantly, the work of the Committee guaranteed loan programmes, including its role in reviewing and X The Committee will continue to which included an extension of RLS challenging the Group’s control, risk discuss and determine the extent through to June 2022, enabled the management and compliance systems of the ESG risk (specifically climate Committee to oversee stabilisation and appetite for risk. The questionnaire related) to the Group and work of risk and positive changes around was completed by members of the with the ESG Committee to further funding plans for the UK. Committee and the CRO. identify and mitigate this through | X Approval of the annual risk and | | deeper integration with the ERMF. | The outcomes of the review were | | --- | --- | --- | --- | | control self-assessment approach | | | positive overall with most areas | | and approval of proposed risk | Committee composition, | | addressed scoring high ratings. | | scenarios for the purpose of year- | skillsand experience | |  | | end fair value adjustments. | The Risk and Compliance Committee | | especially climate-related risks as | | | was established by the Board to have | | emerging risks that should be focused | | 2022 priorities | delegated authority for reviewing and | | on during 2022. Additional agenda | | X The Committee recognises that as | making recommendations in relation | | items of note for the next 12 months | | the Company continues to grow and | to, inter alia, the Company’s appetite | | (that would require more in-depth | | embrace new products and further | for risk and future risk strategy, risk | | monitoring and review) included | | automation of processes, the way in | management and compliance systems | | new products such as FlexiPay and | | which it monitors and reviews risk | and monitoring of the implementation | | continued focus on technology and | | management will also need to flex | and integration of the ERMF. | | infrastructure risk. | and change. One of the Committee’s Two out of three members of the In addition to the Committee’s own priorities will be to continue tracking Committee are independent Non- effectiveness review, the Board also the development and growth of Executive Directors and, combined, evaluated its oversight of risk as part of the business alongside its risk the members bring a wealth of risk its effectiveness review. All members of management protocols and control management experience to the the Board were satisfied that the Board frameworks to ensure processes meetings relevant to the sector within has sufficient focus on risk and risk continue to enable achievement which the Group operates. In addition management as it pertains to the Group’s of the Board’s long-term to the members of the Committee, the strategy and that a framework of prudent  CRO, CEO, CFO, Chair of the Board, and effective controls was in place which X One of the most significant risks is Company Secretary and Head of enabled risk to be assessed and managed people and, as the phrase “the great Internal Audit are invited to attend appropriately. For further information resignation” continues to ring true for Committee meetings. on the outcomes of the annual Board so many businesses, the Committee evaluation please see page 78. is cognisant of the impact of this Role of the Committee on achieving the Group’s long-term For information regarding the strategic objectives. The Committee Committee’s role and key responsibilities, Eric Daniels will ensure that people risk remains Chair of the Risk and Compliance please see page 72 of the Corporate a priority, with a focus on retention, Committee Governance Report and the Terms talent acquisition, wellbeing 10 March 2022  and continuing a diverse and corporate.fundingcircle.com/who-we- inclusive culture. are/corporate-governance/board- X The Committee will continue to committees/. monitor the risks relating to Covid-19 as they emerge and ensure these Funding Circle Holdings plc92 ### Report of the ESG Committee STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS ## Report of the ## ESG Committee Members and attendance Member Meetings Attendance Andrew Learoyd (Chair) 4/4 100% Matthew King 4/4 100% Neil Rimer 4/4 100% Helen Beck 2/2 100% Andrew Learoyd Chair of the ESG Committee The ESG Committee completed its Key highlights from 2021 X Engaged a leading climate change first full cycle of meetings in 2021 and advisory firm to measure, verify X Established a strong, effective continues with an approach that seeks  structure of the Committee with to be authentic and balanced with  each Non-Executive Director buy-in across the business including  member taking responsibility, at the top levels of management. In together with a representative X Approved the Company joining developing its approach to ESG matters, from senior management, for the UN Global Compact– it was the Committee has taken steps to championing each of the following determined by the Committee along understand the varying opportunities areas: environmental, social, DEI and with management that this was and challenges presented by ESG issues workforce engagement. the most meaningful sustainability across the Group. framework for the business. X Drew up Terms of Reference to I’m pleased with the progress the define the structure and purpose of 2022 priorities Group has made this year towards the Committee which were approved implementation of the agreed ESG by the Board. X Achieve carbon neutrality certification, framework, in particular our efforts and progressing carbon strategy X Appointed a permanent, dedicated to integrate ESG factors into our risk towards net zero by 2030, with a ESG Project Manager to provide management processes and taking focus on Scope 3 emissions and oversight and project management initial steps in assessing the potential carbon transition planning. to all things ESG related at Funding business implications of climate X Progress ESG-related strategy Circle. The ESG Project Manager change pursuant to the Task Force on objectives and opportunities, with works with relevant members of Climate-Related Financial Disclosures respect to internal and external  (“TCFD”) recommendations. stakeholders. X Continued engagement with the | While the Committee recognises that | workforce through the Non-Executive | X Assist in the integration of ESG- | | --- | --- | --- | | there is much more work to be done, | Director appointment for workforce, | related risks into ERMF and into | | we have seen significant progress on | Helen Beck. For further details on our | business processes and overall | | our key pillars of carbon management, | workforce engagement work please | risk management, in particular for | | social impact and DE&I and towards | see pages 40 and 70. | climate-related risks. | | ensuring that our ESG strategy is | | X Progress the development and | X Integrated ESG components into our closely aligned to Funding Circle’s goals implementation of the social impact risk taxonomy and conducted an and values. framework, with a focus on employee ESG risk assessment as part of ESG- related risk integration into the ERMF. and wider community engagement. X Obtained signatory status to the UN- supported Principles for Responsible Investment (“PRI”). Annual Report and Accounts 2021 93 Corporate governance ### Report of the ESG Committee continued Role and composition of Environmental At the start of 2021, the Committee the Committee identified the “S” of ESG as needing The Committee defines the “E” as additional focus and a clear strategic The Committee is responsible for the Group’s impact on the natural approach. To ensure it was driving ensuring the Group has an ESG strategy environment and its adaptation to the strategy on “social” in the right and framework that are regularly climate change including climate- direction, the Committee sought input reviewed and remain fit for purpose. related risks and opportunities. In 2021, from Circlers through a social impact It is designed to provide oversight of the Committee has overseen progress survey to identify engagement areas ESG matters and compliance with made on the Group’s carbon strategy that resonated with staff and where the relevant legal and regulatory in partnership with an external climate impact could potentially be magnified. requirements. The Committee change consultant and focused on To continue developing the approach ensures that both short and long- reporting in line with the Task Force on to social, the Committee has allocated term objectives for ESG activities are Climate-related Financial Disclosures budget and dedicated resource to developed, implemented and measured (“TCFD”) recommendations. further develop and implement a appropriately. The Committee assists Working closely with an external climate framework and themes in 2022. in identifying ESG risks and seeks out change consultant, the Committee has opportunities that enable Funding a short-term objective to achieve carbon Governance Circle to engage with the community or neutral status and a long-term goal of other stakeholder groups in a positive Whilst overall responsibility for being net zero by 2030, aligning with the way that benefits society and protects corporate governance is a matter Paris Agreement goal of 1.5°C. In regard the long-term value of the Company. It reserved for the Board, the Committee to carbon offsetting, the Committee is also has responsibility for ensuring the has delegated authority to lead on keen to ensure that any initiatives are workforce is engaged with and aware of ethical conduct of the business and meaningful in themselves and to the the ESG objectives of the Group. approach to good corporate behaviour workforce and therefore continues to in connection with ESG-related The Committee met four times in 2021, engage with Circlers to further develop matters. The Committee’s work in this as it was newly formed, and will meet this topic. area has extended to supporting the three times in 2022. | | In-depth discussions have taken place | integration of ESG-related risks into | | --- | --- | --- | | There are four Non-Executive Director | throughout 2021 to understand what | the Group’s ERMF, receiving regular | | members of the Committee, each with | the best approach might be for Funding | updates on the latest regulatory and | | a responsibility for championing the | Circle in regard to the Group’s carbon | compliance requirements and ensuring | | areas covered. Andrew Learoyd is Chair | strategy and understanding the climate- | the requirement in the UK Corporate | | of the Committee and responsible | related impact of its lending activities. | Governance Code to engage with the | | for DEI, Matthew King focuses on | | workforce is satisfied. | | carbon strategy, Neil Rimer champions | Social | | | community engagement, and Helen | Social is defined by the Committee | | | Beck was appointed as workforce | as the Group’s interactions with | | | engagement Non-Executive Director. | employees, customers, suppliers, other | | stakeholders and the communities in which it operates and the role of the Group in society including through workplace policies, ethical procurement, financial product safety, privacy and data security, responsible investment and other social opportunities. Funding Circle Holdings plc94 STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Diversity, equity and A full proposition was developed to inclusion (DEI) ensure the organisation was joined up on overall goals and coordination In 2021, the Committee made a lot of between geographies. The framework progress on DEI. At Funding Circle, DEI was centred around three core is comprised of the following parts: objectives and a DEI statement and diversity is the representation of all will be used to continue to make varied identities and differences (be progress in 2022. that race, ethnicity, gender, sexual orientation, gender identity and The Committee has utilised Circler expression, disability, marital status, groups to enhance the conversation on age, nationality, religion, thought, belief, DEI which include Women@FC, Circle experience or expression), collectively of Pride, Let’s Talk About Race and FC or as individuals; equity seeks to Impact. Further details about these ensure fair treatment, equality of groups can be found on page 27. opportunity, and fairness in access to information and resources for all; and Committee effectiveness inclusion builds a culture of belonging As a new Committee, it was decided by actively inviting the contribution that a full effectiveness review will be and participation of all people and carried out in 2022 and on an annual cultivating a workplace where all unique basis thereafter. talents, skills, and perspectives are valued and utilised. The Committee sought to obtain better Andrew Learoyd data to measure diversity. Whilst the Chair of the ESG Committee 10 March 2022 Group continued its internal campaign to obtain diversity data from Circlers themselves, the Committee was conscious that there were other ways of measuring success in achieving diversity. Understanding how the size of the organisation could impact data and thinking about ethnicity pay gap and beyond were key parts of the Committee’s discussions. Annual Report and Accounts 2021 95 Corporate governance ### Directors’ remuneration report ## Directors’ ## remuneration report On behalf of the Board, I am pleased years, and Restricted Share awards. to present the Directors’ Remuneration As explained in last year’s report and Report for the year ended 31 December discussed with shareholders at the 2021. I want to thank my predecessor, beginning of 2021, the Committee Cath Keers, for her leadership of the increased the CEO’s salary to bring it Remuneration Committee, and Ed Wray more into line with market practice and (who resigned from the Board in May begin to reflect the size and complexity 2021) for his years of service on the of the Group’s operations. Samir Desai Committee. I’d also like to thank the waived this increase for 2021, but the Helen Beck other Committee members, Andrew bonus and Restricted Share awards Chair of the Remuneration Committee Learoyd and Geeta Gopalan (who joined were calculated on the basis of the on 6 September 2021, replacing Ed), increased salary (referred to below as and the Circlers who have supported “reference salary”).  to my first annual statement as Chair Annual bonus 2021 of the Remuneration Committee, this The CEO and CFO were each eligible report contains: for a bonus in 2021 with maximum X a summary of our Directors’ opportunities equal to 133% of reference Remuneration Policy (the “Policy”), salary and 100% of salary respectively. which was approved at the 2021 The annual bonus performance AGM by 98.6% of shareholders and measures were AEBITDA, Operating will apply for three years from the Income and non-financial performance date of approval; and (each weighted one-third). The non- X the Annual Report on Remuneration, financial elements, which align with which sets out payments made to Funding Circle strategy, comprised the Directors for the year ended measures focused on customers/ 31 December 2021 and how our stakeholders, Circlers and risk and Remuneration Policy is intended to sustainability, as well as personal be implemented in 2022. The Annual performance. To reflect the importance Report on Remuneration is subject of a robust ESG framework to achieving to an advisory shareholder vote at our mission and strategic objectives (see the 2022 AGM. further detail on pages 24 to 37 of the strategic report), ESG specific measures Review of 2021 focused on Circler engagement, We were delighted with the support diversity and carbon management received from shareholders for both were included in the Circler and risk and our Policy and Annual Report on sustainability categories. Remuneration at the 2021 AGM. We | believe that this was in part due to our | The Committee agreed that overall | | --- | --- | | extensive shareholder consultation | Group and personal performance | | during the Policy review, and want to | had been excellent in a difficult and | | thank shareholders for their feedback | challenging environment. Through | | that informed the development of | CBILS, followed by a successful | | our Policy. One of the Committee’s | transition to RLS and reintroduction | | main focuses during 2021 was the | of core lending, in the UK and PPP in | | implementation of the Policy which | the US, Funding Circle played a leading | | involved for Executive Directors the | role in helping small businesses drive | | introduction of an annual bonus, with | the economic recovery in both our | 40% being deferred into shares for three Funding Circle Holdings plc96 STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS | geographies. Investment in risk and | the period of three years from 2021 to | talented individual in a very competitive | | --- | --- | --- | | technology has also reaped rewards | 2023. Prior to vesting, the Committee | market. The Committee considered the | | with both significant improvements to | will assess whether actual performance | remuneration arrangements against | | the core product and the development | of the Company and Executive Directors | both internal relativities and market | | of new products and capabilities for | is reflected to guard against payment | benchmarking. In the course of its role, | | customers in 2021. The Committee was | for failure or against windfall gains. The | the Committee will continue to review | | however cognisant that the AEBITDA | Committee retains the discretion to | the salary against the appropriate | | and Operating Income targets were | make any adjustment to vesting it deems | benchmarking and competitive market | | set based on the Board approved | necessary. In line with our Policy, vested | and may increase where it feels | | December 2021 budget and did not | awards will then be subject to a two year | appropriate and justifiable. | | fully factor in the extension of CBILS in | holding period. | | Oliver White’s salary was set at £400,000 the UK, PPP in the US or the impact of when he joined in 2020, which the the improved economy on the fair value CEO transition Committee considered appropriate for of investments. The Committee also After 12 years, Samir Desai decided a high calibre CFO with the experience considered this outcome taking into to step back from his role as CEO. He required for the scale and complexity of account the experience of shareholders, did not receive any payments linked the business. The CFO’s salary remains Circlers, customers, and other to his resignation. On his resignation. competitively positioned against stakeholders and considered it to be his unvested 2021 Restricted Share the market and the Committee has appropriate. Therefore, notwithstanding award and Share Incentive Plan free and determined that there will be no salary the strong performance from the matching shares lapsed in full following increase for 2022. | Group and the Executive Directors, the | his resignation and, as previously | | | --- | --- | --- | | Committee considered it appropriate | reported, he did not take up his LTIP | The maximum annual bonus | | to reflect the exceptional nature of the | award for either 2019 or 2020. He | entitlement for the CEO and CFO will | | year and reduce the formulaic vesting | received no further payments linked to | be equal to 133% of salary and 100% | | outcome of the bonus by 10%. The | his resignation. In accordance with the | of salary respectively. The annual | | CEO therefore earned a bonus equal to | pre-IPO share plan, he has retained his | bonus measures will be AEBITDA, Total | | 78.4% of maximum (104.2% of reference | pre-IPO awards. He will receive his 2021 | Income and non-financial objectives | | salary) and the CFO earned 79.9% of | bonus, 40% of which will be deferred | (each weighted one-third), with the | | maximum (79.9% of salary). 40% of the | into shares for 3 years. | intention that the targets to achieve | | amount earned is deferred into shares | | the maximum bonus are appropriately | As announced on 9 September 2021, for 3 years. calibrated to reflect the growth Lisa Jacobs, Managing Director of aspirations for the Group. As in 2021, Funding Circle UK, succeeded Samir Restricted Share awards 2021 the non-financial objectives are aligned Desai as Chief Executive Officer on Restricted Share awards were granted to with Funding Circle’s strategy and will  | the CEO and CFO on 19 May 2021 equal | | be focused on customers/stakeholders, | | --- | --- | --- | | to 133% of reference salary and 100% of | Samir has remained on the Board, | Circlers and risk and sustainability with | | salary respectively in line with our Policy. | becoming a Non-Executive Director on | ESG measures incorporated in both | | | 1 January 2022, for which he receives | Circlers and risk and sustainability. An | Vesting of the Restricted Share awards the standard fee. additional specific measure has been in 2024 will be subject to a financial included to reflect the importance of the underpin based on operating income as Remuneration progression of our carbon management well as qualitative underpins to ensure arrangements for 2022 plan including setting targets to achieve that Executive Directors are not rewarded meaningful reduction in GHG emissions Lisa Jacob’s remuneration where the Committee considers there towards our goal of net zero by 2030. In arrangements have been set in to have been a failure in performance, line with our Policy, 40% of any bonus accordance with the Remuneration including serious breach of regulation, earned will be deferred into shares for Policy, with her salary and incentive material reputational damage and gross three years. levels in line with agreed salary increase misconduct. The financial underpin was for the previous CEO, recognising the set such that annual operating income need to retain and incentivise a highly must be on average £150 million over Annual Report and Accounts 2021 97 Corporate governance Directors' remuneration report continued ### Remuneration arrangements for 2022 continued For both the annual bonus financial measures and the Restricted Share financial underpin, the Committee agreed that Total Income was a more appropriate revenue measure than Operating Income going forwards. This change recognises that investment income is an ongoing part of Funding Circle's income, with the balance sheet being used in accordance with Board approved investment principles, and ensures that management are not incentivised to maximise one form of income over another. In accordance with our Policy, the number of Restricted Shares granted to Executive Directors in 2022 and 2023 will be equal to the number granted in 2021. Accordingly, the CEO and the OFD will be awarded 358,177 and 269,306 Restricted Shares respectively in 2022. Application of the Policy means that the face value of the award is reduced if there has been a fall in the share price, which aligns with proxy agency guidance. As shown in our "illustration of the application of Remuneration Policy in 2022" charts, the grant date face value of 2022 Restricted Share awards would be c.50% lower compared to 2021 Restricted Share awards (assuming a share price of 73.9p at the time the 2022 Restricted Share awards are granted, which was the share price as of 28 February 2022). Vesting of the Restricted Shares will be subject to a financial underpin based on Total Income (as referred to above) as well as qualitative underpins on the same basis as 2021. The financial underpin has been set such that annual Total Income must be on average £181.3 million over the period of three years from 2022 to 2024. As with the 2021 grants, the Committee retains the discretion to make any adjustments to vesting it deems necessary. Both Executive Directors will receive benefits in line with other UK employees, including Private Medical Insurance and life assurance. They are both entitled to a pension contribution or cash in lieu of 5% of salary. ### Non-Executive Director and Chair of the Board fees Non-Executive Director fees were reviewed in January 2022 with changes being made for the first time since they were set in 2018. No changes were made to the base fee but the fee for chairing a Committee and the board of the UK regulated entity was increased from £10,000 to £15,000 to reflect the significant work being carried out by our independent Non-Executive Directors and the Chair of Funding Circle Ltd. Additionally, the fee for the Chair of the Board has been increased by 3.5% from £200,000 to £207,000. The increase for the Chair of the Board was in line with the historical increase for Circlers, but below the average 2022 increase for Circlers. ### Remuneration arrangements for Circlers I wish to thank all of our Circlers for once again delivering exceptional performance in difficult and trying times. All Circlers contribute to the achievement of Funding Circle's long-term success and the Board believes that extending share ownership throughout the Group fosters stewardship and enhances loyalty and engagement. I'm really proud that our Employee Engagement score was at its highest ever level of 73% and 86% of Circlers would recommend Funding Circle as a place to work. In 2020, we introduced an all-employee share plan ("Equity for All"), discretionary restricted share awards for senior management, and an annual bonus for managers, specialists and the leadership team. See page 105 for the key elements of Circlers' incentive arrangements. The Policy introduced in 2021 was designed to align Executive Directors and Circlers. The group annual bonus for 2021 is being awarded in full to eligible Circlers, with payment being based on AEBITDA performance. Our people section at pages 24 to 27 sets out how Funding Circle has responded to the changing employment environment following the pandemic. The Committee continues to monitor Circler engagement and wellbeing and consider whether wider remuneration within Funding Circle remains competitive, receiving regular updates during the year from management. ### Conclusion On behalf of the Remuneration Committee, I would like to thank our shareholders for their support in 2021 and hope to continue to receive your support at our 2022 AGM, where I will be available to respond to any questions shareholders may have on this report or in relation to any of the Committee's activities. **Helen Beck** Chair of the Remuneration Committee 10 March 2022 98 Funding Circle Holdings plc STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS ## Remuneration Policy The Remuneration Policy, as summarised below, applies to the roles of Chair, Executive Director and Non-Executive Director. This policy was approved by a binding shareholder vote at the 2021 AGM, and will apply for a maximum of three years from the 2021 AGM. A full version of the Remuneration Policy can be found in the 2020 Annual Report and Accounts available on our website at: https://corporate.fundingcircle.com/investors/results-reports-presentations. Executive Directors’ remuneration Element of Purpose and remuneration Key features link to strategy Maximum opportunity Performance measures Salary Reviewed annually in March. Supports the No prescribed maximum n/a attraction and salary level or salary Salaries take account of the retention of the increases. external market and the overall best talent. employee context. Account will be taken of increases applied to employees as a whole when determining salary increases. Committee retains the discretion to award higher increases where it considers it appropriate, such as, but not limited to: X where an Executive Director has had a change in scope or responsibility; X an Executive Director’s development or performance in role (e.g. to align a newly appointed Executive Director’s salary with the market over time); X where there is a significant change in the size and/ or complexity of the Company; and X where salary has previously been positioned behind market, and there is a re-basing of the overall remuneration package. Allowances Executive Directors’ benefits Market competitive The value of benefits is not n/a and benefits currently include, but are not (and cost effective) capped as it is determined by limited to, life assurance and benefits provide the cost to the Company, which private medical insurance. reassurance and may vary. Benefits offered to risk mitigation and Executive Directors are in line The Committee may determine support retention with those available to other that Executive Directors should of talent. employees in the Group. receive additional reasonable benefits if appropriate, taking into account typical market practice and practice throughout the Group. | Pension | Executive Directors are | To provide retirement | Maximum contribution in | n/a | | --- | --- | --- | --- | --- | | | entitled to receive employer | benefits for Executive | line with contribution to | | | | contributions to the Funding | Directors. | other employees in the | | | | Circle Ltd defined contribution | | Group, which is currently 5% | | | | pension plan. | | of salary. | | Individuals are entitled to receive some or all of their pension allowance as cash in lieu of pension contribution. Annual Report and Accounts 2021 99 Corporate governance ### Directors’ remuneration report continued Executive Directors’ remuneration continued Element of Purpose and remuneration Key features link to strategy Maximum opportunity Performance measures All-employee Executive Directors are eligible to To encourage Participation levels are in line n/a plans participate in HMRC tax-efficient share ownership with HMRC limits. plans that are available to all and alignment with employees. shareholders. Funding Circle currently operates a Share Incentive Plan. Annual Bonus Awards are based on To motivate A maximum opportunity Measures and targets will performance (typically and reward the in respect of any normally be set annually by the measured over a financial achievement of financial year of: Committee and will be in line year) against key financial and the Group’s annual with Funding Circle’s strategy. CEO: 133% of salary. non-financial measures. financial and A mix of both financial and strategic targets. Other Executive Directors: 40% of any bonus earned non-financial measures will be 100% of salary. will normally be deferred into used, with at least 60% of the shares for three years. annual bonus normally based on financial measures. The Executive Directors | may, at the discretion of | The target annual bonus is 50% | | --- | --- | | the Committee, receive | of maximum opportunity, with | | dividend equivalents on the | 100% of maximum payable | | deferred shares. | for maximum performance. | Details of pay-outs between Malus and clawback these levels will be disclosed provisions apply. in the relevant Directors’ The Committee has discretion Remuneration Report. to amend the pay-out should any formulaic outcome not reflect the Committee’s assessment of overall business performance, the performance of the individual, or the experience of shareholders or other stakeholders over the performance period. Funding Circle Holdings plc100 STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Element of Purpose and remuneration Key features link to strategy Maximum opportunity Performance measures Restricted Executive Directors are granted Align Executive A Restricted Share award may Performance underpins may be Share awards Restricted Share awards with Directors with be granted to an Executive based around key financial and/ a three-year vesting period, shareholders’ Director in respect of each or strategic measures. subject to performance interests and promote financial year over a fixed In addition, the Committee underpins. stewardship and good number of shares. has discretion to reduce the governance over a Following the end of the The maximum number of vesting outcome should it long time horizon. vesting period, the awards shares that can be awarded in not reflect the Committee’s will be subject to a two-year respect of each financial year assessment of overall business holding period. will be calculated based on performance, the performance such number of shares as have of the individual, or the Awards may be granted in a market value at the grant experience of shareholders or the form of conditional share date of the awards in respect of other stakeholders over the awards or nil-cost options. | | the 2021 financial year equal to | vesting period. | | --- | --- | --- | | The Executive Directors | 133% of salary for the CEO and | | | may, at the discretion of the | 100% of salary for the CFO. | | Committee, receive dividend For these purposes, the equivalents on vested shares. market value of a share will be The awards are subject determined by the Committee to malus and clawback using an average share price. provisions. Granting as a fixed number of shares further aligns Executive Directors to shareholders, rewarding share price appreciation whilst depreciation is penalised. Prior to each grant, the Committee will review the number of shares to be granted to ensure the fixed number of shares remains appropriate, taking into account factors including the share price at the time of grant and the target total compensation for companies of a similar size and complexity. | In-post | Executive Directors are | Supports our | Minimum shareholding | n/a | | --- | --- | --- | --- | --- | | shareholding | expected to build and | ownership mentality | requirement, to be | | | requirement | maintain a holding of | focus, promotes | satisfied within five years | | | |  | stewardship and helps | of appointment, of no less | | | | | align management | than 200% of salary for all | | | | | with shareholders. | Executive Directors. If any | | Executive Director does not meet the requirement, subject to consideration by the Committee of the factors at the time, they will be expected to retain all of the net of tax number of shares vesting under any of the Company’s discretionary share incentive arrangements until the requirement is met. | Post-exit | Executive Directors are | To reinforce long- | Minimum post-exit | n/a | | --- | --- | --- | --- | --- | | shareholding | expected to retain a proportion | term alignment of | shareholding requirement of | | | requirement | of their shareholding for a two | Executive Directors’ | “guideline shares” equal to | | | | year period after they have left | interests with those | 200% of salary for all Executive | | | | Funding Circle. | of shareholders | Directors or the actual | | | | | post cessation of | shareholding on departure, | | | | | employment. | if lower. “Guideline shares” | | do not include shares which the Executive Director held at IPO, purchased in the market directly or acquired pursuant to the exercise of pre-IPO awards. Annual Report and Accounts 2021 101 Corporate governance ### Directors’ remuneration report continued Payments for loss of office The principles on which the determination of payments for loss of office will be approached are set out below. Policy Payment in lieu of notice The Committee has discretion to make a payment in lieu of notice based on salary for the unexpired period of notice. The payment would be made in monthly instalments and subject to mitigation. Per the CEO’s service agreement, the CEO will not receive a payment in lieu of notice where the Committee determines that unvested share awards may remain capable of vesting (which otherwise would ordinarily lapse on cessation of employment). Annual bonus This will be at the discretion of the Committee on an individual basis and the decision as to whether or not to pay a bonus in full or in part will be dependent on a number of factors, including the circumstances of the Executive Director’s departure and their contribution to the business during the performance period in question. Any bonus earned will normally be pro-rated for time in service during the performance period and will, subject to performance, be paid at the usual time (although the Committee retains discretion to pay the bonus earlier in appropriate circumstances) and in the normal manner. Any bonus earned for the year of departure and, if relevant, for the prior year may be paid wholly in cash at the discretion of the Committee. Deferred bonus award If an Executive Director leaves for any reason (other than being dismissed for cause) during the deferral period then unvested awards will continue and vest at the normal vesting date. In exceptional circumstances (including if a participant dies), the Committee may decide that the Executive Director’s unvested award will vest and be released early at the date of cessation of employment, in which case the Committee has discretion to apply time pro rating in limited circumstances. Restricted Share awards The extent to which any unvested awards will vest will be determined in accordance with the LTIP rules. Unvested awards will normally lapse on cessation of employment. However, unless a participant is dismissed for cause, the Committee has discretion to determine that the unvested awards will continue and remain capable of vesting at the normal vesting date. To the extent that the awards vest, a two-year holding period would then normally apply. In exceptional circumstances (including if a participant dies), the Committee may decide that the Executive Director’s awards will vest and be released early at the date of cessation of employment or at some other time (e.g. at the vesting date). In either case, vesting will depend on the extent to which the performance underpins have been satisfied and will be subject to a pro rata reduction for time served during the vesting period (although the Committee has discretion to disapply time pro rating if the circumstances warrant it). If an Executive Director leaves for any reason (other than being dismissed for cause) after an award has vested but before it has been released (i.e. during a holding period), their award will ordinarily continue to be released at the normal release date. In exceptional circumstances (including if a participant dies), the Committee may decide that the Executive Director’s award will be released early at the date of cessation of employment. Change of control Deferred bonus awards and Restricted Share awards will vest early in the event of a takeover, merger or other relevant corporate event. Deferred bonus awards will typically vest in full. As regards Restricted Share awards, vesting will depend on the extent to which the performance underpins have been satisfied, with the Committee taking into account relevant factors at the time, and will be subject to a pro rata reduction for time served during the vesting period (although the Committee has discretion to disapply time pro rating if the circumstances warrant it). Alternatively, the Committee may permit deferred bonus awards and Restricted Share awards to be exchanged for equivalent awards of shares in a different company (including the acquiring company). Other payments Executive Directors will be entitled to payment for accrued holiday. Awards under the Share Incentive Plan may be released in the event of cessation of employment or change of control in accordance with the plan rules. The Committee reserves the right to make payments by way of settlement of any claim arising in connection with cessation of employment. Legacy awards The extent to which the 2020 performance based LTIP awards vest will be determined in accordance with the LTIP rules and the Remuneration Policy at the time they were granted. The extent to which unvested Growth Shares and pre-IPO options vest will be determined in accordance with the terms of the awards agreed prior to IPO. In particular, additional protection will apply in the event of a termination of employment or engagement in anticipation of, upon or within 12 months following a change of control of the Company, where such termination is deemed to be connected with the change of control. In those circumstances, the participant will be entitled to receive a cash payment or other form of award (the “replacement award”) which vests upon the termination of their employment. The value of the replacement award will be determined by reference to the portion of the participant’s unvested pre-IPO awards that would have vested (but for the change of control) over the period of 24 months following the change of control or, if later, the 24 months following their termination. The agreed provisions are subject to the Company’s discretion to determine that a greater number of shares subject to a pre-IPO award should vest upon a change of control. Funding Circle Holdings plc102 STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Recruitment policy The Company’s recruitment remuneration policy aims to give the Committee sufficient flexibility to secure the appointment of high calibre executives to strengthen the management team and secure the skill sets necessary to deliver the Group’s strategic aims. When hiring a new Executive Director, the Committee will typically align the remuneration package with the Remuneration Policy as set out above. The Committee may include other elements of pay which it considers appropriate, however, this discretion is capped and is subject to the principles and the limits referred to below. The key terms and rationale for any such element would be disclosed in the Directors’ Remuneration Report for the relevant year. Policy Salary Salary will be set at a level appropriate to the role and the experience of the Executive Director being appointed. This may include agreement on future increases up to a market rate, in line with increased experience and/or responsibilities, subject to good performance, where it is considered appropriate. Buy-out awards It may be necessary to make additional awards in connection with the recruitment to buy-out remuneration terms forfeited by the individual on leaving a previous employer if it considers the cost can be justified and it is in the best interests of the Company. Buy-out awards are not subject to a formal cap. The Committee will seek to make buy-outs subject to what are, in its opinion, comparable requirements  Where considered appropriate, buy-out awards will be liable to forfeiture or recovery provisions on  Maximum level of variable The Committee will not offer non-performance-related variable remuneration. The maximum level of remuneration variable remuneration which may be granted (excluding buy-out awards) will be in line with the limits for the CEO as set out in the Remuneration Policy table above. Other elements of Other elements may be included in the following circumstances: remuneration X An interim appointment being made to fill an Executive Director role on a short-term basis. X If exceptional circumstances require that the Chair or a Non-Executive Director takes on an executive function on a short-term basis. X If an Executive Director is recruited at a time in the year when it would be inappropriate to provide an annual bonus or Restricted Share award for that year. Subject to the limit on variable remuneration set out above, the quantum in respect of the period employed during the year may be transferred to the subsequent year. X If the Executive Director is required to relocate, reasonable relocation, travel and subsistence payments may be provided (either via one-off or ongoing payments or benefits for up to two years). For an internal appointment, any legacy arrangements will either continue on their original terms or be adjusted to reflect the new appointment, as appropriate. Any share awards referred to in this section will be granted as far as possible under the Company’s existing share plans.   of an Executive Director. Fees payable to a newly appointed Chair or Non-Executive Director will be in line with the fee policy in place at the time of appointment. Annual Report and Accounts 2021 103 Corporate governance ### Directors’ remuneration report continued Policy on external appointments Executive Directors may hold external directorships and retain any fees for such directorships if the Board determines that such appointments do not cause any conflict of interest. Illustrations of the application of the Remuneration Policy in 2022 £1,800k £1,800k CEO CFO £1,500k £1,500k 1,351 1,219 | £1,200k £1,200k | | | | | 1,124 | | --- | --- | --- | --- | --- | --- | | | | | 29.4% | 1,024 | | | | 953 | 21.7% | | | | 26.6% £900k £900k 824 19.4% 27.8% 24.1% 43.7% 39.4% £600k £600k 39.1% 35.6% 27.9% 422 425 24.3% £300k £300k 100% 44.3% 34.6% 31.2% 100% 51.6% 41.5% 37.8% 0 0 | Minimum Minimum | Target TargetMaximum MaximumMaximum + | | | Maximum + | | --- | --- | --- | --- | --- | | | | 50% share price | | 50% share price | | | | | increase | increase | Fixed Annual Bonus Restricted shares Illustration assumptions Maximum + 50% share Element of pay Minimum Target Maximum  Fixed remuneration: X Base salary – Effective 1 March 2022 X Benefits – in line with 2021 benefits disclosed in the single figure table, for the new CEO this is based on the value of her benefits in 2021 X Pension – 5% of salary Annual bonus No payout 50% of maximum Maximum payout  Restricted shares No vesting. Assumes the Grant value vests: 358,177 shares for the CEO and Grant value multiplied by 1.5 underpin is not met. 269,306 for the CFO. Assumes share price of £0.739, which was the share price on 28 February 2022. Non-Executive Directors’ remuneration Element of remuneration Key features Purpose and link to strategy Fees The fees paid to the Non-Executive Directors are determined by the Board as Fees are set at a level to reflect the amount a whole. The Chair and the Non-Executive Directors are paid annual fees and  do not participate in any of the Company’s incentive arrangements or receive order to carry out their duties as members of any pension provision or other benefits. the Board and its Committees and to attract and retain Non-Executive Directors of the Additional fees are payable for additional Board duties, including acting as highest calibre with relevant commercial Senior Independent Director and for chairing the Audit Committee, Risk and  Compliance Committee and Remuneration Committee. Additional fees may be paid in the exceptional event that Non-Executive Directors are required to commit substantial additional time above that normally expected for the role. The Non-Executive Directors are not entitled to any compensation on termination of their appointment. The Non-Executive Directors are entitled to reimbursement of reasonable expenses. Additional fees or benefits may be provided at the discretion of the Committee in the case of the Chair, and the Board in the case of the other Non-Executive Directors. Overall fees paid to the Chair and Non-Executive Directors will remain within the limits set by the Company’s Articles of Association. As an early stage private company, which did not pay Directors’ fees, the Company has historically granted options to certain Non-Executive Directors under the Company’s pre-IPO share option plan. Although the options granted will continue to be held by those Non-Executive Directors going forwards, no further options have or will be granted to Non-Executive Directors post-IPO under any of the Company’s share option plans. The options held by the relevant Non-Executive Directors are all fully vested. Funding Circle Holdings plc104 STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Remuneration Policy for Circlers The Committee receives regular updates on overall pay and conditions in the Group, and pay and employment conditions generally in the Group are taken into account when setting Executive Directors’ remuneration. The approach to annual salary reviews is consistent across the Group, with consideration given to the level of experience, responsibility, individual performance and salary levels in comparable companies. Nearly 60% of Circlers are eligible for either the annual bonus plan or other bonus arrangements. Opportunities vary by organisational level and function. From inception, a key element of the remuneration philosophy has been to support share ownership across the business. This has been achieved through making equity incentives available to all Circlers to encourage them to behave as owners – taking decisions that balance long-term value creation with achieving shorter-term strategic priorities. The key elements to the incentive arrangements are: X The Global Leadership Team and other senior management and senior specialist roles participate in a discretionary share-based LTIP with grant size increasing with seniority. The grants for Circlers in leadership roles include a multiplier  X The leadership team, managers and specialists participate in an annual bonus plan (and the majority of Circlers participate  X All Circlers participate in an equity grant that operates in the UK as a Share Incentive Plan. Equity awarded to Circlers, including the existing Global Leadership Team (other than the Executive Directors), is subject to continued employment for the two years following the grant date but is not otherwise normally subject to performance conditions. Our workforce engagement director (previously Cath Keers and now Helen Beck) frequently holds workforce engagement sessions with Circlers. A range of topics are discussed including Executive remuneration. Feedback from  Alignment between Executive and Circlers’ remuneration The Executive Directors’ Policy was designed to align Circler and Executive pay. We introduced an annual bonus plan for the Global Leadership Team, managers and specialists in 2020 and then introduced an annual bonus for Executive Directors in 2021. The introduction of Restricted Share awards for the Executive Directors also matches the introduction of equity schemes for Circlers which are based on continued employment only. The main differences between how Executive Directors and Circlers are remunerated are the longer time periods (vesting, holding and deferral), tougher performance criteria, and there being no share price multiplier on the Restricted Share awards. Annual Report and Accounts 2021 105 Corporate governance ### Annual report on remuneration ## Annual report on remuneration This part of the report sets out how the Remuneration Policy has been applied in 2021 and how the Committee intends to apply the Remuneration Policy in 2022. This part of the report will be subject to an advisory shareholder vote at the 2022 AGM. Role of the Committee The Committee’s primary role is to determine the remuneration of the Directors and Global Leadership Team and to determine the Remuneration Policy for the Executive Directors as well as monitoring and reviewing its ongoing appropriateness and relevance. In doing so, the Committee ensures that the Remuneration Policy is aligned with the Company’s key remuneration principles as well as taking into account the principles of clarity, simplicity, risk, predictability, proportionality and alignment to culture set out in the 2018 UK Corporate Governance Code. How our remuneration is aligned with the principles of the Code Alignment to strategy X The design of remuneration at Funding Circle is aligned to our values, culture and strategy. and culture X The annual bonus is based on Group financial and strategic performance promoting collective accountability and helps to align the Executive Directors’ incentive structure with the wider Group. X Restricted Share awards fully align with our remuneration philosophy of ensuring that senior management are significant share owners, promoting good stewardship and incentivising Executive Directors to create long term value as the business continues to mature. Clarity and Simplicity X Our Policy aligns the Executive Directors’ pay with pay for other Circlers. X Our Policy is simple to understand for participants and shareholders and promotes long term stewardship. Risk X Our Policy appropriately balances fixed and variable pay as well as short- and long-term incentives. X Opportunities are set at a level which rewards performance at the same time as not unduly encouraging excessive risk taking. X The annual bonus and Restricted Shares are subject to malus and clawback provisions and the Committee has the discretion to adjust pay outcomes. X The Restricted Shares are granted as a fixed number of shares rather than a fixed % of salary. This means that share price appreciation is rewarded and depreciation is penalised. Proportionality X A significant portion of the total remuneration opportunity for Executive Directors is variable pay. This variable pay is aligned to Company strategy through the choice of performance measures and the link to share price. Predictability X Our Policy is clear on the threshold, target and maximum levels of pay that Executives can earn. Notwithstanding that actual outcomes will vary based on the level of achievement and share price performance. The key responsibilities of the Committee are summarised on page 72 and further details on the Committee’s roles and responsibilities can be found in our Terms of Reference on our corporate website. Committee composition Helen Beck joined the Board and became the Remuneration Committee Chair on 1 June 2021, taking over from Cath Keers who stepped down on 19 May 2021. Geeta Gopalan joined the Committee on 6 September 2021 and replaced Ed Wray who stepped down on 19 May 2021. None of the members who have served on the Committee during the year had any personal interest in the matters decided by the Committee and are all considered to be independent by the Company. The Company Secretary acted as Secretary to the Committee. Committee members Number of meetings attended | Helen Beck, Chair | 2/2 | | --- | --- | | Andrew Learoyd | 4/4 | | Geeta Gopalan | 1/1 | | Cath Keers, former Chair | 2/2 | | Ed Wray, former member | 2/2 | The Executive Directors, Chief People Officer, other members of the senior management team and our external remuneration consultants, Deloitte LLP, were invited to Committee meetings where it was deemed appropriate. No individuals were involved in decisions relating to their own remuneration. Funding Circle Holdings plc106 ## 2021 Committee highlights - ▶ engaged with shareholders in order to receive support for our Remuneration Policy; - ▶ implemented our Remuneration Policy; - ▶ determined the payout of the CEO's buyout bonus; - ▶ approved the payout of the 2020 annual bonus for Circlers; - ▶ approved the design of the 2021 annual bonus for Circlers and the equity plans; - ▶ set the 2021 annual bonus targets for Executive Directors; - ▶ set the 2021 Restricted Share Plan underpin and approved the grants for Executive Directors; - ▶ considered the appropriate remuneration package for our new CEO; and - ▶ oversaw the reward of members of the Global Leadership Team and all other Circlers. ## 2022 Committee priorities - ▶ determine the payout of the Executive Directors' annual bonus; - ▶ approve the remuneration arrangements for the Global Leadership Team; - ▶ approve the design of the 2022 annual bonus for Circlers and the equity plans; - ▶ set the 2022 annual bonus targets, ensuring they align with Funding Circle's strategy as well as our ESG priorities; - ▶ set the 2022 Restricted Share Plan underpin and approve the grants for Executive Directors; and - ▶ continue to monitor remuneration practice across the Company as a whole, keeping abreast of current and evolving market practice. ## Committee effectiveness As noted on page 78, the Committee undertook an effectiveness review during 2021, whereby each Committee member and, by invitation, the Chief People Officer, completed a tailored questionnaire. The question set covered topics such as the quality of the remuneration support provided to the Committee and the appropriateness of the remuneration policies and practices implemented in 2021. Following a productive discussion, the Committee agreed it was working well and would implement the recommendations suggested during 2022, for example an additional regular meeting will be added on an ongoing basis. It was noted that the new Remuneration Committee Chair's background and knowledge has been invaluable to the Committee and also the business. ## External advisers The Committee is satisfied that the advice it has received from its appointed adviser Deloitte LLP as remuneration consultants is independent and that the engagement partner and team that have provided remuneration advice do not have connections with the Company that might impair their independence. Deloitte was appointed by the Committee in 2019. Deloitte is a founder member of the Remuneration Consultants Group and, as such, voluntarily operates under its Code of Conduct in relation to executive remuneration matters in the UK. The fee paid to Deloitte LLP in 2021 in relation to advice provided to the Committee was agreed by the Company in advance for specific projects and was £20,800. Deloitte also provided advice to the Group during 2021 in relation to risk advisory, share plan advisory and corporate tax advisory services. STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Annual Report and Accounts 2021 107 Corporate governance # Annual report on remuneration continued # Letters of appointment and service contracts | Director | Commencement date of current term | Expiry of current term | Notice period | | | --- | --- | --- | --- | --- | | | | | From Company | From Director | | **Executive Directors** | | | | | | Samir Desai | 18 September 2018 | 31 December 2021 | Twelve months | Twelve months | | Oliver White | 15 June 2020 | n/a | Six months | Six months | | Lisa Jacobs | 1 January 2022 | n/a | Twelve months | Twelve months | | **Non-Executive Directors** | | | | | | Samir Desai | 1 January 2022 | 1 January 2025 | One month | One month | | Andrew Learoyd | 10 September 2021 | 10 September 2024 | One month | One month | | Eric Daniels | 18 September 2021 | 18 September 2024 | One month | One month | | Gweta Gopalan | 1 November 2021 | 1 November 2024 | One month | One month | | Harry Nelis | 5 September 2021 | 5 September 2024 | One month | One month | | Neil Rimer | 5 September 2021 | 5 September 2024 | One month | One month | | Matthew King | 19 May 2021 | 19 May 2024 | One month | One month | | Helen Beck | 1 June 2021 | 1 June 2024 | One month | One month | The Executive Directors' service contracts are on a rolling basis. All Non-Executive Directors have letters of appointment with the Company. The appointments of each of the Non-Executive Directors are for an initial term of three years; these have been extended for those Non-Executive Directors whose term had expired. The appointment of each Non-Executive Director is subject to re-election at the AGM. # Shareholder voting The Committee's resolutions at the Company's 2021 AGM in respect of the Remuneration Policy and the Annual Report on Remuneration received the following votes from shareholders: | | Remuneration Policy | | Annual Report on Remuneration | | | --- | --- | --- | --- | --- | | Number of votes | | | | | | Votes cast in favour | 226,078,928 | 98.17% | 219,192,706 | 95.18% | | Votes cast against | 3,229,853 | 1.46% | 11,093,878 | 4.82% | | Votes withheld | 977,804 | 0.42% | 1 | 0.00% | | Total votes cast (including withheld) | 230,286,585 | 100.00% | 230,286,585 | 100.00% | 108 Funding Circle Holdings plc STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Single total figure of remuneration (audited) The following tables set out the aggregate emoluments earned by the Directors in the year ended 31 December 2021 and  | | Salary | | Taxable | | | | | | Long-term | | | | Total | Total | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | and fees |  | benefits |  | Bonus | Pensions | |  | incentives | |  | Total | fixed | variable | | 2021 | £000 | | £000 | | £000 | | £000 | | | £000 | | £000 Other | £000 | £000 | Executive Directors 5 Samir Desai    — —  —   Oliver White  5   —  —   Non-Executive Directors Andrew Learoyd  — — — —  —  — 7  (stepped down   — — — —  —  — Eric Daniels 65 — — — — 65 — 65 — Bob Steel (stepped down   — — — —  —  — Cath Keers (stepped down 19 May 2021)  — — — —  —  — Geeta Gopalan  — — — —  —  — Helen Beck (appointed   — — — —  —  — Matthew King (appointed 19 May 2021)  — — — —  —  — 8 Hendrik Nelis — — — — — — — — — 8 Neil Rimer — — — — — — — — — 2020 Executive Directors Samir Desai 200 1 — — — 201 — 201 — 6 Oliver White (appointed 215 1 — 7 — 223  223 —  Non-Executive Directors Andrew Learoyd 190 — — — — 190 — 190 — 7 Ed Wray 55 — — — — 55 — 55 — Eric Daniels 62 — — — — 62 — 62 — Bob Steel 62 — — — — 62 — 62 — Cath Keers 62 — — — — 62 — 62 — Geeta Gopalan 62 — — — — 62 — 62 — 8 Hendrik Nelis — — — — — — — — — 8 Neil Rimer — — — — — — — — — 1. The Board and the Global Leadership Team voluntarily reduced their salaries and fees by 20% over the period March to May 2020 in response to the Covid-19 pandemic.  2. Taxable benefits for Executive Directors principally include private medical cover and life assurance cover. Taxable benefits for Non-Executive Directors relate to reimbursement of travel to the workplace. The Company ensures that the Non-Executive Directors are kept whole by settling the expense and any related tax. The figures shown include the cost of the taxable benefit plus the related tax charge. 3. Executive Directors were eligible for a 5% of base salary pension contribution with effect from October 2020 (previously 3% of base salary). The CEO opted not to take up his right to the pension contribution. 4. No long-term incentives vested in respect of 2020 or 2021. 5. As disclosed in the 2020 Directors’ Remuneration Report, Samir Desai was awarded a salary increase from £210,000 to £400,000 effective from 1 January 2021, however, he waived the increase for 2021. His annual bonus opportunity and Restricted Share award opportunity were determined based on the £400,000 salary, which is referred to in this Directors’ Remuneration Report as his reference salary. 6. The buy-out of Oliver White’s Vanquis 2019 and 2020 bonus awards forfeit on cessation of employment. 7. Ed Wray stepped down as Chair of Funding Circle Ltd in April 2020, at which point his Non-Executive Director fee became £55,000 in line with the Non-Executive Director base fee. 8. Hendrik Nelis and Neil Rimer, who are not independent Non-Executive Directors, have waived their entitlement to a fee. Annual Report and Accounts 2021 109 Corporate governance ### Annual report on remuneration continued 2021 annual bonus An annual bonus for Executive Directors was introduced under our new Policy and we want to thank shareholders for supporting its introduction. The maximum opportunities were 133% of reference salary for the CEO and 100% of salary for the CFO. 67% of the annual bonus was based on financial measures with the remainder based on non-financial measures. The measures were set by the Committee and are in line with Funding Circle’s strategy. Stretching financial targets were set by the Committee taking into account our 2021 budget and broker forecasts at the time. An on-target bonus could be earned for achieving 2021 budget performance. The Committee considered that a wide target range between threshold and maximum was appropriate taking into account the continued economic uncertainty. An asymmetrical target range was set around on-target performance such that the difference between maximum and on-target performance was twice the difference between on-target and threshold performance. This was to ensure that the bonus would only pay out towards maximum for truly stretching performance against budget. Structure of the 2021 bonus Threshold Target Maximum Implied payout of Element (weighting %) (0% payout) (50% payout) (100% payout) Outcome element CEO CFO AEBITDA (34%) £10m £20m £40m £91.8m 100% Operating Income (33%) £135m £150m £180m £165.5m 75.8% Non-financial measures (33%) See below 85% 90% Total (% of max) 87.1% 88.7% Discretionary reduction of formulaic outcome by 10% (% of max) 78.4% 79.9% Final outcome (£k) 417 319 Non-financial measures Category Details on objectives Performance assessment Stakeholders – Customers  X Our Net Promoter Score was at our target of 80%. for our customers X Over 2021, Funding Circle dealt with customer complaints effectively,  shareholders notwithstanding the increased volume of customer contact activity caused  by the pandemic. Customer complaints rose due to increased collection and recoveries activity caused by the pandemic. X Brand awareness of 46% was in line with our expectations. X Roll out of our instant decision lending has continued to be a success, enabling us to say “Yes” to more businesses. Over 70% of loan decisions are now automated. Shareholders X Significant progress has been made with respect to diversifying our shareholder base. | Circlers – Building | Employees | | | --- | --- | --- | | an incredible place | | X Employee engagement is at an all-time high of 73%, exceeding our target of | | to work and learn | | 70% by 3%, and an increase of 4% from 2020. |  X Our Employee Net Promoter Score of 86% also exceeded our target by 6%. Gender X Our gender pay gap is now at its lowest level to date at Funding Circle. Our mean gender pay gap is down to 18.5% from 21.4% in 2020, and the median gender pay gap has also fallen to 27.1% from 32.2% in 2020. X Significant progress has been made against our Women In Finance charter commitment to have 40% female representation in our senior leadership by 2025. We are currently at 34% of senior leadership, up from 31%. Funding Circle Holdings plc110 STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Category Details on objectives Performance assessment Risk and ESG goals sustainability – X Progress made in setting ESG strategy with a Carbon Trust project plan Building a resilient developed – initially measuring our emissions and then offsetting, and ESG and sustainable reports now being integrated into loan portfolio monitoring. business to support X Social impact framework developed following a Circler survey with 3 stages all of our stakeholders identified: Consolidating what we already do, Enabling the infrastructure,  and Orienting towards longer-term strategic opportunities. Credit quality / net investor returns of loan cohorts X Credit risk metrics improved over the year and have been at “Green” levels for the majority of the year and improving. X The vast majority of loan cohorts are projected to provide returns greater than those forecast with only 1 projected to be lower. Operational & governance excellence X A number of audits carried out on behalf of the British Business Bank and other investors which received positive feedback and no material issues were found. X Loan buybacks have decreased year on year and are well within our risk appetite limits. X Further development of ERMF and three lines of defence model. Change management X Funding Circle became accredited for the Recovery Loan Scheme in 2021 and transitioned smoothly from CBILS lending. X We relaunched our core offering in 2021 after being focused on CBILS and BBILS, requiring a significant internal shift. X Completed the rollout of new technology platform for limited companies, transforming our business, and we began the next stage of our future by beta launching FlexiPay and API, and exploring LaaS in the US. CEO personal A year of huge leadership change in which Samir has proved the effectiveness performance of his succession hiring and development of the Global Leadership Team and  their direct successors. He has effectively delegated over the year and ensured a smooth transition to the new CEO. Governance also came to the fore with the significant pivot of the business into untested areas with continued successful implementation of the 2020 Government backed schemes in H1 2021, implementation of the Recovery Loan Scheme, new products and credit risk management in a challenging economic environment. CFO personal The CFO has put clear succession plans in place for the Finance department, performance has retained key staff, and has created a culture that has led to high  engagement in the department. He has provided leadership and necessary challenge where needed across the business. He has provided calm, thoughtful, open and transparent input in Board and GLT conversations and provided challenge to management team and CEO where needed. He has taken over the investor relations activities and, working with the Communications team, now manages the relationships with many shareholders independently. In 2021, he actively managed cost discipline across the business, ensuring Funding Circle remains a sustainable business. In addition, he has tackled Balance Sheet risk management and set up an effective process for understanding and taking risk. Based on the performance against all of the non-financial objectives and personal performance, the Committee determined that the CEO would receive 85% of maximum of the non-financial element and CFO would receive 90% of maximum. Annual Report and Accounts 2021 111 Corporate governance # Annual report on remuneration continued # **2021 annual bonus continued** # **Remuneration Committee discretion applied** The Committee agreed that overall Group and personal performance had been excellent in a difficult and challenging environment. Through CBILS, followed by a successful transition to RLS and reintroduction of core lending, in the UK and PPP in the US. Funding Circle played a leading role in helping small businesses drive the economic recovery in both our geographies. Investment in risk and technology has also reaped rewards with both significant improvements to the core product and the development of new products and capabilities for customers in 2021. The Committee was however cognisant that the AEBITDA and Operating Income targets were set based on the Board approved December 2021 budget and did not fully factor in the extension of CBILS in the UK, PPP in the US or the impact of the improved economy on the fair value of investments. The Committee also considered this outcome taking into account the experience of shareholders, Circlers, customers, and other stakeholders and considered it to be appropriate. Therefore, notwithstanding the strong performance from the Group and the Executive Directors, the Committee considered it appropriate to reflect the exceptional nature of the year and reduce the formulaic vesting outcome of the bonus by 10%. The CEO therefore earned a bonus equal to 78.4% of maximum (104.2% of reference salary) and the CFO earned 79.9% of maximum (79.9% of salary). 40% of the amount earned is deferred into shares for three years. # **Restricted Share awards granted during 2021** Restricted Share awards were granted to the Executive Directors on 19 May 2021 under our Policy, for which we thank shareholders for the approval once again. Details of the awards are set out below: | | Type of award | Number of shares | Face value at grant^{1)} | Short date | Vesting date | Holding period | | --- | --- | --- | --- | --- | --- | --- | | Samer Desai | Nil-cost share option | 358,177 | £532,000 | 19 May 2021 | 19 May 2024 | 19 May 2024 to 19 May 2026 | | Oliver White | Nil-cost share option | 289,306 | £400,000 | 19 May 2021 | 19 May 2024 | 19 May 2024 to 19 May 2026 | 1. Based on a grant date share price of £1.4850. 2. The CEO was awarded Restricted Shares with a value equal to 73% of reference salary and the CFO on award with a value equal to 100% of salary. Those lapsed on 31 December 2021 upon the CEO's resignation. Vesting will be subject to a financial underpin based on operating income as well as qualitative underpins to ensure that Executive Directors are not rewarded where the Committee considers there to have been a failure in performance, including serious breach of regulation, material reputational damage and gross misconduct. The financial underpin was set such that annual operating income must be on average £150m over the period of three years from 2021 to 2023. Prior to vesting, the Committee will assess whether actual performance of the Company and Executive Directors is reflected to guard against payment for failure or against windfall gains. The Committee retains the discretion to make any adjustment to vesting it deems necessary. 112 Funding Circle Holdings plc ## Directors' shareholding and share interests (audited) Table of Directors' share interests as at 31 December 2021 | | Beneficially owned shares^{1,2} | Vested but uninvested awards | Unvested awards (not subject to performance conditions) | Unvested awards (subject to performance conditions) | Total | | --- | --- | --- | --- | --- | --- | | **Executive Directors** | | | | | | | Samir Desai | 16,397,164 | 1,343,750 | 806,250 | — | 18,547,164 | | Oliver White | 138,121 | — | 71,237 | 1,194,696 | 1,404,054 | | **Non-Executive Directors** | | | | | | | Andrew Leansyd | 1,689,991 | 100,000 | — | — | 1,789,991 | | Ed Wray (stepped down 19 May 2021) | — | — | — | — | — | | Eric Daniels | — | 383,204 | — | — | 383,204 | | Bob Steel (stepped down 19 May 2021) | 614,754 | 350,000 | — | — | 964,754 | | Cath Kearns (stepped down 19 May 2021) | 12,045 | — | — | — | 12,045 | | Geeta Gopalan | 33,216 | — | — | — | 33,216 | | Helen Beck (appointed 1 June 2021) | 9,235 | — | — | — | 9,235 | | Matthew King (appointed 19 May 2021) | 15,400 | — | — | — | 15,400 | | Hendrik Niels | — | — | — | — | — | | Neil Romer | — | — | — | — | — | 1. On date of leaving employment from the Company's earlier. 2. Includes shares owned by connected persons. 3. Vested Growth and EES Shares are treated as legally owned shares. The Company's share ownership requirements are that Executive Directors shall (subject to personal circumstance) build and maintain a shareholding equivalent to at least 200% of salary over five years. At the end of the 2021 financial year, the CEO complied with this requirement. The CFO was appointed to the Board on 15 June 2020 and currently holds unvested options subject to continued employment only (which count towards the shareholding guideline) equal to 58.6% of salary, calculated on 31 December 2021 when the share price was £1.12. Unvested awards subject to performance conditions are not taken into account. As an early stage private company, which did not pay Directors' fees, the Company has historically granted options to certain Non-Executive Directors under the Company's pre-IPO share option plan. Although the options granted will continue to be held by those Non-Executive Directors going forward, no further options have or will be granted to Non-Executive Directors post-IPO under any of the Company's share option plans. The options held by the relevant Non-Executive Directors are all vested. STRATEGIC REPORT COMPANIES GOVERNANCE FINANCIAL STATEMENTS Annual Report and Accounts 2021 113 Corporate governance ### Annual report on remuneration continued Table of Directors’ vested and unvested share awards (audited) | | | | No. of | | | | | | | No. of | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | awards at | | Awards | Awards | Awards | Awards | | awards at | | | Date of | | | | | | 1 January | | granted | lapsed | vested | exercised |  | | | grant/vesting | | Exercise price/ | Market price | | Award type | 1 | | 2021 | in the year | in the year | in the year | in the year | | |  | commenced | | subscription price | on exercise | Executive Directors Samir Desai Vested Growth — — — 403,125 (403,125) 2 — 01/08/2017 £0.02 n/a Unapproved 806,250 — — 537,50 0 —  13/06/2018 £0.001 n/a Unvested SIP 4,991 3,967 (8,958) — — — 03/11/2020 £0.00 n/a Growth 403,125 — — (403,125) — — 01/08/2017 £0.02 n/a Unapproved 1,343,750 — — (537,500) —  13/06/2018 £0.001 n/a Restricted shares — 358,177 (358,177) — — — 19/05/2021 £0.01 n/a Oliver White Vested 2018 LTIP Bonus — — — 240,602 (240,602) — 19/06/2021 £0.00 £1.50 Unvested 2018 Long Term Incentive Plan 925,390 — — — —  19/06/2020 £0.00 n/a 2018 LTIP Bonus 240,602 — — (240,602) — — 19/06/2020 £0.00 n/a SIP 4,991 3,967 — — —  03/11/2020 £0.00 n/a Restricted shares — 269,306 — — —  19/05/2021 £0.00 n/a 2020 bonus buyout — 71,237 — — —  26/03/2021 £0.00 n/a Non-Executive Directors Andrew Learoyd Vested Unapproved 100,000 — — — —  18/06/2015 £0.32 n/a Ed Wray — — — — Vested Unapproved 571,400 — — — (571,400) — 19/08/2011 £0.03 £1.49 Unapproved 100,000 — — — (100,000) — 18/06/2015 £0.32 £1.49 Eric Daniels Vested Unapproved 195,704 — — — —  22/04/2013 £0.03 n/a Unapproved 187,500 — — — —  01/03/2016 £0.39 n/a Bob Steel Vested Unapproved 250,000 — — — —  15/07/2014 £0.21 n/a Unapproved 100,000 — — — —  18/06/2015 £0.35 n/a 1. Historically there have been two different types of awards granted to Executive Directors: conditional shares (referred to in the table above as “ESS” and “Growth”) and unapproved options (referred to in the table above as “Unapproved”). Other than in certain circumstances as set out on page 102 (e.g. on termination of employment or change of control), vested unapproved options can be exercised during a period of ten years from the date of grant. 2. Growth shares vesting in year are immediately transferred and become beneficially owned shares. Payments for loss of office As noted on page 97, Samir Desai did not receive any payments linked to his resignation as CEO. His unvested Restricted Share awards (i.e. the award granted in 2021) and Share Incentive Plan free and matching shares lapsed in full following his resignation and as previously reported he did not take up his LTIP for either 2019 or 2020. Payments to former Directors There were no payments made to former Directors during the year. Funding Circle Holdings plc114 STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Table of Directors’ vested and unvested share awards (audited) | | | | No. of | | | | | | | No. of | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | awards at | | Awards | Awards | Awards | Awards | | awards at | | | Date of | | | | | | 1 January | | granted | lapsed | vested | exercised |  | | | grant/vesting | | Exercise price/ | Market price | | Award type | 1 | | 2021 | in the year | in the year | in the year | in the year | | |  | commenced | | subscription price | on exercise | Executive Directors Samir Desai Vested Growth — — — 403,125 (403,125) 2 — 01/08/2017 £0.02 n/a Unapproved 806,250 — — 537,50 0 —  13/06/2018 £0.001 n/a Unvested SIP 4,991 3,967 (8,958) — — — 03/11/2020 £0.00 n/a Growth 403,125 — — (403,125) — — 01/08/2017 £0.02 n/a Unapproved 1,343,750 — — (537,500) —  13/06/2018 £0.001 n/a Restricted shares — 358,177 (358,177) — — — 19/05/2021 £0.01 n/a Oliver White Vested 2018 LTIP Bonus — — — 240,602 (240,602) — 19/06/2021 £0.00 £1.50 Unvested 2018 Long Term Incentive Plan 925,390 — — — —  19/06/2020 £0.00 n/a 2018 LTIP Bonus 240,602 — — (240,602) — — 19/06/2020 £0.00 n/a SIP 4,991 3,967 — — —  03/11/2020 £0.00 n/a Restricted shares — 269,306 — — —  19/05/2021 £0.00 n/a 2020 bonus buyout — 71,237 — — —  26/03/2021 £0.00 n/a Non-Executive Directors Andrew Learoyd Vested Unapproved 100,000 — — — —  18/06/2015 £0.32 n/a Ed Wray — — — — Vested Unapproved 571,400 — — — (571,400) — 19/08/2011 £0.03 £1.49 Unapproved 100,000 — — — (100,000) — 18/06/2015 £0.32 £1.49 Eric Daniels Vested Unapproved 195,704 — — — —  22/04/2013 £0.03 n/a Unapproved 187,500 — — — —  01/03/2016 £0.39 n/a Bob Steel Vested Unapproved 250,000 — — — —  15/07/2014 £0.21 n/a Unapproved 100,000 — — — —  18/06/2015 £0.35 n/a 1. Historically there have been two different types of awards granted to Executive Directors: conditional shares (referred to in the table above as “ESS” and “Growth”) and unapproved options (referred to in the table above as “Unapproved”). Other than in certain circumstances as set out on page 102 (e.g. on termination of employment or change of control), vested unapproved options can be exercised during a period of ten years from the date of grant. 2. Growth shares vesting in year are immediately transferred and become beneficially owned shares. Payments for loss of office As noted on page 97, Samir Desai did not receive any payments linked to his resignation as CEO. His unvested Restricted Share awards (i.e. the award granted in 2021) and Share Incentive Plan free and matching shares lapsed in full following his resignation and as previously reported he did not take up his LTIP for either 2019 or 2020. Payments to former Directors There were no payments made to former Directors during the year. Annual Report and Accounts 2021 115 Corporate governance # Annual report on remuneration continued # Performance graph The chart below illustrates the Company's TSR performance compared with that of the FTSE AllShare Index. This index has been chosen as the Company is a constituent and it is considered the most appropriate benchmark against which to assess the relative performance of the Company. The chart shows the value of £100 invested in Funding Circle at the IPO offer price of £4.40 per share on 28 September 2018 compared with the value of £100 invested in the FTSE AllShare Index. ![img-1.jpeg](img-1.jpeg) # CEO remuneration table The table below sets out the CEO's single figure of total remuneration. | 2018 | 2021 | 2022 | 2023 | 2024 | 2025 | 2026 | | --- | --- | --- | --- | --- | --- | --- | | CEO total remuneration^{(1)} | **629** | 201 | 211 | 4,081 | 204 | 160 | 1. The 2018 figure includes share options that were granted prior to IPO which were subject to continued employment only. 2. The CEO received no bonus from 2016 to 2020. # Relative importance of spend on pay The table below sets out our relative importance of spend on pay. There have been no dividends paid to date. Total income and adjusted EBITDA have been presented as these are two key performance measures used by the Directors in assessing performance. | | 2021 | 2020 | % Change | | --- | --- | --- | --- | | Total income | **£206.9m** | £222.0m | (7)% | | Adjusted EBITDA | **£91.8m** | £163.8m | 244% | | Employee costs | **£78.3m** | £89.5m | (13)% | | Average number of employees | **804** | 911 | (12)% | 116 Funding Circle Holdings plc ## Percentage change in Directors' remuneration compared with employees The table below sets out the annual percentage change in remuneration from 2019 to 2021 for each of the Directors compared to that for an average employee. | | 2020 to 2021 | | | 2019 to 2020 | | | | --- | --- | --- | --- | --- | --- | --- | | | Salary/fees^{1} | Benefits | Annual bonus | Salary/fees^{1} | Benefits | Annual bonus | | **Executive Directors** | | | | | | | | Samir Desai | +5% | +33.6%^{2} | n/a | -5% | 0% | n/a | | Oliver White^{3} | — | +8.4% | n/a | n/a | n/a | n/a | | **Non-Executive Directors** | | | | | | | | Andrew Learoyd | +5% | — | — | -5% | — | — | | Ed Woay^{4} | +5% | — | — | -15% | — | — | | Eric Daniels | +5% | — | — | -5% | -100% | — | | Bob Staab^{5} | +5% | — | — | -5% | — | — | | Cath Keers^{6} | +5% | — | — | -5% | -100% | — | | Geeta Gopalan | +15% | — | — | -5% | — | — | | Helen Beck^{7} | n/a | — | — | n/a | — | — | | Matthew King^{8} | n/a | — | — | n/a | — | — | | Hendrik Neils^{9} | n/a | — | — | n/a | — | — | | Neil Romer^{10} | n/a | — | — | n/a | — | — | | **Average employee^{11}** | **-13.3%** | **+8.7%** | **+171%** | **-1.7%** | **+1.8%** | **+61.2%** | 1. The Board and the Global Leadership Team voluntarily reduced their salaries and fees by 28% over the period March to May 2020 in response to the Covid-19 pandemic. This is the reason for the change in salaries and fees shown above. No Director received a salary or fee increase during 2020 or 2021. The CEO waived the salary increase for 2021. 2. Some Directors benefit to did not include a pension contribution or rank in lieu which he waived his rights. 3. Oliver White was appointed to the Board on 15 June 2020. 4. Ed Woay, Bob Staab and Cath Keers stopped down from the Board on 19 May 2021. 5. Ed Woay stopped down as Chair of Funding Centre (d.m.April 2020) at which point his Non-Executive Director fee became £56,000 in line with the Non-Executive Director base fee. 6. Helen Beck was appointed to the Board on 1 June 2021. 7. Matthew King was appointed to the Board on 19 May 2021. 8. Hendrik Neils and Neil Romer, who are not independent Non-Executive Directors, have waived their entitlement to a fee. 9. The annual percentage change of the average remuneration of the Company's employees, calculated on a full rate equivalent basis. ## CEO pay ratio Funding Circle is committed to remunerating its employees fairly and competitively. We calculated our CEO pay ratio using the prescribed Methodology A, as shown in the table below. Methodology A was selected as this is considered the most accurate approach and is generally the preferred approach by shareholders and proxy agencies. | Year | Method | 25th percentile pay ratio | Median pay ratio | 75th percentile pay ratio | | --- | --- | --- | --- | --- | | 2021 | Option A | 18.4 | 11.6 | 6.9 | | 2020 | Option A | 5.8 | 3.81 | 2.31 | | 2019 | Option A | 6.81 | 3.91 | 2.51 | There has been an increase in the CEO pay ratio for 2021 due to the introduction and payment of an annual bonus for the CEO. The Board has confirmed that the ratio is consistent with the Company's wider policies on employee pay, reward and progression. STRAIGHT REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Annual Report and Accounts 2021 117 Corporate governance # Annual report on remuneration continued # CEO pay ratio continued # Total pay and benefits used to calculate the ratios The table below sets out the UK employee percentile pay and benefits used to determine the above pay ratios and the salary component for each figure. | | CEO | 25th percentile | Median | 75th percentile | | --- | --- | --- | --- | --- | | **2021** | | | | | | Salary component | £210,000 | £29,274 | £44,206 | £77,542 | | Total pay and benefits | £628,511 | £34,111 | £54,031 | £91,598 | The CEO remuneration is the total single figure remuneration for the relevant years and 2020 and 2021 is disclosed on page 109. The UK employee total remuneration has been calculated based on the amount paid or receivable for the relevant years. The calculations for the UK employees were performed as at the final day of the relevant financial year. # Implementation of the Remuneration Policy for the year ended 31 December 2022 # Salary The table below shows the salaries for the Executive Directors as at 1 January 2022 in comparison to base salary as at 1 January 2021. | | 1 January 2022 | 1 January 2021 | % change | | --- | --- | --- | --- | | Lisa Jacobs | £400,000 | N/A | N/a | | Oliver White | £400,000 | £400,000 | — | 1. Oliver White's salary was set at £400,000 and an appointment by the Board (15 June 2020). # Annual bonus The maximum opportunity for the CEO is 133% of salary and for the CFO is 100% of salary. The target opportunity for both is 50% of maximum opportunity. The annual bonus measures will be AEBITDA, Total Income and non-financial (each weighted one-third). 40% of any bonus earned will be deferred into shares for 3 years. We have moved from Operating Income to Total Income for 2022 as the Committee agreed that it was a more appropriate measure going forwards. This change recognises that investment income is an ongoing part of Funding Circle's income, with the balance sheet being used in accordance with Board approved investment principles, and ensures that management are not incentivised to maximise one form of income over another. The Board considers the actual targets for 2022 to be commercially sensitive at this time, however, we will provide retrospective disclosure of these targets in next year's report. The Committee may apply its discretion to amend the bonus pay-out should any formulaic assessment of performance not reflect the Committee's assessment of overall business performance, the performance of the individual, or the experience of shareholders or other stakeholders over the performance period. # Restricted Share awards In accordance with our Policy, the number of Restricted Shares granted to Executive Directors in 2022 and 2023 will be equal to the number granted in 2021. As disclosed on page 97, Lisa Jacobs was appointed CEO effective from 1 January 2022 and her salary and incentive levels have been set in line with the previous CEO recognising the need to retain and incentivise a highly talented individual in a very competitive market. Accordingly, the CEO and the CFO will be awarded 358,177 and 269,306 Restricted Shares respectively in 2022. Application of the Policy means that the face value of the award is reduced if there has been a fall in the share price, which aligns with proxy agency guidance. As shown in our "illustration of the application of Remuneration Policy in 2022" charts, the grant date face value of 2022 Restricted Share awards would be c.50% lower compared to 2021 Restricted Share awards (assumes a share price of 73.9p at the time the 2022 Restricted Share awards are granted, which was the share price as of 28th February 2022). Vesting will be subject to a financial underpin based on Total Income as well as qualitative underpins to ensure that Executive Directors are not rewarded where the Committee considers there to have been a failure in performance, including serious breach of regulation, material reputational damage and gross misconduct. The financial underpin has been set such that annual income must be on average £181.3 million over the period of three years from 2022 to 2024. Prior to vesting, the Committee will assess whether actual performance of the Company and Executive Directors is reflected to guard against payment for failure or against windfall gains. The Committee retains the discretion to make any adjustment to vesting it deems necessary. 118 Funding Circle Holdings plc ### Benefits and pension contributions In line with our Policy, the benefits offered to Executive Directors are in line with those available to other employees in the Group. All Circlers (including Executive Directors) are offered the opportunity to receive Private Medical Insurance, life assurance, dental insurance, and a health cash plan paid for by Funding Circle. Circlers can upgrade their cover and include family members/spouses/partners at their own cost. The Executive Directors, and all UK Circlers, are eligible to receive a pension contribution or cash in lieu of 5% of salary. ### 2021 & 2022 Non-Executive Director and Chair fees The Chair fee and Non-Executive Director fees were reviewed in January 2022. Whilst these fees are reviewed annually, they have not been changed since Funding Circle's IPO in September 2018. Since the fees were set, the role and responsibilities of Committee Chairs, the Chair of Funding Circle Ltd. and the Chair of the Board have increased. We are therefore increasing the Committee Chair fees by £5,000 to £15,000. Additionally, the fee for the Chair of the Board has been increased by 3.5% which is in line with the historic average annual increase for Circlers, but below the average increase awarded for Circlers in 2022. When reviewing the fees we also considered fees paid at Financial Services organisations of a similar size and complexity and, as an additional reference point, the FTSE SmallCap Top Half. It has been determined that the Non-Executive Director fees will be as set out in the table below, and are effective from 1 March 2022. | Fee | 2021 | 2022 | | --- | --- | --- | | Chair fee | £200,000 | £207,000 | | Non-Executive Director base fee | £55,000 | £55,000 | | Senior Independent Director fee | £10,000 | £10,000 | | Committee Chair fees (other than the Nomination Committee) | £10,000 | £15,000 | | Chair of Funding Circle Ltd | — | £15,000 | This report has been prepared in accordance with the Companies Act 2006, Schedule 8 of the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (as amended), the 2018 UK Corporate Governance Code and the UK Listing Authority's Listing Rules. STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Annual Report and Accounts 2021 119 Corporate governance # Report of the Directors for the year ended 31 December 2021 The Directors present their report (the "Directors' Report") and the Annual Report and Accounts for the year ended 31 December 2021. Information required to be part of the Directors' Report either by statute, by Listing Rule 9.8 or by the DTRs can be found either in this section or elsewhere in this document, as indicated in the table below. All information located elsewhere in this document is incorporated into this Directors' Report by reference. | Section of Annual Report | Page reference | | --- | --- | | **Information required by LRS 8/DTRs** | | | Corporate Governance Statement | Corporate Governance Statement (page 70) | | Going Concern and Viability Statement | Risk management (page 64) | | Directors' interests | Remuneration Report (page 113) and Directors' Report (page 121) | | Long-term incentive schemes | Remuneration Report (page 114) | | Waiver of emoluments | Remuneration Report (page 109) | | Powers for the Company to buy back its shares | Report of the Directors (page 121) | | Allotment of shares during the year | Note 18 to the financial statements | | Significant shareholders | Report of the Directors (page 122) | | Related party agreements | Note 26 to the financial statements | | Diversity policy | Nomination Committee Report (page 82) | | Climate-related financial disclosures | See Sustainability (pages 29 to 34) | | **Statutory information** | | | Stakeholder engagement | Strategic Report – Our Stakeholders (pages 38 to 41). See also Board decision making and section 172 duties on pages 75 to 76 of the Corporate Governance Report | | Employee engagement | Strategic Report – Our Stakeholders (pages 38 to 41) and Our People (page 24). See also Board decision making and section 172 duties on pages 75 to 76 of the Corporate Governance Report | | Policy concerning the employment of disabled persons | Strategic Report – Our people (page 27) | | Financial instruments | Note 17 to the financial statements | | Future developments of the business | Strategic Report (pages 4 to 23) | | Greenhouse gas emissions, energy consumption and energy efficiency action | Strategic Report – Sustainability (pages 33 to 34) | | Significant agreements | Report of the Directors (page 121) | | Non-financial reporting | Strategic Report – see below | ## Management Report This Report of the Directors, together with the Strategic Report on pages 1 to 65, forms the Management Report for the purposes of DTR 4.1.5R. ## Strategic Report Section 414A of the Companies Act 2006 (the "Act") requires the Directors to present a Strategic Report in the Annual Report and Accounts. The information can be found on pages 1 to 65. The Company has chosen, in accordance with section 414C (11) of the Act and as noted in this Directors' Report, to include certain matters in its Strategic Report that would otherwise be disclosed in this Directors' Report. Section 414C of the Act requires the Company to include within its Strategic Report a non-financial statement setting out such information as is required by section 414CB of the Act. Such information is set out in the Our people section on pages 24 to 27, the Sustainability section on pages 28 to 37, the Our Model and Strategic priorities sections on pages 20 to 23, our Key performance indicators on page 42, and the Risk management and Going concern and Viability statement sections on pages 51 to 65. ## Directors The Directors of the Company during the year and for the period up to the date of this report were: | Andrew Learoyd (Chair) | Geeta Gopalan (Senior Independent Director) | Matthew King – appointed 19 May 2021 (Independent Non-Executive Director) | | --- | --- | --- | | Sami Desai CBE (co-founder, Chief Executive Officer to Non-Executive Director on 1 January 2022) | Eric Daniels (Independent Non-Executive Director) | Helen Beck – appointed 1 June 2021 (Independent Non-Executive Director) | | Lisa Jacobs – appointed on 1 January 2022 (Chief Executive Officer) | Hendrik Nelis (Non-Executive Director) | Cath Keers – resigned 19 May 2021 (Independent Non-Executive Director) | | Oliver White (Chief Financial Officer) | Neil Rimer (Non-Executive Director) | Bob Steel – resigned 19 May 2021 (Senior Independent Director) | | | | Ed Wray – resigned 19 May 2021 (Independent Non-Executive Director) | | 120 Funding/Grate Holdings plc | | | ## Insurance and indemnities The Company maintains appropriate insurance to cover Directors' and Officers' liability for itself and its subsidiaries. In addition the Company indemnifies each Director under a separate deed of indemnity. The Company also indemnifies each Director under its Articles of Association. Such indemnities are qualifying indemnities for the purposes of, and permitted under, section 234 of the Act. ## Directors' interests The number of ordinary shares in which the Directors were beneficially interested as at 31 December 2021 is set out in the Directors' Remuneration Report on page 113. There were no additional ordinary shares allotted to the Directors in the period between 31 December 2021 and 8 March 2022. There were no other changes during that period to the number of ordinary shares in which the Directors were beneficially interested. In line with the requirements of the Act, each Director has notified the Company of any situation in which he or she has, or could have, a direct or indirect interest that conflicts, or possibly may conflict, with the interests of the Company (a situational conflict). The Board has formal procedures to deal with Directors' conflicts of interest. None of the Directors has a material interest in any significant contract with the Company or any member of its Group. ## Results and dividends The Group's and the Company's audited financial statements for the year are set out on pages 132 to 192. The Directors do not recommend payment of a final dividend for 2021 (2020: £nll). ## Appointment and replacement of Directors The rules governing the appointment and replacement of Directors are set out in the Company's Articles and are governed by the Code, the Act and related legislation. All Directors will offer themselves for re-election to the Company's Board at the AGM. ## Amendment of the Articles The Company's Articles of Association may only be amended by a special resolution at a general meeting of shareholders. No amendments are proposed to be made to the existing Articles of Association at the forthcoming AGM. ## Authority to allot or purchase the Company's shares The Articles permit the Directors to issue or approve the purchase by the Company of its own shares, subject to obtaining shareholders' prior approval. The authority to issue or buy back shares will expire at the 2022 AGM, and it will be proposed at the meeting that the Directors be granted new authorities to issue and buy back shares. The Directors currently have authority to approve the Company's purchase of up to 35,330,154 of the Company's ordinary shares. However, the Company did not repurchase any of its ordinary shares during the year. ## Share capital The Company's issued share capital comprises ordinary shares of £0.001, each of which are listed on the London Stock Exchange. The issued share capital of the Company as at 31 December 2021 comprises 356,619,718 ordinary shares of £0.001 each. Further information regarding the Company's issued share capital can be found on page 171 of the financial statements. Details of the shares held by the Group's Employee Benefit Trusts are disclosed in note 18 to the financial statements. ## Rights attaching to shares All shares have the same rights (including voting and dividend rights and rights on a return of capital) and restrictions as set out in the Articles, described below. Except in relation to dividends and rights on a liquidation of the Company, the shareholders have no rights to share in the profits of the Company. The Company's shares are not redeemable. However, following any grant of authority from shareholders, the Company may purchase or contract to purchase any of the shares on or off market, subject to the Act and the requirements of the Listing Rules. ## Voting rights All members who hold ordinary shares are entitled to attend and vote at the AGM. On a show of hands at a general meeting, every member present in person shall have one vote and, on a poll, every member present in person or by proxy shall have one vote for every share of which he or she is the holder. No shareholder holds ordinary shares carrying special rights relating to the control of the Company and the Directors are not aware of any agreements between holders of the Company's shares that may result in restrictions on voting rights. Shares held by the Company's Employee Benefit Trusts rank pari passu with the shares in issue and have no special rights. Voting rights and rights of acceptance of any offer relating to shares held in trust rest with the Trustees and are not exercisable by employees, although the Trustees will exercise such rights arising from allocated shares in accordance with the relevant participant's directions. ## Restrictions on transfer of securities The Articles do not contain any restrictions on the transfer of ordinary shares in the Company other than the usual restrictions applicable where any amount is unpaid on a share. All issued share capital of the Company at the date of this report is fully paid. Certain restrictions are also imposed by laws and regulations (such as insider dealing and market requirements relating to closed periods) and requirements of the Disclosure Guidance and Transparency Rules, as well as the Company's own dealing codes, whereby Directors, persons connected to the Directors and certain employees of the Company require approval to deal in the Company's securities. ## Change of control The details of the additional protections that apply in the event of termination of employment due to a takeover bid in respect of certain of the CEO's pre-IPO awards are set out on page 102 under 'Legacy awards'. These additional protections also apply to LTIP Awards held by members of the GLT (but excluding the Executive Directors). Save in respect of these awards, there are no agreements between the Company and its Directors or employees providing for compensation for loss of office or employment (whether through resignation, purported redundancy or otherwise) because of a takeover bid. Annual Report and Accounts 2021 121 FINANCIAL REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Corporate governance ### Report of the Directors continued Change of control continued The Group is party to a limited number of funding agreements that include change of control provisions which, in the event of a change of control of the Company, could result in the termination of those arrangements, generally resulting in the discontinuation of further loan origination and termination of servicing by the Group under the affected arrangement. In addition, the Group participates in one or more lending schemes that benefit from a form of government-backed guarantee and it is expected that, in the event of a change of control of the Company, the consent of the relevant loan guarantor would be required to enable the Group’s continued participation in those schemes. Significant shareholdings As at 31 December 2021 and 28 February 2022, the Company has been notified pursuant to DTR5.1, or is otherwise aware, of the following significant interests in the issued ordinary share capital of the Company: | | | Number | Percentage | | | Number | | Percentage | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | of ordinary | | issued share | | of ordinary | | | issued share | | | | | shares as at | | capital as at | | shares as at | | | capital as at | | | | | 31 December | | 31 December | | 28 February | | | 28 February | | Nature of | | Name of shareholder | | 2021 | | 2021 | | | 2022 | | 2022 | holding | Index Ventures 58,618,351 16.44 58,618,351 16.44 Indirect Aktieselskabet CBH 46,5 07,936 13.04 46,507,936 13.04 Indirect Accel London Management 26,906,743 7.5 4 26,906,743 7.5 4 Indirect T Rowe Price Global Investments 22, 837,919 6.40 22,470,392 6.30 Indirect Jupiter Asset Management 19,935,766 5.59 19,935,766 5.59 Indirect DST Managers 16,505,378 4.63 16,505,378 4.63 Indirect Mr Samir Desai 16,397,164 4.60 16,397,164 4.60 Indirect Capital Group 14,713,073 4.13 14,713,073 4.13 Indirect Ninety One 14,176,859 3.98 14,136,859 3.96 Indirect Mr James Meekings 9,478,357 2.66 9,668,833 2.71 Indirect In the period between 28 February and 8 March 2021 (the latest practicable date prior to the date of this report), the Company received no further notifications pursuant to DTR5. | Research and development | Statement of disclosure of | 2021 AGM | | --- | --- | --- | | The Group invests in the research and | information to auditors | The Company’s AGM will take place | | development of technology and software | Each of the persons who is a Director | at 12:00 p.m. on 9 June 2022 at the | | products that enable the Group to achieve | at the date of approval of this report | Company’s offices at 71 Queen Victoria | | its key performance objective of growing | confirms that: | Street, London EC4V 4AY. | lending to small businesses whilst X so far as the Director is aware, there A separate circular, comprising a letter delivering resilient returns to investors. is no relevant audit information from the Chair of the Board, Notice of which the Company’s external of Meeting and explanatory notes Political donations auditors are unaware; and on the resolutions being proposed, There were no political donations made has been circulated to shareholders X the Director has taken all the steps during the year or the previous year. and is available on our website, that he/she ought to have taken as corporate.fundingcircle.com/investors/ a Director in order to make himself/ External branches shareholder-meetings. herself aware of any relevant audit The Company has subsidiaries in the information and to establish that the It is not anticipated that the AGM will United Kingdom, the United States Company’s auditors are aware of be impacted by Covid-19 as in previous of America, Germany, Spain and the  years; however, the Board continues to Netherlands but the Group had no closely monitor government guidance registered external branches during the This confirmation is given and should in relation to Covid-19, including any reporting period or prior year. be interpreted in accordance with the imposed restrictions, and will provide provisions of section 418 of the Act. an update on our website at corporate. External auditors fundingcircle.com/investors/shareholder- PwC have confirmed their willingness meetings and, where appropriate, by to continue as external auditors and an announcement via a Regulatory a resolution to reappoint them as the Information Service, if any changes are Company’s external auditors, and required to the AGM arrangements. to authorise the Directors to fix the auditors’ remuneration, will be proposed at the 2022 AGM. Funding Circle Holdings plc122 ### Statement of Directors’ responsibilities in respect of the financial statements STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS The Directors are responsible for The Directors are also responsible In the case of each Director in office preparing the Annual Report and the for keeping adequate accounting at the date the Directors’ report financial statements in accordance with records that are sufficient to show and is approved: applicable law and regulation. explain the Group’s and Company’s X so far as the Director is aware, there transactions and disclose with Company law requires the Directors is no relevant audit information of reasonable accuracy at any time the to prepare financial statements for which the Group’s and Company’s financial position of the Group and each financial year. Under that law the auditors are unaware; and Company and enable them to ensure Directors have prepared the Group X they have taken all the steps that that the financial statements and the and Company financial statements they ought to have taken as a Directors’ Remuneration Report comply in accordance with International Director in order to make themselves with the Companies Act 2006. Accounting Standards in conformity aware of any relevant audit with UK-adopted international The Directors are responsible for information and to establish that the accounting standards. the maintenance and integrity of the Group’s and Company’s auditors are Company’s website. Legislation in aware of that information. Under company law, Directors must not the United Kingdom governing the approve the financial statements unless preparation and dissemination of they are satisfied that they give a true financial statements may differ from Approved by the Board and signed on and fair view of the state of affairs of the legislation in other jurisdictions. its behalf. Group and Company and of the profit or loss of the Group for that period. In Directors’ confirmations preparing the financial statements, the The Directors consider that the Annual Lisa Jacobs Directors are required to: | | Report and Accounts, taken as a whole, | Chief Executive Officer | | --- | --- | --- | | X select suitable accounting policies | is fair, balanced and understandable and | 10 March 2022 | | and then apply them consistently; | provides the information necessary for | | | X state whether applicable UK-adopted | shareholders to assess the Group’s and | | | international accounting standards | Company’s position and performance, | | | have been followed, subject to any | business model and strategy. | | material departures disclosed and Each of the Directors, whose names and explained in the financial statements; functions are listed in the Report of the X make judgements and accounting Directors confirm that, to the best of estimates that are reasonable and their knowledge: prudent; and X the Group and Company financial X prepare the financial statements on statements, which have been the going concern basis unless it is prepared in accordance with UK- inappropriate to presume that the adopted international accounting Group and Company will continue standards, give a true and fair view in business. of the assets, liabilities and financial The Directors are also responsible position of the Group and Company,  and of the profit of the Group; and  X the Strategic Report includes a for taking reasonable steps for the fair review of the development and prevention and detection of fraud performance of the business and the  position of the Group and Company, together with a description of the principal risks and uncertainties that they face. Annual Report and Accounts 2021 123 # FINANCIAL STATEMENTS - 125 Independent auditors' report - 132 Consolidated statement of comprehensive income - 133 Consolidated balance sheet - 134 Consolidated statement of changes in equity - 135 Consolidated statement of cash flows - 136 Notes forming part of the consolidated financial statements - 182 Company balance sheet - 183 Company statement of changes in equity - 184 Company statement of cash flows - 185 Notes forming part of the Company financial statements - 193 Glossary - 194 Shareholder and Company information 124 Funding Circle Holdings plc Financial statements # Independent auditors' report to the members of Funding Circle Holdings plc # Report on the audit of the financial statements # Opinion In our opinion, Funding Circle Holdings plc's Group financial statements and Company financial statements (the "financial statements") - give a true and fair view of the state of the Group's and of the Company's affairs as at 31 December 2021 and of the Group's profit and the Group's and Company's cash flows for the year then ended, - have been properly prepared in accordance with UK-adopted international accounting standards, and - have been prepared in accordance with the requirements of the Companies Act 2006. We have audited the financial statements, included within the Annual Report and Accounts (the "Annual Report"), which comprise: the consolidated and Company balance sheets as at 31 December 2021; the consolidated statement of comprehensive income; the consolidated and Company statements of changes in equity and the consolidated and Company statements of cash flows for the year then ended; and the notes to the financial statements, which include a description of the significant accounting policies. Our opinion is consistent with our reporting to the Audit Committee. # Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) ("ISAs (UK)") and applicable law. Our responsibilities under ISAs (UK) are further described in the Auditors' 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. # Independence We remained independent of the Group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, which includes the FRC's Ethical Standard, as applicable to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC's Ethical Standard were not provided. Other than those disclosed in note 4, we have provided no non-audit services to the Company or its controlled undertakings in the period under audit. # Our audit approach # Overview # Audit scope - Our audit included full scope audits of the UK and US components which accounted for approximately 98% of the Group's total income and 95% of the Group's profit before taxation. - We performed audit procedures over specific balances in respect of the Funding Circle Central Europe ("FCCE") component at a Group level which together with the full scope audits accounted for 98% of the Group's total income and 93% of the Group's profit before taxation. # Key audit matters - Valuation of SME loans (securitised) (Group) - Carrying value of the Company's investment in the US subsidiary (Company) # Materiality - Overall Group materiality: £1,800,000 (2020: £1,890,000) based on 5% of the average of profit/loss before taxation for the previous three years, adjusted for exceptional items and fair value gains and losses. - Overall Company materiality: £3,400,000 (2020: £3,400,000) based on 1% of total assets. - Performance materiality: £1,350,000 (2020: £1,400,000) (Group) and £2,500,000 (2020: £2,500,000) (Company) # The scope of our audit As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. STRATEGIC REPORT CORPORATE STATEMENTS FINANCIAL STATEMENTS Annual Report and Accounts 2021 125 Financial statements ### Independent auditors’ report continued to the members of Funding Circle Holdings plc Report on the audit of the financial statements continued Our audit approach continued Key audit matters Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the 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) identified by the auditors, 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, and any comments we make on the results of our procedures thereon, 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. This is not a complete list of all risks identified by our audit. The impact of Covid-19 on the audit (Group and Company), valuation of unrated bond liabilities (reported together with the valuation of SME loans) (Group), valuation of loan repurchase liability (Group) and valuation of non-financial assets in the US GCU (reported together with the carrying value of investment in the US subsidiary) (Group and Company), which were key audit matters last year, are no longer included because:  our consideration of the impact of Covid-19 in the current year is captured by our key audit matter on the valuation of SME loans (securitised) and it no longer represents an area of increased audit attention in its own right;  unrated bond liabilities have been settled in the year thus reducing the liabilities held and as such reducing the risk of material misstatement arising on the valuation of the remaining portfolio;  the estimation uncertainty in relation to the determination of expected credit losses on the loan repurchase liability has reduced given the amortisation of the underlying loans, the portfolio performance in the period and the improving economic environment; and  the risk of misstatement related to the carrying value of the non-financial assets in the US CGU has decreased this year given the carrying value of the assets has reduced year on year and the increased headroom arising from stronger operational performance. Otherwise, the key audit matters below are consistent with last year. Key audit matter How our audit addressed the key audit matter Valuation of SME loans (securitised) (Group) Our audit procedures comprised the following: Refer to Report of the Audit Committee – Significant issues  We understood and evaluated the design and implementation of controls considered in relation to the financial statements (page 87); note 1 relating to the valuation of the Group’s portfolio of SME loans (securitised). (accounting policies); note 2 (critical accounting estimates and key sources of estimation uncertainty); note 13 (investment  We engaged our valuation experts to assess the appropriateness of the in SME loans); and note 17 (financial risk management) of the methodology used by management in determining the valuation of the Group financial statements. investments in SME loans (securitised) which are held at fair value. This included assessing the appropriateness of the key assumptions within The Group consolidates portfolios of SME loan portfolios which the valuation model which we considered to be the discount rate, default are held in securitised vehicles. The SME loans (securitised) are rate and recovery rate. Our assessment of the reasonableness of the recorded on the balance sheet at fair value with resultant gains assumptions included comparison to third party data where available. and losses recognised in the income statement.  We derived our own independent estimate of the discount rate and As at the balance sheet date, the Group holds investments in compared this to that used by management. SME loans (securitised) amounting to £148.1m.  We built our own independent model to re-calculate the fair value using The estimation of the fair value of the SME loans (securitised) management’s assumptions. requires models which ultilise both observable and unobservable inputs, with reasonable movements in each key assumption Based on the above procedures performed, and the evidence obtained, we resulting in material changes to fair value. Judgement is required concluded that the estimated fair value of the SME loans (securitised) was to determine an appropriate discount rate, default rate and reasonable. recovery rate, leading to a level of estimation uncertainty. As a We evaluated the appropriateness of the critical accounting estimates result the valuation of the SME loans (securitised) has been an and key sources of estimation uncertainty in note 2 to the Group financial area of focus in our audit. statements and the disclosures on financial instruments in note 13 and note 17 and considered these to be reasonable. Funding Circle Holdings plc126 STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Report on the audit of the financial statements continued Our audit approach continued Key audit matters continued Key audit matter How our audit addressed the key audit matter Carrying value of the Company’s investment in the US Our audit procedures comprised the following: subsidiary (Company)  We understood and evaluated the design and implementation of controls Refer to Report of the Audit Committee – Significant issues relating to the Company’s impairment assessments. considered in relation to the financial statements (page 87; note 1 accounting policies including critical accounting  We assessed the methodology used by management against the judgements and key sources of estimation uncertainty); and requirements of the financial reporting framework and tested the note 5 (investments in subsidiary undertakings) of the Company mathematical accuracy of the model. financial statements.  We have agreed the forecast financial information to budgets and The Company holds an investment in the US subsidiary forecasts approved by senior management and the Board, including the with a carrying value of £65.1m after impairment. IAS 36 Medium Term Plan. ‘Impairment of Assets’ requires that investments are subject to  We evaluated the reliability of management’s forecasting by comparing an impairment review when there is an indication that an asset actual results with previous years’ forecasts. may be impaired. The indications that the carrying value of the investment in the US subsidiary may be impaired are:  We compared the forecast growth rates with those achieved by the   the impact of the US business restructuring activities  completed in the prior year; and  We identified the key drivers in management’s forecasts and assessed  the impact on operational results following the closure of their reasonableness by comparing them to historical results. Where the PPP scheme with the US business returning to core and significant improvements were forecast in key assumptions underpinning Marketplace activities. the forecast cash flow growth, we challenged management on whether Management performed an impairment assessment and the forecast improvements were reasonable and supportable and obtained estimated the recoverable amount using a value-in-use model. corroborating evidence to assess these assumptions. The significant assumptions in this assessment included the  We performed sensitivity analysis to assess the susceptibility of change revenue growth rate and the discount rate. in key assumptions including where management was unable to support forward looking assumptions.  We assessed the appropriateness of the discount rate assumption by using our valuation experts to derive an independent view on the rate.  We engaged tax experts to review and assess the reasonableness of the group’s transfer pricing policy and arrangements. We tested whether transfer pricing adjustments were consistent with the policy and have been appropriately reflected within the model. Based on the above procedures performed, and the evidence obtained, we considered the Directors’ conclusion that the carrying value of the US subsidiary is not impaired to be reasonable. We evaluated the appropriateness of the related disclosures in note 1 (accounting policies including the critical accounting estimates and key sources of estimation uncertainty) to the Company’s financial statements and note 5 (investments in subsidiaries) and considered these to be reasonable. How we tailored the audit scope We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole, taking into account the structure of the Group and the Company, the accounting processes and controls, and the industry in which they operate. 1) Audit approach to Funding Circle’s operations: We performed a risk assessment, giving consideration to relevant external and internal factors, including Covid-19, climate change, and economic risks, relevant accounting and regulatory developments, and Funding Circle’s strategy. We also considered our knowledge and experience obtained in prior year audits. As part of considering the impact of climate change in our risk assessment, we evaluated management’s assessment of the impact of climate risk, which is set out on pages 30 to 32. We designed our audit approach for the products and services that substantially make up Funding Circle’s businesses in the UK, US and CE, such as platform lending, marketplace referrals and the origination of, and investment in, SME loan portfolios. The audit approach was designed by a partner and team members who are specialists in the relevant areas. The risk assessment and audit approach were provided to the US audit team who contributed to the Group audit. 2) Audit work for in scope components: Through our risk assessment and scoping we identified the US group and three components of the UK group as full scope components due to being financially significant. We considered FCCE as a limited scope entity for specific balances including loan repurchase liability and cash. We instructed our network firm in the US to perform a full scope audit of the US component. The Group audit team performed the audit work for the UK components and the specific work over FCCE balances. We assigned materiality levels to components reflecting the size of their operations. The performance materiality levels ranged from £1.0 million to £1.3 million. We determined the level of involvement we needed to have in their audit work to be able to conclude whether sufficient appropriate audit evidence had been obtained as a basis for our opinion on the Group financial statements as a whole. This included active and regular dialogue with the partner and team responsible for the audit of the US component, the issuance of instructions, reviewing their audit plan and strategy and a review of their audit working papers and their findings in certain areas. Analytical review procedures were performed over FCCE, a non-significant component with material balances, to mitigate the risk of material misstatement. Annual Report and Accounts 2021 127 Financial statements ### Independent auditors’ report continued to the members of Funding Circle Holdings plc Report on the audit of the financial statements continued Our audit approach continued How we tailored the audit scope continued 3) Audit procedures undertaken at a Group level and on the Company: We ensured that appropriate further work was undertaken for the Group and Company. Certain account balances were audited centrally by the Group engagement team, including the Company’s investment in subsidiary undertakings, the investments in associates, the valuation of SME loans, the consolidation of the Group’s  4) Using the work of others: We used the evidence provided by our valuation experts and specialists for our work on the significant assumptions used in the impairment assessment over the Company’s investment in the US subsidiary, and the valuation of the SME  Materiality The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the financial statements as a whole. Based on our professional judgement, we determined materiality for the financial statements as a whole as follows: Financial statements – Group Financial statements – Company Overall materiality £1,800,000 (2020: £1,890,000). £3,400,000 (2020: £3,400,000). How we determined it 5% of the average of profit/loss before taxation for the previous 1% of total assets. three years, adjusted for exceptional items and fair value gains and losses. | Rationale for | We determined materiality by applying 5% to the average | We consider total assets to be the most | | --- | --- | --- | | benchmark applied | consolidated profit/loss before taxation for the previous three | appropriate benchmark to apply on | | | years after adjusting for exceptional items and fair value | the basis that the Company is a non- | | | gains and losses. We consider profit/loss before taxation to | trading investment Company that holds | | | be the most appropriate benchmark used in assessing the | investment in the Group’s subsidiaries. | performance of the Group as the business is listed and profit orientated. Given the volatility in the underlying performance caused by recent challenging economic conditions resulting from Covid-19, we consider it appropriate to take an average of the results of the preceding three years. We believe that profit/ loss before taxation adjusted for exceptional items and fair value gains and losses is an appropriate measure as it eliminates the impact of one-off non-recurring items which significantly impact comparability. For each component in the scope of our Group audit, we allocated a materiality that is less than our overall Group materiality. The range of materiality allocated across components was between £1,400,000 and £1,700,000. Certain components were audited to a local statutory audit materiality that was also less than our overall Group materiality. We use performance materiality to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds overall materiality. Specifically, we use performance materiality in determining the scope of our audit and the nature and extent of our testing of account balances, classes of transactions and disclosures, for example in determining sample sizes. Our performance materiality was 75% (2020: 75%) of overall materiality, amounting to £1,350,000 (2020: £1,400,000) for the Group financial statements and £2,500,000 (2020: £2,500,000) for the Company financial statements. In determining the performance materiality, we considered a number of factors - the history of misstatements, risk assessment and aggregation risk and the effectiveness of controls - and concluded that an amount at the upper end of our normal range  We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £90,000 (Group audit) (2020: £95,000) and £90,000 (Company audit) (2020: £95,000) as well as misstatements below those amounts that, in our view, warranted reporting for qualitative reasons. Conclusions relating to going concern Our evaluation of the directors’ assessment of the Group’s and the Company’s ability to continue to adopt the going concern basis of accounting included:  performing a risk assessment to identify factors that could impact the going concern basis of accounting, including the impact of external risks including Covid-19 and climate change;  understanding and evaluating management’s financial forecasts and liquidity and regulatory capital over the going concern period including an evaluation of the stress testing performed by management;  review of management’s covenant compliance monitoring and the impact of the stress scenarios on the covenants;  substantiation of financial resources available to the Group and Company as at the balance sheet date including the unrestricted cash; and  reading and evaluating the adequacy of the disclosures made in the financial statements in relation to going concern. Funding Circle Holdings plc128 STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Report on the audit of the financial statements continued Conclusions relating to going concern continued 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’s and the 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. 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. However, because not all future events or conditions can be predicted, this conclusion is not a guarantee as to the Group’s and the Company’s ability to continue as a going concern. In relation to the directors’ reporting on how they have applied the UK Corporate Governance Code, we have nothing material to add or draw attention to in relation to the directors’ statement in the financial statements about whether the directors considered it appropriate to adopt the going concern basis of accounting. Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of  Reporting on other information The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’ report thereon. The directors are responsible for the other information, which includes reporting based on the Task Force on Climate-related Financial Disclosures (TCFD) recommendations. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance thereon. In connection with our audit of the financial statements, 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 audit, or otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform procedures to conclude whether there is a material misstatement of the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement  With respect to the Strategic report and Report of the Directors, we also considered whether the disclosures required by the UK Companies Act 2006 have been included. Based on our work undertaken in the course of the audit, the Companies Act 2006 requires us also to report certain opinions and matters as described below. Strategic report and Report of the Directors In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic report and Report of the Directors for the year ended 31 December 2021 is consistent with the financial statements and has been prepared in accordance with applicable legal requirements. In light of the knowledge and understanding of the Group and Company and their environment obtained in the course of the audit, we did not identify any material misstatements in the Strategic report and Report of the Directors. Directors’ remuneration In our opinion, the part of the Directors’ remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006. Corporate governance statement The Listing Rules require us to review the directors’ statements in relation to going concern, longer-term viability and that part of the corporate governance statement relating to the Company’s compliance with the provisions of the UK Corporate Governance Code specified for our review. Our additional responsibilities with respect to the corporate governance statement as other information are described in the Reporting on other information section of this report. Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the corporate governance statement is materially consistent with the financial statements and our knowledge obtained during the audit, and we have nothing material to add or draw attention to in relation to:  the directors’ confirmation that they have carried out a robust assessment of the emerging and principal risks;  the disclosures in the Annual Report that describe those principal risks, what procedures are in place to identify emerging risks and an explanation of how these are being managed or mitigated;  the directors’ statement in the financial statements about whether they considered it appropriate to adopt the going concern basis of accounting in preparing them, and their identification of any material uncertainties to the Group’s and Company’s ability to continue to do so over a period of at least twelve months from the date of approval of the financial statements;  the directors’ explanation as to their assessment of the Group’s and Company’s prospects, the period this assessment covers and why the period is appropriate; and  the directors’ statement as to whether they have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the period of its assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions. Annual Report and Accounts 2021 129 Financial statements ### Independent auditors’ report continued to the members of Funding Circle Holdings plc Report on the audit of the financial statements continued Corporate governance statement continued Our review of the directors’ statement regarding the longer-term viability of the Group was substantially less in scope than an audit and only consisted of making inquiries and considering the directors’ process supporting their statement; checking that the statement is in alignment with the relevant provisions of the UK Corporate Governance Code; and considering whether the statement is consistent with the financial statements and our knowledge and understanding of the Group and Company and their environment obtained in the course of the audit. In addition, based on the work undertaken as part of our audit, we have concluded that each of the following elements of the corporate governance statement is materially consistent with the financial statements and our knowledge obtained during the audit:  the directors’ statement that they consider the Annual Report, taken as a whole, is fair, balanced and understandable, and provides the information necessary for the members to assess the Group’s and Company’s position, performance, business model and strategy;  the section of the Annual Report that describes the review of effectiveness of risk management and internal control systems; and  the section of the Annual Report describing the work of the Audit Committee. We have nothing to report in respect of our responsibility to report when the directors’ statement relating to the Company’s compliance with the Code does not properly disclose a departure from a relevant provision of the Code specified under the Listing Rules for review by the auditors. Responsibilities for the financial statements and the audit Responsibilities of the directors for the financial statements As explained more fully in the Statement of Directors’ responsibilities in respect of the financial statements, the directors are responsible for the preparation of the financial statements in accordance with the applicable framework and for being satisfied that they give a true and fair view. The directors are also responsible for such internal control as they 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 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 Company or to cease operations, or have no realistic alternative but to do so. Auditors’ 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 auditors’ 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. 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. Based on our understanding of the Group and industry, we identified that the principal risks of non-compliance with laws and regulations related to the Group’s provision of regulated products and services under its Financial Conduct Authority (“FCA”) licence, and we considered the extent to which non-compliance might have a material effect on the financial statements. We also considered those laws and regulations that have a direct impact on the financial statements such as the Companies Act 2006. We evaluated management’s incentives and opportunities for fraudulent manipulation of the financial statements (including the risk of override of controls), and determined that the principal risks were related to bias in accounting estimates and judgements and the posting of manual journal entries in respect of fee income. The Group engagement team shared this risk assessment with the component auditors so that they could include appropriate audit procedures in response to such risks in their work. Audit procedures performed by the Group engagement team and/or component auditors included:  review of correspondence with, and reports to, the FCA;  review of customer complaints to identify any indicators of breaches in laws and regulations;  enquiries of the Directors, the Chair of the Audit Committee, the Head of Internal Audit and management, including the Group’s general counsel and the Group’s head of legal and regulatory, including consideration of known or suspected instances of non- compliance with laws and regulation and fraud;  review of all internal audit reports issued in the period to identify any indicators of breaches in laws and regulations;  identifying and testing journal entries and period end adjustments, including those with unusual account combinations, including entries made in respect of fee income and posted by unexpected users; and  challenging significant assumptions and judgements made by management in its accounting estimates, in particular in relation those used in the determination of the fair value of SME loans (securitised), impairment assessment in respect of the US subsidiary, capitalisation of development costs and the presentation and disclosure of items such as exceptionals in the financial statements. There are inherent limitations in the audit procedures described above. We are less likely to become aware of instances of non- compliance with laws and regulations that are not closely related to events and transactions reflected in the financial statements. Also, 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 or intentional misrepresentations, or through collusion. Funding Circle Holdings plc130 STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Report on the audit of the financial statements continued Responsibilities for the financial statements and the audit continued Auditors’ responsibilities for the audit of the financial statements continued Our audit testing might include testing complete populations of certain transactions and balances, possibly using data auditing techniques. However, it typically involves selecting a limited number of items for testing, rather than testing complete populations. We will often seek to target particular items for testing based on their size or risk characteristics. In other cases, we will use audit sampling to enable us to draw a conclusion about the population from which the sample is selected. A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report. Use of this report This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. Other required reporting Companies Act 2006 exception reporting Under the Companies Act 2006 we are required to report to you if, in our opinion:  we have not obtained all the information and explanations we require for our audit; or  adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received from branches not visited by us; or  certain disclosures of directors’ remuneration specified by law are not made; or  the Company financial statements and the part of the Directors’ remuneration report to be audited are not in agreement with the accounting records and returns. We have no exceptions to report arising from this responsibility. Appointment Following the recommendation of the Audit Committee, we were appointed by the directors on 4 August 2015 to audit the financial statements for the year ended 31 December 2015 and subsequent financial periods. The period of total uninterrupted engagement is seven years, covering the years ended 31 December 2015 to 31 December 2021. Other matter In due course, as required by the Financial Conduct Authority Disclosure Guidance and Transparency Rule 4.1.14R, these financial statements will form part of the ESEF-prepared annual financial report filed on the National Storage Mechanism of the Financial Conduct Authority in accordance with the ESEF Regulatory Technical Standard (‘ESEF RTS’). This auditors’ report provides no assurance over whether the annual financial report will be prepared using the single electronic format specified in the ESEF RTS. Nick Morrison (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors London 10 March 2022 Annual Report and Accounts 2021 131 Financial statements ### Consolidated statement of comprehensive income for the year ended 31 December 2021 | | 31 December | | | | | | | 31 December | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | 2021 | | | | | | | 2020 | | | | | | | | | Before | | | | | | | Before | | | | | | | | exceptional | | Exceptional | | | 31 December | | exceptional | | Exceptional | | | 31 December | | | | | items | | items |  | | 2021 | | items | | items |  | | 2020 | | Note | | £m | | £m | | | £m | | £m | | £m | | | £m | Transaction fees 115 . 0 — 11 5 . 0 12 2 . 5 — 12 2 . 5 Servicing fees 4 7. 0 — 4 7. 0 30.2 — 30.2 Other income 3.5 — 3.5 3.0 — 3.0 Fee income 16 5 . 5 — 16 5 . 5 15 5 . 7 — 15 5 . 7 Investment income 5 3 .7 — 5 3 .7 89. 0 — 8 9.0 Investment expense (12 . 3) — (12 . 3) (22. 7) — (22. 7) Total income 2 0 6 .9 — 2 0 6 .9 222.0 — 222. 0 Fair value gains/(losses) 28.6 — 28.6 (118 . 3) — (118 . 3) Net income 3 2 35.5 — 23 5.5 10 3 .7 — 10 3 .7 People costs 4, 6 ( 7 7. 7) — ( 7 7.7) (8 1. 3) (4 .0) (8 5 . 3) Marketing costs 4 (4 6 . 9) — (4 6. 9) (4 6 . 8) — (4 6. 8) Depreciation, amortisation and impairment 4 (13 . 9) (3 .9) (1 7. 8) (1 7. 2) (13 .7) (3 0 .9) Loan repurchase credit/(charge) 4 0 .1 — 0 .1 (6 . 2) — (6 . 2) Other costs 4 (29. 0) — (29. 0) (39. 8) (1. 0) (4 0 . 8) Operating expenses 4 (1 6 7. 4) (3 .9) (17 1. 3) (19 1. 3) (18 . 7) (2 10 . 0) Operating profit/(loss) 6 8 .1 (3 .9) 64.2 (8 7. 6) (18 .7) (10 6 . 3) Finance income 7 0 .1 — 0 .1 0.4 — 0.4 Finance costs 7 (1 .1) — (1 .1) (1. 4) — (1. 4) Share of net profit/(loss) of associates 30 0.9 — 0 .9 (0 .8) — (0 .8) Profit/(loss) before taxation 6 8.0 (3 .9) 6 4 .1 (8 9. 4) (18 . 7) (10 8 .1) Income tax 8 (2 .9) — (2 .9) (0 .2) — (0 .2) Profit/(loss) for the year 6 5 .1 (3 .9) 61 . 2 (8 9.6) (18 .7) (10 8 . 3) Other comprehensive income Items that may be reclassified subsequently to profit and loss: Exchange differences on translation of foreign operations 20 1.4 — 1. 4 1. 7 — 1.7 Total comprehensive profit/(loss) for the year 66.5 (3 .9) 62 .6 (8 7. 9) (18 .7) (10 6 . 6) Total comprehensive profit/(loss) attributable to: Owners of the Parent 66.5 (3 .9) 62 .6 (8 7. 9) (18 .7) (10 6 . 6) Earnings/(loss) per share  9 18 . 5p 1 7. 4p (25 .8)p (3 1. 2)p Diluted earnings/(loss)  9 1 7.1p 16 . 0p (25 . 8)p (3 1. 2)p 1. Exceptional items are detailed within note 5. All amounts relate to continuing activities. The notes on pages 136 to 181 form part of these financial statements. Funding Circle Holdings plc132 ### Consolidated balance sheet as at 31 December 2021 STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 31 December | | 31 December | | | 2020 | | | --- | --- | --- | --- | --- | --- | | | | 2021 |  | | 1 | | Note | | £m | | £m | | Non-current assets Intangible assets 11 2 4 .9 24 .4 Property, plant and equipment 12 1 4 .1 28 .7 Investment in associates 30 7. 6 11 . 0 Investment in trusts and co-investments 13 3 9.1 2 1. 2 Investment in SME loans (other) 13 74 . 2 25 .0 Trade and other receivables 14 4 .1 — 16 4 . 0 11 0 . 3 Current assets Investment in SME loans (warehouse) 13 3.2 2 2 1. 8 Investment in SME loans (securitised) 13 1 4 8 .1 27 9.8 Investment in SME loans (other) 13 1.6 — Trade and other receivables 14 25.0 6 7. 0 Cash and cash equivalents 23 224 .0 10 3 . 3 4 0 1.9 6 7 1.9 Total assets 5 6 5.9 782 .2 Current liabilities Trade and other payables 15 36 .4 3 4 .1 Bank borrowings 17 — 17 1. 2 Bonds 17 14 0 . 3 294.3 Short-term provisions and other liabilities 16 3.4 8 .7 Lease liabilities 12 6.9 7. 3 1 8 7. 0 5 15 . 6 Non-current liabilities Long-term provisions and other liabilities 16 0 .7 1. 2 Bank borrowings 17 73.2 24 .3 Lease liabilities 12 17. 0 23.5 Total liabilities 2 7 7. 9 5 6 4.6 Equity Share capital 18 0.4 0.3 Share premium account 19 293.0 29 2.6 Foreign exchange reserve 20 11.1 9.7 Share options reserve 1 9 .1 13 . 6 Accumulated losses 21 (3 5. 6) (9 8 .6) Total equity 288.0 2 1 7. 6 Total equity and liabilities 5 6 5.9 782 .2 1. See note 1. The financial statements on pages 132 to 181 were approved by the Board and authorised for issue on 10 March 2022. They were signed on behalf of the Board by: Oliver White Director Company registration number 07123934 The notes on pages 136 to 181 form part of these financial statements. Annual Report and Accounts 2021 133 Financial statements # Consolidated statement of changes in equity for the year ended 31 December 2021 | | Note | Share capital £m | Share premium account £m | Foreign exchange reserve £m | Share options reserve £m | Retained earnings/(accumulated losses) £m | Total equity £m | | --- | --- | --- | --- | --- | --- | --- | --- | | **Balance at 1 January 2020** | | 0.3 | 292.3 | 8.0 | 11.9 | 6.5 | 319.0 | | Loss for the year | 21 | — | — | — | — | (108.3) | (108.3) | | **Other comprehensive income** | | | | | | | | | Exchange differences on translation of foreign operations | 20 | — | — | 1.7 | — | — | 1.7 | | **Total comprehensive income/(expense)** | | — | — | 1.7 | — | (108.3) | (106.6) | | **Transactions with owners** | | | | | | | | | Transfer of share option costs | 21 | — | — | — | (3.2) | 3.2 | — | | Issue of share capital | 18, 19 | — | 0.3 | — | — | — | 0.3 | | Employee share schemes – value of employee services | | — | — | — | 4.9 | — | 4.9 | | **Balance at 31 December 2020** | | 0.3 | 292.6 | 9.7 | 13.6 | (98.6) | 217.6 | | Profit for the year | 21 | — | — | — | — | 61.2 | 61.2 | | **Other comprehensive income** | | | | | | | | | Exchange differences on translation of foreign operations | 20 | — | — | 1.4 | — | — | 1.4 | | **Total comprehensive income** | | — | — | 1.4 | — | 61.2 | 62.6 | | **Transactions with owners** | | | | | | | | | Transfer of share option costs | 21 | — | — | — | (1.8) | 1.8 | — | | Issue of share capital | 18, 19 | 0.1 | 0.4 | — | — | — | 0.5 | | Employee share schemes – value of employee services | | — | — | — | 7.3 | — | 7.3 | | **Balance at 31 December 2021** | | **0.4** | **293.0** | **11.1** | **19.1** | **(35.6)** | **288.0** | The notes on pages 136 to 181 form part of these financial statements. 134 Funding Circle Holdings plc ### Consolidated statement of cash flows for the year ended 31 December 2021 STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS | | 31 December | | 31 December | | | --- | --- | --- | --- | --- | | | | 2021 | | 2020 | | Note | | £m | | £m | Net cash inflow from operating activities 23 1 0 0 .1 3 3 .1 Investing activities Purchase of intangible assets 11 (8 .6) (9.5) Purchase of property, plant and equipment 12 (0. 8) (0 .8) Origination of SME loans (other) 17 (2 13 . 5) (25 .0) Cash receipts from SME loans (other) 17 16 3. 7 — Purchase of SME loans (warehouse phase) 17 — (2 8 6.9) Cash receipts from SME loans (warehouse phase) 17 5 8.6 14 6. 9 Cash receipts from SME loans (securitised) 17 15 0. 2 2 11 . 7 Proceeds from sale of SME loans (warehouse phase) 17 1 7 6 .1 — Proceeds from sale of investment bonds 17 — 4.0 Investment in trusts and co-investments 17 (2 2 .1) (2 0 .9) Cash receipts from investments in trusts and co-investments 17 3. 3 — Redemption in associates 26, 30 3.9 1.9 Dividends from associates 26, 30 — 0.4 Interest received 7 0 .1 0.4 Net cash inflow from investing activities 3 10.9 2 2.2 Financing activities Proceeds from bank borrowings 23 208.2 2 3 0 .1 Repayment of bank borrowings 23 (3 3 1. 3) (2 9 9 .1) Proceeds from issuance of bonds 23 — 18 6. 5 Payment of bond liabilities 23 (16 0. 6) (2 26 .1) Proceeds from the exercise of share options 0.4 0.2 Proceeds from subleases 0.2 — Payment of lease liabilities 23 (8 .1) (7. 8) Net cash outflow from financing activities (2 91. 2) (116 . 2) Net increase/(decrease) in cash and cash equivalents 11 9 . 8 (6 0 .9) Cash and cash equivalents at the beginning of the year 10 3 . 3 16 4 .5 Effect of foreign exchange rate changes 0.9 (0 . 3) Cash and cash equivalents at the end of the year 23 2 24.0 10 3 . 3 The impact of exceptional items on the consolidated statement of cash flows is detailed in note 5. The notes on pages 136 to 181 form part of these financial statements. Annual Report and Accounts 2021 135 Financial statements # Notes forming part of the consolidated financial statements for the year ended 31 December 2021 # 1. Accounting policies # General information Funding Circle Holdings plc (the "Company") is a public company limited by shares, which is listed on the London Stock Exchange and is domiciled and incorporated in the United Kingdom under the Companies Act 2006 and registered in England and Wales. The address of its registered office is given on page 194. The consolidated financial statements of the Group for the year ended 31 December 2021 comprise the Company and its subsidiaries (together referred to as the "Group" and individually as "Group entities"). The principal activities of the Group and the nature of the Group's operations are as a global SME loan platform. The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. # Going concern The Group's business activities together with the factors likely to affect its future development and position are set out in the Strategic Report. The financial statements are prepared on a going concern basis as the Directors are satisfied that the Group has the resources to continue in business for the foreseeable future (which has been taken as at least 12 months from the date of approval of the financial statements). The Group made a total comprehensive profit of £62.6 million during the year ended 31 December 2021 (2020: loss of £106.6 million). As at 31 December 2021, the Group had net assets of £288.0 million (2020: £217.6 million). This includes £224.0 million of cash and cash equivalents (2020: £103.3 million) of which £24.6 million (2020: £44.2 million) is held within the securitisation vehicles or for other specific purposes and is restricted in use. Additionally, within the net assets, the Group holds £69.7 million (2020: £118.3 million) of invested capital some of which is capable of being monetised if liquidity needs arise. The Group has prepared detailed cash flow forecasts for the next 15 months and has updated the going concern assessment to factor in the potential ongoing impact of Covid-19, inflation and related economic stress. The base case scenario assumes: - the new government-guaranteed Recovery Loan Scheme ("RLS") in the UK is not extended beyond June 2022; - there remains macroeconomic stress in H1 2022 from inflation, supply chain and ongoing Covid-19-related pressures with a peak in defaults, however volumes of core loans rise in H2 2022 and there is a general recovery; - lending in the US steadily recovers; and - costs and headcount remain relatively flat other than increased investment in technology and risk. Management prepared a severe but plausible downside scenario in which: - further macroeconomic volatility occurs in H1 2022 following the tapering of government support along with increased inflation and interest rates reducing borrower demand leading to decreased originations; - investment returns reduce owing to increased funding costs, widening discount rates and deterioration in loan performance; - an operational event occurs requiring a cash outlay; and - a downside loss scenario is applied to Funding Circle's on-balance sheet investment in SME loans resulting in higher initial fair value losses and lower cash flows to the subordinate tranches of investments it owns. Management has reviewed financial covenants the Group must adhere to in relation to its servicing agreements. These are with institutional investors for which there are unrestricted cash, tangible net worth and debt to tangible net worth ratios. Management has also reviewed regulatory capital requirements. In the downside scenario the risk of covenant or capital requirement breach is considered remote. The Directors have made enquiries of management and considered budgets and cash flow forecasts for the Group and have, at the time of approving these financial statements, a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Further detail is contained in the Strategic Report on pages 64 and 65. # Basis of preparation The Group presents its annual financial statements in conformity with United Kingdom laws and regulations. On 31 December 2020, International Financial Reporting Standards ("IFRS") as adopted by the European Union at that date were brought into UK law and became UK-adopted International Accounting Standards, with future changes being subject to endorsement by the UK Endorsement Board. The Group transitioned to UK-adopted International Accounting Standards in its consolidated financial statements on 1 January 2021. The financial statements have been prepared in accordance with UK-adopted International Accounting Standards and with the requirements of the Companies Act 2006 as applicable to companies reporting under those standards. In the previous year the accounts were prepared in accordance with IFRS pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union and IFRS in conformity with the requirements of the Companies Act 2006, including International Accounting Standards ("IAS") and interpretations issued by the International Financial Reporting Standard Interpretations Committee ("IFRS-IC"). 136 Funding Circle Holdings plc ## 1. Accounting policies continued ### Basis of preparation continued This change in basis of preparation is required by UK company law for the purposes of financial reporting as a result of the UK's exit from the EU on 31 January 2020 and the cessation of the transition period on 31 December 2020. This change does not constitute a change in accounting policy but rather a change in framework which is required to ground the use of IFRS in company law. However, there is no impact on recognition, measurement or disclosure in the period reported as a result of the change in framework. The financial statements have been prepared on the historical cost basis except for certain financial instruments that are carried at fair value through profit and loss ("FVTPL"). The preparation of financial statements requires the use of certain accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies. Changes in assumptions may have a significant impact on the financial statements in the year the assumptions changed. Management believes that the underlying assumptions are appropriate. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in note 2. ### Representation of comparative information Investment in SME loans (other) of £24.3 million and related bank borrowings of £24.3 million have been reclassified in the comparative period from current to non-current to reflect the expected life of Paycheck Protection Program ("PPP") loan assets and the contractual life of the Paycheck Protection Program Liquidity Facility ("PPPLF") borrowings. The reclassification has no impact on the profit and loss or net assets of the Group. There was no impact on periods prior to the comparative period. ### Significant changes in the current reporting year The financial position and performance of the Group were affected by the following events and transactions during the year ended 31 December 2021: #### i) Sale of US and UK warehouse loan assets (note 17) In June 2021, Funding Circle sold SME loan assets from the warehouses in the US for £64.3 million as part of its strategy of monetising pre-pandemic investments. The bank borrowings associated with the loans were fully repaid using the proceeds. In November 2021, Funding Circle sold SME loan assets from the warehouse in the UK for £111.8 million as part of its strategy of monetising pre-pandemic investments. The bank borrowings associated with the loans were fully repaid using the proceeds. Certain SME loan assets in the warehouses were not sold as part of the transactions and remain on the balance sheet under investment in SME loans (warehouse). #### ii) The UK Government's Recovery Loan Scheme ("RLS") and relaunch of core lending During the year, Funding Circle became an accredited lender under RLS, the new government-guaranteed loan scheme successor to CBILS. Under the terms of the scheme Funding Circle is required to co-invest in loans originated through this scheme. The loans are beneficially owned by investors under trust structures in which Funding Circle retains a small stake. Additionally, core loans have been relaunched and are originated via the same trust structures in the UK. In certain RLS and core loan co-investments in the UK and in the relaunch of core lending in the US, Funding Circle co-invests in notes of the leveraged structured vehicles on a pari passu basis along with majority investors. These notes are subordinate to senior notes issued to the senior borrowing facility provider of the vehicle. These vehicles are the sole beneficiaries of the trust structures under which loans are originated by drawing down on the subordinate and senior note facilities during an investment period. Once the investment period ends the vehicles distribute returns from the amortisation of the associated loans to the senior and subordinate note holders after paying any running expenses of the vehicle. The Group does not consolidate the trusts or the structured vehicles or the loans held within the trusts or borrowings and other net assets of the vehicles, instead recognising its interest in the loans or vehicles as investment in trusts and co-investment assets on the balance sheet. This investment is held at FVTPL and interest is recognised within investment income in the consolidated statement of comprehensive income. #### iii) The US Government's Paycheck Protection Program ("PPP") loan funding During the year, the US Government's PPP scheme was extended until May 2021. Funding Circle continued to fund PPP loans via its lending platform, predominantly drawing down on the US Government's Federal PPP lending facility. As a result the Group holds £71.9 million (31 December 2020: £24.3 million) of PPP loans on balance sheet included within investment in SME loans (other) with a corresponding draw down on the SBA facility of £73.2 million (31 December 2020: £24.3 million) included within bank borrowings. The PPP loans on balance sheet and PPPLF liability may not directly offset due to timing of cash payments and forgiveness of the loans and repayment of the liability. These loans are recognised initially at fair value and are subsequently held at amortised cost as the business model under which the assets are held is to collect contractual cash flows. The loans are guaranteed and borrowers are incentivised to apply for forgiveness on the loans. Once a loan is forgiven by the SBA, the loan and related borrowing are extinguished. FINANCIAL REPORT COMMERCIAL GOVERNANCE FINANCIAL STATEMENTS Annual Report and Accounts 2021 137 Financial statements ### Notes forming part of the consolidated financial statements continued for the year ended 31 December 2021 1. Accounting policies continued Significant changes in the current reporting year continued iii) The US Government’s Paycheck Protection Program (“PPP”) loan funding continued Transaction fee income and broker commission expense associated with these loans are treated under IFRS 9 as an adjustment to the effective interest rate and are amortised over the expected life of the loans. While the contractual life of the PPP loans is up to five years, due to the design of the PPP loan programme, the loans are expected to be forgiven in a shorter period of time. The Group has determined that the estimated expected life of PPP loans is 16 months from origination. In arriving at this estimate, it has considered: the time frame in which PPP borrowers are incentivised to apply for forgiveness prior to being required to commence repayments on the loans; recent steps the SBA has taken to streamline the forgiveness process; and trends in historical PPP loans. The impact of the estimate on the year ended 31 December 2021 is the extent to which fee income and broker cost are deferred. At 31 December 2021 £2.6 million fee income received and £0.2 million of broker commission expense incurred were deferred to future periods. Changes in accounting policy and disclosures The Group has adopted the following new and amended IFRSs and interpretations from 1 January 2021 on a full retrospective basis. Applicable for financial | Standard/interpretation Content | | | years beginning on/after | | | --- | --- | --- | --- | --- | | Amendments to IFRS 7, IFRS 9 and IAS 39 – | Reliefs relating to interest rate | | | 1 January 2021 | | Interest Rate Benchmark Reform – Phase 2 | | benchmark reforms | | | Amendments to IFRS 16 – Covid-19 Related Rent Concessions Leases 1 June 2020 The amendments and interpretations listed above did not materially affect the current year and are not expected to materially affect future years. Certain new accounting standards and interpretations have been published that are not mandatory for 31 December 2021 reporting years and have not been early adopted by the Group as follows: Applicable for financial Standard/interpretation Content years beginning on/after Amendments to IFRS 3 – Reference to the Conceptual Framework Business combinations 1 January 2022 Amendments to IAS 16 – Property, Plant and Equipment: Property, plant and equipment 1 January 2022 Proceeds before Intended Use Amendments to IAS 37 – Onerous Contracts – Costs of Provisions – onerous contracts 1 January 2022 Fulfilling a Contract Amendments to IAS 1 – Classification of Liabilities as Presentation of financial statements 1 January 2023  Amendments to IAS 8 – Definition of Accounting Estimates Accounting policies, changes in 1 January 2023 accounting estimates Amendments to IAS 1 and IFRS Practice Statement 2 – Accounting policies 1 January 2023 Disclosure of Accounting Policies Amendments to IAS 12 – Deferred Tax Related to Assets and Deferred tax 1 January 2023 Liabilities Arising from a Single Transaction These standards are not expected to have a material impact on the Group in the current or future reporting years or on foreseeable future transactions. Summary of new and amended accounting policies There were no significant new accounting policies or amendments to existing accounting policies during the year. Funding Circle Holdings plc138 STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 1. Accounting policies continued Summary of existing accounting policies Basis of consolidation Where the Group has control over an investee, it is classified as a subsidiary. The Group controls an investee if all three of the following elements are present: power over the investee, exposure to variable returns from the investee, and the ability of the investor to use its power to affect those variable returns. Control is reassessed whenever facts and circumstances indicate that there may be a change in any of these elements of control. Structured entities are entities that are designed so that their activities are not governed by voting rights. In assessing whether the Group has power over such entities, the Group considers factors such as the purpose and design of the entity; its practical ability to direct the relevant activities of the entity; the nature of the relationship with the entity; and the size of its exposure to the variability of returns of the entity. The consolidated financial statements present the results of the Company and its subsidiaries as if they formed a single entity. Intercompany transactions and balances between Group companies are therefore eliminated in full. The Group applies the acquisition method to account for business combinations. In the consolidated balance sheet, the acquiree’s identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at the acquisition date. Acquisition-related costs are recognised in profit or loss as incurred. The results of acquired operations are included in   Foreign currency translation Transactions entered into by Group entities in a currency other than the currency of the primary economic environment in which they operate (their “functional currency”) are recorded at the rates ruling when the transactions occur. Foreign currency monetary assets and liabilities are translated at the prevailing rate at the reporting date. Exchange differences arising on the retranslation of unsettled monetary assets and liabilities are recognised immediately in profit or loss. On disposal of a foreign operation, the cumulative exchange differences recognised in the foreign exchange reserve relating to that operation up to the date of disposal are transferred to the consolidated statement of comprehensive income as part of the profit or loss on disposal. Presentation currency These consolidated financial statements are presented in GBP sterling, which is the Group’s presentation currency. All assets and liabilities of overseas operations, including goodwill arising on the acquisition of those operations, are translated at the prevailing rate at the reporting date. Income and expense items are translated at the average exchange rates for the year, unless exchange rates fluctuate significantly during that year, in which case the exchange rates at the date of transactions are used. Exchange differences arising are recognised in other comprehensive income and accumulated in equity. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the prevailing rate at the reporting date. Segment reporting Operating segments are reported in the manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, which is the function responsible for allocating resources and assessing performance of the operating segments, has been identified as the Global Leadership Team that makes strategic decisions. For each identified operating segment, the Group has disclosed information for the key performance indicators that are assessed internally to review and steer performance in the Strategic Report. Transactions between segments are on an arm’s length basis in a manner similar to transactions with third parties. Exceptional items Exceptional items are the items of income or expense that the Group considers are material, one-off in nature and of such significance that they merit separate presentation in order to aid the reader’s understanding of the Group’s financial performance. Such items would include profits or losses on disposal of businesses; transaction costs; acquisitions and disposals; major restructuring programmes; significant goodwill or other asset impairments; and other particularly significant  Annual Report and Accounts 2021 139 Financial statements ### Notes forming part of the consolidated financial statements continued for the year ended 31 December 2021 1. Accounting policies continued Income recognition Fee income is recognised in line with IFRS 15 which provides a single, principles-based five-step model to be applied to all contracts with customers: 1) identify the contract with the customer; 2) identify the performance obligations in the contract, introducing the new concept of “distinct”; 3) determine the transaction price; 4) allocate the transaction price to the performance obligations in the contracts, on a relative stand-alone selling price basis; and 5) recognise income when (or as) the entity satisfies its performance obligation. Fee income earned for the arrangement of loans is classified as transaction fees and is a cost of the borrower except for government-guaranteed loans which are a cost to the government (with the exception of RLS where it remains a cost to the borrower). The contract signed by the borrower and related terms are clearly identifiable. The performance obligation in the contract is considered to be the funding of the loan through the marketplace platform and the transaction price is clearly stated in the borrower’s contract. Fees are recognised immediately once loans are fully funded on the marketplace and after the loans are accepted by the borrowers. At this point the performance obligation has been met and there are no clawback provisions. Such fees are automatically deducted from the amount borrowed (or subsequently invoiced in the case of government- guaranteed loans with the exception of RLS) and recognised at that point as the Group has the right to consideration and the performance obligation has been satisfied. Fee income earned from referrals to partner institutions is classified as transaction fees and is a cost to the partner institution. There are contracts in place with partner institutions with clearly identifiable terms. The performance obligation in the contract is considered to be the referral by the Group and subsequent funding of the referred loan by the partner institution and the transaction price is clearly stated in the referral agreement. Fees are recognised once the referred loan has been funded by the partner institution and accepted by the referred borrower. At this point the performance obligation has been met and there are  Fee income earned from servicing third party loans is classified as servicing fees and is a cost of the investor, except in the case of certain government schemes that permit a service fee such as CBILS (though not RLS), where the government bears the cost in the first year. It comprises an annualised fee representing a percentage of outstanding principal. The contractual basis for the servicing fee and transaction price is based on the terms and conditions agreed by investors to the lending platform. The performance obligation is servicing the loans and allocating repayments of the loan parts to the respective lenders. The transaction price is allocated as a percentage of the outstanding principal balance, representing the outstanding performance obligation. Fees are recognised on a monthly basis upon repayment of loan parts. Due to the conditions of the loans, there are  Other income includes excess premium earned from arrangements to buy back defaulted loans from certain institutional investors and income earned on certain bought back loans. Other income also includes income from collections charges levied on the recovery of loans. These are recognised as services are performed on an accruals basis. Net income includes the following elements under which the recognition criteria of IFRS 9 and not IFRS 15 are applied: Investment income includes:  interest income from SME loans and investments in trusts that the Group holds on balance sheet. Investment expense includes:  interest payable on funds borrowed to finance the acquisition of underlying loan investments;  interest payable on bond liabilities held on balance sheet;  amortisation of costs associated with the issuing of bonds and the credit facility; and  gains/losses from changes in fair value of interest hedging instruments. Fair value gains/losses includes:  gains/losses from changes in the fair value of financial assets and liabilities held on balance sheet. Net income recorded in the financial statements is generated in the UK, the US, Germany and the Netherlands. All fees are calculated based on the above income recognition policy. Administrative expenses Administrative expenses are recognised as an expense in the statement of comprehensive income in the period in which they are incurred on an accruals basis. Funding Circle Holdings plc140 STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 1. Accounting policies continued Share-based payments The Group operates a number of equity-settled share-based compensation plans, under which the Group receives services from employees as consideration for equity instruments (options and shares) of the Company. The fair value of the employee services received in exchange for the grant of the options and shares is recognised as an expense. The total amount to be expensed is determined by reference to the fair value of the options and shares granted:  including any market performance conditions (for example, an entity’s share price);  excluding the impact of any service and non-market performance vesting conditions (for example, net income, earnings per share and remaining an employee of the Group over a specified time period); and  including the impact of any non-vesting conditions (for example, the requirement for employees to save). Non-market vesting conditions are included in assumptions about the number of options and shares that are expected to vest. The total expense is recognised over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied. At the end of each reporting period, the Group revises its estimate of the number of options and shares that are expected to vest based on the non-market vesting conditions. It recognises the impact of the revision to original estimates, if any, in the income statement, with a corresponding adjustment to equity. When the options are exercised, the Company issues new shares. The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when the options are exercised. The grant by the Company of options and shares over its equity instruments to the employees of subsidiary undertakings in the Group is treated as a capital contribution. The fair value of employee services received, measured by reference to the grant date fair value, is recognised over the vesting period as an increase in investment in subsidiary undertakings, with a corresponding credit to equity in the Parent entity (the “Company”) accounts. Pension obligations The Group operates a defined contribution pension scheme for employees in the UK, US and Netherlands. The schemes are pension plans under which the Group pays fixed contributions into a separate entity. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior years. Contributions payable to the Group’s pension scheme are charged to the statement of comprehensive income in the year to which they relate. The Group has no further payment obligations once the contributions have been paid. Current and deferred tax The tax expense for the year comprises current and deferred tax. Current tax is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or substantively enacted by the balance sheet date in the countries where the Company and its subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. The Group has established transfer pricing policies and ensures mechanisms are in place in ensuring subsidiaries receive an appropriate tax rate and base. It establishes provisions, where appropriate, based on amounts expected to be paid to the tax authorities. Deferred tax assets for unused tax losses, tax credits and deductible temporary differences are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred tax assets are recognised on deductible temporary differences arising from investments in subsidiaries, associates and joint arrangements only to the extent that it is probable the temporary difference will reverse in the future and there is sufficient taxable profit available against which the temporary difference can be utilised. Deferred tax liabilities are provided on taxable temporary differences arising from investments in subsidiaries, associates and joint arrangements, except for any deferred tax liability where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities and there is an intention to settle the balances on a net basis. Deferred income 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. However, deferred tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred tax is determined using tax rates and laws that have been enacted or substantively enacted at the year-end date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled. Deferred tax balances are not discounted. Dividends Dividends are recognised when they become legally payable, in accordance with the Companies Act 2006. Annual Report and Accounts 2021 141 Financial statements ### Notes forming part of the consolidated financial statements continued for the year ended 31 December 2021 1. Accounting policies continued Goodwill Goodwill arising in a business combination is recognised as an asset at the date that control is acquired (the “acquisition date”). Goodwill is measured as the excess of the sum of the fair value of consideration transferred, the amount of any non-controlling interest in the acquiree and the fair value of the acquirer’s previously held equity interest (if any) in the entity over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. Goodwill is not amortised but is reviewed for impairment at least annually. For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash-generating units (“CGUs”) expected to benefit from the synergies of the combination. CGUs to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the CGU is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro rata on the basis of the carrying amount of each non-financial asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period. On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profit or loss on disposal. Intangible assets Intangible assets with finite useful lives are amortised on a straight-line basis over their estimated useful lives. Useful lives and amortisation methods are reviewed at the end of each annual reporting period, or more frequently when there is an indication that the intangible asset may be impaired, with the effect of any changes accounted for on a prospective basis. Amortisation commences when the intangible asset is available for use. The residual value of intangible assets is assumed to be zero. Computer software licences Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised over the licence period, which is up to five years as at 31 December 2021. Capitalised development costs Costs associated with maintaining computer software programs are recognised as an expense as incurred. Development costs that are directly attributable to the design, build and testing of identifiable and unique software products controlled by the Group are recognised as intangible assets when the following criteria are met:  it is technically feasible to complete the build of the platform products so that they will be available for use;  management intends to complete the build of the platform products for use within the Group;  there is an ability to use the platform products;  it can be demonstrated how the platform products will generate probable future economic benefits;  adequate technical, financial and other resources to complete the development and to use the platform products are available; and  the expenditure attributable to the platform products during its development can be reliably measured. Directly attributable costs that are capitalised as part of the software product include the software development employee costs. The capitalisation of employee costs is based on the amount of time spent on specific projects which meet the criteria as a proportion of their total time, and this proportion of their salary-related costs is attributed to the applicable projects. Other development expenditure that does not meet these criteria is recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Capitalised development costs are recorded as intangible assets and amortised from the point at which the asset is ready for use over their estimated useful lives, ranging from three to five years. Other intangibles Other intangibles relate to the technology platform and customer relationship (representing fees due on contracted loans expected to be realised in the foreseeable future) acquired on a business combination. These costs are amortised over their estimated useful lives, which do not exceed three years. Tangible fixed assets Tangible fixed assets are stated at cost less depreciation and any provision for impairment. Depreciation is provided on all tangible fixed assets, at rates calculated to write off the cost less estimated residual value of each asset on a straight-line basis over its expected useful life, as follows: Computer equipment 1–3 years Furniture and fixtures 3–5 years Leasehold improvements that qualify for recognition as an asset are measured at cost and are presented as part of property, plant and equipment in the non-current assets section on the balance sheet. Depreciation on leasehold improvements is calculated using the straight-line method over the lease term. Funding Circle Holdings plc142 STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 1. Accounting policies continued Impairment of tangible and intangible assets Intangible assets that have an indefinite useful life or intangible assets not ready to use are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or CGU) is estimated to be less than its carrying amount, the carrying amount of the asset (or CGU) is reduced to its recoverable amount. An impairment loss is recognised immediately in the statement of comprehensive income. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. If this was the case, the carrying amount of the asset (or CGU) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or CGU)  Leases At inception of a contract, the Group assesses whether or not a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. When a lease is recognised in a contract the Group recognises a right-of-use asset and a lease liability at the lease commencement date. Right-of-use assets are initially measured at cost, comprising the initial measurement of the lease liability, less any lease incentives. Subsequently, right-of-use assets are measured at cost, less any accumulated depreciation and any accumulated impairment losses, and are adjusted for certain remeasurements of the lease liability. Depreciation is calculated on a straight-line basis over the length of the lease. Liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments:  fixed payments less any lease incentives receivable;  variable lease payments based on an index or a rate, initially measured using the index or rate at the commencement date; and  amounts expected to be payable by the Group under residual value guarantee. The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, the Group’s incremental borrowing rate is used, which is the rate that the Group would have to pay to borrow the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment with similar terms, security and conditions. To determine the incremental borrowing rate, the Group:  where possible, uses recent third party financing received by the individual lessee as a starting point, adjusted to reflect changes in financing conditions since third party financing was received;  uses an approach taking the risk-free interest rate adjusted for credit risk for leases held by Funding Circle Holdings plc; and  makes adjustments specific to the lease for term, country and currency. Subsequently, the lease liability is measured by increasing the carrying amount to reflect interest on the lease liability and reducing it by the lease payments made. The lease liability is remeasured when there is a lease modification. Lease payments are allocated between principal and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The Group is exposed to potential future increases in variable lease payments based on an index or rate, which are not included in the lease liability until they take effect. When adjustments to lease payments based on an index or rate take effect, the lease liability is reassessed and adjusted against the right-of-use asset. Extension and termination options are included in a number of property leases in the Group. Management considers the facts and circumstances that may create an economic incentive to exercise an extension or termination option in order to determine whether the lease term should include or exclude such options. Extension or termination options are only included within the lease term if they are reasonably certain to be exercised in the case of extension options and not exercised in the case of termination options. Considerations include:  if leasehold improvements are expected to have significant value at the end of the lease term;  expected costs or business disruption as a result of replacing a lease; and  significant penalties incurred in order to terminate. Annual Report and Accounts 2021 143 Financial statements ### Notes forming part of the consolidated financial statements continued for the year ended 31 December 2021 1. Accounting policies continued Leases continued Lease terms are reassessed if the option is exercised or if a significant event occurs which impacts the assessment of reasonable certainty. The Group applies the short-term lease recognition exemption to its short-term leases of machinery and equipment (i.e. those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets recognition exemption to leases of office equipment that are considered of low value. Lease payments on short-term leases and leases of low-value assets are recognised as expenses on a straight-line basis over the lease term. When the Group is an intermediate lessor, entering into a sublease, it accounts for the head lease and the sublease separately. The sublease is classified as a finance or operating lease by reference to the right-of-use asset arising from the head lease. Rental income from operating leases is recognised on a straight-line basis over the lease term and the Group retains the right-of–use asset deriving from the head lease and the lease liability on the balance sheet. Amounts due from lessees under finance leases are recognised as receivables equivalent to the Group’s net investment in the lease and the right-of-use asset from the head lease is derecognised. Any difference resulting from the derecognition of the right-of-use asset and recognition of the net investment in the sublease is recognised in the consolidated statement of comprehensive income. The head lease liability remains on the balance sheet and interest expense continues to be recognised, while interest income is recognised from the sublease. Consolidation of special purpose vehicles (“SPVs”) Subsidiaries are those entities, including structured vehicles, 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 investee. The Group has power over an entity when it has existing rights that give it the current ability to direct the activities that most significantly affect the entity’s returns. Power may be determined on the basis of voting rights or, in the case of structured entities, other contractual arrangements. The Group assesses whether it controls SPVs and the requirement to consolidate them under the criteria of IFRS 10. Control is determined to exist if the Group has the power to direct the activities of each entity (for example, managing the performance of the underlying assets and raising debt on those assets which is used to fund the Group) and uses this control to obtain a variable return (for example, retaining the residual risk on the assets). Structures that do not meet these criteria are not treated as subsidiaries and the assets are derecognised when they are sold. Where the Group manages the administration of its securitised assets and is exposed to the risks and rewards of the underlying assets through its continued investment or where the Group does not retain a direct ownership interest in an SPE, but the Directors have determined that the Group controls those entities, they are treated as subsidiaries and are consolidated. Investment in associates An associate is an entity over which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but is not control or joint control over those policies. The considerations made in determining significant influence or joint control are similar to those necessary to determine control over subsidiaries. The Group’s investment in its associate is accounted for using the equity method. Under the equity method of accounting, the investments are initially recognised at cost. This is adjusted thereafter to recognise the Group’s share of the post-acquisition profits or losses of the investee in the consolidated statement of comprehensive income. The Group’s share of movements in other comprehensive income of the investee is recognised in other comprehensive income. Dividends received or receivable from associates are recognised as a reduction in the carrying amount of the investment. When the Group’s share of losses in an equity-accounted investment equals or exceeds its interest in the entity, including any other unsecured long-term receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the other entity. Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in these entities. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. After application of the equity method, the Group determines whether it is necessary to recognise an impairment loss on its investment in its associate. At each reporting date, the Group determines whether there is an indication that the investment in the associate is impaired. If there is such an indication, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value, and then recognises the loss within the statement of comprehensive income. Upon loss of significant influence over the associate, the Group measures and recognises any retained investment at its fair value. Any difference between the carrying amount of the associate upon loss of significant influence or joint control and the  Funding Circle Holdings plc144 STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 1. Accounting policies continued Financial instruments Financial assets The Group determines the classification of its financial assets at initial recognition. The requirements of IFRS 9 for classification and subsequent measurement are applied, which require financial assets to be classified based on the Group’s business model for managing the asset and the contractual cash flow characteristics of the asset:  financial assets are measured at amortised cost if they are held within a business model, the objective of which is to hold financial assets in order to collect contractual cash flows, and their contractual cash flows represent solely payments of principal and interest;  financial assets are measured at fair value through other comprehensive income (“FVTOCI”) if they are held within the business model defined as ”held to collect and sell”, the objective of which is achieved by both collecting contractual cash flows and selling financial assets, and their contractual cash flows represent solely payments of principal and interest; and  financial assets that do not meet the criteria to be amortised cost or FVTOCI are measured at fair value through profit or loss (“FVTPL”). In addition, the Group may, at initial recognition, designate a financial asset as measured at FVTPL if doing so eliminates or significantly reduces an accounting mismatch. When financial assets are recognised initially, they are measured at fair value, plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs. The purchase of any credit-impaired assets is also at fair value after any impairment. Except for certain investments in SME loans as described below, the Group does not recognise on its balance sheet loans arranged between borrowers and investors as it is not a principal party to the contracts and is not exposed to the risks and rewards of these loans. With the exception of investment in SME loans under cure period, investment in trusts and co-investments, investment in SME loans (warehouse) and investment in SME loans (securitised), all financial assets are held to collect contractual cash flows. Under certain circumstances the Group holds investments in SME loans. The five types of investment in SME loans held are as follows: i) Investment in SME loans (curing) In the US, investors commit to provide funding to FC Marketplace, LLC (the originator of the borrower loans) in advance of the physical transfer of monies. Funding Circle USA, Inc. initially funds these committed loans to the borrowers and recovers the monies from the investors after the two to three-day cure period and therefore retains the credit risk during this short period. Investments in SME loans (curing) have been classified as financial assets at fair value through profit or loss. The above classification is mainly because all such loans are acquired principally for selling in the short-term. They are initially recognised at fair value on the balance sheet with the subsequent measurement at fair value with all gains and losses being recognised in the consolidated statement of comprehensive income. ii) Investment in SME loans (warehouse) During the warehouse phase of the securitisation programme, the SME loans purchased using both the Group’s cash and amounts borrowed under credit facilities are held on the Group’s balance sheet. These investments in SME loans have been classified as financial assets at fair value through profit or loss. The above classification is because all such loans are acquired principally for selling in the short-term and the collection of interest is incidental. They are initially measured at fair value on the balance sheet with the subsequent measurement at fair value with all gains and losses being recognised in the consolidated statement of comprehensive income. iii) Investment in SME loans (securitised) Under risk retention regulations the Group is required to retain at least 5% of the bonds issued by the securitisation SPV. Retaining a significant proportion of the residual Whilst the Group is required to retain 5% of the overall bond issuance, where the Group holds a significant proportion of the unrated bonds (referred to as the “residual”), the Group consolidates the securitisation SPV as it considers that the risks and rewards of ownership continue to reside with the Group. As a result the underlying SME loan book held in the SPV is recognised on balance sheet along with the bond liabilities to third parties. They are initially measured at fair value on the balance sheet with the subsequent measurement at fair value with all gains and losses being recognised in the consolidated statement of comprehensive income. Selling a significant portion of the residual Where the Group sells a significant portion of the residual, the Group may no longer be deemed to retain the majority of the risks and rewards of ownership and the Group would deconsolidate the securitisation SPV. The Group would subsequently apply the derecognition rules of IFRS 9 to the investment in SME loans. Cash on the sale of the Group’s investment in the residual is treated as an investing activity. Annual Report and Accounts 2021 145 Financial statements ### Notes forming part of the consolidated financial statements continued for the year ended 31 December 2021 1. Accounting policies continued Financial instruments continued Financial assets continued iv) Investment in SME loans (other) The Group has originated PPP loans using the SBA’s PPPLF facility which are held on balance sheet. Additionally the Group holds investments in certain SME business loans as a result of a commercial arrangements with institutional investors and in certain circumstances the Group also buys back loans from investors. The Group also holds investments in shorter-term SME loans under its FlexiPay product on balance sheet enabling businesses to spread UK invoices or payments over three months with the initial payment made on a borrower’s behalf. These loans are all classified as investment in SME loans (other) (see note 13). These investments in other SME loans are classified as amortised cost (as they are held solely to collect principal and interest payments) and are initially recognised at fair value and subsequently measured at amortised cost less provision for impairment. PPP loans are fully guaranteed by the SBA. v) Investment in trusts and co-investments The Group holds a small beneficial ownership in trusts set up to fund CBILS, RLS and core loans with the remaining majority of the beneficial ownership held by institutional investors. The SME loans are originated by a Group subsidiary, Funding Circle Focal Point Lending Limited for CBILS and Funding Circle Eclipse Lending Limited for RLS and core loans, which retain legal title to the loans. These entities hold this legal title of trust on behalf of the majority investors who substantially retain the economic benefits the CBILS, RLS and core loans generate and therefore the trusts and the assets held within, including the SME loans, are not consolidated. The Group assesses whether it controls the trust structure under the criteria of IFRS 10. Control is determined to exist if the Group has the power to direct the activities of entities and structures and uses this control to obtain a variable return, to which it is exposed to the majority of the variability. As the Group’s holding is small compared to the majority investor and pari passu, the Group is not exposed to the majority of the variability in the cash flows of the trust, and it is not considered to control the trust structures, so they are not consolidated by the Group. Investments in trusts are classified at fair value through profit and loss. They are initially recognised at fair value on the balance sheet with the subsequent measurement at fair value with all gains and losses being recognised in the consolidated statement of comprehensive income. The Group recognises transaction fee income on origination of loans within the trust and service fee income on the assets within the trust, eliminating its proportional ownership share of the service fees. A scheme lender fee is charged in relation to the origination of CBILS and RLS loans and investment income is recognised in relation to returns on the investment. Other financial assets Financial assets recognised in the balance sheet as trade and other receivables are classified as amortised cost. They are recognised initially at fair value and subsequently measured at amortised cost less provision for impairment. Net investments in sublease receivables are recognised as other receivables representing the net present value of the lease payment receivable. Interest is recognised within finance income in the statement of comprehensive income. Cash and cash equivalents are classified as amortised cost with the exception of money market funds that are classified as FVTPL. Cash and cash equivalents include cash in hand, deposits held at call with banks, money market funds and other short-term highly liquid investments with original maturities of three months or less. The carrying amount of these assets approximates to their fair value. Impairment of financial assets held at amortised cost The Group applies the impairment requirements of IFRS 9. The IFRS 9 impairment model requires a three-stage approach:  Stage 1 includes financial instruments that have not had a significant increase in credit risk since initial recognition or that have low credit risk at the reporting date. For these assets, 12-month expected credit losses (“ECLs”) (that is, expected losses arising from the risk of default in the next 12 months) are recognised and interest income is calculated on the gross carrying amount of the asset (that is, without deduction for credit allowance).  Stage 2 includes financial instruments that have had a significant increase in credit risk since initial recognition (unless they have low credit risk at the reporting date) but are not credit-impaired. For these assets, lifetime ECLs (that is, expected losses arising from the risk of default over the life of the financial instrument) are recognised, and interest income is still calculated on the gross carrying amount of the asset. The Group assumes there has been a significant increase in credit risk if outstanding amounts on the financial assets exceed 30 days, in line with the rebuttable presumption per IFRS 9 at which point the assets are considered to be stage 2. Funding Circle Holdings plc146 STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 1. Accounting policies continued Financial instruments continued Financial assets continued Impairment of financial assets held at amortised cost continued  Stage 3 consists of financial assets that are credit-impaired, which is when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred. For these assets, lifetime ECLs are also recognised, but interest income is calculated on the net carrying amount (that is, net of the ECL allowance). The Group defines a default, classified as stage 3, as an asset with any outstanding amounts exceeding a 90-day due date, which reflects the point at which the asset is considered to be credit-impaired.  In some circumstances where assets are bought back by the Group, the financial asset associated with the purchase meets the definition of purchased or originated credit-impaired (“POCI”), and impairment is therefore based on lifetime ECLs. The Group assesses on a forward-looking basis the expected credit losses associated with its financial assets carried at amortised cost and recognises a loss allowance for such losses at each reporting date. The measurement of ECLs reflects:  an unbiased and probability-weighted amount that is determined by evaluating a range of possible outcomes;  the time value of money; and  reasonable and supportable information that is available without undue cost or effort at the reporting date about past events, current conditions and forecasts of future economic conditions. If in a subsequent period the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed, to the extent that the carrying value of the asset does not exceed its amortised cost at the reversal date. Any subsequent reversal of an impairment loss is recognised in the statement of comprehensive income. Derecognition of financial assets Financial assets are derecognised only when the contractual rights to the cash flows from the financial assets expire or the Group has either transferred the contractual right to receive the cash flows from that asset, or has assumed an obligation to pay those cash flows to one or more recipients. The Group derecognises a transferred financial asset if it transfers substantially all the risks and rewards of ownership. Financial liabilities Financial liabilities included in trade and other payables are recognised initially at fair value and subsequently at amortised cost. The fair value of a non-interest-bearing liability is its discounted repayment amount. If the due date of the liability is less than one year, discounting is omitted. A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. Bank borrowings Bank borrowings (drawdowns under the credit facilities) are recognised initially at fair value, being their issue proceeds net of transaction costs incurred. These instruments are subsequently measured at amortised cost using the effective interest rate method. Derivative financial instruments Interest rate caps are in place to partially mitigate the floating rate interest rate risk associated with drawn amounts from borrowing facilities and risk associated with floating rate ABS bond liabilities consolidated into the Group. The derivatives are recognised initially at fair value reflecting the time value implicit in the premium paid and are subsequently measured at fair value with gains and losses recognised in profit or loss. See note 17 for details of interest rate risk. Bonds Bonds represent the bond liabilities which the Group must pay to the bond holders from the cash flows generated from the SME loans (securitised) held on balance sheet. The liability excludes any amount of bonds that the Group has retained as these are eliminated upon consolidation. IFRS 9 permits a company to elect to fair value the bond liabilities where there is an accounting mismatch. In the Group’s case the associated assets generating the cash flows to pay the bonds are the SME loans (securitised) which are measured at fair value through profit and loss. As the cash flows from the SME loans are used to repay the rated bond tranches in advance of the unrated bonds, the Group does not consider there to be a significant accounting mismatch as default levels impact the unrated bonds first. Therefore the rated bonds are measured at amortised cost. However, as the unrated bonds are most affected by fair value movements in the SME loans, the Group has elected to measure the unrated tranches of bonds at fair value through profit and loss to eliminate the accounting mismatch. See note 17 for details of the fair value methodology and interest rate risk. Transaction costs associated with the issuance of bonds are deferred to the balance sheet and recognised over the lifetime of the bonds using the effective interest rate method. Annual Report and Accounts 2021 147 Financial statements ### Notes forming part of the consolidated financial statements continued for the year ended 31 December 2021 1. Accounting policies continued Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle that obligation and a reliable estimate can be made of the amount of the obligation. Loan repurchases Loan repurchase contracts issued by the Group are those contracts that require a payment to be made to reimburse the holder for a loss it incurs because the specified debtor fails to make a payment when due in accordance with the terms of a debt instrument. Loan repurchase contracts are recognised initially as a liability at fair value, adjusted for transaction costs that are directly attributable to the issuance of the contract. The liability is subsequently measured at the higher of the best estimate of the expenditure required to settle the present obligation at the reporting date and the amount recognised less cumulative amortisation. The expected credit loss model is used to measure and recognise the financial liability (as further detailed in note 16). Share capital Ordinary shares are classified as equity where their terms include no contractual obligation to transfer cash or another financial asset to another entity. Earnings/(loss) per share The Group presents basic and diluted earnings/(losses) per share (“EPS”) for its ordinary shares. Basic and diluted EPS are calculated by dividing the profit/(loss) attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year. For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. The dilutive potential ordinary shares include those share options granted to employees under the Group’s share-based compensation schemes which do not have an exercise price or where the exercise price is less than the average market price of the Company’s ordinary shares during the year. Shares held by the Employee Benefit Trust and Share Incentive Plan Trust The Company has established an offshore Employee Benefit Trust (“EBT”) and an onshore Share Incentive Plan (“SIP”) Trust. The EBT and SIP Trust provide for the issue of shares to Group employees principally under share option schemes and SIP respectively. The Group has control of the EBT and SIP Trust and therefore consolidates the Trusts in the Group financial statements. Reserves Foreign exchange reserve The foreign exchange reserve represents the cumulative foreign currency translation movement on the assets and liabilities of the Group’s international operations at year-end exchange rates and on the profit and loss items from average exchange rates  Share options reserve The share options reserve represents the cumulative charges to income under IFRS 2 Share-based Payments on all share options and schemes granted, net of share option exercises. The costs are transferred to retained earnings when options are exercised. 2. Critical accounting judgements and key sources of estimation uncertainty The preparation of the consolidated financial statements requires the Group to make estimates and judgements that affect the application of policies and reported amounts. Critical judgements represent key decisions made by management in the application of the Group accounting policies. Where a significant risk of materially different outcomes exists due to management assumptions or sources of estimation uncertainty, this will represent a key source of estimation uncertainty. Estimates and judgements are continually evaluated and are based on experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Although these estimates are based on management’s best knowledge of the amount, event or actions, actual results ultimately may differ from those estimates. The significant judgements and estimates applied by the Group in the financial statements have been applied on a consistent basis with the financial statements for the year to 31 December 2020. Funding Circle Holdings plc148 STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 2. Critical accounting judgements and key sources of estimation uncertainty continued Critical judgements Consolidation and deconsolidation of special purpose vehicles (“SPVs”) and investment in trusts and co- investments (note 17) As part of its asset-backed securitisation programmes, the Group has established warehouse and securitisation SPVs. Judgement is required in determining who is most exposed to the variability of returns and who has the ability to affect those returns and therefore who should consolidate these vehicles and subsequently deconsolidate them. Where the Group has a significant interest in the junior tranches of the securitisation vehicles or the subordinated debt in the warehouses, the Group  consolidates them. Where this interest is reduced, the Group considers whether the vehicles should be deconsolidated. The Group also holds a small beneficial ownership in trusts set up to fund CBILS, RLS and core loans with the remaining majority of the beneficial ownership held by institutional investors. The SME loans are originated by a Group subsidiary, Funding Circle Focal Point Lending Limited for CBILS and Funding Circle Eclipse Lending Limited for RLS and core loans, which retain legal title to the loans. These entities hold this legal title of trust on behalf of the majority investors who substantially retain the economic benefits the CBILS, RLS and core loans generate and therefore the trusts and the assets held within, including the SME loans, are not consolidated. The Group assesses whether it controls the trust structure under the criteria of IFRS 10. Control is determined to exist if the Group has the power to direct the activities of entities and structures and uses this control to obtain a variable return, to which it is exposed to the majority of the variability. As the Group’s holding is small in comparison to the majority investor and is pari passu, the Group is not exposed to the majority of the variability in the cash flows of the trust, and it is not considered to control the trust structures, so they are not consolidated by the Group. Loans originated through the platform The Group originates SME loans through its platform which are funded primarily by banks, asset managers, other institutional investors, funds, national entities, retail investors or by usage of its own capital. Judgement is required to determine whether these loans should be recognised on the Group’s balance sheet. Where the Group, its subsidiaries or SPVs which it consolidates have legal and beneficial ownership to the title of those SME loans, they are recognised on the Group’s balance sheet. Where this is not the case, the loans are not recognised at the point of origination. Key sources of estimation uncertainty The following are the key sources of estimation uncertainty that the Directors have identified in the process of applying the Group’s accounting policies and have the most significant effect on the amounts recognised in the financial statements. Fair value of financial instruments (note 17) At 31 December 2021, the carrying value of the Group’s financial instrument assets held at fair value was £302.5 million   In accordance with IFRS 13 Fair Value Measurement, the Group categorises financial instruments carried on the consolidated balance sheet at fair value using a three-level hierarchy. Financial instruments categorised as level 1 are valued using quoted market prices and therefore there is minimal estimation applied in determining fair value. However, the fair value of financial instruments categorised as level 2 and, in particular, level 3 is determined using valuation estimation techniques including discounted cash flow analysis and valuation models. The most significant estimation is with respect to discount rates and default rates. Since 31 December 2020 the assumptions related to estimating fair value have been revised to reflect the observed actual performance of SME loans and a revision to the timing of the assumed defaults to occur later given the extension of government support measures to H2 2021. The combination of favourable observed performance and later defaults on an amortising pool of loans has led to a lower lifetime cumulative default expectation net of recoveries and an increase in the relative estimation of fair value of the loans. Additionally, market drivers of discount rates such as observed tightening in collateralised loan obligation spreads have resulted in the estimated cash flows being discounted at a lower rate which has led to an increase in the relative estimation of fair value of the loans and bonds. Sensitivities to assumptions in the valuation of investment in trusts and co-investments , investment in SME loans (warehouse) and money market funds within cash and cash equivalents are not disclosed below as reasonably possible changes in the assumptions would not result in material changes in the carrying values. Annual Report and Accounts 2021 149 Financial statements ### Notes forming part of the consolidated financial statements continued for the year ended 31 December 2021 2. Critical accounting judgements and key sources of estimation uncertainty continued Key sources of estimation uncertainty continued Fair value of financial instruments (note 17) continued Sensitivities to the default rates and discount rates are illustrated below. | | Fair value | | Relationship of | | --- | --- | --- | --- | | Description | £m Unobservable input Inputs | | unobservable inputs to fair value | | Investment in SME | 148.1 Lifetime cumulative default rate | US: 19.6% and | A change in the lifetime cumulative | 1 loans (securitised) as % of original 19.8% default rate would have the UK : 17.3 % following impact: US SPV1¹: +50/-110 bps would decrease/increase fair value by £(0.8) million/£1.7 million respectively. US SPV2¹: +80/-170 bps would decrease/increase fair value by £(1.6) million/£3.4 million respectively. UK: +40/-150 bps would decrease/ increase fair value by £(0.9) million/ £3.4 million respectively. Bonds (unrated) (12.8) Lifetime cumulative default rate 17.3% A change in the lifetime cumulative of associated assets default rate by +40/-150 bps would decrease/increase fair value by £0.3 million and £(1.2) million respectively. 1. Two cumulative default rates are presented for the US representing the portfolios in each of the two respective securitisation vehicles. Separate sensitivities to default rates for the US securitisation vehicles represent the respective seasoning of the loans and the different reasonably possible range of outcomes. The above sensitivities represent management’s estimate of the reasonably possible range of outcomes and as a result the fair value of the assets and liabilities measured at fair value could materially diverge from management’s estimate. | | Fair value | | Relationship of | | --- | --- | --- | --- | | Description | £m Unobservable input Inputs | | unobservable inputs to fair value | | Investment in SME | 148.1 Discount rate US: 8.0% | | A change in the discount rates by | | loans (securitised) | | UK: 8.2% | +/-100 bps would decrease/ | increase fair value by £1.6 million/£(1.6) million respectively. Bonds (unrated) (12.8) Discount rate 13.3% A change in the discount rate by +100/-100 bps would decrease/ increase fair value by £0.2 million/£(0.2) million respectively. It is considered that the range of reasonably possible outcomes in relation to the discount rate used could be +/-100 bps and as a result the fair value of the assets could materially diverge from management’s estimate. As the discount rate is risk adjusted, it should be noted that the sensitivities to discount rate and to lifetime cumulative default rate contain a level of overlap regarding credit risk. The sensitivity in expected lifetime cumulative defaults should not also be applied to the sensitivity of the credit risk element of the risk-adjusted discount rate and the sensitivities are most meaningful viewed independently of each other. Estimated recoverable amount of non-financial assets (notes 10, 11 and 12) Non-financial assets (primarily goodwill, intangible assets and property, plant and equipment) are held within the Group within cash-generating units (“CGUs”) which are expected to benefit from the assets. The Group has four CGUs, being Funding Circle USA (“FCUSA”) and its subsidiaries, Funding Circle Ltd (“FCUK”) and its subsidiaries, Funding Circle Global Partners Limited (“FCGPL”) and the German and Dutch businesses (Funding Circle Continental Europe or “FCCE”). These assets are assessed annually for impairment in the case of goodwill or when indicators of impairment are identified for the other assets. The impairment test involves comparing the carrying value of the non-financial assets held for use to their recoverable amount for each CGU. The recoverable amount represents the higher of the CGU’s fair value net of selling costs and its value in use, which were determined using discounted cash flow methodology. During the prior year ended 31 December 2020, impairment was recognised in relation to the goodwill in FCUSA as the recoverable amount calculated was below the carrying amount and the goodwill was fully impaired by £12.0 million. As the goodwill was fully impaired in 2020, an annual impairment review was not necessary in 2021 and as there were no indicators of impairment identified, an impairment test was not undertaken for the year ended 31 December 2021 in relation to the other non-financial assets. Funding Circle Holdings plc150 STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 3. Segmental information IFRS 8 Operating Segments requires the Group to determine its operating segments based on information which is used internally for decision making. Based on the internal reporting information and management structures within the Group, it has been determined that there are three geographic operating segments. Reporting on this basis is reviewed by the Global Leadership Team (“GLT”) which is the chief operating decision-maker (“CODM”). The GLT is made up of the Executive Directors and other senior management and is responsible for the strategic decision making of the Group. The three reportable segments consist of the geographic segments: the United Kingdom, the United States and Developing Markets. The Developing Markets segment includes the Group’s businesses in Germany and the Netherlands. The GLT measures the performance of each segment by reference to a non-GAAP measure, adjusted EBITDA, which is defined as profit/loss before finance income and costs, taxation, depreciation and amortisation (“EBITDA”), and additionally excludes share-based payment charges and associated social security costs, foreign exchange and exceptional items (see note 5). Together with operating profit/loss, adjusted EBITDA is a key measure of Group performance as it allows better comparability  Net income/(loss) 31 December 2021 31 December 2020 United United Developing United United Developing Kingdom States Markets Total Kingdom States Markets Total £m £m £m £m £m £m £m £m Total income 159.4 44.8 2.7 206.9 152.9 63.0 6.1 222.0 Fair value gains/(losses) 10.5 18.1 — 28.6 (43.8) (74.5) — (118.3) Net income/(loss) 169.9 62.9 2.7 235.5 109.1 (11.5) 6.1 103.7 Segment profit 31 December 2021 31 December 2020 United United Developing United United Developing Kingdom States Markets Total Kingdom States Markets Total £m £m £m £m £m £m £m £m Adjusted EBITDA 61.9 28.4 1.5 91.8 6.5 (62.4) (7.9) (63.8) Depreciation and amortisation (9.7) (4.1) (0.1) (13.9) (9.4) (6.5) (1.3) (17.2) Share-based payments and social security costs ( 7.6) (1.3) — (8.9) (5.0) (1.2) (0.4) (6.6) Foreign exchange losses (0.3) (0.6) — (0.9) — — — —  — (3.9) — (3.9) — (13.5) (5.2) (18.7) Operating profit/(loss) 44.3 18.5 1.4 64.2 (7.9) (83.6) (14.8) (106.3) Net income by type In addition to the segmental reporting of performance under IFRS 8, the table below sets out net income by its type: | 31 December | | 31 December | | | --- | --- | --- | --- | | | 2021 | | 2020 | | | £m | | £m | Transaction fees 115.0 122.5 Servicing fees 47.0 30.2 Other income 3.5 3.0 Fee income 165.5 155.7 Investment income 53.7 89.0 Investment expense (12.3) (22.7) Total income 206.9 222.0 Fair value gains/(losses) 28.6 (118.3) Net income 235.5 103.7 Annual Report and Accounts 2021 151 Financial statements ### Notes forming part of the consolidated financial statements continued for the year ended 31 December 2021 4. Operating expenses 31 December 2021 31 December 2020 Before Before exceptional Exceptional exceptional Exceptional items  Total items  Total £m £m £m £m £m £m Depreciation 5.9 — 5.9 9.0 — 9.0 Amortisation 8.0 — 8.0 8.2 — 8.2 Rental income and other recharges (0.9) — (0.9) (1.1) — (1.1) Operating lease rentals: – Other assets — — — — — — – Land and buildings 0.1 — 0.1 0.1 — 0.1 Employment costs (including contractors) 77.7 — 77.7 81.3 4.0 85.3 Marketing costs (excluding employment costs) 46.9 — 46.9 46.8 — 46.8 Data and technology 9.0 — 9.0 10.9 — 10.9 Loan repurchase (credit)/charge (0.1) — (0.1) 6.2 — 6.2 Impairment of goodwill — — — — 12.0 12.0 Impairment of intangible and tangible assets — 3.9 3.9 — 1.7 1.7 Other expenses 20.8 — 20.8 29.9 1.0 30.9 Total operating expenses 167.4 3.9 171.3 191.3 18.7 210.0 Auditors’ remuneration | 31 December | | 31 December | | | --- | --- | --- | --- | | | 2021 | | 2020 | | | £m | | £m | Audit fees – Fees payable to the Company’s auditors for the audit of the Parent Company and consolidated financial statements 0.5 0.6 – Fees payable to the Company’s auditors and its associates for the statutory audit of the financial statements of subsidiaries of the Company 0.3 0.1 Total audit fees 0.8 0.7 Non-audit service fees – Audit-related assurance services 0.2 0.2 – Other non-assurance services 0.1 0.1 Total non-audit service fees 0.3 0.3 5. Exceptional items | 31 December | | 31 December | | | --- | --- | --- | --- | | | 2021 | | 2020 | | | £m | | £m | Restructuring costs — 6.0 Share-based payment credit relating to restructuring — (1.0) Impairment of goodwill (note 10) — 12.0 Impairment of non-financial assets (notes 11 and 12) 3.9 1.7 Total 3.9 18.7 Funding Circle Holdings plc152 ## 5. Exceptional items continued Exceptional items are the items of income or expense that the Group considers are material, one-off in nature and of such significance that they merit separate presentation in order to aid the reader's understanding of the Group's financial performance. During the year to 31 December 2021 certain floors of the San Francisco office were sublet to third parties for the remainder of the term of the head lease for an amount lower than the head lease rental. As a result the sublease was determined to be a finance lease which resulted in the right-of-use asset being derecognised and a net investment in sublease recognised on the balance sheet. The difference between the carrying value of the right-of-use asset and the net investment in the sublease was £3.3 million and has been recorded in the statement of comprehensive income as an impairment under exceptional items. Additionally it was determined that the fixed assets associated with the office were impaired in full as they were no longer used by the Group resulting in impairment of £0.6 million. There was no cash movement in relation to the impairment. In the previous year ended 31 December 2020, the Group restructured the German and Dutch (Developing Markets) businesses to focus on referring loans it originates to local lenders. This restructuring resulted in one-off costs in the comparative year totalling £4.6 million comprising redundancy costs of £4.0 million, a related share-based payment credit of £(0.4) million and other costs of £1.0 million. An additional impairment on right-of-use assets was incurred of £0.6 million. Cash payments associated with these items totalled £0.8 million in the year ended 31 December 2021 (2020: £3.8 million). See note 16 for movement in associated provisions and note 23 for cash flow. In the previous year, the Group reorganised the US business, centralising the US technology team in the UK and moving sales and marketing to Denver, resulting in a net reduction of c.85 rokes. This restructuring resulted in one-off costs in the comparative year totalling £0.4 million, comprising redundancy costs of £1.0 million and related share-based payment credits of £(0.6) million. An additional impairment on the right-of-use assets was recognised of £1.1 million. Cash payments associated with these items totalled £nil in the year ended 31 December 2021 (2020: £1.1 million). See note 16 for movement in associated provisions and note 23 for cash flow. In the previous year, following a change in the Group's income and cost forecasts, an event indicating the possibility of impairment was identified and the Group has undertook a goodwill impairment review as a result of which it was identified that goodwill in relation to the Funding Circle USA business was carried at a value higher than the CGU's recoverable amount driven by a reduction in the future discounted cash flows of the CGU. As a result, an impairment was recognised of £12.0 million in the year ended 31 December 2020. There was no cash movement in relation to the impairment. ## 6. Employees The average monthly number of employees (including Directors) during the year was: | | 2021 Number | 2020 Number | | --- | --- | --- | | UK | 634 | 601 | | US | 155 | 240 | | Developing Markets | 15 | 70 | | | 804 | 911 | In addition to the employees above, the average monthly number of contractors during the year was 125 (2020: 91). Employment costs (including Directors' emoluments) during the year were: | | 31 December 2021 | | | 31 December 2020 | | | | --- | --- | --- | --- | --- | --- | --- | | | Before exceptional items £m | Exceptional items £m | Total £m | Before exceptional items £m | Exceptional items £m | Total £m | | Wages and salaries | 61.4 | — | 61.4 | 70.8 | 4.0 | 74.8 | | Social security costs | 6.2 | — | 6.2 | 6.9 | 1.0 | 7.9 | | Pension costs | 1.8 | — | 1.8 | 1.2 | — | 1.2 | | Share-based payments | 8.9 | — | 8.9 | 6.6 | (1.0) | 5.6 | | | 78.3 | — | 78.3 | 85.5 | 4.0 | 89.5 | | Contractor costs | 7.6 | — | 7.6 | 5.2 | — | 5.2 | | Less: capitalised development costs | (8.2) | — | (8.2) | (9.4) | — | (9.4) | | Employment costs net of capitalised development costs | 77.7 | — | 77.7 | 81.3 | 4.0 | 85.3 | Annual Report and Accounts 2021 153 FINANCIAL REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Financial statements ### Notes forming part of the consolidated financial statements continued for the year ended 31 December 2021 7. Net finance (costs)/income | 31 December | | 31 December | | | --- | --- | --- | --- | | | 2021 | | 2020 | | | £m | | £m | Interest receivable 0.1 0.4 Total finance income 0.1 0.4 Interest on lease liabilities (1.1) (1.4) Total finance costs (1.1) (1.4) Net finance costs (1.0) (1.0) 8. Income tax The Group is subject to all taxes applicable to a commercial company in its countries of operation. The UK profits of the Company are subject to UK income tax at the standard corporation tax rate of 19% (2020: 19%). | 31 December | | 31 December | | | --- | --- | --- | --- | | | 2021 | | 2020 | | | £m | | £m | Current tax UK Current tax on profits for the year 2.7 0.2 Adjustment in respect of prior years (0.1) — 2.6 0.2 US and Developing Markets Current tax on profits for the year — — Adjustment in respect of prior years 0.3 — Total current tax charge 0.3 — Deferred tax UK Deferred tax on profits for the year — — Adjustment in respect of prior years — — — — US and Developing markets Deferred tax on profits for the year — — Adjustments in respect of prior years — — — — Total deferred tax charge — — Total tax charge 2.9 0.2 The above tax charge represents the current year tax liability on the Group’s taxable profit and true up of tax deducted from the RDEC receivable for 2019 and 2020. In the prior year, the tax charge represents the amount of tax deducted from the RDEC receivable for 2020. The Group charge for the year can be reconciled to the profit/(loss) before tax shown per the consolidated statement of comprehensive income as follows. Funding Circle Holdings plc154 STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 8. Income tax continued Factors affecting the tax charge for the year | 31 December | | 31 December | | | --- | --- | --- | --- | | | 2021 | | 2020 | | | £m | | £m | Profit/(loss) before taxation 64.1 (108.1) Taxation on profit/(loss) at 19% (2020: 19%) 12.2 (20.5) Effects of: Research and development (0.6) 0.2 Effect of foreign tax rates 2.6 (7.7) Non-taxable/non-deductible expenses 1.8 (0.1) Temporary differences not recognised (8.3) 23.2 Utilisation of tax losses (5.9) — Impairment charge and other exceptional items 1.1 5.1 Total tax charge 2.9 0.2 The Group is taxed at different rates depending on the country in which the profits arise. The key applicable tax rates include the UK 19%, the US 21%, Germany 30% and the Netherlands 25%. The effective tax rate for the year was 4.5% (2020: (0.2%)). The statutory UK corporation tax rate is currently 19% (effective 1 April 2020). The UK Government announced on 3 March 2021 that  The Group has recognised a deferred tax liability of £3.2 million (2020: £3.3 million) relating to the property, plant and equipment in the UK. The deferred tax liability is predominantly due to the accelerated capital allowances of £2.6 million (2020: £1.5 million) and in relation to securitisation and warehouse vehicles of the UK which are domiciled in Ireland of £0.6 million (2020: £1.8 million). The increase in the deferred tax liability with regard to the accelerated capital allowances is due to the treatment of the capitalised development spend for the purposes of RDEC claim. The decrease in the deferred tax liability with regard to the securitisation and warehouse vehicles of the UK which are domiciled in Ireland is predominantly due to the sale of the loans in Great Trinity Lending DAC warehouse in 2021 and repayment of associated liabilities of the entity. A deferred tax asset relating to unrelieved tax losses of £3.2 million (2020:£3.3 million) has been recognised in the UK to the extent of the above mentioned deferred tax liability pursuant to IAS 12 para 74. Deferred tax has been determined using the applicable effective future tax rate that will apply in the expected period of utilisation of the recognised deferred tax assets or liabilities. Unrecognised deferred tax | 31 December | | 31 December | | | --- | --- | --- | --- | | | 2021 | | 2020 | | | £m | | £m | Property, plant and equipment 10.3 10.6 Carry forward losses 257.3 247.9 Deferred stock options 15.7 10.7 US R&D credit 2.1 2.0 US fair value adjustments 46.3 7 7.2 Other 3.7 4.4 Unrecognised deferred tax assets 335.4 352.8 Based on the temporary differences, there are total unrecognised deferred tax assets of £92.1 million (2020: £91.8 million). The Group has unrelieved tax losses of £257.3 million (2020: £247.9 million) that are available for offset against future taxable profits. The Group has not recognised a deferred tax asset in respect of these losses, or in respect of other temporary differences, as there is not sufficient certainty of future taxable profits being generated to utilise these losses. Significant losses relating to the total of £257.3 million include £53.9 million which relates to the UK and £97.0 million to Germany and therefore have no expiry period, with £102.8 million relating to losses arising in the US and of which £21.3 million will expire in 2034, £26.4 million will expire in 2035, £21.1 million will expire in 2036 and remaining balance of £34.0 million have no expiry period. Factors affecting the tax charge in future years Factors that may affect the Group’s future tax charge include the geographic location of the Group’s earnings, the tax rates in those locations, changes in tax legislation and the use of brought forward tax losses. The calculation of the Group’s total tax charge involves a degree of estimation and judgement with respect to the recognition of any deferred tax asset. Annual Report and Accounts 2021 155 Financial statements # Notes forming part of the consolidated financial statements continued for the year ended 31 December 2021 # **9. Earnings/(loss) per share** Basic earnings/(loss) per share amounts are calculated by dividing the profit/(loss) for the year attributable to ordinary equity holders of the Company by the weighted average number of ordinary shares outstanding during the year. For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. The dilutive potential ordinary shares include those share options granted to employees under the Group's share-based compensation schemes which do not have an exercise price or where the exercise price is less than the average market price of the Company's ordinary shares during the year. The following table reflects the income and share data used in the basic and diluted loss per share computations: | | 31 December 2021 | 31 December 2020 | | --- | --- | --- | | Profit/(loss) for the year (£m) | 61.2 | (108.3) | | Basic weighted average number of ordinary shares in issue (million) | 351.5 | 347.0 | | Basic earnings/(loss) per share | 17.4p | (31.2)p | | Profit/(loss) for the year before exceptional items (£m) | 65.1 | (89.6) | | Basic weighted average number of ordinary shares in issue (million) | 351.5 | 347.0 | | Basic earnings/(loss) per share before exceptional items | 18.5p | (25.8)p | | Profit/(loss) for the year (£m) | 61.2 | (108.3) | | Diluted weighted average number of ordinary shares in issue (million) | 381.7 | 347.0 | | Diluted earnings/(loss) per share | 16.0p | (31.2)p | | Profit/(loss) for the year before exceptional items (£m) | 65.1 | (89.6) | | Diluted weighted average number of ordinary shares in issue (million) | 381.7 | 347.0 | | Diluted earnings/(loss) per share before exceptional items | 17.1p | (25.8)p | # **10. Goodwill** | | Total £m | | --- | --- | | **Cost and carrying amount** | | | At 1 January 2020 | 11.3 | | Impairment charge (note 5) | (12.0) | | Exchange differences | 0.7 | | At 31 December 2020 | — | | At 1 January 2021 | — | | **At 31 December 2021** | **—** | In the prior year ended 31 December 2020 impairment of £12.0 million was recorded in relation to the goodwill in Funding Circle USA ("FCUSA") and its subsidiaries, as the recoverable amount calculated was below the carrying amount following an impairment test. The cumulative amount of impairment losses in relation to goodwill recognised in the year ended 31 December 2020 was £12.0 million. Further details of the impairment assessment are detailed within note 2. 156 Funding Circle Holdings plc ## 11. Intangible assets | | Capitalised development costs £m | Computer software £m | Other intangibles £m | Total £m | | --- | --- | --- | --- | --- | | **Cost** | | | | | | At 1 January 2020 | 47.3 | 1.0 | 1.1 | 49.4 | | Exchange differences | (0.5) | — | — | (0.5) | | Additions | 9.4 | 0.1 | — | 9.5 | | Disposals | (10.7) | (0.3) | — | (11.0) | | At 31 December 2020 | 45.5 | 0.8 | 1.1 | 47.4 | | At 1 January 2021 | 45.5 | 0.8 | 1.1 | 47.4 | | Exchange differences | (0.2) | 0.1 | 0.1 | — | | Additions | 8.5 | 0.1 | — | 8.6 | | Disposals | (4.8) | (0.1) | — | (4.9) | | **At 31 December 2021** | **49.0** | **0.9** | **1.2** | **51.1** | | **Accumulated amortisation** | | | | | | At 1 January 2020 | 24.0 | 0.8 | 1.0 | 25.8 | | Exchange differences | — | — | — | — | | Charge for the year | 8.0 | 0.2 | — | 8.2 | | Disposals | (10.7) | (0.3) | — | (11.0) | | At 31 December 2020 | 21.3 | 0.7 | 1.0 | 23.0 | | At 1 January 2021 | 21.3 | 0.7 | 1.0 | 23.0 | | Exchange differences | (0.1) | — | 0.2 | 0.1 | | Charge for the year | 8.0 | — | — | 8.0 | | Disposals | (4.8) | (0.1) | — | (4.9) | | **At 31 December 2021** | **24.4** | **0.6** | **1.2** | **26.2** | | **Carrying amount** | | | | | | **At 31 December 2021** | **24.6** | **0.3** | **—** | **24.9** | | At 31 December 2020 | 24.2 | 0.1 | 0.1 | 24.4 | FINANCIAL REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Annual Report and Accounts 2021 157 Financial statements ### Notes forming part of the consolidated financial statements continued for the year ended 31 December 2021 12. Property, plant and equipment, right-of-use assets and lease liabilities The Group has right-of-use assets which comprise property leases held by the Group. Information about leases for which the Group is a lessee is presented below. Analysis of property, plant and equipment between owned and leased assets | 31 December | | 31 December | | | --- | --- | --- | --- | | | 2021 | | 2020 | | | £m | | £m | Property, plant and equipment (owned) 2.7 3.9 Right-of-use assets 11.4 24.8 14.1 28.7 Reconciliation of amount recognised in the balance sheet Right-of-use Leasehold Computer Furniture assets improvements equipment and fixtures (property) Total £m £m £m £m £m Cost At 1 January 2020 5.8 4.8 3.0 49.4 63.0 Disposals (0.1) (1.6) (0.2) (2.2) (4.1) Additions 0.4 0.4 — — 0.8 Exchange differences — — — (0.4) (0.4) At 31 December 2020 6.1 3.6 2.8 46.8 59.3 At 1 January 2021 6.1 3.6 2.8 46.8 59.3 Disposals (1.4) (1.8) (1.0) — (4.2) Additions — 0.7 0.1 — 0.8 Exchange differences — 0.2 — (0.4) (0.2) Derecognition of right-of-use assets — — — (15.4) (15.4) At 31 December 2021 4.7 2.7 1.9 31.0 40.3 Accumulated depreciation At 1 January 2020 3.0 4.0 1.5 15.5 24.0 Disposals (0.1) (1.6) (0.2) (2.2) (4.1) Charge for the year 0.8 0.8 0.4 7.0 9.0 Impairment (exceptional) — — — 1.7 1.7 Exchange differences — — — — — At 31 December 2020 3.7 3.2 1.7 22.0 30.6 At 1 January 2021 3.7 3.2 1.7 22.0 30.6 Disposals (1.4) (1.8) (1.0) — (4.2) Charge for the year 0.8 0.6 0.3 4.2 5.9 Impairment (exceptional) 0.2 — 0.4 3.3 3.9 Exchange differences (0.1) (0.1) 0.1 — (0.1) Derecognition of right-of-use assets — — — (9.9) (9.9) At 31 December 2021 3.2 1.9 1.5 19.6 26.2 Carrying amount At 31 December 2021 1.5 0.8 0.4 11.4 14.1 At 31 December 2020 2.4 0.4 1.1 24.8 28.7 During the year, right-of-use assets related to the US San Francisco office were sublet in a finance sublease. As a result the right-of-use asset was derecognised and a net investment in sublease was recognised within other receivables. During the year the right-of-use asset related to the Netherlands business was exited along with the corresponding head lease liability.  During the previous year ended 31 December 2020, right-of-use assets were identified as part of the FCCE and FCUSA restructures, which were considered to be individual CGUs for which the recoverable amount was considered to be the future potential sublet value. The estimated discounted cash flows from sublet income were compared to the carrying value of the asset and an impairment of £1.7 million was recognised. See note 5 for related exceptional items. Funding Circle Holdings plc158 STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 12. Property, plant and equipment, right-of-use assets and lease liabilities continued Lease liabilities Amounts recognised on the balance sheet were as follows: | 31 December | | 31 December | | | --- | --- | --- | --- | | | 2021 | | 2020 | | | £m | | £m | Current 6.9 7.3 Non-current 17.0 23.5 Total 23.9 30.8 Amounts recognised in the statement of comprehensive income were as follows: | 31 December | | 31 December | | | --- | --- | --- | --- | | | 2021 | | 2020 | | | £m | | £m | Depreciation charge of right-of-use assets (property) 4.2 7.0 Interest expense (included in finance costs) 1.1 1.4 Expense relating to short-term leases and leases of low-value assets 0.1 0.1 The total cash outflow for leases (excluding short-term and low-value leases) in 2021 was £8.1 million (2020: £7.8 million). A maturity analysis illustrating the undiscounted contractual cash flows of lease liabilities is included within the liquidity risk disclosure within note 17. As at 31 December 2021 the potential future undiscounted cash outflows that have not been included in the lease liability due to lack of reasonable certainty the lease extension options might be exercised amounted to £nil (2020: £nil). 13. Investment in SME loans 31 December | 31 December | | | 2020 | | | --- | --- | --- | --- | --- | | | 2021 |  | | 1 | | | £m | | £m | | Non-current Investment in SME loans (other) – amortised cost 74.2 25.0 Investment in trusts and co-investments – FVTPL 39.1 21.2 Total non-current 113.3 46.2 Current Investment in SME loans (other) – amortised cost 1.6 — Investment in SME loans (warehouse) – FVTPL 3.2 221.8 Investment in SME loans (securitised) – FVTPL 148.1 279.8 Total current 152.9 501.6 Total 266.2 547.8 1. See note 1. Annual Report and Accounts 2021 159 Financial statements ### Notes forming part of the consolidated financial statements continued for the year ended 31 December 2021 14. Trade and other receivables | 31 December | | 31 December | | | --- | --- | --- | --- | | | 2021 | | 2020 | | | £m | | £m | Other receivables 4.1 — Non-current trade and other receivables 4.1 — Trade receivables 1.8 1.6 Other receivables¹ 10.0 15.5 Prepayments 4.8 3.6 Accrued income² 6.2 43.7 Rent and other deposits 2.2 2.6 Current trade and other receivables 25.0 67.0 29.1 67.0 1. Includes £3.6 million (2020: £7.5 million) in relation to cash and liquidity reserves held in the UK securitisation vehicle which will unwind to make payments to bond holders in the future. 2. Includes £nil (2020: £36.2 million) in relation to transaction fees receivable on CBILS originations. Accrued income outstanding at the start of the year was subsequently collected. The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivables described earlier. No trade receivables were overdue or impaired. Included in rent and other deposits are £1.6 million of rental deposits (2020: £1.9 million) in respect of the Group’s property leases which expire over the next five years. The Directors consider that the carrying amount of trade and other receivables approximates to their fair value. 15. Trade and other payables | 31 December | | 31 December | | | --- | --- | --- | --- | | | 2021 | | 2020 | | | £m | | £m | Trade payables 3.7 2.1 Other taxes and social security costs 4.9 3.7 Other creditors 11.4 5.6 Accruals and deferred income 16.4 22.7 36.4 3 4.1 The Directors consider that the carrying amount of trade and other payables approximates to their fair value. 16. Provisions and other liabilities Dilapidation Loan repurchase  1 Other  Total £m £m £m £m £m At 1 January 2020 0.9 2.9 — 0.2 4.0 Exchange differences — 0.2 — (0.1) 0.1 Additional provision/liability — 6.2 6.0 3.2 15.4 Amount utilised — (4.1) (4.9) (0.6) (9.6) At 31 December 2020 0.9 5.2 1.1 2.7 9.9 Exchange differences — (0.3) (0.1) 0.2 (0.2) Additional provision/liability — — — 1.1 1.1 Amount utilised — (2.6) (0.8) (0.2) (3.6) Amount reversed (0.3) (0.1) — (2.7) (3.1) At 31 December 2021 0.6 2.2 0.2 1.1 4.1 1. Restructuring provision is in relation to reorganisation of the US, German and Dutch businesses; see note 5. Funding Circle Holdings plc160 STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 16. Provisions and other liabilities continued | 31 December | | 31 December | | | --- | --- | --- | --- | | | 2021 | | 2020 | | | £m | | £m | Current provisions and other liabilities 3.4 8.7 Non-current 0.7 1.2 4.1 9.9 The dilapidation provision represents an estimated cost for dismantling the customisation of offices and restoring the leasehold premises to its original state at the end of the tenancy period. The provision is expected to be utilised by 2025. Loan repurchase liability In certain historical circumstances, in the less mature markets, Funding Circle has entered into arrangements with institutional investors to assume the credit risk on the loan investments made by the institutional investors. Under the terms of the agreements, the Group is required either to make payments when the underlying borrower fails to meet its obligation under the loan contract or buy the defaulted loan from the investors at its carrying value. In return for these commitments, the Group is entitled to the excess returns or additional income which is recorded as other income. Under IFRS 9, the Group is required to provide for these loan repurchases under the expected credit loss (“ECL”) model. The liability related to each loan arranged is based on the ECLs associated with the probability of default of that loan in the next 12 months unless there has been a significant increase in credit risk of that loan since origination. The Group assumes there has been a significant increase in credit risk if outstanding amounts on the loan investment exceed 30 days, in line with the rebuttable presumption per IFRS 9. The Group defines a default, classified within non-performing, as a loan investment with any outstanding amounts exceeding a 90-day due date, which reflects the point at which the loan is considered to be credit-impaired. Under the loan repurchase contracts, this was the point at which there is an obligation for the Group to make a payment under the contract or buy back the loan. However, while the buyback agreement is contractually defined as 90 days past due, due to the impact of Covid-19, a consent letter was signed with the institutional investors in April 2020 to accommodate loans on forbearance plans whereby loans on such plans will be repurchased at 180 days past due. However, the definition of default for the purposes of expected credit losses remains 90 days past due and the buyback may lag the default definition applied. If the loan is bought back by the Group, at the point of buyback, the financial asset associated with the purchase meets the definition of purchased or originated credit-impaired (“POCI”), this element of the reserve is therefore based on lifetime ECLs. After being bought back, POCI loans and associated impairment provisions are recognised within investment in SME loans (other) on the balance sheet. The Group bands each loan investment using an internal risk rating and assesses credit losses on a collective basis. | Performing: | | Underperforming: | | | Non-performing: | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | 12-month | | | lifetime | | | lifetime | | | | | ECL | | | ECL | | | ECL | Total | | | £m | | | £m | | | £m | £m | At 1 January 2020 2.1 0.8 — 2.9 Exchange differences 0.1 0.1 — 0.2 Liability against loans transferred from performing (0.3) 0.5 4.9 5.1 Amounts utilised — — (4.1) (4.1) Loans repaid (0.8) — — (0.8) Change in probability of default 1.1 0.1 0.7 1.9 At 31 December 2020 2.2 1.5 1.5 5.2 Exchange differences (0.1) (0.1) (0.1) (0.3) Liability against loans transferred from performing (0.2) (0.5) 1.7 1.0 Amounts utilised — — (2.6) (2.6) Loans repaid (0.9) (0.4) (0.6) (1.9) Change in probability of default 0.4 (0.1) 0.5 0.8 At 31 December 2021 1.4 0.4 0.4 2.2 Annual Report and Accounts 2021 161 Financial statements ### Notes forming part of the consolidated financial statements continued for the year ended 31 December 2021 16. Provisions and other liabilities continued Loan repurchase liability continued Gross assets of external | | | | | Basis for | | parties subject | | | | Loan | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Expected credit | | recognition of | | to loan repurchase | | | | repurchase | | | | loss coverage | | loan repurchase | | | | liability | | | liability | | At 31 December 2020 | | % | | liability | | | | £m | | £m | Performing (due in 30 days or less) 10.8 12-month ECL 20.3 2.2 Underperforming (31–90 days overdue) 71.5 Lifetime ECL 2.1 1.5 Non-performing (90+ days overdue) 79.0 Lifetime ECL 1.9 1.5 Total 24.3 5.2 Gross assets of external | | | | | Basis for | | parties subject | | | | Loan | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Expected credit | | recognition of | | to loan repurchase | | | | repurchase | | | | loss coverage | | loan repurchase | | | | liability | | | liability | | At 31 December 2021 | | % | | liability | | | | £m | | £m | Performing (due in 30 days or less) 15.3 12-month ECL 8.8 1.4 Underperforming (31–90 days overdue) 63.6 Lifetime ECL 0.6 0.4 Non-performing (90+ days overdue) 76.5 Lifetime ECL 0.6 0.4 Total 10.0 2.2 The percentages applied above are based on the Group’s past experience of delinquencies and loss trends, as well as forward-looking information in the form of macroeconomic scenarios governed by an impairment committee, which considers macroeconomic forecasts such as changes in interest rates, GDP and inflation. Macroeconomic scenarios are probability weighted within the model and include stress scenarios of: i) low losses, a high GDP, market confidence and political stability; ii) normal losses based on baseline economic conditions; iii) high losses with manufacturing and political instability; and iv) very high losses with an acceleration of defaults having reached a peak in H2 2021  The stress scenario used was a geography-weighted scenario reflecting higher losses on the Netherlands book than that  gradually afterwards. The expected credit loss model includes actual defaults determined by monthly cohort, adjusted for forecasted lifetime cumulative default rates. It applies the latest default curve and lifetime default rates tailored to each cohort based on the expected lifetime default rate. When actual defaults trend higher than the curve, the forecast default curve is shifted upwards to align with actual performance. Estimated recoveries from defaults are discounted back to their present value using the effective interest rate. Estimation is required in assessing individual loans and when applying statistical models for collective assessments, using historical trends from past performance as well as forward-looking information including macroeconomic forecasts in each market together with the impact on loan defaults. The most significant estimation is with default rates on performing loans.  weighted average default rate estimate were to change by +/-250 bps the liability would change by £1.4 million for the year   The maximum exposure the Group might have to pay at the balance sheet date if 100% of eligible loans were required to be bought back would be £10.0 million (2020: £24.3 million). This would be dependent on the timing of any eligible loans defaulting. Repayments of eligible loans are no longer reinvested and therefore the final loan is due to expire in December 2024, along with the associated financial guarantees. At 31 December 2021, there is only one portfolio of loans. Funding Circle Holdings plc162 ## 17. Financial risk management The Board of Directors has overall responsibility for the establishment and oversight of the Group's risk management framework. The risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls and to monitor risks and ensure any limits are adhered to. The Group's activities are reviewed regularly and potential risks are considered. ### Risk factors The Group has exposure to the following risks from its use of financial instruments: - credit risk; - liquidity risk; and - market risk (including foreign exchange risk, interest rate risk and other price risk). ### Principal financial instruments The principal financial instruments used by the Group, from which financial instrument risk arises, are as follows: - investments; - trade and other receivables; - cash and cash equivalents; - trade and other payables; - bank borrowings; - bonds; - lease liabilities; and - loan repurchase liabilities. ### Categorisation of financial assets and financial liabilities The tables show the carrying amounts of financial assets and financial liabilities by category of financial instrument as at 31 December 2021. | Assets | Fair value through profit and loss £m | Amortised cost £m | Other £m | Total £m | | --- | --- | --- | --- | --- | | Investment in SME loans (other) | — | 75.8 | — | 75.8 | | Investment in SME loans (warehouse) | 3.2 | — | — | 3.2 | | Investment in SME loans (securitised) | 148.1 | — | — | 148.1 | | Investment in trusts and co-investments | 39.1 | — | — | 39.1 | | Trade and other receivables | — | 24.3 | — | 24.3 | | Cash and cash equivalents | 112.1 | 111.9 | — | 224.0 | | | **302.5** | **212.0** | **—** | **514.5** | | Liabilities | Fair value through profit and loss £m | Amortised cost £m | Other £m | Total £m | | --- | --- | --- | --- | --- | | Trade and other payables | — | (15.2) | — | (15.2) | | Loan repurchase liability | — | — | (2.2) | (2.2) | | Bank borrowings | — | (73.2) | — | (73.2) | | Bonds | (12.8) | (127.5) | — | (140.3) | | Lease liabilities | — | (23.9) | — | (23.9) | | | **(12.8)** | **(239.8)** | **(2.2)** | **(254.8)** | FINANCIAL REPORT COMPOSITE INVESTMENTS FINANCIAL STATEMENTS Annual Report and Accounts 2021 163 Financial statements # Notes forming part of the consolidated financial statements continued for the year ended 31 December 2021 # 17. Financial risk management continued Principal financial instruments continued # Categorisation of financial assets and financial liabilities continued The tables show the carrying amounts of financial assets and financial liabilities by category of financial instrument as at 31 December 2020: | Assets | Fair value through profit and loss £m | Amortised cost £m | Other £m | Total £m | | --- | --- | --- | --- | --- | | Investment in SME loans (other) | — | 25.0 | — | 25.0 | | Investment in SME loans (warehouse) | 221.8 | — | — | 221.8 | | Investment in SME loans (securitised) | 279.8 | — | — | 279.8 | | Investment in trusts and co-investments | 21.2 | — | — | 21.2 | | Trade and other receivables | 0.3 | 63.1 | — | 63.4 | | Cash and cash equivalents | 24.8 | 78.5 | — | 103.3 | | | 547.9 | 166.6 | — | 714.5 | | Liabilities | Fair value through profit and loss £m | Amortised cost £m | Other £m | Total £m | | --- | --- | --- | --- | --- | | Trade and other payables | — | (7.7) | — | (7.7) | | Loan repurchase liability | — | — | (5.2) | (5.2) | | Bank borrowings | — | (195.5) | — | (195.5) | | Bonds | (7.8) | (286.5) | — | (294.3) | | Lease liabilities | — | (30.8) | — | (30.8) | | | (7.8) | (520.5) | (5.2) | (533.5) | # Financial instruments measured at amortised cost Financial instruments measured at amortised cost, rather than fair value, include cash and cash equivalents, trade and other receivables, investment in SME loans (other), bank borrowings, lease liabilities, certain bonds and trade and other payables. Due to their nature, the carrying value of each of the above financial instruments approximates to their fair value. # Other financial instruments Loan repurchase liabilities are measured at the amount of loss allowance determined under IFRS 9. # Financial instruments measured at fair value IFRS 13 requires certain disclosures which require the classification of financial assets and financial liabilities measured at fair value using a fair value hierarchy that reflects the significance of the inputs used in making the fair value measurement. Disclosure of fair value measurements by level is according to the following fair value measurement hierarchy: - level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date; - level 2 inputs are inputs other than quoted prices included within level 1 that are observable for the assets or liabilities, either directly or indirectly; and - level 3 inputs are unobservable inputs for the assets or liabilities. The fair value of financial instruments that are not traded in an active market (for example, investments in SME loans) is determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity-specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2. The investments categorised as level 2 relate to derivative financial instruments. If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3. 164 Funding Circle Holdings plc STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 17. Financial risk management continued Financial instruments measured at fair value continued Fair value measurement using | | Quoted prices | | | Significant | | Significant | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | in active | | observable | | unobservable | | | | | | | markets | | | inputs | | inputs | | | | | | (level 1) | | | (level 2) | | (level 3) | | Total | | 31 December 2021 | | | £m | | £m | | | £m | £m | Financial assets Investment in SME loans (warehouse) — — 3.2 3.2 Investment in SME loans (securitised) — — 148.1 148.1 Investment in trusts and co-investments — — 39.1 39.1 Cash and cash equivalents 112.1 — — 112.1 112.1 — 190.4 302.5 Financial liabilities Bonds — — (12.8) (12.8) — — (12.8) (12.8) Fair value measurement using | | Quoted prices | | | Significant | | Significant | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | in active | | observable | | unobservable | | | | | | markets | | | inputs | | inputs | | | | | (level 1) | | | (level 2) | | (level 3) | Total | | 31 December 2020 | | | £m | | £m | | £m | £m | Financial assets Trade and other receivables — 0.1 0.2 0.3 Investment in SME loans (warehouse) — — 221.8 221.8 Investment in SME loans (securitised) — — 279.8 279.8 Investment in trusts and co-investments — — 21.2 21.2 Cash and cash equivalents 24.8 — — 24.8 24.8 0.1 523.0 547.9 Financial liabilities Bonds — — ( 7.8) ( 7.8) — — (7.8) (7.8) The fair value of investment in SME loans (warehouse) has been estimated by discounting future cash flows of the loans using discount rates that reflect the changes in market interest rates and observed market conditions at the reporting date. The estimated fair value and carrying amount of the investment in SME loans (warehouse) was £3.2 million at 31 December 2021 (2020: £221.8 million). The fair value of investment in SME loans (securitised) represents loan assets in the securitisation vehicles and has been estimated by discounting future cash flows of the loans using discount rates that reflect the changes in market interest rates and observed market conditions at the reporting date. The estimated fair value and carrying amount of the investment in SME loans (securitised) was £148.1 million at 31 December 2021 (2020: £279.8 million). Bonds represent the unrated tranches of bond liabilities measured at fair value through profit and loss (the rated tranches of bonds are measured at amortised cost). The fair value has been estimated by discounting future cash flows in relation to the bonds using discount rates that reflect the changes in market interest rates and observed market conditions at the reporting date. The estimated fair value and carrying amount of the bonds was £12.8 million at 31 December 2021 (2020: £7.8 million). Investment in trusts and co-investments represents the Group’s investment in the trusts and other vehicles used to fund CBILS, RLS and certain core loans and is measured at fair value through profit and loss. The government-owned British Business Bank will guarantee up to 80% of the balance of CBILS loans in the event of default (and between 70% and 80% of RLS loans). The fair value has been estimated by discounting future cash flows in relation to the trusts using discount rates that reflect the changes in market interest rates and observed market conditions at the reporting date. The estimated fair value and carrying amount of the investment in trusts and co-investments was £39.1 million at 31 December 2021 (2020: £21.2 million). The most relevant significant unobservable input relates to the default rate estimate and discount rates applied to the fair value calculation, details of which are set out in note 2 for those with material estimation uncertainty. Fair value movements on investment in SME loans (warehouse), investment in SME loans (securitised), investments in trusts and bonds (unrated) are recognised through the profit and loss account in fair value gains/(losses). Annual Report and Accounts 2021 165 Financial statements ### Notes forming part of the consolidated financial statements continued for the year ended 31 December 2021 17. Financial risk management continued Financial instruments measured at fair value continued A reconciliation of the movement in level 3 financial instruments is shown as follows: Investment in Investment in Investment SME loans SME loans Bonds in trusts and Trade and (warehouse) (securitised) (unrated) co-investments other receivables £m £m £m £m £m At 1 January 2020 342.0 366.6 (20.0) — — Additions 286.9 — — 20.9 — Securitisations (214.2) 214.2 — — — Transfers (0.2) — — — 0.2 Repayments (146.9) (211.7) 4.2 — — Disposal — — (4.0) — — Net (loss)/gain on the change in fair value of financial instruments at fair value through profit and loss (43.4) (87.2) 12.0 0.3 — Foreign exchange loss (2.4) (2.1) — — — At 31 December 2020 221.8 279.8 ( 7.8) 21.2 0.2 Additions — — — 22.1 — Transfers 0.2 — — — (0.2) Repayments (58.6) (150.2) — (3.3) — Disposal (176.1) — — — — Net gain/(loss) on the change in fair value of financial instruments at fair value through profit and loss 16.3 18.2 (5.0) (0.9) — Foreign exchange (loss)/gain (0.4) 0.3 — — — At 31 December 2021 3.2 148.1 (12.8) 39.1 — Financial risk factors Credit risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group’s receivables from customers and cash and cash equivalents held at banks. The Group’s maximum exposure to credit risk by class of financial asset is as follows: 31 December | 31 December | | | 2020 | | | --- | --- | --- | --- | --- | | | 2021 |  | | 1 | | | £m | | £m | | Non-current Investment in SME loans (other) 74.2 25.0 Investment in trusts and co-investments 39.1 21.2 Trade and other receivables: – Other receivables 4.1 — Current Investment in SME loans (other) 1.6 — Investment in SME loans (warehouse) 3.2 221.8 Investment in SME loans (securitised) 148.1 279.8 Trade and other receivables: – Trade receivables 1.8 1.6 – Other receivables 10.0 15.5 – Accrued income 6.2 43.7 – Rent and other deposits 2.2 2.6 Cash and cash equivalents 224.0 103.3 Total gross credit risk exposure 514.5 714.5 Less bank borrowings and bond liabilities² (213.5) (489.8) Total net credit risk exposure 301.0 224.7 1. See note 1. 2. Included within bank borrowings are £73.2 million (31 December 2020: £24.3 million) in relation to draw downs on the PPPLF. Funding Circle Holdings plc166 ## 17. Financial risk management continued ### Financial risk factors continued In addition the Group is subject to financial guarantees it has issued to buy back loans detailed in the loan repurchase liability in note 16. The Group's maximum exposure to credit risk on financial guarantees were every eligible loan required to be bought back would be £10.0 million (2020: £24.3 million). Investment in SME loans (warehouse) and investment in SME loans (securitised) relate to the underlying pool of SME loans in both the warehouse and securitisation vehicles. Whilst there is credit risk from the loans defaulting, these SME loans and the associated bank debt or third party bonds are held within bankruptcy remote vehicles. If the SME loans were to all default, then the bank debt or third party bonds do not receive their money back. Therefore the overall exposure to the Group for these investments is the Group's net investment in the SME loans which is after taking account of the bank debt and third party bonds. Under IFRS 9, the Group is required to provide for loans measured at amortised cost under the expected credit loss ("ECL") model. The impairment related to each loan is based on the ECLs associated with the probability of default of that loan in the next 12 months unless there has been a significant increase in credit risk of that loan since origination. The Group assumes there has been a significant increase in credit risk if outstanding amounts on the loan investment exceed 30 days, in line with the rebuttable presumption per IFRS 9. The Group defines a default, classified within non-performing, as a loan investment with any outstanding amounts exceeding a 90-day due date, which reflects the point at which the loan is considered to be credit-impaired. In some circumstances where loans are bought back by the Group, the financial asset associated with the purchase meets the definition of purchased or originated credit-impaired ("POCI"), this element of the impairment is therefore based on lifetime ECLs. The investment in SME loans (other) includes PPP loans funded by the use of the PPPLF. The loans are guaranteed by the US Government in the event of default and the loans are anticipated to be forgiven. At the point of default and subsequent collection of the guarantee or point of forgiveness, the loan and the respective borrowings under the PPPLF are extinguished. The investment in SME loans (other) also includes loans which have been brought back from investors and are held at amortised cost and the current portion of SME loans (other) includes £1.6 million (2020: £nil) of investments in short-term SME loans under its FlexiPay product, enabling businesses to spread UK invoices or payments over three months with the initial payment made on a borrowers behalf. These are all measured at amortised cost. The gross principal value of the loans is £91.1 million (2020: £39.3 million), of which £75.7 million (2020: £26.1 million) is performing, £0.3 million (2020: £nil) is underperforming, £1.1 million (2020: £0.4 million) is non-performing and £14.0 million (2020: £12.8 million) is POCI at 31 December 2021. An allowance for expected credit losses of £15.3 million (£12.6 million) is held against these loans, of which £0.6 million (0.7%) (2020: £0.1 million (0.3%)) is held against performing loans, £0.3 million (100%) (2020: £nil) against underperforming loans, £1.1 million (100.0%) (2020: £0.4 million (100%)) on non-performing loans and £13.3 million (95.1%) (2020: £12.2 million (95.2%)) on POCI loans. The carrying value of the loans totalled £75.8 million (2020: £26.6 million), of which £75.1 million (2020: £26.0 million) was performing, £nil (2020: £nil) was underperforming, £nil (2020: £nil) was non-performing and £0.7 million (2020: £0.6 million) was POCI. An impairment charge of £1.3 million (2020: £0.3 million) was recognised through the statement of comprehensive income in the year to 31 December 2021 within other operating expenses. Trade receivables represent the invoiced amounts in respect of servicing fees due from institutional investors. The risk of financial loss is deemed minimal because the counterparties are well established financial institutions. Ongoing credit evaluation is performed on the financial condition of other receivables and, where appropriate, a provision for impairment is recorded in the financial statements. Other receivables include net investment in subleases of offices representing the present value of future sublease payments receivable. Where appropriate, impairment is recorded where the receivable is in doubt. Individual risk limits for banks and financial institutions are set by external rating agencies. The Group's treasury policy has set limits and quantities that the Group must remain within. No credit or counterparty limits were exceeded during the year. The Group's cash and cash equivalents split by S&P counterparty rating were A/A- rated: £111.9 million (2020: £78.3 million), A+ or better rated: £112.0 million (2020: £24.8 million) and below A- rated: £0.1 million (2020: £0.2 million). ### Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient financial resources to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group's position. The Group's liquidity position is monitored and reviewed on an ongoing basis by the Directors. The amounts disclosed in the following tables are the contractual undiscounted cash flows. The liquidity requirements of the bonds are met from cash flows generated by the investment in SME loans (securitised) and the liquidity requirements of bank borrowings are met from cash flows generated by investment in SME loans (warehouse) and SME loans (other). Annual Report and Accounts 2021 167 FINANCIAL REPORT COMPARATIVE GOVERNMENTS FINANCIAL STATEMENTS Financial statements ### Notes forming part of the consolidated financial statements continued for the year ended 31 December 2021 17. Financial risk management continued Financial risk factors continued Liquidity risk continued The maturity analysis of financial instruments at 31 December 2021 and 31 December 2020 is as follows: | | | | Between | | | | | | | Total | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Less than | | 3 months | | Between 1 | | Over | undiscounted | | | Impact of | | | Carrying | | | | 3 months | | and 1 year | | and 5 years | | 5 years | | cash flows | |  | | 2 | amount | | | At 31 December 2021 | | £m | | £m | | £m | £m | | | £m | | £m | | | £m | Financial liabilities Trade and other payables (15.2) — — — (15.2) — (15.2) Bank borrowings — — (73.2) — (73.2) — (73.2) Bonds (28.8) (60.5) (60.8) (0.2) (150.3) 10.0 (140.3) 1 Loan repurchase liability (2.2) — — — (2.2) — (2.2) Lease liabilities (1.7) (5.2) (18.9) — (25.8) 1.9 (23.9) (47.9) (65.7) (152.9) (0.2) (266.7) 11.9 (254.8) | | | | Between | | | | | | Total | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Less than | | 3 months | | Between 1 | | Over | undiscounted | | Impact of | | | Carrying | | | | 3 months | | and 1 year | | and 5 years | | 5 years | cash flows | |  | | 2 | amount | | | At 31 December 2020 | | £m | | £m | | £m | £m | | £m | | £m | | | £m | Financial liabilities Trade and other payables (7.7) — — — (7.7) — ( 7.7) Bank borrowings (171.2) — (24.3) — (195.5) — (195.5) Bonds (45.9) (101.7) (164.3) — (311.9) 17.6 (294.3) 1 Loan repurchase liability (5.2) — — — (5.2) — (5.2) Lease liabilities (1.8) (5.5) (24.3) (2.2) (33.8) 3.0 (30.8) (231.8) (107.2) (212.9) (2.2) (554.1) 20.6 (533.5) 1. Financial guarantees provided for in the loan repurchase liability are allocated to the earliest period in which the guarantee could possibly be called. 2. Included within the impact of discounting on bonds is £1.1 million of deferred bond issuance costs (2020: £2.5 million). During 2021, the Group maintained revolving credit facility agreements of up to £220 million in the UK and $180 million and  of SME loans for the warehouses. In the prior year ended 31 December 2020, due to the impact of Covid-19 and the refocus towards CBILS and PPP loan originations, the warehouses ceased reinvestment of proceeds from SME loans and commenced paying down the outstanding facility balances. During the year the majority of the SME loans in the UK and US warehouses were sold and the borrowing facilities fully paid down using the proceeds. As at 31 December 2021, the amounts drawn in the UK and US totalled £nil (2020: £120.6 million) and $nil (2020: $69.2 million) respectively. Interest was payable on the borrowings in the UK at 2.25% plus one month London Inter-Bank Offered Rate (“LIBOR”) and in the US at 2.5% plus the three month commercial paper rate on the initial facility and at three month USD LIBOR + 3.0% on the second facility respectively. Additionally in the US the Group has drawn $98.7 million (2020: $33.1 million) on the PPP Liquidity Facility available from the Federal Reserve Bank at a fixed interest rate of 0.35%. Market risk Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. The Group’s market risk arises from open positions in interest-bearing assets and liabilities, to the extent that these are exposed to general and specific market movements. a) Other price risk The fair value of the SME loans which are held at fair value through profit and loss can fluctuate depending on market pricing of relative interest rates and credit risk. This is reflected in the discount rate used to derive a valuation for the loan assets.  exposed to greater estimation uncertainty is disclosed in note 2. b) Interest rate risk The Group is exposed to interest rate risk in relation to financial liabilities through drawn committed borrowing facilities and on bonds and on financial assets through investment in SME loans. Non-trading interest rate risk The Group’s interest risk on financial instruments is limited to interest receivable on loan note investments, cash and cash equivalent balances and interest on bonds and bank borrowings. The maturities of financial instruments subject to interest rate risk are as follows: Funding Circle Holdings plc168 ## 17. Financial risk management continued ### Financial risk factors continued #### Market risk continued ##### b) Interest rate risk continued | At 31 December | Less than 3 months | | Between 2 months and 1 year | | Between 1 and 3 years | | | --- | --- | --- | --- | --- | --- | --- | | | 2021 £m | 2020 £m | 2021 £m | 2020 £m | 2021 £m | 2020 £m | | **Fixed rate** | | | | | | | | Investment in SME loans (other)^{1} | 1.6 | — | — | — | 74.2 | 25.0 | | Investment in trusts and co-investments | — | — | — | — | 39.1 | 21.2 | | Investment in SME loans (warehouse)^{1} | — | 1.6 | 0.1 | 2.8 | 3.1 | 217.4 | | Investment in SME loans (securitised)^{1} | 0.2 | 0.2 | 10.1 | 8.3 | 137.8 | 271.3 | | Bank borrowings^{1} | — | — | — | — | (73.2) | (24.3) | | Bonds^{1} | — | — | — | — | (80.2) | (169.9) | | **Floating rate** | | | | | | | | Cash and cash equivalents | 224.0 | 103.3 | — | — | — | — | | Bank borrowings | — | (171.2) | — | — | — | — | | Bonds^{1} | — | — | — | — | (68.1) | (124.4) | | | **225.8** | **(66.1)** | **10.2** | **11.1** | **40.7** | **216.3** | 1. The bonds, investment in SME loans (warehouse) and investment in SME loans (securitised) are classified as current on the balance sheet, reflecting that the holding in residual junior index and investment in SME loans in the warehouse by the Group are held to sell, and upon sale the Group would expect to deconsolable the related assets of the securitisation vehicles. The above table represents the contractual maturities. 2. The fixed rate bank borrowings and investment in SME loans (other) represent the Group's drawing of the PPP liquidity facility in the US in order to fund PPP loan originations. There are classified as non-current on the balance sheet, and the above table represents the contractual maturities, although the PPP loans could be forgiven by the SBA and the associated liability could be repaid from the proceeds within 12 months of the balance sheet date. There are no financial assets which are held for a period of over five years. ##### Interest rate risk sensitivity analysis – non-trading interest (fixed rate) Interest on loan note investments including investment in SME loans (other), investment in SME loans (warehouse), investment in SME loans (securitised), investment in trusts and co-investments, certain bank borrowings (in the US) and bond liabilities (in the US) is fixed until the maturity of the investment, and is not impacted by market rate changes. The level of future interest rate receivable would be similar to that received in the year and the impact of movements in interest rates on the value of the assets is considered immaterial to the Group's overall performance for the year. ##### Interest rate risk sensitivity analysis – non-trading interest (floating rate) Interest on cash and cash equivalent balances is subject to movements in base rates. The Directors monitor interest rate risk and note that while interest rates have been at a historical low for some time there have recently been rate rises observed. The Directors believe that any reasonable increase in the base rate would not significantly impact the Group. Interest on bonds (in the UK) is subject to movements in the Sterling Overnight Index Average Rate ("SONIA"). However, the Group has mitigated the risk of increases in interest rates through the use of interest rate caps. A 1.0% increase in SONIA would result in an increase of projected annual interest expense for the year ended 31 December 2022 of £0.4 million. Following the financial crisis, the reform and replacement of benchmark interest rates such as GBP LIBOR and other inter-bank offered rates ("IBORs") has become a priority for global regulators. There remains some uncertainty around the timing and precise nature of these changes. As described above, the Group was previously exposed to GBP and USD LIBOR on bank borrowings, however, with the repayment the exposure is since diminished. The Group has monitored the market and output from industry working groups and regulators which manage the transition to the new benchmark interest rates away from GBP LIBOR to SONIA and USD LIBOR to SOFR. In response to the transition the Group has identified all its LIBOR exposures and has executed its plan to smoothly transition to alternative benchmark rates. Given the Group's exposures related to bank borrowings, which are since repaid, the impact is limited and the Group relies on fall-back language within the contracts. Contracts have been amended where necessary to factor in the basis differential between LIBOR and SONIA and agreements have been updated as necessary. The amendments to IFRS 9 will be applied until uncertainty arising from the benchmark interest rate reforms that the Group is exposed to ends. This uncertainty will remain until the Group's contracts that reference LIBOR are amended to reference the alternative benchmark which is complete for the UK and remains ongoing for the US, however, there are no remaining material exposures to USD LIBOR at 31 December 2021. FINANCIAL STATEMENTS COMMERCIAL STATEMENTS FINANCIAL STATEMENTS Annual Report and Accounts 2021 169 Financial statements # Notes forming part of the consolidated financial statements continued for the year ended 31 December 2021 ## 17. Financial risk management continued ### Financial risk factors continued #### Market risk continued ##### b) Interest rate risk continued ###### Instruments used by the Group Interest rate caps mitigate risk of increases in floating rate interest on borrowing facilities used to fund the origination of loans for the securitisation warehouses. All derivatives are held at fair value through profit and loss with movements in the fair value being recognised in fair value gains/ (losses) within net income. Derivatives are not designated into formal hedging relationships within the Group. | A) 31 December 2021 | Interest rate cap UK securitisation | | --- | --- | | Notional amount | £17.7m/ | | Underlying | GBP 50 N/A | | Strike rate | 2.0% | | Maturity | July 2024 | | Fair value | £ml | 1. The UK securitisation interest rate cap notional is set on a declining basis in line with the expected repayment of bonds subject to floating rate 50 N/A benchmark. ##### c) Sensitivity analysis IFRS 7 requires disclosure of sensitivity analysis for each type of market risk to which the entity is exposed at the report date showing how profit or loss and equity would have been affected by changing the relevant risk variables that were reasonably possible at that date. As discussed above, the Group does not have significant exposure to price or cash flow risk and therefore no sensitivity analysis for those risks has been disclosed with the exception of sensitivity to discount rates on SME loans held at fair value through profit and loss within note 2. ##### d) Foreign exchange risk The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the US dollar, the UK pound and the euro. Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities and net investments in foreign operations. The Group's policy is, where possible, to allow Group entities to settle liabilities denominated in their functional currency with the cash generated from their own operations in that currency. Where Group entities have liabilities denominated in a currency other than their functional currency (and have insufficient reserves of that currency to settle them), cash already denominated in that currency will, where possible, be transferred from elsewhere within the Group. Apart from these particular cash flows, the Group aims to fund expenses and investments in the respective currency and to manage foreign exchange risk at a local level by matching the currency in which income is generated and expenses are incurred. The Group has certain investments in foreign operations, whose net assets are exposed to foreign currency translation risk. The table below sets out the Group's currency exposures from financial assets and liabilities held by Group companies in currencies other than their functional currencies and resulting in exchange movements in the income statement and balance sheet. | | 31 December 2021 | | | | 31 December 2020 | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | US dollars £m | GBP £m | EUR £m | Total £m | US dollars £m | GBP £m | EUR £m | Total £m | | Cash and cash equivalents | 0.2 | — | 2.2 | 2.4 | 0.2 | — | 2.3 | 2.5 | | Intra-Group assets | — | — | — | — | — | — | — | — | | Intra-Group liabilities | (20.8) | (0.1) | (4.0) | (24.9) | (0.5) | (10.1) | (8.3) | (18.9) | The Group assessed the sensitivity to a 5% depreciation and 5% appreciation in pound sterling against the relevant foreign currencies. 5% is the sensitivity rate used when reporting foreign currency risk internally to senior management personnel and represents management's assessment of a reasonably possible change in foreign exchange rates. The sensitivity analysis includes only outstanding foreign currency-denominated monetary items and adjusts their translation at the year end for a 5% change in foreign currency rates. The sensitivity analysis excludes quasi-equity loans to foreign operations within the Group. 170 Funding Circle Holdings plc STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 17. Financial risk management continued Financial risk factors continued Market risk continued d) Foreign exchange risk continued The Group’s sensitivity to fluctuations in foreign currencies is related to the US dollar and euro amounts held in the Parent Company. Appreciation in pound sterling Depreciation in pound sterling | | Income | | | | Income | | | Income | | | | Income | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | statement | | Equity | | statement | | Equity | statement | | Equity | | statement | | Equity | | | | 2021 | 2021 | | | 2020 | 2020 | | 2021 | 2021 | | | 2020 | 2020 | | At 31 December | | £m | | £m | | £m | £m | | £m | | £m | | £m | £m | US dollars (1.0) (3.3) (0.5) (2.9) 1.1 3.6 0.6 3.2 Euros (0.1) 0.5 (0.3) 0.5 0.1 (0.5) 0.3 (0.5) (1.1) (2.8) (0.8) (2.4) 1.2 3.1 0.9 2.7 Capital management The Group considers its capital to comprise its ordinary share capital, share premium, foreign exchange reserve, share options reserve and retained earnings. Quantitative detail is shown in the consolidated statement of changes in equity. The Directors’ objective when managing capital is to safeguard the Group’s ability to continue as a going concern in order to provide returns for the shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. The Directors monitor a number of KPIs at both the Group and individual subsidiary level on a monthly basis. As part of the budgetary process, targets are set with respect to operating expenses in order to effectively manage the activities of the Group. Performance is reviewed on a regular basis and appropriate actions are taken as required. These internal measures indicate the performance of the business against budget/forecast and confirm that the Group has adequate resources to meet its working capital requirements. The Group is subject to externally imposed capital requirements by the Financial Conduct Authority but these are lower than internally set requirements. During the period the Group complied with all externally imposed requirements. Sources of estimation uncertainty and critical judgements that may result in a material adjustment in future periods are outlined in note 2. 18. Share capital | 31 December | | | 31 December | | | 31 December | | 31 December | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | 2021 | | 2021 | | | 2020 | | 2020 | | | | Number | | | | £ | | Number | | | £ | Called up, allotted and fully paid Ordinary shares of £0.001 356,619,718 356,620 352,943,975 352,944 During 2021, the Company issued 3,675,743 ordinary shares of £0.001 ranking pari passu with ordinary shares in issue (2020: 4,544,701) in connection with employee share schemes, giving rise to a total share premium of £0.4 million (2020: £0.3 million). Included in the total number of ordinary shares outstanding are 283,786 (2020: 1,114,518) shares held by the Group’s Employee Benefit Trust and 2,984,437 (2020: 2,508,079) shares held by the Group’s Share Incentive Plan Trust. 19. Share premium account 2021 2020 £m £m At 1 January 292.6 292.3 Exercise of options – proceeds received 0.4 0.3 At 31 December 293.0 292.6 Annual Report and Accounts 2021 171 Financial statements # Notes forming part of the consolidated financial statements continued for the year ended 31 December 2021 ## 20. Foreign exchange reserve | | £m | | --- | --- | | At 1 January 2020 | 8.0 | | Exchange difference on translating the net assets of foreign operations | 1.7 | | At 31 December 2020 | 9.7 | | Exchange difference on translating the net assets of foreign operations | 1.4 | | **At 31 December 2021** | **13.3** | Exchange differences relating to the translation of the net assets of the Group's subsidiaries from their functional currency into the Company's functional currency are recognised directly in the foreign exchange reserves within equity. ## 21. (Accumulated losses)/retained earnings | | £m | | --- | --- | | At 1 January 2020 | 6.5 | | Capital reduction | – | | Transfer of share option costs | 3.2 | | Loss for the year | (108.3) | | At 31 December 2020 | (98.6) | | Transfer of share option costs | 1.8 | | Profit for the year | 61.2 | | **At 31 December 2021** | **(35.6)** | The transfer of share option costs is in relation to the exercise of share options during the year and their associated costs in the share options reserve which are transferred to (accumulated losses)/retained earnings. ## 22. Share-based payment The Company operates share schemes for all employees of the Group. The terms of the main current schemes from which the Group's employees benefit are set out below. ### Post-IPO employee share plans Since the Company's admission on the London Stock Exchange to the year ended 31 December 2019, the Company operated a single discretionary share-based long-term incentive plan ("LTIP"). In November 2020, the Company introduced a Share Incentive Plan ("SIP") approved by HMRC, which includes free shares, partnership shares and matching shares. This plan is only relevant for UK-based employees; the LTIP will continue to make awards for non-UK-based employees and employees in senior management positions. The main features of the LTIP and SIP are set out below. ### Post-IPO – LTIP #### Form of LTIP Awards The Board grants awards in the form of restricted stock units at no cost or options to acquire shares at no cost (a nil-cost option). #### Performance conditions LTIP Awards are not currently subject to performance conditions with the exception of LTIP Awards granted to Executive Directors which are subject to performance conditions. Refer to the Remuneration Report for further details. Any performance condition may be amended or substituted if one or more events occur which cause the Board to reasonably consider that an amended or substituted performance condition would be more appropriate and would not be materially less difficult to satisfy than originally intended. #### Vesting and release of LTIP Awards LTIP Awards granted to employees, excluding Executive Directors, currently vest subject to continued service only ("Time-Based Vesting") in accordance with a vesting schedule set at grant. LTIP Awards granted to Executive Directors vest at the end of three years subject to achievement of performance conditions. Further details are shown in the Remuneration Report. The Board may determine at grant that an LTIP Award is subject to an additional holding period following vesting (a "Holding Period"). LTIP Options will be exercisable from the date of vesting or, if applicable, the end of the Holding Period until the tenth anniversary of the grant date, or such earlier date as the Board determines. 172 Funding Circle Holdings plc STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 22. Share-based payment continued Post-IPO employee share plans continued Post-IPO – LTIP continued Cessation of employment LTIP Options may normally be exercised to the extent vested for a period of six months after ceasing employment or 12 months after death (or such other period as the Board may determine). Post-IPO – SIP Form of SIP awards The Board grants awards in the form of: free shares, partnership shares and matching shares. Performance conditions There are no performance conditions attached to free shares, partnership shares and matching shares. Free shares Under the SIP, UK employees are eligible to receive up to a maximum of £3,600, or 10% of annual salary if less, of free shares per tax year. Free shares will be awarded annually with a forfeiture period of two years and a holding period of three years. Matching shares UK employees are invited to buy partnership shares from pre-tax salary with a maximum investment in each tax year of £1,800, or 10% of annual salary if less. Partnership shares are purchased every month. Employees can withdraw partnership shares from the SIP at any time although there are tax advantages if the shares are retained in the SIP for at least three years. Participants are awarded one matching share for every one partnership share they purchase. There are tax advantages if the matching shares are retained in the SIP for at least three years. Whilst employed by the Company, a participant will forfeit a corresponding number of matching shares if they choose to transfer partnership shares out of the SIP within three years of the date of purchase. Under normal circumstances, if a participant leaves the Company before the second anniversary of the date of award, they will forfeit their matching shares. If they leave between two and three years of the date of award, they retain their matching shares but those shares must be removed from the SIP and any tax advantages are lost. If a participant leaves under special circumstances, they will retain all of their matching shares, regardless of how long they have been held in the SIP. Pre-IPO employee share plans EMI Options Prior to June 2014, the Company issued options to UK subsidiary undertakings’ employees under the EMI Options Scheme. Since then, the Company is not eligible to issue under the scheme. Unapproved Options The Company has an Unapproved Options Scheme for all employees of the Group. In accordance with standard vesting terms, the full award will vest four years after the vesting start date, with 25% vesting on the first anniversary of the vesting date and 6.25% every three months thereafter. If the options remain unexercised after a period of ten years from the date of grant, the options expire. Options are forfeited if the employee leaves the Group before the options vest. US Options Scheme 2 Options granted under the “US Options Scheme 2” are Unapproved Options granted to US employees as either non-qualifying options or incentive stock options. The US Options Scheme 2 has the same vesting period as Unapproved Options. If the options remain unexercised after a period of ten years from the date of grant, the options expire. Unvested options are forfeited if the employee leaves the Group before the options vest. Growth Shares with “shadow” Unapproved Options Growth Shares were an upfront award of B, D or E ordinary shares with a nominal value of £0.00001 per share where the ability to receive dividends and a capital return from the shares was conditional on the achievement of a performance target (namely, the growth of the enterprise value of the business beyond a hurdle). According to the terms and conditions, the performance target differed depending on the underlying share. If this performance target was met, the participants would profit from the whole of the value of the business, not just the growth from the date of the award, on the same basis as the ordinary shares. The Growth Shares were each issued in conjunction with a “shadow” Unapproved Option. The Unapproved Option could be exercised if the applicable enterprise value hurdle is not met upon an exit event. Both the Growth Shares and the “shadow” Unapproved Options vested according to the Company’s standard vesting terms, as discussed in the description of Unapproved Options above. All share-based incentives are subject to service conditions. Such conditions are not taken into account in the fair value of the service received. The fair value of services received in return for share-based incentives is measured by reference to the fair value of share-based incentives granted. The estimate of the fair value of the share-based incentives is measured using market prices. When market prices do not exist for shares or rights to shares with similar characteristics, fair value is determined by using a valuation technique (either the Monte Carlo or Black-Scholes pricing model as is most appropriate for each scheme). Annual Report and Accounts 2021 173 Financial statements # Notes forming part of the consolidated financial statements continued for the year ended 31 December 2021 ## 22. Share-based payment continued Charge for the year Included in operating expenses of the Group is a charge for share-based payments and associated social security costs of £8.9 million (2020: £5.6 million) that arises from transactions accounted for as equity-settled share-based payment transactions. Movements in share plans Details of movements in the share schemes during the year are as follows: | | EMI Options | | Unapproved Options | | Free shares and matching shares | | LTIP Awards | | US Options Scheme | | Total | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Number and WAEP | | Number and WAEP | | Number and WAEP | | Number and WAEP | | Number and WAEP | | Number and WAEP | | | | Number | £ | Number | £ | Number | £ | Number | £ | Number | £ | Number | £ | | Outstanding at 1 January 2020 | 481,212 | 0.027 | 7,315,334 | 0.298 | — | — | 8,323,092 | — | 4,656,207 | 0.426 | 20,615,945 | 0.194 | | Granted during the year | — | — | — | — | 2,519,616 | — | 11,340,072 | — | — | — | 13,858,688 | — | | Exercised during the year | (175,000) | 0.027 | (486,791) | 0.309 | — | — | (944,652) | — | (208,008) | 0.260 | (1,839,431) | 0.121 | | Forfeited during the year | (5,000) | 0.027 | (536,454) | 0.306 | (33,319) | — | (4,393,292) | — | (743,344) | 0.444 | (5,698,409) | 0.083 | | Outstanding at 31 December 2020 | 306,212 | 0.027 | 6,292,089 | 0.300 | 3,499,297 | — | 14,515,220 | — | 3,654,855 | 0.424 | 27,267,773 | 0.140 | | | EMI Options | | Unapproved Options | | Free shares and matching shares | | LTIP Awards | | US Options Scheme | | Total | | | | Number and WAEP | | Number and WAEP | | Number and WAEP | | Number and WAEP | | Number and WAEP | | Number and WAEP | | | | Number | £ | Number | £ | Number | £ | Number | £ | Number | £ | Number | £ | | Outstanding at 1 January 2021 | 306,212 | 0.027 | 6,292,089 | 0.300 | 2,499,297 | — | 14,515,220 | — | 3,654,855 | 0.424 | 27,267,773 | 0.140 | | Granted during the year | — | — | — | — | 1,040,578 | — | 8,685,546 | — | — | — | 10,021,124 | — | | Exercised during the year | — | — | (1,108,486) | 0.200 | (31,582) | — | (982,792) | — | (789,327) | 0.367 | (2,832,297) | 0.170 | | Forfeited during the year | (7,212) | 0.027 | (41,504) | 0.850 | (450,520) | — | (2,872,601) | — | (126,048) | 0.598 | (3,998,320) | 0.028 | | Outstanding at 31 December 2021 | 299,000 | 0.027 | 5,142,084 | 0.217 | 2,857,773 | — | 19,340,043 | — | 2,819,280 | 0.431 | 30,458,180 | 0.106 | 1. Weighted average exercise prices The following table summarises information about the share awards outstanding at 31 December 2021: | Range of exercise prices | EMI Options | | Unapproved Options | | Free shares and matching shares | | LTIP Awards | | US Options | | Total | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Number and WARCL^{1} | | Number and WARCL | | Number and WARCL | | Number and WARCL | | Number and WARCL | | Number and WARCL | | | | Number | Years | Number | Years | Number | Years | Number | Years | Number | Years | Number | Years | | 30 - £1,000 | — | — | 2,260,017 | 6.4 | 2,857,773 | — | 19,340,043 | 7.5 | — | — | 24,457,833 | 6.6 | | 30 004 - £0.126 | 299,000 | 1.3 | 214,269 | 1.5 | — | — | — | — | 24,383 | 2.4 | 527,684 | 1.4 | | 30 177 - £0.471 | — | — | 2,305,977 | 5.3 | — | — | — | — | 2,746,012 | 3.8 | 4,501,989 | 4.7 | | 30 472 - £1.75 | — | — | 361,791 | 6.3 | — | — | — | — | 998,883 | 6.4 | 965,674 | 6.4 | | | 299,000 | 1.3 | 5,142,084 | 5.8 | 2,857,773 | — | 19,340,043 | 7.5 | 2,819,280 | 4.4 | 30,458,180 | 6.2 | The following table summarises information about the share awards outstanding at 31 December 2020: | Range of exercise prices | EMI Options | | Unapproved Options | | Free shares and matching shares | | LTIP Awards | | US Options | | Total | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Number and WARCL^{1} | | Number and WARCL | | Number and WARCL | | Number and WARCL | | Number and WARCL | | Number and WARCL | | | | Number | Years | Number | Years | Number | Years | Number | Years | Number | Years | Number | Years | | 30 - £1,000 | — | — | 2,260,017 | 7.4 | 2,499,297 | — | 14,515,220 | 7.4 | 120,949 | 7.6 | 19,395,503 | 6.3 | | 30 004 - £0.126 | 306,212 | 2.2 | 789,978 | 1.1 | — | — | — | — | 28,456 | — | 1,124,686 | 1.3 | | 30 177 - £0.471 | — | — | 2,866,949 | 6.9 | — | — | — | — | 2,855,432 | 4.4 | 5,722,351 | 5.7 | | 30 472 - £1.75 | — | — | 375,226 | 7.5 | — | — | — | — | 655,028 | 6.5 | 1,025,233 | 6.7 | | | 306,212 | 2.2 | 6,292,089 | 6.4 | 2,499,297 | — | 14,515,220 | 7.4 | 3,654,855 | 4.8 | 27,267,773 | 6.0 | 1. Weighted average remaining contractual life 174 Funding: Grote Holdings plc STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 22. Share-based payment continued Unapproved Options Scheme There have been no Unapproved Options granted since IPO in 2018. The weighted average fair values of options granted under the Unapproved Options Scheme and the US Options Scheme ranged between £0.73 and £1.80 per option respectively in the previous year. These values were determined using the Black-Scholes valuation model. The significant inputs into the model are as follows: 31 December Unapproved Options Scheme 2018 Share price (various times during the year) £1.89 Exercise price £nil–£0.44 Expected life 4 years Expected volatility 48% Risk-free interest rate (between) 0.93%–1.02% Dividend yield Nil Forward exchange rate – US Options (between) 0.769 LTIP Awards Since all LTIP Awards were made post-IPO, the Company has used its share price at grant date as the fair value of the LTIP Awards granted during the year to employees. In the prior financial year, the only exception to this was for awards made to the former Chief Financial Officer, who departed prior to the end of this financial year (these awards have therefore lapsed). These awards contained market-based performance conditions and the fair value at grant date was calculated using a Black-Scholes model. The incumbent Chief Financial Officer’s LTIP Awards do not contain market-based performance conditions but do include non-market performance conditions (refer to the Remuneration Report for further detail) and, therefore, the Company’s share price at grant date is the fair value used, with the likelihood of achieving the non-market performance conditions factored into  Free shares and matching shares The Company has used its share price at grant date as the fair value of free shares and matching shares granted during the year to employees. 23. Notes to the consolidated statement of cash flows Cash inflow/(outflow) from operating activities | 31 December | | 31 December | | | --- | --- | --- | --- | | | 2021 | | 2020 | | | £m | | £m | Profit/(loss) before taxation 64.1 (108.1) Adjustments for Depreciation of property, plant and equipment 5.9 9.0 Amortisation of intangible assets 8.0 8.2 Impairment of goodwill (exceptional item) — 12.0 Impairment of intangible and tangible assets (exceptional item) 3.9 1.7 Share-based payment restructuring credit (exceptional item) — (1.0) Interest receivable (0.1) (0.4) Interest payable 1.1 1.4 Non-cash employee benefits expense – share-based payments and associated social security costs 8.5 6.4 Fair value (gains)/losses (28.6) 118.3 Movement in restructuring provision (exceptional item) (0.9) 1.1 Movement in loan repurchase liability (3.0) 2.3 Movement in other provisions (1.9) 2.5 Share of (gains)/losses of associates (0.9) 0.8 Other non-cash movements (0.7) 1.2 Changes in working capital Movement in trade and other receivables 46.4 (35.3) Movement in trade and other payables 1.4 13.0 Tax paid (3.1) — Net cash inflow from operating activities 100.1 33.1 Annual Report and Accounts 2021 175 Financial statements ### Notes forming part of the consolidated financial statements continued for the year ended 31 December 2021 23. Notes to the consolidated statement of cash flows continued Cash and cash equivalents | 31 December | | 31 December | | | --- | --- | --- | --- | | | 2021 | | 2020 | | | £m | | £m | Cash and cash equivalents 224.0 103.3 The cash and cash equivalents balance is made up of cash, money market funds and bank deposits. The carrying amount of these assets is approximately equal to their fair value. Included within cash and cash equivalents above is cash of £1.0 million (2020: £1.0 million) which is restricted in use in the event of rental payment defaults and cash held in the securitisation SPVs of £14.4 million (2020: £38.9 million including warehouse SPVs for on-payment to lenders) which has been collected for on-payment to bond holders and is therefore restricted in its use. A further £9.2 million (2020: £4.3 million) of cash is held which is restricted in use to repaying investors in CBILS and RLS loans and paying CBILS and RLS-related costs to the UK Government. At 31 December 2021, money market funds totalled £112.1 million (2020: £24.8 million). Analysis of changes in liabilities from financing activities | 1 January | | | | Exchange | | Other non-cash | | | 31 December | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | 2020 | Cash flow | | movements | | | movements | | | 2020 | | | £m | | £m | | £m | | | £m | | £m | Bank borrowings (265.8) 69.0 1.3 — (195.5) Bonds (348.7) 35.6 6.8 12.0 (294.3) Lease liabilities (38.3) 7.8 (0.3) — (30.8) Liabilities from financing activities (652.8) 112.4 7.8 12.0 (520.6) | 1 January | | | | Exchange | | Other non-cash | | | 31 December | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | 2021 | Cash flow | | movements | | | movements | | | 2021 | | | £m | | £m | | £m | | | £m | | £m | Bank borrowings (195.5) 123.1 (0.8) — (73.2) Bonds (294.3) 160.6 (1.6) (5.0) (140.3) Lease liabilities (30.8) 8.1 (0.1) (1.1) (23.9) Liabilities from financing activities (520.6) 291.8 (2.5) (6.1) (237.4) 24. Operating lease arrangements As disclosed in notes 1 and 12, leases of low-value items or short-term leases continue to be treated as operating leases. | 31 December | | 31 December | | | --- | --- | --- | --- | | | 2021 | | 2020 | | | £m | | £m | Lease payments under operating leases recognised as an expense in the year 0.1 0.1 At the balance sheet date, the Group had outstanding commitments for future minimum lease payments under non-cancellable operating leases of £nil (2020: £nil). Operating lease payments represent payments for lease assets that are individually considered low value. 25. Dividends per share No ordinary dividends were declared or paid in the current or previous financial years. Funding Circle Holdings plc176 STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 26. Related party transactions Balances and transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. Compensation of key management personnel Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Group. The Group’s key management personnel comprises the Global Leadership Team (“GLT”), which is made up of the Executive Directors and other senior management as defined in note 3 as the chief operating decision maker (“CODM”) and the Non-Executive Directors of the Group. | 31 December | | 31 December | | | --- | --- | --- | --- | | | 2021 | | 2020 | | | £m | | £m | Salaries and short-term benefits 4.2 3.3 Equity-based compensation 1.9 1.9 Post-employment benefits 0.1 0.1 6.2 5.3 Further details on Directors’ remuneration are disclosed in the Remuneration Report in the Corporate Governance section of the Annual Report and Accounts on pages 96 to 119. Transactions with other related parties During the year the Group invested £nil (2020: £0.4 million) into entities accounted for as associates, received capital redemptions of £3.9 million (2020: £2.3 million) and received dividends of £nil (2020: £0.4 million). During the year the Group received service fees from loans held by Knightrider Lending Designated Activity Company of  These entities are subsidiaries of the Group’s associates, as detailed in note 30. 27. Ultimate controlling party In the opinion of the Directors, the Group does not have a single ultimate controlling party. 28. Contingent liabilities As part of the ongoing business, the Group has operational requirements with its investors. At any point in time, it is possible that a particular investor may expect the Group to buyback their loan if they did not believe that the terms of business had been fully complied with. Where a loan is bought back it is presented within Investment in SME loans (other) on the face of the consolidated balance sheet and held at amortised cost under IFRS 9. In common with other businesses, the Group is involved from time to time in disputes in the ordinary course of business.  recovery of monies owed under a loan agreement. There is one current case in the US. Funding Circle considers these claims  consolidated results or net assets; however, as proceedings are in the early stages the outcome cannot be reliably measured. 29. Subsequent events There have been no subsequent events since the balance sheet date. Annual Report and Accounts 2021 177 Financial statements ### Notes forming part of the consolidated financial statements continued for the year ended 31 December 2021 30. Interests in other entities Investments in subsidiaries The Group had the following subsidiaries, all of which have been included in these consolidated financial statements. The proportion of the voting rights in subsidiary undertakings held directly by the Company does not differ from the proportion of ordinary shares held. Proportion of Directly/ Place of ownership indirectly Subsidiary undertakings incorporation interest held Registered office address Funding Circle Ltd UK 100% Directly 71 Queen Victoria Street, London EC4V 4AY Funding Circle Asset Finance Limited UK 100% Indirectly 71 Queen Victoria Street, London EC4V 4AY Funding Circle BB Limited UK 100% Indirectly 71 Queen Victoria Street, London EC4V 4AY Funding Circle Eclipse Lending Limited UK 100% Indirectly 71 Queen Victoria Street, London EC4V 4AY Funding Circle Focal Point Lending Limited UK 100% Indirectly 71 Queen Victoria Street, London EC4V 4AY Funding Circle Global Partners Limited UK 100% Directly 71 Queen Victoria Street, London EC4V 4AY Funding Circle Midco Limited UK 100% Directly 71 Queen Victoria Street, London EC4V 4AY Funding Circle Property Finance Limited UK 100% Indirectly 71 Queen Victoria Street, London EC4V 4AY Funding Circle Trustee Limited UK 100% Indirectly 71 Queen Victoria Street, London EC4V 4AY Made To Do More Limited UK 100% Indirectly 71 Queen Victoria Street, London EC4V 4AY Funding Circle Horizon Lending Limited UK 100% Indirectly 71 Queen Victoria Street, London EC4V 4AY 85 Second Street, 4th Floor, Funding Circle USA, Inc. USA 100% Directly San Francisco, California 94105 85 Second Street, 4th Floor, Funding Circle Notes Program, LLC USA 100% Indirectly San Francisco, California 94105 85 Second Street, 4th Floor, FC Marketplace, LLC USA 100% Indirectly San Francisco, California 94105 85 Second Street, 4th Floor, Funding Circle Investor Funds, LLC USA 100% Indirectly San Francisco, California 94105 85 Second Street, 4th Floor, FC Capital US LLC USA 100% Indirectly San Francisco, California 94105 85 Second Street, 4th Floor, FC Capital US II LLC USA 100% Indirectly San Francisco, California 94105 85 Second Street, 4th Floor, FC Depositor US LLC USA 100% Indirectly San Francisco, California 94105 Funding Circle CE GmbH Germany 100% Directly Bergmannstraße 71/72, 10961 Berlin Funding Circle Deutschland GmbH Germany 100% Indirectly Bergmannstraße 71/72, 10961 Berlin Funding Circle Connect GmbH Germany 100% Indirectly Bergmannstraße 71/72, 10961 Berlin FC Forderungsmanagement GmbH Germany 100% Indirectly Bergmannstraße 71/72, 10961 Berlin Calle Claudio Coello número 91, Funding Circle Espana S.L. Spain 100% Indirectly 3a planta, 28006 Madrid Funding Circle Nederland B.V. Netherlands 100% Indirectly Atrium, Strawinskylaan 3075, 4th Floor, 1077 ZX Amsterdam Funding Circle Holdings plc178 STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 30. Interests in other entities continued Investments in associates Set out below are the associates of the Group as at 31 December 2021 which, in the opinion of the Directors, are material to the Group. The entities listed below have share capital consisting solely of ordinary shares, which are held directly by the Group. The country of incorporation or registration is also their principal place of business, and the proportion of ownership interest is the same as the proportion of voting rights held. Proportion of Directly/ Place of ownership indirectly Associate entity name incorporation interest held Registered office address Funding Circle European SME Direct Lending Fund I¹ Ireland 24% Indirectly 70, Sir John Rogerson’s Quay, Dublin 2, Ireland Funding Circle UK SME Direct Lending Ireland 8% Indirectly 70, Sir John Rogerson’s Quay, Dublin 2, Ireland Fund I¹ 1. Private sub-fund held via the Funding Circle ICAV, an Irish collective asset-management vehicle constituted as an umbrella fund with registered office address of 70, Sir John Rogerson’s Quay, Dublin 2, Ireland. The associates outlined above directly hold investments in subsidiary entities as detailed below, which are considered to be related parties of the Group. | | | Place of | | % ownership by | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Other related party name | incorporation Relationship | | | | associate Immediate parent entity Registered office address | | | | | Knightrider Lending | | Ireland Subsidiary | | | 100% Funding Circle European SME | | 70, Sir John Rogerson’s Quay, | | | Designated Activity | | | of associate | | | Direct Lending Fund I | | Dublin 2, Ireland | Company Throgmorton Lending Ireland Subsidiary 100% Funding Circle UK SME Direct 70, Sir John Rogerson’s Quay, Designated Activity of associate Lending Fund I Dublin 2, Ireland Company The tables below provide summarised financial information for those associates that are material to the Group. The information disclosed reflects the amounts presented in the financial statements of the relevant associates and not Funding Circle Holdings plc’s share of those amounts. They have been amended to reflect adjustments made by the entity when using the equity method, including modifications for differences in accounting policy. While the Group holds less than 20% ownership in Funding Circle UK SME Direct Lending Fund I the Group considers that it has significant influence over the entity through representation on its Board and so continues to account for it as an associate instead of a trade investment. The associates are sub-funds which invest in SME loans, and the Group is exposed to default and prepayment risk with respect to the performance of the underlying loans in the associates, to the extent that the share of profit from associate may diminish. The table below illustrates the Group’s maximum exposure to the investment in associate which represents the value on the Group balance sheet. The value of the investment is derived from net asset value statements from the sub-funds; however, being private these are not from observable market data, and therefore the fair value is considered to be aligned to the carrying value. | | Funding Circle | | | Funding Circle | | | Funding Circle | | | Funding Circle | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | European | | | | UK | | European | | | | UK | | | | SME Direct | | | SME Direct | | | SME Direct | | | SME Direct | | | | Lending Fund I | | | Lending Fund I | | | Lending Fund I | | | Lending Fund I | | | | | 31 December | | | 31 December | | | 31 December | | | 31 December | | | | | | | 2021 | | | 2021 | | | 2020 | | | 2020 | | Summarised balance sheet (Group’s share) | | | £m | | | £m | | | £m | | | £m | Non-current assets 3.1 3.7 5.4 5.0 Current assets 0.6 0.5 0.8 0.3 Current liabilities — — — — Non-current liabilities — — — — Net assets 3.7 4.2 6.2 5.3 Annual Report and Accounts 2021 179 Financial statements ### Notes forming part of the consolidated financial statements continued for the year ended 31 December 2021 30. Interests in other entities continued Reconciliation of associates’ total shareholders’ equity to carrying amount in Funding Circle Holdings plc’s consolidated financial statements | Funding Circle | | | Funding Circle | | | Funding Circle | | | Funding Circle | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | European | | | | UK | | European | | | UK | | | SME Direct | | | SME Direct | | | SME Direct | | SME Direct | | | Lending Fund I | | | Lending Fund I | | | Lending Fund I | | | Lending Fund I | | | | | 2021 | | | 2021 | | | 2020 | | 2020 | | | | £m | | | £m | | | £m | | £m | Opening net assets as at 1 January 2021 26.3 64.1 35.1 35.6 Shares issued in the year — — 1.2 30.4 Profit for the year 2.0 3.1 (1.9) 0.9 Exchange differences (1.6) — 1.9 — Other comprehensive income — — — — Capital redemptions in the year (11.2) (15.4) (9.6) — Dividends paid in the year — (0.5) (0.4) (2.8) Closing net assets as at 31 December 2021 15.5 51.3 26.3 6 4.1 Group’s share in % 23.6% 8.3% 23.6% 8.3% Group’s share of net assets as at 31 December 2021 3.7 4.2 6.2 5.3 Accounting policy alignment (0.2) (0.1) (0.2) (0.3) Group’s carrying amount 3.5 4.1 6.0 5.0 | | Funding Circle | | | Funding Circle | | | Funding Circle | | | Funding Circle | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | European | | | | UK | | European | | | UK | | | | SME Direct | | | SME Direct | | | SME Direct | | SME Direct | | | | Lending Fund I | | | Lending Fund I | | | Lending Fund I | | | Lending Fund I | | | | | | 2021 | | | 2021 | | | 2020 | | 2020 | | Summarised statement of comprehensive income (Group’s share) | | | £m | | | £m | | | £m | | £m | Gross income 0.5 0.5 0.7 0.5 Profit/(loss)for the year 0.6 0.3 (0.4) 0.1 Other comprehensive income/(loss) — — — — Total comprehensive income/(loss) 0.6 0.3 (0.4) 0.1 Dividends received from associates — — 0.1 0.3 Capital redemptions received from associates 2.6 1.3 2.3 — Interest in other entities Stichting Derdengelden Funding Circle is not a direct or indirect subsidiary of Funding Circle Holdings plc but is an independent special purpose foundation which is required in the Netherlands to safeguard borrower and investor funds and is consolidated as it is controlled by the Group. The registered office address is Atrium, Strawinskylaan 3075, 4th Floor, 1077 ZX Amsterdam. Funding Circle Holdings Employee Benefit Trust was established on 14 September 2018. The purpose of the trust is to facilitate the acquisition of shares in the Company by, or for the benefit of, existing and future employees of the Company and Group subsidiaries and is consolidated as it is controlled by the Group. Consolidated structured entities: Small Business Origination Loan Trust 2019-3 DAC, Great Trinity Lending 1 DAC, Small Business Lending Trust 2019-A, Small Business Lending Grantor Trust 2019-A, Small Business Lending Trust 2020-A and Small Business Lending Grantor Trust 2020-A are consolidated structured warehouse and securitisation entities which either hold SME loan assets in a warehouse or hold the portfolio of SME loans and issue bonds after securitisation has occurred. The entities are bankruptcy remote special purpose vehicles and as such there is no requirement for the Group to provide financial support to the entities. The entities’ activities are not governed by voting rights and the Group has assessed that it has power over the entities based on the purpose and design of the entity and ability to direct the relevant activities of the entity, the nature of the relationship with the entity and the size of its exposure to the variability of the returns from each entity. As explained in note 17, the Group experiences credit risk and prepayment risk in relation to the SME loan assets net of bond liabilities, and interest rate risk in relation to the warehouse loan facilities and floating rate bond liabilities which is partially mitigated through the use of derivative financial instruments. Funding Circle Holdings plc180 STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 30. Interests in other entities continued Interest in other entities continued The principal activities of the Group’s most significant subsidiary undertakings are set out below. These are considered significant in the context of the Group’s business, results and financial position. Subsidiary undertakings Principal activity Funding Circle Ltd Acts as facilitator and performs intermediary services in respect of all loans made through the Funding Circle platform in the UK. Funding Circle USA, Inc. The US operating subsidiary of Funding Circle. Acts as the administrator of the Funding Circle platform in the US. FC Marketplace, LLC Acts as originator and servicer of all loans made through the Funding Circle platform in the US. FC Marketplace, LLC sells each loan it originates, on a servicing retained basis, to third party institutional investors or to affiliates (e.g. Funding Circle Notes Program, LLC) on an arm’s length basis. FC Marketplace, LLC initially holds loans for a two to three days cure period before selling the loan on to the investor or affiliate. Funding Circle Notes Program, LLC A special purpose bankruptcy remote entity which issues loan payment dependent debt securities to accredited investors. It uses the proceeds to purchase a specific corresponding loan made through the Funding Circle platform from FC Marketplace, LLC. The entity retains the contractual rights to receive the cash flows from the loan assets it has purchased, but has assumed a contractual obligation to pay those cash flows to the holders of the debt securities. The eligibility criteria have been met to derecognise the loan assets and associated issued debt securities as a pass-through arrangement under IFRS 9. Funding Circle Focal Point Lending Subsidiary via which CBILS loans are originated and which holds legal title to loans which are Limited held via trust structures for the beneficial ownership of institutional investors. Funding Circle Eclipse Lending Limited Subsidiary via which RLS loans are originated and which holds legal title to loans which are held via trust structures for the beneficial ownership of institutional investors. Funding Circle Deutschland GmbH Operates the Funding Circle platform in Germany and services loans. Funding Circle Nederland B.V. Operates the Funding Circle platform in the Netherlands and services loans. Annual Report and Accounts 2021 181 Financial statements ### Company balance sheet as at 31 December 2021 | | 31 December | | 31 December | | | --- | --- | --- | --- | --- | | | | 2021 | | 2020 | | Note | | £m | | £m | Non-current assets Investments in subsidiary undertakings 5 281.9 303.3 Loans due from subsidiary undertakings 7 — — 281.9 303.3 Current assets Loans due from subsidiary undertakings 7 0.1 10.1 Trade and other receivables 6 0.3 1.0 Cash and cash equivalents 11 63.4 27.8 63.8 38.9 Total assets 345.7 342.2 Current liabilities Trade and other payables 8 1.8 1.7 Total liabilities 1.8 1.7 Equity Share capital 9 0.4 0.3 Share premium account 9 293.0 292.6 Share options reserve 19.1 13.6 Retained earnings 10 31.4 34.0 Total equity 343.9 340.5 Total equity and liabilities 345.7 342.2 The Company’s loss for the year was £4.4 million (2020: loss of £161.9 million). The financial statements on pages 182 to 192 were approved by the Board and authorised for issue on 10 March 2022. They were signed on behalf of the Board by: Oliver White Director Company registration number 07123934 The notes on pages 185 to 192 form part of these financial statements. Funding Circle Holdings plc182 ## Company statement of changes in equity for the year ended 31 December 2021 | | Note | Share capital £m | Share premium account £m | Share options reserve £m | Retained earnings £m | Total equity £m | | --- | --- | --- | --- | --- | --- | --- | | **Balance at 1 January 2020** | | 0.3 | 292.3 | 11.9 | 192.7 | 497.2 | | Loss for the year | 10 | — | — | — | (161.9) | (161.9) | | **Transactions with owners** | | | | | | | | Transfer of share option costs | | — | — | (3.2) | 3.2 | — | | Issue of share capital | 9 | — | 0.3 | — | — | 0.3 | | Employee share schemes – value of employee services | | — | — | 4.9 | — | 4.9 | | **Balance at 31 December 2020** | | 0.3 | 292.6 | 13.6 | 34.0 | 340.5 | | Loss for the year | 10 | — | — | — | (4.4) | (4.4) | | **Transactions with owners** | | | | | | | | Transfer of share option costs | | — | — | (1.8) | 1.8 | — | | Issue of share capital | 9 | 0.1 | 0.4 | — | — | 0.5 | | Employee share schemes – value of employee services | | — | — | 7.3 | — | 7.3 | | **Balance at 31 December 2021** | | **0.4** | **293.0** | **19.1** | **31.4** | **343.9** | The notes on pages 185 to 192 form part of these financial statements. STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Annual Report and Accounts 2021 183 Financial statements ### Company statement of cash flows for the year ended 31 December 2021 | | 31 December | | 31 December | | | --- | --- | --- | --- | --- | | | | 2021 | | 2020 | | Note | | £m | | £m | Net cash outflow from operating activities 11 (2.4) (3.5) Investing activities Loans advanced to subsidiary undertakings 7 (10.0) (29.0) Loan repayment from subsidiary undertakings 7 19.8 20.7 Capital contribution to subsidiary undertakings 5 — (41.6) Capital redemptions from subsidiary undertakings 5 27.3 — Interest received 0.5 0.2 Net cash inflow/(outflow) from investing activities 37.6 (49.7) Financing activities Proceeds on the issue of shares from the exercise of share options 0.4 0.2 Net cash inflow from financing activities 0.4 0.2 Net increase/(decrease) in cash and cash equivalents 35.6 (53.0) Cash and cash equivalents at the beginning of the year 27.8 80.8 Cash and cash equivalents at the end of the year 11 63.4 27.8 The notes on pages 185 to 192 form part of these financial statements. Funding Circle Holdings plc184 # Notes forming part of the Company financial statements for the year ended 31 December 2021 ## 1. Significant accounting policies The separate financial statements of the Company are presented as required by the Companies Act 2006. As permitted by that Act, the separate financial statements have been prepared in accordance with UK-adopted International Accounting Standards and with the requirements of the Companies Act 2006 as applicable to companies reporting under these standards. The Company is a public company limited by shares and registered, incorporated and domiciled in England and Wales. The address of its registered office is given on page 194. The financial statements have been prepared on the historical cost basis except for certain financial instruments that are carried at fair value through profit and loss ("FVTPL"). The principal accounting policies adopted are the same as those set out in note 1 to the consolidated financial statements except as noted below. These policies have been consistently applied to all the years presented, unless otherwise stated. The principal activities of the Company and the nature of the Company's operations are as a holding company for a global SME loan platform. As permitted by the exemption in section 408 of the Companies Act 2006, the profit and loss account of the Company is not presented as part of these financial statements. The Company made a comprehensive loss for the year of £4.4 million (2020: comprehensive loss of £161.9 million). The financial statements are prepared on a going concern basis as the Directors are satisfied that the Group has the resources to continue in business for the foreseeable future (which has been taken as 12 months from the date of approval of the financial statements). ### Investments in subsidiaries Investments in subsidiaries are stated at cost less, where appropriate, provisions for impairment (see note 5 for further details). ### Critical accounting judgements and key sources of estimation uncertainty The preparation of financial statements requires the Company to make estimates and judgements that affect the application of policies and reported amounts. Where a significant risk of materially different outcomes exists due to management assumptions or sources of estimation uncertainty, this will represent a key source of estimation uncertainty. Estimates and judgements are continually evaluated and are based on experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Although these estimates are based on management's best knowledge of the amount, event or actions, actual results ultimately may differ from those estimates. There were no critical accounting judgements in the year ended 31 December 2021. ### Key sources of estimation uncertainty #### Impairment of investments in subsidiary undertakings (note 5) The carrying value of investment in subsidiary undertakings is reviewed for impairment on an annual basis. The recoverable amount is determined based on the higher of value in use and fair value less cost to sell, with value in use being applied for this assessment where an indicator of impairment is identified. The use of this method requires the estimate of future cash flows expected to arise from the continuing operation of the subsidiaries and the choice of a suitable discount rate in order to calculate the present value. Actual outcomes could vary significantly from these estimates. No impairment was recognised in relation to Funding Circle USA, Inc. in the year ended 31 December 2021, however, the investment remains subject to estimation uncertainty and its value could materially diverge from management's estimate. The Group prepares a five-year management plan for its operations, which is used in the value-in-use calculation. For compound annual growth rates the majority of the sensitivity is in the growth rate applied to the fifth year which is forecast out into perpetuity. The cash flow projections are based on the following key assumptions: - fifth-year income growth of 25% and fifth-year cost growth of 16%; - pre-tax discount rate of 14.5%; - income beyond the five-year period is extrapolated using an estimated growth rate of 2.0%; and - the impact of transfer pricing arrangements within the Group are considered and assumed to be cash settled further supporting cash flows of the US business. The above assumptions are based on historical trends and future market expectations. The key assumptions were stressed and the estimated value in use was not sensitive to these for the year ended 31 December 2021, with sufficient headroom above the carrying value, even under severe stress assumptions. In the prior year ended 31 December 2020, following the impact of Covid-19 and a change in the investments' income and cost forecasts, an event indicating the possibility of impairment was identified and an impairment review undertaken. Impairment was identified in relation to the investment in the Funding Circle USA, Inc. CGU as the carrying value exceeded the value in use determined by this impairment assessment. The investment was impaired by £155.9 million to £88.2 million. FINANCIAL REPORT COMMERCIAL INVESTMENTS FINANCIAL STATEMENTS Annual Report and Accounts 2021 185 ![img-2.jpeg](img-2.jpeg) Financial statements # Notes forming part of the Company financial statements continued for the year ended 31 December 2021 # 2. Financial risk management The Board of Directors has overall responsibility for the establishment and oversight of the Company's risk management framework. The risk management policies are established to identify and analyse the risks faced by the Company, to set appropriate risk limits and controls, and to monitor risks and ensure any limits are adhered to. The Company's activities are reviewed regularly and potential risks are considered. # Risk factors The Company has exposure to the following risks from its use of financial instruments: - credit risk; - liquidity risk; - market risk (including currency risk, interest rate risk and other price risk); and - foreign exchange risk. # Principal financial instruments The principal financial assets and liabilities of the Company, from which financial instrument risk arises, are as follows: - loans due from related undertakings; - trade and other receivables; - cash and cash equivalents; and - trade and other payables. # Categorisation of financial assets and financial liabilities The table shows the carrying amounts and fair values of financial assets and financial liabilities by category as at 31 December 2021: | | Carried at amortised cost | | Carried at fair value | | | --- | --- | --- | --- | --- | | | Carrying amount £m | Fair value £m | Based on market derived data £m | Based on individual valuation parameters £m | | **Assets** | | | | | | Loans due from related undertakings | 0.1 | 0.1 | — | — | | Trade and other receivables | 0.1 | 0.1 | — | — | | Cash and cash equivalents | 14.1 | 14.1 | 49.3 | — | | | **14.3** | **14.3** | **49.3** | **—** | | **Liabilities** | | | | | | Trade and other payables | (0.1) | (0.1) | — | — | | | **(0.1)** | **(0.1)** | **—** | **—** | IFRS 13 requires certain disclosures which require the classification of financial assets and financial liabilities measured at fair value using a fair value hierarchy that reflects the significance of the inputs used in making the fair value measurement. Disclosure of fair value measurements by level is according to the following fair value measurement hierarchy: - level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date; - level 2 inputs are inputs other than quoted prices included within level 1 that are observable for the assets or liabilities, either directly or indirectly; and - level 3 inputs are unobservable inputs for the assets or liabilities. The Company's financial assets measured at fair value are all categorised as level 1. 186 Funding Circle Holdings plc STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 2. Financial risk management continued Categorisation of financial assets and financial liabilities continued The table shows the carrying amounts and fair values of financial assets and financial liabilities by category as at  Carried at amortised cost Carried at fair value Based on Based on individual Carrying market valuation amount Fair value derived data parameters £m £m £m £m Assets Loans due from related undertakings 10.1 10.1 — — Trade and other receivables 0.9 0.9 — — Cash and cash equivalents 13.4 13.4 14.4 — 24.4 24.4 14.4 — Liabilities Trade and other payables (0.2) (0.2) — — (0.2) (0.2) — — Financial instruments measured at amortised cost Financial assets and liabilities measured at amortised cost, rather than fair value, include loans due from subsidiary undertakings, cash and cash equivalents, trade and other receivables and trade and other payables. Due to their short-term nature, the carrying value of the above items approximates their fair value. The fair value of cash and cash equivalents at 31 December 2021 and 31 December 2020 approximates the carrying value. Credit risk is mitigated as cash and cash equivalents are held with reputable institutions. Financial risk factors Credit risk Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial asset fails to meet its contractual obligations, and arises principally from the Company’s receivables from related undertakings and cash and cash equivalents held at banks. The Company’s maximum exposure to credit risk by class of financial asset is as follows: | 31 December | | 31 December | | | --- | --- | --- | --- | | | 2021 | | 2020 | | | £m | | £m | Non-current Loans due from related undertakings — — Current Loans due from related undertakings 0.1 10.1 Trade and other receivables: – Amounts due from related undertakings 0.1 0.9 Cash and cash equivalents 63.4 27.8 Liquidity risk Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company’s position. The Company’s liquidity position is monitored and reviewed on an ongoing basis by the Directors. The amounts disclosed in the below tables are the contractual undiscounted cash flows. Annual Report and Accounts 2021 187 Financial statements ### Notes forming part of the Company financial statements continued for the year ended 31 December 2021 2. Financial risk management continued Financial risk factors continued Liquidity risk continued The maturity analysis of financial assets and liabilities at 31 December 2021 and 31 December 2020 is as follows: Between | | Less than | | 3 months | | Between 1 | | Over | | --- | --- | --- | --- | --- | --- | --- | --- | | | 3 months | | and 1 year | | and 5 years | | 5 years | | At 31 December 2021 | | £m | | £m | | £m | £m | Financial assets Trade and other receivables 0.1 — — — Cash and cash equivalents 63.4 — — — Loans due from related undertakings 0.1 — — — 63.6 — — — Financial liabilities Trade and other payables (0.1) — — — (0.1) — — — Between | | Less than | | 3 months | | Between 1 | | Over | | --- | --- | --- | --- | --- | --- | --- | --- | | | 3 months | | and 1 year | | and 5 years | | 5 years | | At 31 December 2020 | | £m | | £m | | £m | £m | Financial assets Trade and other receivables 0.9 — — — Cash and cash equivalents 27.8 — — — Loans due from related undertakings 10.1 — — — 38.8 — — — Financial liabilities Trade and other payables (0.2) — — — (0.2) — — — Market risk Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. The Company’s market risk arises from open positions in interest-bearing assets and liabilities, to the extent that these are exposed to general and specific market movements. a) Other price risk The Company is not exposed to market risk with respect to financial instruments as it does not hold any marketable equity securities. b) Cash flow and fair value interest rate risk Interest on cash and cash equivalent balances is subject to movements in base rates. The Directors monitor interest rate risk and note that while interest rates have been at a historical low for some time, recent rate rises have been observed. A 0.5% increase in base rates could increase the annual interest earned by c.£0.3 million (2020: c.£0.1 million). c) Sensitivity analysis IFRS 7 requires disclosure of sensitivity analysis for each type of market risk to which the entity is exposed at the reporting date showing how profit or loss and equity would have been affected by changing the relevant risk variables that were reasonably possible at that date. As discussed above, the Company does not have significant exposure to interest rate risk, cash flow risk or other price risk and therefore no sensitivity analysis for those risks has been disclosed. d) Foreign exchange risk The Company has certain investments in foreign operations, whose net assets are exposed to foreign currency translation risk. Foreign exchange risk is disclosed in note 17 to the consolidated financial statements. Funding Circle Holdings plc188 STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 2. Financial risk management continued Capital management The Company considers its capital to comprise equity share capital, share premium, share options reserve and retained earnings. The Directors’ objective when managing capital is to safeguard the Company’s ability to continue as a going concern in order to provide returns for the shareholders and benefits for other stakeholders. The Company is not subject to any externally imposed capital requirements. The Directors monitor a number of KPIs at both the Company and individual subsidiary level on a monthly basis. As part of the budgetary process, targets are set with respect to operating expenses in order to effectively manage the activities of the Company. Performance is reviewed on a regular basis and appropriate actions are taken as required. These internal measures indicate the performance of the business against budget/forecast and confirm that the Company has adequate resources to meet its working capital requirements. 3. Company loss for the year The Company made a comprehensive loss for the year of £4.4 million (2020: comprehensive loss of £161.9 million). 4. Employees The Company had no employees during the current or prior year other than Directors who numbered 10 (2020: 10). The Company did not operate any pension schemes during the current or preceding year. Directors received emoluments in respect of their services to the Company during the year of £1.3 million (2020: £1.2 million). For further information see the Remuneration Report on page 109. 5. Investments in subsidiary undertakings 2021 2020 £m £m Balance at 1 January 303.3 416.2 Capital contribution regarding employee services in subsidiaries 5.9 4.1 (Capital reduction)/additions (27.3) 41.6 Impairment — (158.6) Balance at 31 December 281.9 303.3 Investments in subsidiary undertakings, which are listed in note 30 of the Group financial statements, are all stated at cost less any provision for impairment. During the year the Company made capital contributions in the form of cash investments of £nil (2020: £2.0 million), £nil  respectively and received £3.4 million (2020: £nil) from Funding Circle Global Partners Limited and £23.9 million (2020: £nil)  In addition to the above, the Company recognised a capital contribution of £5.9 million (2020: £4.1 million) representing the service cost for the employees of its subsidiaries, under the Company’s share option schemes. No impairment was recognised in the year ended 31 December 2021 in relation to investment in subsidiary undertakings.  investment in Funding Circle USA, Inc. to a value of £88.2 million, £2.0 million in relation to the Company’s investment in Funding Circle CE GmbH to a value of £nil and £0.7 million in relation to the Company’s investment in Funding Circle Midco Limited to a value of £nil as the value in use calculated was below the carrying amount. The cumulative amount of impairment losses in relation to investment in subsidiaries is £236.1 million (2020: £236.1 million). 6. Trade and other receivables | 31 December | | 31 December | | | --- | --- | --- | --- | | | 2021 | | 2020 | | | £m | | £m | Amounts due from related undertakings 0.1 0.9 Prepayments 0.2 0.1 0.3 1.0 The Directors consider that the carrying amount of trade and other receivables is approximately equal to their fair value. Annual Report and Accounts 2021 189 Financial statements ### Notes forming part of the Company financial statements continued for the year ended 31 December 2021 7. Loans due from subsidiary undertakings | 31 December | | 31 December | | | --- | --- | --- | --- | | | 2021 | | 2020 | | | £m | | £m | Funding Circle USA, Inc. — 10.0 Stichting Derdengelden Funding Circle 0.1 0.1 Current portion 0.1 10.1 Amount due from Group undertakings During 2021, the Company operated a loan facility agreement with Funding Circle Ltd (subsidiary company). Under the terms of the agreement, the Company provided an unsecured sterling revolving credit facility of a total principal amount not exceeding £20.0 million (2020: £20.0 million) to Funding Circle Ltd which is repayable at the end of the facility term of five years on  During the year the Company has provided £5.0 million (2020: £19.0 million) of additional funding under the facility agreement. Total interest income of £nil (2020: £nil) has been recognised in the Company statement of comprehensive income. In the current year, Funding Circle Ltd settled certain amounts due under the intercompany loan obligations cumulative of interest of £5.0 million (2020: £19.0 million) with the Company. £5.0 million of this was settled via cash (2020: £10.0 million).  During the year the Company operated a revolving credit facility to Funding Circle CE GmbH of up to €2.0 million (2020: up to €2.0 million). Any drawn amount under the facility bears an interest of 3.5% above the base rate of the Bank of England and is repayable at the end of the facility term of five years on 18 July 2024. The facility was drawn by £nil (2020: £nil) at the balance sheet date. Funding Circle CE GmbH repaid £0.8 million of the facility during 2020. During the year, the Company continued to operate an unsecured sterling revolving credit facility for £1 million with its subsidiary (Funding Circle Global Partners Limited (“FCGPL”)). Under the agreement, any drawn amount under the facility bears an interest of 3.5% above the base rate of the Bank of England and is repayable with the principal amount at the end of the facility term of five years on 30 June 2022. The facility was drawn by £nil (2020: £nil) at the balance sheet date. The carrying amount of this receivable approximates to its fair value. During the year, the Company continued to operate a term loan facility to Funding Circle USA, Inc. of up to £7.7 million. Any drawn amount under the facility bears an interest of 3.5% above the base rate of the Bank of England and is repayable at the end of the facility term of five years on 13 January 2025. In addition, the Company continued to provide a revolving credit facility to Funding Circle USA, Inc. of up to $3.0 million. Any drawn amount under the facility bears an interest of 3.5% above the base rate of the Bank of England and is repayable at the end of the facility term of five years on 27 January 2025. In the current year, Funding Circle USA, Inc. settled certain amounts due under the intercompany loans cumulative of interest  recognised in the Company statement of comprehensive income. The facilities were drawn by £nil (2020: £7.7 million) and  During the year, the Company provided a new revolving credit facility to Funding Circle USA, Inc. of up to £10.0 million. Any drawn amount under the facility bears an interest of 3.5% above the base rate of the Bank of England and is repayable at the end of the facility term of five years on 21 January 2026. During the year, the Company has provided £5.0 million of additional funding under the facility agreement. Funding Circle USA, Inc. settled certain amounts due under the intercompany loan obligations cumulative of interest of £5.0 million. The facility was drawn by £nil at the balance sheet date. During the prior year the Company provided a revolving credit facility to Funding Circle Canada Inc. of up to £2.1 million. The facility was undrawn at the balance sheet date as the subsidiary was dissolved in 2020. In 2019 the Company impaired this loan balance in full under the expected credit loss model. During 2020 the loan was repaid in full and the impairment was reversed as a credit of £0.9 million to profit and loss. Funding Circle Holdings plc190 STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS 8. Trade and other payables | 31 December | | 31 December | | | --- | --- | --- | --- | | | 2021 | | 2020 | | | £m | | £m | Accruals 1.3 1.1 Taxes and social security costs 0.4 0.4 Other creditors — 0.2 Amounts due to related undertakings 0.1 — 1.8 1.7 The Directors consider that the carrying amount of trade and other payables approximates to their fair value. 9. Share capital and share premium The movement on these items is disclosed in notes 18 and 19 to the consolidated financial statements. 10. Retained earnings £m At 1 January 2020 192.7 Transfer of share option costs 3.2 Loss for the year (161.9) At 31 December 2020 34.0 Transfer of share option costs 1.8 Loss for the year (4.4) At 31 December 2021 31.4 11. Notes to the Company statement of cash flows Cash outflow from operating activities | 31 December | | 31 December | | | --- | --- | --- | --- | | | 2021 | | 2020 | | | £m | | £m | Loss before taxation (4.4) (161.9) Adjustments for Interest receivable (0.5) (0.2) Non-cash employee benefits expense – share-based payments 1.5 1.1 Impairments (note 5 and note 7) — 158.6 Reversal of prior year impairment charge — (0.9) Changes in working capital Movement in trade and other receivables 0.7 (0.6) Movement in trade and other payables 0.3 0.4 Net cash outflow from operating activities (2.4) (3.5) Cash and cash equivalents 2021 2020 £m £m Balance at 1 January 27.8 80.8 Cash flow 35.6 (53.0) Balance at 31 December 63.4 27.8 These comprise cash held by the Company, short-term bank deposits with an original maturity of three months or less and money market funds. The carrying amount of cash balances approximates their fair value. As at 31 December 2021, money market funds totalled £49.3 million (2020: £14.4 million). Annual Report and Accounts 2021 191 Financial statements ### Notes forming part of the Company financial statements continued for the year ended 31 December 2021 12. Related parties Amounts owed by related parties Amounts owed to related parties | 31 December | | 31 December | | 31 December | | 31 December | | | --- | --- | --- | --- | --- | --- | --- | --- | | | 2021 | | 2020 | | 2021 | | 2020 | | | £m | | £m | | £m | | £m | Short-term payables/receivables Funding Circle Ltd — 0.8 0.1 — Funding Circle USA, Inc. 0.1 0.1 — — Intercompany loans Funding Circle USA, Inc. — 10.0 — — Stichting Derdengelden Funding Circle 0.1 0.1 — — 0.2 11.0 0.1 — During the year, the Company received payment of expenses for amounts of £1.2 million (2020: received payment of expenses for amounts of £0.4 million) from Funding Circle Ltd. During the year the Company received return of capital of £3.4 million (2020: £nil) from Funding Circle Global Partners Limited and £23.9 million (2020: £nil) from Funding Circle USA, Inc. As at the year end, the Company was owed a cumulative amount of £nil (2020: £10.0 million) and £0.1 million (2020: £0.1 million) from loans with Funding Circle USA, Inc. and Stichting Derdengelden Funding Circle. See note 14 in relation to remuneration of key management personnel. 13. Parent Company guarantee – exemption from audit for subsidiary companies The following UK entities, all of which are 100% owned by the Group, are not subject to an audit by virtue of section 479A of the Companies Act 2006 relating to subsidiary companies: Company Registration number Funding Circle Asset Finance Limited 07832868 Funding Circle BB Limited 12593368 Funding Circle Eclipse Lending Limited 12570773 Funding Circle Focal Point Lending Limited 12407296 Funding Circle Global Partners Limited 10554628 Funding Circle Midco Limited 11793162 Funding Circle Property Finance Limited 08896582 Funding Circle Horizon Lending Limited 13451185 Funding Circle Trustee Limited 07239092 The Company will guarantee the debts and liabilities of the above UK subsidiary undertakings at the balance sheet date in accordance with section 479C of the Companies Act 2006. The Company has assessed the probability of loss under the guarantee as remote. The Company will guarantee the debt and liabilities of the European subsidiary Funding Circle CE GmbH and therefore meets the requirements of section 264(3) HGB and the entity is not subject to audit by virtue of this guarantee. The Company has assessed the probability of loss under the guarantee as remote. The following UK entity, which is 100% owned by the Group, is exempt from the requirement to prepare accounts by virtue of section 394A and section 448A of the Companies Act 2006 relating to the individual accounts of dormant subsidiaries: Company Registration number Made To Do More Limited 10575978 14. Remuneration of key management personnel The remuneration of key management personnel is disclosed in note 26 to the consolidated financial statements. 15. Ultimate controlling party In the opinion of the Directors, the Group does not have a single ultimate controlling party. Funding Circle Holdings plc192 ### Glossary STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS Alternative performance measures The Group uses a number of alternative performance measures (“APMs”) within its financial reporting. These measures are not defined under the requirements of IFRS and may not be comparable with the APMs of other companies. The Group believes these APMs provide stakeholders with additional useful information in providing alternative interpretations of the underlying performance of the business and how it is managed and are used by the Directors and management for performance analysis and reporting. These APMs should be viewed as supplemental to, but not as a substitute for, measures presented in the financial statements which are prepared in accordance with IFRS. Closest equivalent Adjustments to reconcile APM IFRS measure to IFRS measure Definition Income statement | Adjusted EBITDA EBITDA, while not defined | | Refer to note 3. Profit/loss before finance income and costs, taxation, | | | --- | --- | --- | --- | | | under IFRS, is a widely | | depreciation and amortisation (“EBITDA”) and | | | accepted profit measure. | | additionally excludes share-based payment charges | and associated social security costs, foreign exchange and exceptional items. Investment EBITDA, while not defined Refer to Finance Review. Investment AEBITDA refers to investment income,  under IFRS, is a widely investment expense and fair value adjustments and operating AEBITDA accepted profit measure. operating AEBITDA represents AEBITDA excluding investment AEBITDA. Net investment Net income. Refer to Finance Review. Net investment income represents investment income income less investment expense. Exceptional items None. Refer to note 5. Items which the Group excludes from adjusted EBITDA in order to present a measure of the Group’s performance. Each item is considered to be significant in nature or size and is treated consistently between periods. Excluding these items from profit metrics provides the reader with additional performance information on the business as it is consistent with how information is reported to the Board and GLT. Cash flow Free cash flow Cash generated from Refer to Finance Review. Net cash flows from operating activities less the cost of operating activities. purchasing intangible assets, property, plant and equipment, lease payments and interest received. It excludes the warehouse and securitisation financing and funding cash flows. Annual Report and Accounts 2021 193 Financial statements ### Shareholder and Company information Shareholder information Company information Receiving shareholder information by email: Directors Solicitors Executive Directors Freshfields Bruckhaus You can opt to receive shareholder information from us by L Jacobs (Chief Deringer LLP email rather than by post. We will then email you whenever we | add shareholder communications to the Company website. To | Executive Officer) | 65 Fleet Street | | --- | --- | --- | | set this up, please visit www.shareview.co.uk and register for | O J White (Chief | London EC4Y 1HS | | electronic communications (“e-comms”). | Financial Officer) | | Registrars If you subsequently wish to change this instruction or revert to Non-Executive Directors Equiniti Limited receiving documents or information by post, you can do so by A D Learoyd (Chair) Aspect House contacting the Company’s registrars at the address shown in S Desai CBE (Founder) Spencer Road the Company information opposite. You can also change your J E Daniels Lancing communication method back to post by logging in to your G Gopalan West Sussex BN99 6DA Shareview account and going to “update my communication H W Nelis Brokers preferences” within the “Quick links” section. N A Rimer H Beck Goldman Sachs The registrars can also be contacted by telephone on M J W King International +44 (0)371 384 2030 (non-UK callers +44 (0)121 415 7047) 25 Shoe Lane or +44 (0)371 384 2255 (text phone). Calls to this number Company Secretary London EC4A 4AU cost no more than a national rate call from any type of phone L K Vernall or provider. These prices are for indication purposes only; if Numis Securities Limited Independent auditors in doubt, please check the cost of calling this number with The London Stock your phone line provider. Lines are open 8.30 a.m.–5.30 p.m., PricewaterhouseCoopers LLP Exchange Building Mon-Fri excluding public holidays in England and Wales. 7 More London Riverside 10 Paternoster Square London SE1 2RT London EC4M 7LT Shareholder enquiries Bankers Registered office If you have any queries relating to your shareholding, dividend Barclays Bank UK plc 71 Queen Victoria Street payments or lost share certificates, or if any of your details 1 Churchill Place London EC4V 4AY change, please contact the Company’s registrars by visiting London E14 5HP www.shareview.co.uk or by using the contact details above. Registered number Santander UK plc 07123934 Annual shareholder calendar 2 Triton Square Final results announced 10 March 2022 Regent’s Place Annual Report published 8 April 2022 London NW1 3AN Annual General Meeting 9 June 2022 Lloyds Banking Group plc 25 Gresham Street Interim Report London EC2V 7AE As part of our e-comms programme, we have decided not to produce a printed copy of our Interim Report. We will instead publish the report on our website. It is expected that this year’s report will be available on our website in September. Cautionary statement Certain statements included in our 2021 Annual Report, or incorporated by reference to it, may constitute “forward-looking statements” in respect of the Group’s operations, performance, prospects and/or financial condition. Forward-looking statements involve known and unknown risks and uncertainties because they are beyond the Group’s control and are based on current beliefs and expectations about future events about the Group and the industry in which the Group operates. No assurance can be given that such future results will be achieved; actual events or results may differ materially as a result of risks and uncertainties facing the Group. If the assumptions on which the Group bases its forward-looking statements change, actual results may differ from those expressed in such statements. The forward-looking statements contained in this report reflect knowledge and information available at the date of this Annual Report and the Group undertakes no obligation to update these forward-looking statements except as required by law. This report does not constitute or form part of any offer or invitation to sell, or any solicitation of any offer to purchase, any shares or other securities in the Company, and nothing in this report should be construed as a profit forecast. Funding Circle Holdings plc194 Funding Circle Holdings plc’s commitment to environmental issues is reflected in this Annual Report, which has been printed on Amadeus Silk, an FSC ® certified material. This document was printed by Pureprint Group using its environmental print technology, with 99% of dry waste diverted from landfill, minimising the impact  ® company. Both the printer and the paper mill are registered to ISO 14001. CBP011636 ### Funding Circle Holdings plc Funding Circle Holdings plc 71 Queen Victoria Street London EC4V 4AY corporate.fundingcircle.com ### Funding Circle Holdings plc